When Terry Townsend, former executive director of the International Cotton Advisory Committee, raised a red flag that India is on the brink of a potential “cotton crisis” and the Indian government seems indifferent to the pending crisis it had a dominos effect with many other experts joining in the chorus.
The hype starter with estimates of current 2022-23 crop by major statistical organization showing production that’s on par with earlier year at more than 5 million metric tons, the amount of seed cotton delivered by farmers to procurement centers as of February was 1.1 million metric tons, which was behind the pace of previous season. Townsend saw it as a huge red flag. Ever since, most Indian trade journals have highlighted the impending cotton crisis and projections till first half of 2024 indeed show a drop.
The ‘crisis’ conclusion had evidence
Townsend’s conclusions were backed by evidence -- adverse weather, driven by climate change, is one of them. Heavy rains soaked the western Indian states of Gujarat and Maharashtra last year and ruined crops. In Haryana and Punjab, an infestation of pink bollworm, exacerbated by unfavorable conditions, wreaked extensive havoc for a second consecutive year. Low-quality seeds with poor germination success are another persistent issue plaguing growers country-wide.
Meanwhile, the USDA expects India’s cotton exports to slip to its lowest levels in 19 years during the ongoing crop season October 2022 to September 2023. Reason, the USDA expects farmers to shift to other profitable crops such as oilseeds and pulses leading to a dip. Indian cotton yarn exports had hit a decadal low of 664,000 tons in FY23, compared to the highest exports of 1.38 million tons in FY22.Latest Ministry of Agriculture figures indicate, cotton sowing across India was 8.5 per cent lower year on year at 7 million hectares due to a shrink in cultivation in some major growing states such as Maharashtra, Andhra Pradesh, and Telangana amid patchy rainfall. Many farmers say they are worried about producing a crop that is so reliant on water, of which there is no guarantee as climatic conditions have changed drastically and long periods of drought are playing havoc with the crop and soil. The only Indian state that saw a 4.6 per cent increase in crop production was Gujarat as it was blessed with a copious amount of rainfall last year.
The real scenario
However, there may have been some amount of miscalculation by experts. The seed shortfall prediction was not really a shortfall as the seeds were in captive status by farmers who had kept back stocks in the hope that eventually cotton seed prices would rise, enabling them to acquire better profits. Meanwhile, Townsend acknowledged he drew wrong conclusions from a situation he’d never before seen in decades in the cotton industry. His conclusions were merely based on lower cotton seed arrivals, which he foresaw as drop in India’s cotton supply chain.
Meanwhile CAI had initially projected a lower cotton output of 298.65 lakh bales, the lowest since 2008-09 in May 2023. However, the Committee on Cotton Production and Consumption estimated a higher output of 343.47 lakh bales for the same year. CAI members, including the crop committee, discussed pressing data provided by state associations and inputs from other stakeholders. However, after the Townsend confession, CAI reconvened on July 10, 2023 with cotton stakeholders and revised India's cotton output projection for the year 2022-23 to 311.18 lakh bales (each weighing 170 kg).
According to a CareEdge report, Indian cotton yarn industry is likely to register a sales volume growth of 5-7 per cent, while operating margin is expected to expand by 100-150 bps in FY24 compared to FY23. Last year, cotton production in India declined from 35.2 million bales in cotton season (CS) 2020-21 to 31.1 million bales in CS 2021-22. The lower cotton production caused a steep surge in the cotton prices. The average domestic cotton price registered a peak of around Rs 1 lakh per candy (Rs 280/kg) in FY23. The mismatch between the domestic and international prices impacted cotton exports significantly and India witnessed its lowest cotton yarn exports in a decade. In FY23, India’s cotton yarn export stood at 664,000 tons against the decade’s highest exports of 1,389,000 tons in FY22.
Despite troubles last year, cotton farmers are enthusiastic about the fibre crop. As per recent data by the Gujarat government, as of July 17, farmers have already completed sowing of cotton for 2.53 million hectare of land in Gujarat. This area is slightly lower than the last year’s area of 2.55 million hectare, but the sowing season will go on for at least two more weeks and it is expected that the total area under the crop will exceed the area last year.