The cotton crisis is threatening a double whammy for India. The country's cotton output - by far the largest in the world - will fall to its lowest in 14 years in 2022-23, as yields in cotton-growing states have fallen.
This can convert the country from a net exporter of the commodity to a net importer.
This estimate by the Cotton Association of India (CAI) has worrying consequences for the country which is the largest producer of cotton in the world. One of the fundamental problems is that it will affect the livelihood of the farmers. The other big problem is that our exports of cotton and its derivatives, such as textiles and apparel, will decline.
India's cotton crop is often referred to as "white gold" because of its importance to the agricultural and textile sectors – cotton being a major raw material in this sector. Agro-climatic conditions have made cotton crop favorable. But now this may change.
In fact, CAI has reduced the estimate of cotton crop by 4.65 lakh bales to 298.35 lakh bales for the 2022-23 season. Excessive rains in many cotton growing areas are believed to be a major loss this time. About 40 lakh hectares of crops have been damaged due to excessive rains in Maharashtra. Apart from the immediate impact of unseasonal rains, the cotton problem has also escalated. It was years in the making. According to industry officials, excessive dependence of growers on traditional farming methods and absence of modern seeds have been cited as other major reasons for the low yield of cotton.
Its effect will be seen on exports. Commerce and Industry Ministry data shows that cotton exports (HS code 5201) declined from $2,659.25 million to $678.75 million in FY 2022-23, registering a year-on-year decline of -74.48% .
Except for exports, when domestic production of a commodity falls, the shortage causes its prices to rise. CAI says cotton prices are likely to touch Rs 75,000 per candy by the middle of this year. The prices generally range between Rs 35,000-55,000 per candy.
Experts say this development will impact all participants in the cotton supply chain.
what you sow you will reap
Industry veterans claim that a crisis in the cotton sector is now inevitable. But there were clear signs that a crisis was brewing and negligence in reacting quickly led to this situation.
TT Ltd MD Sanjay K Jain says he is not surprised. “The low cotton yield was much expected. We have not introduced any new cotton seed for 10-15 years. Our awareness about agronomic practices is very low. It is not logical to expect our productivity to increase,” says Jain, who is also the president of the National Textiles of Indian Chamber of Commerce.
He also points out that the government is stuck in some royalty issues with some international seed companies and these are yet to be resolved.
The Textiles Advisory Group (TAG) in the Ministry of Textiles is aware of these issues, says Jain, but the pace of solutions being implemented is "disappointingly slow". "My request to policymakers is that we need to move with extraordinary speed to implement solutions."
Cotton supply chain caught in multiple issues
Jain's urgency is understandable. India's cotton crop supports the livelihood of about 6 million cotton farmers and engages 40–50 million persons in allied activities such as cotton processing and trading. Almost all of them are in the MSME segment - a group that may not have the financial strength to withstand such disruptions but can easily
sensitive to such shocks. In addition, exports of cotton and its derivatives, such as yarn, fabric and apparel, contribute significantly to foreign exchange earnings.
Jain says he does not see any sign of change in the current situation in the next year or two. One way out of the crisis is to focus on increasing the yield of cotton per hectare.
This significant disparity in yield also highlights the need for better agricultural techniques, access to better seeds and advanced agricultural infrastructure to maintain a competitive edge in the global market. Apart from the presence of substandard cotton seeds, another major concern is the lack of awareness among cotton growers about optimum sowing practices.
“At present, the price range of cotton from Punjab and Haryana is Rs 5,450-5,900 per mande (1 mand = 37.5 kg) and Rs 54,500-56,000 per candy (1 candy = 355.6 kg) for cotton from central India, which depends on the variety. While prices in Punjab and Haryana have increased by 25% compared to the regular average prices, central India is witnessing a whopping 238% increase in cotton prices,'' says Garg.
The MD of TT Ltd says that there was no duty on cotton for many years. It is possible to pay duty, import raw materials, make finished goods, and export them when prices are low. But when domestic cotton prices are higher than global prices, the duty undercuts pricing in exports. “There should be no import duty on cotton at least till April-October so that the industry gets a level playing field,” says Jain.
Vineet Garg, director of the Indian Cotton Association Ltd, says that Indian spinners and clothiers used to import yarn from China and Vietnam to meet domestic needs when local produce was not able to meet the needs. But the 11% duty has made these imports unviable, he says.
But some industry observers say the gloom may soon fade away.
Purani of sourcing platform Reshammandi says cotton is expected to stabilize at Rs 75,500-Rs 80,000 per tonne, but yarn prices will see further decline. But he is hopeful that favorable weather could increase the size of the crop.
Indian Cotton Association Limited also shares this vision of improvement in the coming season. The minimum support price (MSP) approved by the government will also help in stabilizing cotton prices.
It is imperative that the government addresses the crisis in the cotton sector and lifts business sentiment. Otherwise we may lose the magic of "white gold" - a source of income for a large section of people.
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