The Hindu Business Line : Cotton: Varietal glut, shortage to skew market

Signalling trouble?
Production of short-to-medium staple cotton estimated at 85 lakh bales.
Consumption requirement of the variety seen at 120 lakh bales.

Mumbai , Oct. 4

A major transformation in the fortunes of cotton — rising production, expanding exports and falling imports — may have been the best thing to have happened to the country's beleaguered farm sector in recent years; yet, a closer look reveals a mismatch between production and industry's needs in terms of quality.

Total availability

For the season 2006-07 that has just begun, cotton output is an estimated 270 lakh bales, more than enough, strictly in terms of quantity, to meet the country's requirement. There is also the opening stock of about 56 lakh bales, taking the total availability to over 320 lakh bales.

Yet, given the composition of cotton output in terms of staple length, a serious shortage of short and medium staple cotton on the one hand, and glut of long staple cotton, on the other, is emerging.

Output of short-to-medium staple cotton (up to 27 mm) is estimated at about 85 lakh bales, while consumption requirement is as high as 120 lakh bales, Mr Shirish Shah of Bhaidas Cursondas & Co, one of the oldest cotton trading firms in the country, , told Business Line.

Serious shortage

In other words, the country is going to face a serious shortage of short to medium staple cotton in the coming season despite overall high production and large opening stock. Supply tightness would keep the market for this variety firm over the next several months and prices are expected to rule above the minimum support price.

On the other hand, output of long staple cotton (more than 27 mm but below 33 mm) could be as high as 190 lakh bales this season. But the consumption requirement of this staple length is at best 100 lakh bales or just about 50 per cent, according to Mr Shah.

Fortunately, export markets are looking attractive. There is a strong possibility that up to 50 lakh bales of cotton would be exported. A major part of exports would comprise long staple cotton that is in surplus. This would also keep the open market prices from crashing; yet, there may be times when prices hit the bottom, necessitating support operation.

It would, of course, have been a disastrous situation of large production and limited offtake in the domestic market, had it not been for favourable export opportunity.

Major factor

A major factor contributing to the mismatch between staple requirement for mill use and actual production could be the widespread use of Bt Cotton seed.

Staple length of cotton from Bt cottonseed is typically 29-32 mm. However, because of lower production costs and higher yields, growers are inclined to favour the genetically modified variety.

Although the rising trend in overall cotton production is a favourable development, the devil seems to be in the details. It is necessary that the country produces adequate quantities of cotton of requisite staple length that is in demand. Quality mismatch between production and industry requirements needs to be addressed without delay.

Insufficient data

Unfortunately, there is insufficient data relating to specific quality needs of the textile mills. Lack of timely and authentic data can skewer the market and hurt growers' interests. For an informed production planning process, all stakeholders including seed companies, textile mills and others concerned have to come together.

Daily market arrivals are currently estimated at 35,000-40,000 bales in the northern and western parts of the country. Extended southwest monsoon is seen delaying the harvest. Arrivals are expected to gather momentum soon after Diwali, according to Mr Shah.

Because of excessive rains, some damage to crop in Maharashtra and Gujarat is not ruled out. Exports in 2005-06 were 46 lakh bales. Area under Bt Cotton seed is estimated at 37.5 lakh hectares for 2006-07, up three-fold from 13.5 lakh ha in the previous year.

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