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SECTION I: COTTON FIBRE TABLE OF CONTENTS SUMMARY – COTTON FIBRE .............................................................................................................. 24 1.1. INDIAN COTTON FIBRE SCENARIO ............................................................................................ 32 COTTON CULTIVATION IN INDIA .................................................................................................. 32 CONSUMPTION OF COTTON IN INDIA ......................................................................................... 38 COTTON MARKETING IN INDIA: ................................................................................................... 40 COTTON EXPORT & IMPORT ........................................................................................................ 44 TREND IN INDIAN COTTON PRICES ............................................................................................ 47 1.2. COTTON TEXTILE VALUE CHAIN ................................................................................................ 51 1.3. POLICY INITIATIVES IN THE COTTON FIBRE AND TEXTILE SEGMENT ................................. 55 1.4. WORLD SCENARIO FOR COTTON FIBRE .................................................................................. 63 WORLD COTTON DEMAND-SUPPLY DYNAMICS ....................................................................... 63 A BRIEF REVIEW OF MAJOR COTTON PRODUCING COUNTRIES .......................................... 66 STOCK-TO-USE RATIO ANALYSIS: .............................................................................................. 77 1.5. FUTURE PROJECTIONS FOR COTTON FIBRE .......................................................................... 79 FUTURE OUTLOOK OF INDIA‘S COTTON PRODUCTION .......................................................... 79 FUTURE OUTLOOK FOR COTTON CONSUMPTION IN INDIA.................................................... 81 IMPLICATION: ................................................................................................................................. 82 ESTIMATING THE INVESTMENT REQUIRED FOR STRENGTHENING THE TEXTILE VALUE CHAIN .............................................................................................................................................. 83 1.6. THE SUB-GROUP ON COTTON TO FORMULATE NATIONAL FIBRE POLICY ........................ 91 OVERVIEW ...................................................................................................................................... 91 KEY ISSUES IDENTIFIED BY THE SUB-GROUP .......................................................................... 91 RECOMMENDATIONS OF THE SUB-GROUP: ............................................................................. 92 1.A. ANNEXURE .................................................................................................................................... 98 CASE STUDIES SPECIFIC PRODUCTION TECHNOLOGY AND YIELD ENHANCEMENT PROGRAMMES RUN BY CITI-CDRA AND SIMA-CDRA ............................................................... 98 COMPOSITION OF THE SUB-GROUP ON COTTON TO FORMULATE NATIONAL FIBRE POLICY .......................................................................................................................................... 106 SUMMARY – COTTON FIBRE I. The sub-group on Cotton, which was constituted under the National Fibre Policy, has enunciated policy recommendations for development of the fibre. Cotton is one of the most important and widely cultivated cash crops across the world. It is also one of the most important commercial crops cultivated in India. Cotton has around 59% share in the raw material consumption basket of the Indian textile industry. Thus, it plays a major role in sustaining the livelihood of an estimated 5.8 mn cotton farmers and about 40-50 mn people engaged in related activities such as cotton processing and trade. The world cotton yield increased from 613 kg/ha in 2000-01 (season beginning August 1) to 797 kg/ha in 2007-08 (season beginning August 1). India has the largest cotton cultivated area that constitutes around 30% of the global cotton area. Domestic cotton production has increased 1 2 substantially to 290.0 lakh bales in 2008-09 from 30.6 lakh bales in 1950-51. Cotton yield in India improved remarkably to around 524 kg/ha in 2008-09 from 278 kg lint/ha during 2000-01. However, cotton productivity is still lower in India when compared with the world average yield of 767 kg/ha. COTTON FIBRE SCENARIO: WORLD 3 II. World cotton production declined for the second consecutive year in 2008-09 by 10%. In 2007/08 , the production levels had dropped by around 2%. In fact, the world cotton production at 23.5 mn tonnes during 2008-09 is the lowest since 2004-05. The reduction in world cotton area for the second consecutive season was one of the reasons for the fall in production; a significant area under cotton cultivation was shifted to grains and oilseed production because these earned more attractive prices than cotton. In the last few years world cotton harvested area declined at a sustained rate. According to the ICAC data, area under cotton cultivation shrank to 30.66 mn ha (estimated) in 2008-09 from 32.84 million ha (estimated) in 2007-08. During 2008-09, cotton yield also registered a decline compared to the previous year primarily on account of unfavourable weather conditions across the world. After witnessing sustained improvement since 2000-01, the world cotton yield is forecasted to have moderated to 767 kg/ha in 2008-09 from a peak of 797 kg/ha in 2007-08. World cotton yield has increased by around 17.8% between 2003-04 and 2008-09 mainly due to extensive use of BT cotton varieties across the globe. Genetically modified (GM) seeds constituted around 48% of the total harvested area globally in 2008-09. During 2008-09, almost all the major cotton producing countries witnessed a decline (y-o-y) in cotton production, except Pakistan and Australia. China, India, USA, Pakistan, Brazil and Uzbekistan accounted for almost 85% of the world cotton production in 2008-09. 