World market likely to witness a marked increase in cotton production

Indian cotton growers have already signalled their intention to plant more. Area coverage as of June 2 was 12.2 lakh hectares, sharply up from 9.4 lakh hectares this time last year. The aggregate area planted to cotton may well test 120 lakh hectares, going by the current pace. Under India’s lead, the world market is likely to witness a marked increase in cotton production in 2017-18 with higher output anticipated in major origins such as China, US, Pakistan and Brazil.

Weather across the northern hemisphere is expected to be reasonably benign or less threatening. Market prices in recent months have been producer-friendly, motivating growers to respond well with higher acreages and improved agronomic practices.

Specifically, all indications point to a substantial expansion of planted area in India, arguably the world’s largest producer of the natural fibre and a significant stakeholder.

Subject to normal weather and pest incidents remaining below minimum threshold levels, India can well expect to produce a bumper crop of cotton in 2017-18, possibly some 20 per cent higher than the 32.6 million bales (170 kg each) produced in 2016-17. In other words, the country must brace itself to handle a crop size of anything between 38 million and 40 million bales depending on the aggregate planted area and eventual yields.

A surge in domestic production has the potential to depress domestic prices. There will be an abundance of raw material available for the domestic user industry and at consumer-friendly prices. Their price expectations could be belied. This is something policymakers must guard against.

Indeed, the government must begin to gear itself for an accelerated procurement and price support operation.

Because the world market is going to face a surfeit of supplies, export opportunities will turn limited and be subject to fierce competition. Whether China will continue to de-stock or begin to restock in 2017-18 is the multi-million dollar question.

Large domestic production and limited export opportunities will challenge the country’s cotton sector. A strong rupee will make export much less competitive in a situation of falling world prices. This can exacerbate the domestic price situation to the detriment of the growers’ interest.

Importantly, the user industry must rise to the occasion. In the past, through lobby pressure, cotton textile mills got away with favourable trade policies. Often, they would wait for arrivals to turn heavy so that they would be able to purchase at depressed rates. The upcoming season is the time for the mills to support cotton growers for a change.

It is time for New Delhi to start thinking about effective ways to handle the emerging situation. Industry and trade bodies have to provide appropriate policy inputs to the government.