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Slowdown in China, cotton glut may deal Indian farmers a hard knock

The surplus will be of little comfort to suicide-prone and highly indebted farmers, who stare at a sharp drop in earnings - prices are already down 14% compared with last year.

india Updated: Jan 12, 2015 11:42 IST

India is likely to face a cotton glut this year. The surplus, however, will be of little comfort to suicide-prone and highly indebted farmers, who stare at a sharp drop in earnings - prices are already down 14% compared with last year.

The crisis has to do with a slowdown in China, which is forecast to slash by half the amount of cotton it will import this year, most of it from India.

“Exports could see a remarkable fall. Although prices currently show some improvement on a month-on-month basis, average prices of cotton are already about 14% lower than a year ago,” said VN Saroja, CEO of Agriwatch, a commodities firm.

The United States department of agriculture (USDA), in a global report, said it expected up to 47% fall in Indian cotton exports.

The glut is expected despite a projected drop in India’s output due to a bad monsoon. A partial drought could result in a crop of about 40.2 million bales (of 170 kg each) in 2014-15, lower than the previous year’s 40.7 million bales, according to the Cotton Association of India. Even Gujarat, a major producer with better irrigation facilities, could see a dip in output.

Without sufficient exports, a domestic market with too much supply could push prices below profitable levels. Since cotton farmers mostly depend on loans to meet costs, lower profits could aggravate the crisis in suicide-prone cotton belts such as Maharashtra’s Vidarbha region.

Moreover, this year’s minimum support price is unlikely to cover export costs. So traders will look to offset it by paying farmers less.

Battling a slowdown in its textile sector, China is likely to slash imports by half this year, scaring major producers such as the US, Brazil and Uzbekistan. But these countries are less dependent on China than India, which exports heavily to the Communist neighbour since it started a programme to build a national cotton reserve.

To make it easier for traders to tap alternative markets, the government has relaxed rules by temporarily doing away with the need for exporters to register with the Directorate General of Foreign Trade.

A newer problem could be looming for growers. Indian lint - considered to be of high quality - is mostly handpicked. But, importers now prefer machine-harvested fibre due to changing standards. “As a result, India will struggle to maintain its share in shrinking Chinese imports,” the USDA said.

Though genetically modified BT cotton has helped India become the world’s second biggest cotton producer, suicide among debt-ridden cotton farmers is often seen as a hidden “agrarian crisis”.

The government could come under pressure if the situation worsens in the vulnerable cotton-growing areas. The agriculture ministry last month sent a team to probe the farm crisis in Maharashtra, where persistent dry conditions from this summer’s drought are said to have pushed up the number of suicides.

The western state recorded 204 farmer suicides in 2014, deaths that are directly attributable to “agrarian causes”, such as financial losses from farming or crop failures.

First Published: Jan 12, 2015 01:09 IST