World cotton prices were boosted by a smaller-than-expected 2015/16 crop and remain high despite a larger harvest this year, says the International Cotton Advisory Committee, pointing to currency turmoil in India. “The currency crisis … is exacerbating the situation, since that country is the world’s largest producer of cotton and the second-largest exporter,” says the intergovernmental body.
Intending to crack down on tax evasion and corruption, India has announced its 500- and 1,000-rupee notes, amounting to 85 percent of the bills in circulation, will be invalid at the end of this year. “Insufficient supplies of the new notes have led to a currency crisis, since much of the Indian economy operates on a cash basis, including payments to farmers,” said the ICAC.
“This has led to delays in sales of cotton and shipments to ports, creating shortages in the domestic market as well as reducing supplies to the global market. However, the effect of the crisis will be limited as the crisis is likely to be resolved in the near future,” said the committee. In the near term, Bangladesh, the No. 1 cotton importer, will turn to other suppliers because Indian cotton is not available. The United States, Australia, Burkina Faso and Mali would see larger exports while India’s exports fall by one-third, said ICAC.