1 Indian bale is of 170 kg 2 Indian cotton year – October to September 3 2008-09 refers to Cotton year August 2008-July 2009 (year mentioned in this section refer to cotton year from August to July 24 Even world cotton imports and exports declined during 2008-09. Exports from major exporting countries such as the US, India and Uzbekistan fell and caused world exports to decline by almost 25.36% in 2008-09. Imports from some of the major importing countries such as China, Turkey and Pakistan also declined. COTTON FIBRE SCENARIO: INDIA III. Cotton production in India has more than doubled in a span of 7 years. Cotton production reached a peak of 307.0 lakh bales during 2007-08 from 140.0 lakh bales in 2000-01 but it fell to 290.0 lakh bales in 2008-09. The gradual increase in cotton production over the years can largely be attributed to the phenomenal increase in the yield of cotton. The introduction of BT cotton seeds has played a catalytic role in enhancing cotton production in India. The consumption of cotton by the textile mills and small-scale spinning units has witnessed sustained increase since 2001-02, except in 2002-03 when the total domestic consumption declined. Domestic consumption of cotton fibre increased at a CAGR of 7.0% rising from 168.8 lakh bales in 2002-03 to 236.9 lakh bales during 2007-08, and fell to 229 lakh bales in 2008-09. Cotton consumption has witnessed a sustained increase since 2003-04 onwards due to growing demand for Indian textiles and subsequently, there has been considerable expansion and modernisation of the textile mills. Even though the Indian cotton consumption has increased at a rapid pace in the last few years, it has not kept pace with the growth in domestic cotton production, which has led to a surplus of production since 2003-2004. As a result, India has emerged as one of the top exporters of raw cotton in the world. Currently, India is the second-largest exporter of cotton after the US. In order to boost cotton exports, the Indian government liberalised raw cotton exports since July 2001, doing away with the system of allocation of cotton export quota in favour of different agencies and traders. Over the years, India‘s cotton export has been growing at an impressive rate, except for FY05, when exports dipped. In FY08, India exported 88.5 lakh bales of cotton. India‘s exports during 2008-09 have been estimated to have declined to 35 lakh bales. FUTURE OUTLOOK OF INDIA’S COTTON PRODUCTION AND CONSUMPTION IV. Three different scenarios were examined to arrive at the future projection of the demand-supply scenario for cotton fibre. Cotton production largely depends on the area under cotton production and productivity. Considering the issues pertaining to food security and land pressures, the area under cotton production is assumed to be largely constant at the current level. Thus, the future production is expected to be driven by improvement in cotton yield. Yield is assumed to grow at alternate rates of 4.0% and 4.7%. Additionally, the Directorate of Cotton Development, Mumbai, has also made projections for cotton fibre production. The estimates made by the directorate are closer to our estimate that is based on an assumption of 4.7% increase in yield per hectare till the terminal year, 2020. The projections for consumption of cotton fibre have been arrived at through projections for 25 cotton fabric consumption and through use of conversion ratios. The final scenario for 2020 is encapsulated in the table below. Exhibit I: Yield growth assumed at 4.7% (in lakh bales) Year Production Consumption Surplus 2019-20 483 413 70 Source: D&B India MAJOR IMPLICATIONS V. In the years to come, the robust increase in domestic consumption is likely to drive down the surplus in cotton. Therefore, it is essential that there is greater focus on enhancing domestic production of cotton significantly to cater to the expected increase in domestic demand. Focus on Enhancing Production: VI. Given that the area under cotton cultivation in some of the major cotton producing countries such as the US has declined in the last few years, India has an opportunity to emerge as a leading exporter of raw cotton. Moreover, cotton remains India‘s strength in the global T&C markets. In the coming years, this strength is expected to accelerate as the area and production of cotton has been declining in China and the US. Over the past few years, the textile processing base has been increasingly shifting to emerging countries. Thus, by increasing cotton production and strengthening the textile value chain India will be able to capture the rapidly-evolving growth opportunities in the cotton industry. Focus on higher investments in textile value chain VII. Given that the production of cotton fibre, as well as MMF fibre and filament yarn is expected to witness a substantial increase in the next 10 years, the installed capacity for value addition under the textile value chain also needs to witness substantial improvement to absorb the expected increase in fibre production. It is estimated that investments worth Rs 176,510 crore will be needed during FY10- FY20 for creating the required capacity along the textile value chain on the basis of estimate of the 4 increased fibre production . The underlying assumptions to arrive at investment estimates are based on CITI‘s Vision for Indian Textile and Clothing Industry 2007-2012, Report of working group on Textiles & Jute industry for the eleventh five year plan (Ministry of textile) and inputs from major industry stake-holders, who are members of the sub-group. 