A consortium made up of textile mills in the state of Tamil Nadu in India will purchase around 2.5 million bales (1 bale = 170 kg) cotton amounting to Rs 30 billion or about US $557 million (1 USD = Rs 53.84) in the current cotton season 2012-13.
Towards that end, a public limited company - Cotton Sourcing Company Ltd (COSCO) has been set up which will act as a central hub for sourcing cotton on behalf of member mills and transport the same through the cheapest and most efficient mode.
"COSCO is a united effort of a group of industrialists in the textile spinning sector to source cotton from different parts of the country, overcoming the challenges pertaining to the procurement of cotton", CEO of COSCO – Mr Rajarathinam told fibre2fashion.
Providing details about the consortium, he said, "Textile sector of Tamil Nadu is predominantly cotton based, consuming over 40 percent of annual Indian consumption. COSCO will pool the raw material requirements of member mills and act as a facilitator".
Explaining the objective, he informed, "The prime objective of this collective effort is to improve the efficiency, by professionalizing the cotton sourcing process and reduce wastage by ensuring quality at the source.
"This will enable level playing field, wherein every spinning mill, big or small, will have the same advantages in terms of quality and price. Besides, the impacts of speculative forces in the market could be managed collectively by COSCO more effectively than mills operating on standalone basis", he added.
90 percent of the payment will be made by COSCO to ginners within five working days after the goods are inspected and dispatched from the ginners end. The rest of the payment will be made after final inspection of goods at the buyer's premises confirming quality and quantity, which too will be made within 10 days of dispatch.
For the purpose of making payments to ginners, COSCO has secured working capital amounting to Rs 20 billion or around $371 million from State Bank of India. The LC given to mills will be discounted by COSCO with the bank. The mills will then make COSCO the payment in 90 days with interest.
"Ginners can be rest assured of the payment as they are dealing with COSCO and not individual mills, thereby eliminating their credit risk. We are judicious about selecting COSCO member mills, to ensure there are no defaults", Mr Rajarathinam informed
As of date there are around 50 textile mills who have joined the consortium, which together account for around 2 million spindles or 10 percent of the installed spindles in Tamil Nadu.
COSCO will be using information technology to the optimum with the head office being the hub, with all mills and all cotton purchasing centers being connected, to ensure faster transactions beginning from purchase to payment.
"Accordingly this model is a win-win for both sellers as well as consumers, as both are benefited and remain unscathed by the vagaries of the speculation and complex market dynamics", he winded up by saying.
