By: Shramana Ganguly Mehta, Ahmedabad

Erratic Monsoon to Limit Cotton Productionto 270Lakh Bales

Cotton crisis is far from over for the Indian textile sector.The market arrival trends point towards a 16% drop in production from theexpected target of 322lakh bales for the current season. Although the Centre isyet to come clear on the drop in cotton production, daily crop arrivals in themarket indicate that actual production for 2008-09 could stop short at 270lakhbales - about 10% fall in year-on-year production of cotton.

This might not augur well with the domestic textile sector,which has been battling high cotton prices for more than a year now and washoping for some relief in supply and prices this season. At the best, thecotton production could hold steady with no growth from the last year. Textile ministryofficials indicate that the production could be just between 300 and 310lakhbales, which is 10% downward revision from the Cotton Advisory Board crop sizeestimate of 322lakh bales. India produced 315lakh bales in 2007-08 and wasecstatic about a bumper production in 2008-09 crop year. Meanwhile, sources inthe industry have pegged the actual production at a much lower -270lakh balesin 2008-09. An erratic monsoon has been pointed out as the chief culprit forthe lower cotton output. "The market indicates that the cotton crop hasbeen affected by untimely rains and plant diseases in some places and hence,the crop might not achieve the target of 322lakh bales," says The SouthernIndia Mills' Association (SIMA) Secretary General K. Selvaraju. Though theoutlook about production is dim, the mummers vary. "The production couldbe much lower than 300lakh bales," says South India Cotton Association HonorarySecretary K. N. Viswanathan.

The Confederation of Indian Textile Industry's (CITI) SecretaryGeneral D.K. Nair is more specific about the downtrend. "CITI believesthat it could be around 280-285lakh bales," he says.

Experts who track cotton production trends say that erraticmonsoon across Gujarat, Maharashtra, Madhya Pradesh and Andhra Pradesh haveruined the crop more than what the government has been able to estimate. "Againstthe estimated 110lakh bales, Gujarat might just end up producing 95lakh baleswhile Maharashtra would stop at 55lakh bales against the estimate of 62lakhbales, Andhra Pradesh would produce 50lakh bales and Madhya Pradesh would give18lakh bales against targets of 58 and 20lakh bales, respectively," saysan industry expert.

Officially, the agriculture ministry and textile ministryare still reviewing the domestic cotton situation, though ministry of textilesJoint Secretary J. N. Singh acknowledges that the daily cotton arrivals aremuch lower as compared to the arrivals at the same time last year.

The situation has put the cotton consumers in a quandary.The lower production coupled with higher enforced MSP (minimum support price)of cotton could lead to higher prices and tighter supply. "Indian cottonis 15% more expensive that international prices, prohibiting domesticconsumption," says Mr Nair. According to Cotton Advisory Board data,Indian textile mills imported 6.50lakh bales of cotton in 2007-08 and areexpected to import 5.00lakh bales in 2008-09. "However, mills are in noposition to procure cotton owing to liquidity crunch and falling demand oftextile and clothing in the global markets," Mr. Nair adds.

With the market price of cotton ruling below the minimum support price (MSP),the Union government is likely to incur an additional expenditure of Rs.2, 000-Rs3, 000crore in procuring the commodity directly from farmers this fiscal.According to Mr Singh, the Cotton Corporation of India has already procured30-31lakh bales from the market and is estimated to procure close to 100-150lakhbales. The domestic textile mills consumed 241lakh bales in 2007-08.

Written by Shramana Ganguly Mehta, Ahmedabad

Originally published in "The Economic Times" dated December 18, 2008: Ahmedabad