4 The D&B estimates for fibre consumption for cotton and MMF are an underlying assumption for these investment estimates. The consumption for cotton fibre in 2020 by domestic mills is assumed as 6885 mn kg and that for MMF fibre and filament is assumed as 6001 mn kg. The investment estimate therefore considers both MMF as well as cotton segments. 26 Exhibit II: Investment requirement till 2020 (Rs cr) Spinning 63,525 Weaving 38,485 Knitting 12,499 Processing 26,695 Garmenting 35,305 Grand total 176,510 KEY ISSUES IDENTIFIED BY THE SUB-GROUP ON COTTON FIBRE VIII. The following key issues were identified by the members of the sub-group: IX. Lack of irrigation facilities: Predominance of rain-fed area has been one of the major hindrances to cotton cultivation in India. Almost 65% of the area under cotton cultivation is rain-fed and only 35% of it is irrigated, thus, exposing the cotton productivity to the vagaries of monsoon. X. Cotton contamination: Cotton is vulnerable to contamination at the harvesting, marketing and ginning stages, if proper care is not taken. The two kinds of contaminants predominantly found in cotton are fibrous and non-fibrous. XI. Poor quality: It has been difficult to develop a globally-competitive cotton industry in India because of the average quality of cotton. In fact, the cotton sector and the large textile enterprises have been importing quality cotton to meet their growing demand for high-quality cotton products. XII. Lack of infrastructure: The transport infrastructure is poor in India and the cost of transporting cotton fibre from one state to another is substantial. XIII. Problem of admixtures: There are inconsistencies in the strength, length, micronaire, colour and reflectance of cotton as different varieties of cotton fibre with different physical properties are mixed together. Admixture also makes the grading and testing of cotton difficult. Quality-conscious mills, particularly the export-oriented ones, are compelled to engage themselves in expensive bale management exercises to maintain yarn quality. 27 XIV. Absence of uniform standards: Another issue related to quality of cotton has been the absence of uniform quality standards across the country. While there are various agencies involved in the quality testing and grading of cotton across the country, they do not adhere to uniform standards. XV. Need for an Indian arbitration for imported cotton: The Indian textile mills importing cotton have to encounter onerous problems because foreign buyers invariably stipulate arbitration by International Cotton Association (ICA), Liverpool, in the sale contracts. India has been a regular importer of cotton and imports will continue in future. Therefore, unless corrective action is taken in the right earnest, problems will compound in future. RECOMMENDATIONS OF THE SUB-GROUP ON COTTON XVI. The following broad objectives for the National fibre policy have emerged from the sub-group‘s deliberations: The National Fibre Policy should be fibre-neutral. The fibre policy should accord priority to the cotton fibre value chain in the following order of priority: o Farmers o Domestic mills o Other cotton consuming countries It should enhance production, sustainability and growth of cotton. It should target enhanced competitiveness of cotton fibre, as well as ensure most judicious and efficient utilisation of the country‘s strength for sustainable development of all the sub sectors of the cotton economy through backward and forward integration. The cotton economy must be strengthened and its vibrancy improved through an upgraded and a reformed marketing system and through conscious branding of cotton for use. An institutional mechanism must be created that will monitor, coordinate and also create a unified platform of all other interests in the lines of the National Cotton Council of the US. XVII. The recommendation made by the sub-group members can largely be divided under the following broad heads: XVIII. Recommendations for enhancing production: The major interest of the policy for cotton fibre should be to enhance production of cotton. Augmenting cotton production will not only help India to meet the growing domestic demand but also will help the nation explore export opportunities. The 28 following recommendations have been made by the members of the sub-group for augmenting cotton production in India: The members suggested that an institutional framework could be created for development of cotton fibre. The institution thus established could provide funding and direction for research in a holistic manner. Improving irrigation facilities and water harnessing was considered imperative for enhancing production and lowering its dependence on monsoon. It is recommended that the area under irrigation could be increased to 60% from its present level of 38% at national level. Further, drip irrigation system could be adopted for better water management. Drip irrigation system could be adopted in at least of 30-40% of total cotton area. Initiatives should be taken