India and Bangladesh Ink Pact for Guaranteed Cotton Supply

By Jim.Robinson|February 6, 2013

India and Bangladesh have announced a pact for cotton shipments that would guarantee the delivery of a minimum quantity from India every year regardless of export bans. In an interview with The Economic Times, Bangladesh’s Commerce Minister Ghulam Muhammed Quader said the deal is expected to be finalized in two to three months and will be signed by India’s Cotton Corporation. The agreement was orchestrated by the Commerce and Textile Ministries of the two countries to protect the textile industry from policy uncertainties.

The terms of the agreement state that the price of the cotton delivered as part of the agreement, although flexible, will be slightly higher than existing global prices, as there is a premium for the guaranteed supply. This premium currently remains undetermined.

Last year, Bangladesh imported 35% to 40% of its cotton from India, whose frequent bans and restrictions on export of farm produce over the years have drawn criticism from its regular buyers. The country has said that these bans are put in place to ensure sufficient supply of the fiber for its domestic textile industry. This issue will be overcome because even if India issues bans on cotton exports, the agreement will mandate that the country is obligated to sell at least the minimum committed quantity, which is approximately 1.5 million bales, to Bangladesh.

Bangladesh plans to negotiate for a higher volume if possible. “Bangladesh wants a business-to-business supply assurance while the Indian government has so far agreed only to a government-to-business supply,” he said.

According to the report, Bangladesh is uncomfortable with India’s current export guarantee, maintaining that the neighboring country’s government takes a lot of time delivering the commodity, whereas private businesses and suppliers are quicker.