Is India in ‘Denial’ Over Impending ‘Cotton Crisis’?
India is on the brink of a potential “cotton crisis”—and no one seems to be paying attention.
That’s the warning from Terry Townsend, former executive director of the International Cotton Advisory Committee, a Washington D.C.-based intergovernmental body for cotton-producing countries. While estimates of the South Asian nation’s current 2022/23 crop by the major statistical organization are showing production that’s on par with the year before at more than 5 million metric tons, the amount of seed cotton delivered by farmers to procurement centers as of the end of February was 1.1 million metric tons behind the pace of the previous season. For the longtime industry vet, that’s a huge red flag.
More from Sourcing Journal
“There’s a fairly stable ratio between seed cotton and lint,” he said of the ginned cotton fiber that goes into everything from T-shirts to jeans to bath towels. “So based on what we call ‘arrivals,’ you can forecast the crop fairly accurately. It’s possible that there’s a bit of a variance and that some of that will catch up. But it’s not going to close a gap of 1.1 million metric tons.”
Now a cotton consultant in Houston, Townsend said he can state with “virtually arithmetic certainty” that this year’s crop is going to be not just smaller than last year’s but “a lot” smaller. And if Townsend were a betting man, he’d peg his estimate at closer to 4.3 million metric tons.
The reason behind the shortfall remains a “mystery,” he said, though adverse weather, driven by climate change, is part of it. Heavy rains soaked the western Indian states of Gujarat and Maharashtra last year and ruined crops. In Haryana and Punjab to the north, an infestation of pink bollworm, exacerbated by unfavorable conditions, wreaked extensive havoc for a second consecutive year. Low-quality seeds with poor germination success are another persistent issue plaguing growers country-wide. Not to mention the yo-yoing nature of the speculative commodities market.
All of this is causing a groundswell of “demotivated” farmers who are switching to other crops, another possible reason for dragging production numbers, said Crispin Argento, managing director at The Sourcery, a “direct to grower” cotton-sourcing platform. “Why grow cotton? It’s a bum business,” he said.
It’s not just India, which together with China contributes half of the world’s supply of cotton. The entire global cotton system is broken from Argento’s perspective. More so now that the pandemic and the war in Ukraine have thrown markets into disarray.
“We don’t have agronomy, we don’t have trained farmers, we don’t have chain-of-custody systems, we don’t have the things in place that actually deliver the outcome of higher yields, let alone stability on prices to incentivize those growers,” he said. “There’s just been neglect and mismanagement.”
While India was one of the world’s largest exporters of cotton in 2011/12, pitting directly with Australia, Brazil and the United States, exports have been trending lower for a decade. Townsend thinks that the country will be a small net importer of cotton this year. Imports will almost certainly be “significantly” larger than exports in 2023/24, he added.
Townsend said that there’s nothing “inherently good or bad” about imports. For a textile industry used to a steady stream of domestic cotton, however, the transition is “likely to be difficult.” Mills in India are used to buying cotton “hand to mouth,” meaning “they’ll send a truck to a warehouse to pick up enough cotton today to run the mill tomorrow.” Imports, on the other hand, are inherently more complicated and can take several months. With neighboring Pakistan grappling with cotton shortages due to last August’s devastating floods, India will have to look farther afield.
For Townsend, what alarms him “as much as anything” is that major agencies in India are “in denial” over what he perceives as an impending disaster. World cotton production comes out to roughly 24 million metric tons, which means that even a 1 million metric ton deficit has serious implications.
“This is an embarrassment to the government. It’s an embarrassment to the Cotton Association of India and to other organizations,” he said. “And people are still claiming that somehow farmers have harvested cotton but they’re just not delivering it to procurement centers because they’re waiting for higher prices and that magically, in the later months of the season, cotton farmers are going to bring that seed cotton.”
Neither the Cotton Association of India nor the Ministry of Textiles responded to requests for comment.
Still, not everyone agrees with Townsend’s prognosis.
“While there has been a decline in cotton arrivals, there is no perceived shortage of cotton that could cause concerns for spinners,” said Keshav Kranthi, chief scientist at the International Cotton Advisory Committee. The gap in February, he said, already narrowed slightly in March, a trend he expects to continue. And if farmers are indeed holding back cotton in anticipation of better prices, it is “unlikely that this situation will persist,” he added.
The Ministry of Textiles’ Committee on Cotton Production and Consumption estimates mill consumption of cotton at 5 million metric tons this year, or 3.7 percent less than last year and 7.8 percent from two years ago because of weak demand for yarn in India and global economic concerns, Kranthi said. With the same agency anticipating cotton production at 5.6-5.7 million metric tons, this is “adequate for domestic consumption obviating the need for imports,” he added. “It is likely that the situation will return to near-normal levels in the coming months.”
But if this year’s cotton production is poised to be “well south” of 5 million metric tons, then there isn’t much time left to rally, Townsend said. Cotton prices are going to be even higher soon. And if gins and mills are going to shut down because there’s nothing to work with, hundreds of thousands of people could lose their jobs. As for the broader industry, a reckoning is looming on the horizon.
“Anybody expecting to land a consignment of shirts or pants or whatever from India, this calendar year that cotton has probably already been spun into yarn and made into cloth and is now working its way through the dyeing, finishing, cutting and sewing operations and being put on ships, so we may be O.K. through this season,” Townsend said. “But certainly the entire cotton supply chain in India is going to be severely affected by what’s going on.”