to increase awareness among farmers for adoption of rain water harvesting, soil moisture conservation techniques, suitable agronomic practices in order to increase the utilisation of rain water. New farming practices could be developed to increase the cotton yield. Various programmes could be devised to increase awareness regarding rain water harvesting, soil moisture conservation techniques and suitable agronomic practices among the farmers. Precision farming was considered important for enhancing cotton productivity. Emphasis could be laid on spreading ‗precision farming‘ to improve yield per unit area for all areas. Measures could be taken to enhance production and supply of ‗green manure / FYM / compost / vermi-compost‘ in the country to maintain soil productivity at sustainable levels. Green manure / FYM / compost / vermi-compost production and supply has to be taken up at a large scale under organised sector so that it becomes available for all cotton growers. This is a must for maintaining soil productivity at a sustainable level. Improve extension activities and provide certification facilities with subsidised inputs to cotton farmers to sustain their income levels. In field extension, public-private sector partnership projects may be launched on ―large area‖ basis, by ensuring technology inputs and marketing tie-up, so that diversion of cotton area to other competing crops can be minimised. National research thrust for the cotton production sector could continue. The focus of the national research on cotton could be laid on increasing the lint productivity through improvement in ginning outturn of varieties / hybrids to 40 – 42% as compared with 34 – 36% of current cultivars. On line pest monitoring system at block level and IPM network to advise the farmers should be strengthened. Integrated disease and pest management strategies could be implemented vigorously on cluster basis. 29 Availability of sufficient quantity of micronutrients as in case of NPK could be ensured. Fertiliser companies could give equal importance to micronutrient manufacturing and marketing. The system of transfer of knowledge to farmers through Farmers Field School (FFS) should be continued and it could be taken up in each Gram Panchayat of cotton growing area. Sufficient number of Cotton Masters Trainer needs to be generated through season long ToF training to ensure availability of 1 cotton master trainer at each block level. Lessons from micro examples of yield improvement and production enhancement programmes run by CAI, CITI, CDRA and SIMA in different states of the countries should be adopted for other regions. XIX. Recommendations for enhancing investment along the textile value chain: The interest compensation of 5% available under the Technology Upgradation Fund Scheme (TUFS) has helped incentivise investments in the T&C industry. TUFS has had a major role to play in the growth of the industry and has aided an increase in investments in recent years in the sector. Given the significant estimated investments required for the textile value chain, the Technology Upgradation Fund Scheme can continue so that the industry may avail of the benefits under it. XX. Recommendations for improving quality of cotton fibre: The focus of the national research on cotton could be on optimising the components of fibre quality parameters to meet the end-use requirements of the spinning sector, which is producing yarn in a wide range of spinning counts. Overall kapas grading is absolutely necessary, and ought to be strengthened. To prevent contamination in cotton fibre, use of white polypropylene bags for packing fertilisers could be replaced by coloured polypropylene bags. XXI. Recommendations for improving infrastructure: There is a serious need to improve the logistics of cotton, which includes conduct of cotton and its upkeep in warehouses and at ports. The warehousing should be scientific and IT-enabled to develop into dematerialised trading and movement of goods. Pressed cotton also needs to be stationed and warehoused at accessible affordable places. Steps could be taken to improve logistics for transporting cotton, so that cotton fibre can be supplied from surplus to deficient areas in a clean manner. XXII. Recommendation pertaining to export of cotton fibre: A healthy stock-to-use ratio should be maintained to avoid any distortion in the cotton market. The trade policy for cotton could target exports of surplus cotton, and imports in slots where there may be a deficit in domestic production. There is no need for import duties, and any restriction on imports should be need-based only. Exports of cotton fibre should be monitored on a time-to-time basis in each cotton year to ensure stability in supply as well as prices to domestic mills. 