What Happened to India’s Cotton Crisis?
Rumors of a crisis in Indian cotton have been greatly exaggerated.
There is no crisis in the cotton industry in India, just a misreading of circumstances over the course of the 2022/2023 growing season that were nothing short of highly anomalous. Terry Townsend of Cotton Analytics has acknowledged that he drew the wrong conclusion from a situation he’d never before seen in decades in the cotton industry. All he saw was that cotton seed arrivals were down markedly, which could have meant disaster for India’s cotton supply chain.
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Turns out, the cotton seed was there all the time, just not being delivered by the farmers who were holding onto it in the hopes that prices would rise again to the levels of a few seasons back. They didn’t, and Townsend now praises the patience of his colleagues that didn’t rush to judgement like he did.
“Those analysts, unlike myself, who did not overreact to the decline the pace of arrivals early in 2022/23 are to be congratulated,” wrote Townsend, former executive director of the International Cotton Advisory Committee, a Washington, D.C.-based intergovernmental body for cotton producing countries.
The 2022/23 growing season in India was unlike other seasons previous. October is generally the start of the harvesting season, which peaks in December/January then falls off pretty quickly. This year, a decrease of 1.1 million tons on a lint equivalent, Feb. 1 year over year, baffled the experts who couldn’t attribute it to anything obvious like weather or poor quality seeds.
Based on that decline, industry veteran Townsend predicted a yield for the season of 4.3 million metric tons, far less that the 5.8 million metric tons now predicted for the season by the Committee on Cotton Production and Consumption (CoCPC) of India’s Ministry of Textiles. Confirmation of the production total will depend on final seed cotton deliveries and ginning rates. The low yield predicted by Townsend would have meant importing cotton to keep mills operating and orders filled—an extraordinary move for one of the world’s biggest cotton producers in a global market that grows 24 million metric tons per year.
Antonia Prescott, deputy editor of Cotton Outlook, the trade publication covering the worldwide cotton industry, calls it a “fake crisis” that surprised observers who underestimated the storage capacity of the farmers, who are almost all smallholders and not well financed. The common wisdom has been that as soon as the cotton comes out in the fields, farmers want to get it to market to sell it and cover their costs.
“What we haven’t appreciated was that the capacity to store and hold on to cotton and not convert it into cash has increased, obviously,” Prescott said. “Warehousing has improved.”
Some people were stashing it in their houses, Prescott said. She reported seeing photos of the cotton seed stuffed into back rooms or under beds. “It was quite astonishing,” she said.
What was driving the creative storage approach was an unexpected price rise from April 2020 to May 2022, what Prescott calls “bullish energy.” At peak price in May of 2022, the price was 180-190 cents per pound. In October of last year, it was 112 cents per pound and it is currently trading at 86 cents per pound. Farmers were holding out until the monsoons came in June and the planting campaigns began. People then need money to buy seed and take care of their families, then they need to store what they grow so they have to move what they have from under the bed. Prescott surmises that some farmers had extra cash from the heady days of high prices, so could afford to hang on to what they had until they needed the space or the cash.
The extremely high price in 2022 was in large measure Covid-related. Some was supply chain issues that tightened supply when people in lockdown wanted to buy clothing and home textiles products because they couldn’t spend on experiences.
Then inflationary pressures were brought to bear. People have less money now and cotton prices have fallen. “That’s been the sort of narrative for India,” Prescott said. “People have been hoping for a return to the highest price level. We’re disappointed.”
According to Townsend, some farmers who held out to sell later in the season “actually lost a bit.”
Exports of cotton from India have been trending down for a decade, for a variety of reasons. Adverse weather driven by climate change is one. Heavy rains in Western India soaked fields and ruined crops, while in the north, an infestation of pink bollworm took its toll on crops for the second year in a row. Low-quality seed is a persistent problem as is the speculative nature of the commodities market. Farmers are switching to other crops like oilseeds and pulses with better yields and higher prices at market.
By contrast, outside India and sub-Saharan Africa, cotton yields have risen for the past 15 years, and are now about 150 kgs/ha higher. According to Townsend, the decline in yield in India is entrenched and not likely to reverse itself without government intervention. The situation in the country is not exactly something of crisis proportions, he wrote, “but it does face a serious yield challenge.”
