Indian Cotton Market: Poised to Benefit from Value Addition

Seldom is justification required for why we create an exception to the universal principle of change (“change is the only constant”), when it comes to our irresistible affection for cotton – the finest fiber in the world. The smoothness, the strength, the quality and the adaptability offered by this fiber is truly unrivaled.

The fact that cotton is grown locally but sold globally is not a new phenomenon. However, the pace at which the industry is growing is surely becoming the talk of the town. The magnitude of industrial modernization, changing trade practices, rising interest by governments and the consequential progress is making it an absolute center of attraction. We have been witnessing a shift toward use of hybrid seeds, modern cultivation practices, improved mechanical processing, better handling and storage facilities, swift means of transportation, and a race among nations to influence the entire trade with their diplomatic and commercial policies. Though the market is sensitive to these secondary factors influencing the trade, the fundamentals – demand, supply, crop size and weather conditions – still lead the trend of the industry.

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Focusing on Value Addition

Cotton, consumers’ most preferred fiber, has never seen down trend in demand. Traditionally, merchants have preferred dealing in this commodity on a huge scale but mainly in its raw form. Industrially sound countries have successfully exploited raw cotton by offering value addition to the world. The benefit of value addition is no longer a secret.

India is set to emerge as one of those nations that is shifting from raw cotton toward yarn or fabric exports. We could witness keen policies and vibrant ground-level activities from the government. New construction of spinning mills is rapidly increasing in India and they are likely to be functional in a couple of years.

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Putting the Best of Both Worlds Together

Such policies are compelling the traditional markets to change with the wind of modernization. This must be welcomed and supported by the international trade community as being a beneficial move for the farmers and the cotton industries in all countries.

The Demand & Supply Equation Is Changing

A shift by developing nations to invest more in domestic industries will change the demand and supply equation of cotton as a raw material. The more developing nations lean toward yarn and fabrics production, the more acute will be the shortage of raw material. It will result in increased domestic consumption and resultant demand growth.

Cotton consumption in India is expected to remain around 4.8 million tonnes in 2013/14 and is projected to grow to 5.5 million tonnes in coming years. The global consumption is expected to be about 23 million tonnes in 2013/14.

As the world’s largest cotton consumers, nations like China and India seem to be better equipped to handle increases in production, as well as domestic demand and consumption.

However, countries like Turkey, Indonesia, Bangladesh and Vietnam – which rely on imports – are more affected by external factors, in particular the crop size of major cotton-exporting nations and their trade policies.

There are numerous factors affecting the international cotton trade. However, sitting on almost two-thirds of the world cotton stock, and being the world’s largest cotton producer, China will be a center of trade activities for cotton.

A change, if any, in China’s import policies would have a major impact on the global cotton trade. Fortunately for everyone, as of right now, international circumstances seem to be stable and are providing favorable trade conditions.

Amidst industrial development and government encouraging value addition at home, India will continue to export raw cotton in bulk as it focuses on increased productivity.

Yield is far below the global average and improvements in cultivation practices, seeds and mechanical processing are needed. While a large part of the country’s crop is rain-fed, the Indian government is expected to encourage the creation of drip irrigation facilities that can almost double the current yield. This will help India to successfully manage its domestic demand, which is likely to increase, along with its export market.

Considering the advantage of strategic location, Indian cotton will always be more competitive to the major importing destinations, helping it to grow its market share in exports.

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