30 XXIII. Recommendations for improving marketing and branding of cotton: Grading of Kapas is imperative for improving the marketing and branding of Kapas and lint. The grading system by independent agency, better organised, regulated warehousing system, better contracting system with risk management instruments, will raise the dynamics of Indian cotton to a greater level of acceptance, fine image and remarkable branding. Creation of a Competing Crops Pricing Index could be explored to ensure judicious allocation of resources in crop patterns. A structured mechanism for promotion of cotton use could be developed to sustain domestic consumption on a long-term basis to maintain the strength of the cotton economy. Pilot projects for marketing of lint by the farmers, instead of kapas at present, could be considered. This might result in higher income to the farmers and accelerate cotton production. The role and functions of government agencies involved in marketing of cotton fibre can be looked into and their role towards inclusion of price stability can be reoriented. XXIV. Recommendations towards value addition in the cotton value chain: Returns on cotton fibre can be enhanced through backward integration of the cotton value chain. The cotton industry can adopt the example of the sugar industry through such activities as de-linting and use of cotton stalks, which present great opportunity with minimal investments. Further, realisation on seed can be improved through more R&D on cotton oil and cotton seeds, especially because the governments across the world are beginning to reduce green house gas emissions. For instance, the Australian Carbon Pollution Reduction Scheme is likely to cover cotton to control the emissions from application of nitrogen fertiliser, of carbon dioxide from biological decomposition, of methane from water logging, and of other emissions from processing cotton etc. Therefore, a careful study is recommended to devise a strategy for countering carbon emissions and subsequently a Carbon Emission Reduction Scheme can be framed. XXV. Recommendations towards Risk Management: Effective risk management is crucial for protecting the interest of all stakeholders in the Indian cotton economy. An efficient, integrated contracting system covering spot transactions forward transactions and futures transactions would be required for effective risk management. XXVI. Recommendations towards drawing lessons from policies of other cotton producing countries: A policy review of some of the cotton producing countries has been outlined in section 4.2 of this report. Lessons can be drawn from policies in these countries that are pertinent to India and could be suitably adopted. For instance, the independent gradation certification system of total crop existing in the US could be studied and a similar system can be developed after suitable modifications. 31 1.1. INDIAN COTTON FIBRE SCENARIO 1.1.1. Cotton is one of the most important and widely cultivated cash crops across the world. Cotton accounts for around 40% of the total global fibre production, making it one of the most important fibres of the world. Cotton is also one of the most important commercial crops cultivated in India. In the raw material consumption basket of the Indian textile industry, the proportion of cotton is around 59%. Thus, it plays a major role in sustaining the livelihood of an estimated 5.8 mn cotton farmers and 40- 50 mn people engaged in related activities such as cotton processing and trade. 1.1.2. In the last few years, the area under cotton cultivation across the world has remained more or less stagnant. However, the world cotton production has witnessed substantial increase on account of sharp rise in cotton yield. World cotton yield increased from 613 kg/ha in 2000-01 (season beginning August 1) to 797 kg/ha in 2007-08 (season beginning August 1). Nonetheless, the cotton yield reduced to 767 kg/ha in 2008-09 (season beginning August 1). 1.1.3. According to ICAC data, India has the largest cotton cultivated area, which forms around 30% of the 5 global cotton area. Domestic cotton production increased substantially to 290.0 lakh bales in 2008- 6 09 from 30.6 lakh bales in 1950-51. Currently, India is the second-largest cotton producing country in the world, after China and contributes about 21% to global cotton production. Cotton yield in India has improved remarkably to around 524 kg/ha in 2008-09 from 278 kg lint/ha during 2000-01. However, cotton productivity in India is still lower as compared with the world average yield of 767 kg/ha. COTTON CULTIVATION IN INDIA 1.1.4. Though cotton is inherently a semi Xerophytes perennial crop, it is cultivated as an annual/ seasonal crop. In India cotton is cultivated in three diverse agro-ecological zones, Northern zone, Central zone and Southern zone. Northern zone comprises Punjab, Haryana and Rajasthan, the Central zone includes Maharashtra, Madhya Pradesh and Gujarat and the Southern zone consists of Andhra Pradesh, Karnataka and Tamil Nadu. Besides these nine states, cotton cultivation has gained momentum in Orissa as well. Cotton is also cultivated in small areas of non-traditional states such as Uttar Pradesh, West Bengal and Tripura. 5 Indian bale is of 170 kg 6 Indian cotton year – October to September (Years mentioned in section 1.1 to 1.5 refers to Indian cotton unless otherwise mentioned). 32 1.1.5. India is the only country that produces all four varieties of cultivated cotton, namely, Gossypium arboreum and herbaceum (Asian cotton), G.barbadense (Egyptian cotton) and G.hirsutum (American Upland cotton). India produces many cotton varieties and hybrids. Though the number of varieties in cultivation exceeds 75, 98% of the production is contributed by about 25 varieties only. Gossypium, hirsutum represents 90% of the hybrid cotton production in India and all the current BT cotton hybrids are G.hirsutum. Currently, India produces the widest range of cotton capable of spinning for 6s to 120s counts of yarn. Around 35% of the total area under cotton is irrigated and the remaining 65% is rain-fed Cotton Acreage in India 1.1.6. Currently, India has the largest cotton cultivated area in the world. India accounts for around 30% of the 30.66 million hectares (ha) global cotton harvested area. The area under cotton cultivation in India grew from around 56.5 lakh ha in 1950-51 to 94.14 lakh ha in 2007-08 and witnessed a