India’s Supply and Demand Prospects
March 9, 2009 In the global cotton production and consumption race, India is closing the gap between itself and China. At a time when most cotton producing countries are experiencing declines, India is confidently looking to the future with increased optimism. Vinay Kotak, director of Kotak & Co. Ltd., has been working in India’s cotton business for the past 28 years. He was invited to the International Cotton Association Annual Trade Event as a speaker and gave a presentation forecasting the potential opportunities of this giant in the global cotton market.
Booming Yields
In 2008/09, cotton acreage was reduced by 2% in India, but it is expected to remain the stable at this level in the 2008/10 season. The quantity of acreage reduction, though, is only half the story. “Productivity has soared since the 2005 season,” Kotak says, “and we expect a slight jump in productivity for the next year.”
He expects an increase to 34.50 million bales, from this year’s 32.00 million bales, in the 2009/10 crop. Of course the source of this explosion in productivity is the proliferation of Bt technology in the country. Approximately 75% of the total planted area is Bt cotton. Kotak describes the current situation, in light of Bt acceptance: “Area is stagnant, production is slightly increasing, but yield is sharply increasing.”
Special hybrids of Bt seeds for short staple and ELS cotton will be available on the commercial level in the next few years, he reports. Expanded variety options should result in continued growth in annual yield.
The Shifting of Price
A recent declaration of the government, in addition to an expected increase in demand for cotton seed oil, will have an impact on price. The Cotton Corporation of India, set up directly by the government, is obliged to acquire seed cotton from farmers when market price touches the established minimum support price (MSP) declared by the government, without any quantitative limit. According to Kotak, this minimum price has been increased.
“The floor levels of seed cotton prices would be lifted. However, high prices of cotton seeds may help to offset lint price,” he says. “The profitability of the textile industry can be affected, and this will also help retain cotton acreage for the next few years. Consequently, high earnings of farmers will increase the purchasing power of the rural population.”
India is also a large consumer of cotton seed oil; as population and food needs increase, more oil will likely be demanded. “Farmers could be growing cotton for the high prices of seed, not the high prices of lint, in the future,” he adds.
Textiles in Turmoil
While the production of cotton is prospering, the consumption of textiles has been struggling within India; negative growth in the manufacturing of cotton textiles was seen during 2007 and 2008. Price escalation of power, fuels, fiber and other inputs are cited as causes of this downturn.
“A volatile exchange has also had an effect, as well as a 8.66% increase in the production of man-made fiber. But the outlook for textiles is expected to improve with this year’s good crop,” he adds.
With a 4% share in the global textile trade and a 3% share in the global garment trade, the textile industry is thankfully immune to the market troubles occurring in the U.S. and Western Europe. Shrinking demand from those areas will not make a significant impact on India’s industry. The government is also committed to aiding the textile sector, Kotak says, which ensures its stability.
The government strictly controls grain prices, in the interest of monitoring inflation, which means the cotton prices are not adversely affected by high grain prices. The government also funds research and development of Bt, as well as setting a MSP for farmers.
“With strong production, and with 77% of cotton being consumed in Asia, India has a unique geographic opportunity being near Bangladesh, Pakistan, China and Indonesia. India has the potential to be the hub of cotton trading in Asia,” Kotak says.
Add charts
GET THE NEWSLETTER TODAY!
