Indian cotton mills are making merry with a bumper crop and a helping hand from China
More than in any business, success in commodity sourcing depends on opportunistic moves. That is what millers in China are indulging in at the moment in the cotton market. President Trump’s tariffs on China and the Asian giant’s retaliatory actions are lending a helping hand too. The outcome: Indian mills have exported more than 150,000 bales (1 bale = 170 kg) to China in the past 10 days, after China decided to impose a 25% tariff on cotton imports from the US.
China was scheduled to import around 2.5 million bales from the US but after its tit-for-tat, local millers started looking at other countries to meet their domestic shortfall. Of China’s annual consumption of 45 million bales, 32 million is taken care of by domestic production and the rest is covered by imports from US, Brazil, Australia etc.
Along with geographical proximity – shipments from India take two weeks to reach China compared with three to six weeks from other countries – Indian producers this time have got a leg up due to excess output, hence relatively lower price. Indian cotton currently quotes at 81 cents/lbs compared with 91 cents/lbs for the US, 93 cents/lbs for Brazil and 97 cents/lbs for Australia.
And that’s not it. According to Atul Ganatra, president, Cotton Association of India (CAI), for the next cotton season beginning from October, India has signed contracts with China to export around 2.5 million to 3 million bales (valued at Rs.4,500 crore to Rs.5,000 crore) from almost 800,000 bales this year. At the beginning of the previous season, CAI had estimated record cotton production given the favorable weather conditions in the country. As area under cultivation jumped to 12.2 million hectares in FY18 from 10.85 million hectares in FY17, output, too, soared to 37.7 million bales from 34.5 million bales over the same period.
Going ahead, farmers in Maharashtra and Telangana are reluctant to consider cotton for kharif plantation due to the pink bollworm episode last year. In addition to the biggest cotton producing belts – Madhya Pradesh, Gujarat, Telangana, the crop in Maharashtra suffered the most as the state witnessed a 15% decrease in production. CAI estimates that while the area under cotton cultivation may shrink by 10-15%, this would not affect output, as cotton cultivation in other states will compensate for the declined acreage.