marginal decline at 94.06 lakh ha in 2008-09. Exhibit 1.1.1: Cotton Acreage in India Source: Cotton Advisory Board and D&B India 1.1.7. However, the rise in area under cotton cultivation over the years has not been on a sustained basis. Various factors such as variability in monsoon, returns from competitive crops, have played a significant role in influencing the cotton planting decision of farmers. For instance, during 2002-03, the drought conditions experienced in India to certain extent restrained the growers to take up cultivation of cotton; as a result, the area under cotton cultivation went down to 76.7 lakh ha from 87.3 lakh ha in 2001-02. Comparatively, the acreage under cotton increased by 5.4% (y-o-y) in 2006-07, primarily on account of a good monsoon in major cotton growing parts of India and higher prices fetched by farmers. 33 Exhibit 1.1.2: State-wise cotton acreage (2008-09) Source: Cotton Corporation of India and D&B India 1.1.8. Among the cotton-growing states in India, Maharashtra, Gujarat and Andhra Pradesh together account for around 73% of area under cotton. Maharashtra has the highest area under cotton cultivation followed by Gujarat and Andhra Pradesh. During 2008-09, the area under cotton cultivation has declined compared with that of 2007-08 in almost all states except in Andhra Pradesh, Madhya Pradesh and Tamil Nadu. Cotton Production 1.1.9. Cotton production in India has more than doubled in a span of 7 years. Cotton production had reached a peak of 307.0 lakh bales during 2007-08 as compared with 140.0 lakh bales in 2000-01, but fell to 290.0 lakh bales in 2008-09. The gradual increase in cotton production over the years can largely be attributed to the phenomenal increase in cotton yield. Introduction of BT cotton seeds has played a catalytic role in enhancing cotton production in India. However, in 2002-03, when BT seeds were introduced, cotton production dipped by 13.9% to 136.0 lakh bales due to the severe drought that hit major cotton producing states such as Gujarat, Andhra Pradesh, and parts of Tamil Nadu. Cotton production in Andhra Pradesh, Maharashtra and Gujarat declined by 26.2%, 24.1% and 6.2% respectively, during 2002-03. However, since then, the commercial cultivation of BT seeds has brought about a breakthrough in cotton production. 34 Exhibit 1.1.3: Cotton fibre production Source: Cotton Corporation of India and D&B India 1.1.10. With suitable climatic conditions, better farm practices fostered by the government under TMC and spread of hybrid and BT seeds, cotton production witnessed significant year-on-year growth of 31.6% and 35.8% during 2003-04 and 2004-05, respectively. Good yield of cotton during 2006-07 encouraged farmers to take up large-scale sowing of cotton during 2007-08; as a result, the production of cotton during this period increased by 12.5%. The area under BT cotton has also increased remarkably in the past few years given that the variety offered 25-30% net return over other conventional varieties. In 2007-08, area under BT cotton shot up to 63.3 lakh ha as compared with 34.8 lakh ha during 2006-07. 1.1.11. In 2008-09, cotton production declined to 290 lakh bales as compared with 307 lakh bales in 2007-08 because cotton yield fell to 524.13 kg/ha in 2008-09 from 554.39 kg/ha in the previous year. Uneven rainfall coupled with high pest incidence could have affected the cotton productivity in 2008-09. 1.1.12. India‘s cotton production primarily consists of medium long and long staple varieties, which account for around 77.2% of the total cotton fibre production in India. The production of medium long and long staple varieties surged to 216.0 lakh bales in 2006-07 from 61.0 lakh bales in 2001-02. 35 7 Exhibit 1.1.4: Staple-wise cotton production (in lakh bales) 300.0 250.0 200.0 150.0 100.0 50.0 0.0 01-02 02-03 03-04 04-05 05-06 06-07 07-08 Short (below 20.0 mm) Medium (20.5 to 25.5 mm) Medium Long (26.0 to 27.5 mm) & Long (28.0 to 33.5 mm) Extra Long (34 mm & above) Source: Cotton Corporation of India and D&B India 1.1.13. Extra long staple variety had a marginal share of 2.1% in the total production during 2006-07. Moreover, production of extra long staple variety has remained almost constant over the time period under consideration. Further, the production of short staple cotton has been witnessing sustained fall in the last few years as its production has declined from around 9.5 lakh bales in 2001-02 to 6.0 lakh bales in 2006-07. Short staple cotton constituted around 1.4% of the total cotton production in 2006-07. Exhibit 1.1.5: State-wise share in cotton fibre production (2008-09) Madhya Andhra Pradesh, 7% Maharashtra, Pradesh, 19% 22% Punjab, 6% Gujarat, 32% Haryana, 5% Karnataka, 3% Others, 1% Tamil Rajasthan, 3% Nadu, 2% Source: Cotton Corporation of India and D&B India 1.1.14. As of 2008-09, the central states of Gujarat, Maharashtra and Madhya Pradesh had the highest contribution of 61% in the domestic cotton production while the southern states such as Andhra Pradesh, Karnataka and Tamil Nadu contributed 24% and the northern states such as Punjab, Haryana and Rajasthan contributed to around 14% of cotton production. 