Commodities

It’s time cotton got some serious policy attention from the govt

G Chandrashekhar | Updated on August 08, 2019 Published on August 08, 2019

A combination of trade war and global growth slowdown is taking a toll on the world cotton market. Worsening trade conflict between the world’s largest exporter the US and the world’s largest importer China is seen weakening the market sentiment and depressing the price of the natural fibre, often described as white gold.

Last year, China imposed 25 per cent retaliatory tariff on the US origin cotton. With the Asian major refusing to buy American-origin cotton beyond the minimum quantity committed by it, cotton prices in the US crashed to multi-year lows, falling to about 57 cents a pound and seriously upsetting cotton growers.

Price fall in China

Ironically, in China too, cotton prices have declined to levels not seen in about ten years. This is because China is a major supplier of cotton textiles to the US; and high tariffs are expected to make Chinese goods less competitive in the US market. Given this, China’s consumption demand for cotton is sure to decrease in the months ahead.

Contrary to earlier expectations, many observers now feel the trade conflict between the US and China is unlikely to resolve anytime soon. This will continue to have a bearing on world consumption and world trade. While cotton cultivation is expected to gradually shift from high-yield origins such as China to relatively low-yield countries in Asia and Africa, in recent years, textile production has been slowly relocating from China to other Asian or Asia-Pacific countries such as Bangladesh and Vietnam.

An extended trade war has the potential to accelerate the process of relocation. In the event, consumption demand for cotton will increase in new centres of production.

Production forecast

According to Washington DC-based International Cotton Advisory Committee, world cotton production in 2019-20 is forecast to reach 27.2 million tonnes, a 6 per cent rise from the previous year. Consumption is expected to grow slowly at 1.7 per cent to 26.9 million tonnes. This will result in greater ending stocks for the year.

India cannot escape the developments in the global marketplace given the integration of markets through the trade route. Depressed overseas rates have encouraged higher import into the country to meet the production shortfall during 2018-19.

For 2019-20, the government has fixed a tentative production target of 357.5 lakh bales of cotton (170 kilograms each). On current reckoning, this target is unlikely to be achieved.

Admittedly, cotton planted area so far has bucked the lagging trend seen in other crops. As of August 2, it has been planted on 115 lakh hectares, up by some six lakh ha this time last year. Normal area is 120 lakh ha.

Risk factors

The concern really is with respect to precipitation and risk of pest attack. Rainfall aberrations during June and July may impact yields.

While it is a little premature to have an informed production estimate, what is clear is that the final output is more likely to fall short of the target; and considering domestic demand at about 330 lakh bales, the emerging scenario points to tightening availability.

Such tightness means reduced availability for export and encouragement to larger imports.

While cotton consumption demand in our country will continue to expand, there are known and unknown risks that are seen hurting production.

Indian cotton has now reached a stage where some serious policy attention is necessary to ensure year-on-year output growth commensurate with consumption growth.

Unfortunately, the value chain participants as well as policymakers seem to be taking Indian cotton production for granted.

The writer is a policy commentator and agribusiness specialist. Views are personal

Published on August 08, 2019
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