1.1.15. Cotton grown in different states have varying staple length, strength and grade depending on the climate and farm and pest management practices. Although Maharashtra had the highest area under 7 Data for 2007-08 are estimates 36 cotton cultivation in 2008-09 (at around 31.4 lakh ha), Gujarat had the highest contribution in cotton production (at an estimated 90 lakh bales) followed by Maharashtra (at 62 lakh bales). Increased area under cultivation and greater use of hybrid and genetically-modified seeds have aided the robust growth in Cotton production in Gujarat. In Maharashtra, cotton production recorded robust increase of 38.9% and 24.0% in 2006-07 and 2007-08, respectively. The substantial increase in cotton production in Maharashtra can in part be attributed to the initiatives of CITI-CDRA and the government to extend integrated cotton farming programme and contract farming programme. In 2006 CITI-CDRA planned to extend integrated cotton farming programme in 9,600 acres in Wardha district, Maharashtra, which included better combination of crop, soil and pest management practices to increase and sustain productivity as well as quality of cotton. The programme also included a market-supportive mechanism for farmers to sell their produce. During 2007-08, the government took up contract farming programme in 40,044 ha involving 12,000 farmers as compared with 33,279 ha during 2006-07. Box 1.1.1: Integrated cotton cultivation The Indian government promoted an integrated cotton cultivation programme (Contract Farming) with the twin objectives of a) benefitting the cotton farmers by way of making available quality inputs such as seeds, pesticides etc for producing quality cotton, and b) to enable the textile mills obtain desired quality of cotton. The corporate sector is also involved in this programme not only in extension services but also in making available quality inputs such as seeds, fertilisers to farmers to improve productivity and quality of Indian cotton. Productivity of cotton 1.1.16. Cotton productivity in India has witnessed substantial improvement over the years. A confluence of factors such as adoption of BT varieties, accelerated technology transfer to the farmers, efforts taken by the government and other agencies have been instrumental in increasing cotton productivity in India. The average cotton yield increased from 278 kg/ha in 2000-01 to peak at 554.39 kg/ha in 2007- 08 and slipped to 524.13 kg/ha in 2008-09. The drop in cotton yield in 2008-2009 could be attributed to the uneven monsoon which led to a dry spell in some areas and excessive rains in other areas. While significant progress has been made in the terms of improving cotton productivity, it is important to note that the cotton yield in India at around 524 kg/ha is lower as compared with the world average yield of 767 kg/ha. 1.1.17. There are huge variations in the cotton productivity levels of different states in India. The vast difference in productivity levels can be gauged from the difference between the highest yield at 780 kg/ha recorded by Tamil Nadu and the lowest yield at 335 kg/ha recorded by Maharashtra. High yield in Tamil Nadu can be attributed to increased use of better quality hybrid seeds, improved irrigation 37 facilities and integrated pest control processes. The average yield in Gujarat and Andhra Pradesh is higher as compared with the average yield in Punjab and Haryana. Exhibit 1.1.6: State-wise yield of cotton fibre (kg/ha) States 2001-02 2002-03 2003-04 2004-05 2005-06 2006-07 2007-08 2008-09 Tamil Nadu 425 600 619 725 668 850 714 780 Andhra 454 418 557 469 527 630 687 644 Pradesh Gujarat 328 317 516 651 794 733 786 650 Rajasthan 343 220 452 427 397 437 451 422 Punjab 262 284 389 551 610 672 619 565 Haryana 153 287 372 424 379 481 563 522 Madhya 546 561 565 472 494 505 567 490 Pradesh Karnataka 201 216 228 261 268 270 338 375 Others 142 321 333 250 215 239 315 405 Maharashtra 195 158 191 311 213 274 330 335 Source: Cotton Corporation of India and D&B India CONSUMPTION OF COTTON IN INDIA 1.1.18. Although the Indian textile industry consumes a diverse range of fibres and yarn, it is predominantly cotton based. The ratio of the use of cotton to man-made fibres and filament yarns by the domestic industry is 59:41 (FY09). Thus, cotton is one of the major raw materials for the Indian textile industry. The proportion of cotton in the raw material consumption basket of the Indian textile industry is around 59%. Cotton consumption has increased significantly over the years given the rapidly expanding domestic textile industry. 1.1.19. The consumption of cotton by the textile mills and small-scale spinning units has witnessed sustained increase since 2001-02, except in 2002-03, when the total domestic consumption declined. Domestic consumption of cotton fibre increased at a CAGR of 7.0% rising from 168.8 lakh bales in 2002-03 to 236.9 lakh bales during 2007-08, but fell to 229 lakh bales in 2008-09. 1.1.20. There has been a phenomenal growth in the Indian textile industry in the last 2 decades in terms of installed spindles and yarn production. The pace of modernisation achieved by the Indian spinning 38 industry received a fillip after the launch of "Technology Up-gradation Fund" by the Indian government in April 1999. The robust growth of spinning industry and its modernisation has led to sustained growth in cotton consumption. Exhibit 1.1.7: Trend of domestic cotton consumption Source: Cotton Corporation of India and D&B India 1.1.21. Cotton consumption has witnessed sustained increase since 2003-04 onwards as a result of growing demand for Indian textiles, which led to considerable expansion and modernisation of the textile mills. In 2007-08, domestic consumption merely grew by around 2% over that in 2006-07 due to consistently high cotton prices mainly because of speculative funds coming into play, and due to large-scale exports of raw cotton. Exports of cotton stood at around 88.5 lakh bales during 2007-08. Also, appreciation in the rupee for some months during the cotton year 2007-08 led to low textile exports that affected the domestic mill consumption of cotton. In the cotton year 2008-09, domestic consumption of cotton declined by 6.9 lakh bales to an estimated 229 lakh bales. The drop in mill consumption was a result of the global slowdown that affected domestic as well as export demand for textiles. Consumption also declined due to a steep hike in minimum support prices of different varieties of cotton, which resulted in high procurement costs of cotton for the mills. Exhibit 1.1.8: Segment-wise consumption of cotton Segment 2001-02 2002-03 2003-04 2004-05 2005-06 2006-07 2007-08 2008-09 Mill 147.0 142.4 150.4 164.0 180.0 194.9 195.7 190.0 consumption Small mill 11.7 11.6 13.0 16.6 19.0 21.3 22.1 20.0 consumption Non-mill 13.1 14.8 13.7 14.5 20.0 15.9 19.1 19.0 consumption Source: Cotton Corporation of India, Office of the Textile Commissioner and D&B India 39 1.1.22. Almost 83% of the cotton is consumed by the non-SSI mills and other 9% by the SSI mills. Non-mill consumption of cotton has remained more or less stable over the last 4 years and accounted for around 8%of the total domestic consumption. COTTON MARKETING IN INDIA: 1.1.23. In India, cotton is primarily sold in the form of kapas (raw cotton or seed cotton). However, in other leading cotton growing countries, kapas is processed — wherein the fibre is extracted, and then the lint (cotton fibre extracted from seed cotton) is sold as processed bales. The Agriculture Produce Marketing Committee (APMC) is the primary market infrastructure in the country through which cotton is marketed. The APMCs were set up by the Agricultural Produce Marketing Committee (Regulations) Act in 1963 as a marketing platform for the sale of primary agriculture products to provide a regulated market infrastructure for agriculture goods, which was absent earlier on. The main functions of these markets or mandis is to regulate market practices such as weighing, process of sale, method of grading, payment process etc. APMCs also provide facilities storage, boarding and lodging for buyers, sellers etc. This committee charges 1% of the goods value as fees from the buyers. The marketing committee, which runs the market, consists of both buyers and sellers who have the responsibility of maintaining and developing the market yard for its users. In India, currently there are around 7,062 mandis that are functional. 1.1.24. The three marketing agencies engaged in cotton trade are: Private sector comprising traders, owners of ginneries operating as individual business proprietors, partnership firms and private limited companies Public sector agencies like the Cotton Corporation of India (CCI) Co-operative sector. 1.1.25. It has been estimated that approximately 80% of the marketed surplus of kapas and lint is handled by the private marketing channels and the remaining 20% by the institutional marketing channels including co-operatives and Cotton Corporation of India (CCI). 40 Exhibit 1.1.9: Sale of cotton (In bales) Group 2001-02 2002-03 2003-04 2004-05 2005-06 2006-07 2007-08 NTC 46,818 70,980 90,986 1,51,042 99,469 1,22,538 1,02,427 STC/Cooperatives 58,950 51,588 60,106 1,42,597 55,351 76,901 47,190 Private 8,36,804 4,70,908 6,87,111 22,08,059 9,07,912 10,95,234 6,66,329 Total 9,42,572 5,93,476 8,38,203 25,01,698 10,62,732 12,94,673 8,15,946 Source: The Cotton Corporation of India Ltd and D&B India 1.1.26. Generally, the marketing of cotton (selling of cotton lint) begins with the grading of cotton-based on various parameters such as fibre length, fibre strength etc. Grading of cotton not only helps in price determination and reduction in marketing costs but also facilitates exports. ‗Grade‘ is primarily determined by colour, lustre, fineness, trash content, proportion of stained or immature kapas, feel and moisture content. Box 1.1.2: Generic determinants of cotton fibre/yarn quality Fibre length: Genetic qualities of the cotton plant and certain environmental factors, such as moisture content in the soil post flowering, determine the improvement in fibre length. Fibre length determines the strength of the yarn and enables faster spinning speed during processing at the final stages of textile production. Length uniformity and shorter fibre content: Uniform fibre in yarn makes spinning easier by reducing breakage and assists faster spinning whereas short fibres can reduce strength of the yarn and lead to more wastage. The length and uniformity of fibres determine the premium or discount valuation of the yarn in the market. Fibre strength: The thickening of the fibres begins within around 28 days of flowering. During this period, fibre characteristics are influenced by temperature and stress as well as factors such as physical and microbial damage. The parameter can also be controlled by ensuring optimum potassium level in the soil. Fibre strength cotton helps make stronger yarn and better cloth at the final stage of textile manufacturing. Micronaire: This quality helps determine fibre maturity and fineness. Micronaire is determined by fibre diameter and the formation of the secondary wall prior to the opening of the cotton boll. The number of fibres in a cross section of yarn determines yarn fineness in cotton. The presence of immature bolls in harvested cotton is one of the primary reasons for low micronaire in Indian cotton. Moisture content in the cotton bolls also determines the micronaire of cotton. 41 Colour grade: Colour grade determines both yellowness and brightness in harvested cotton. The main reasons for low colour grade are weathering of cotton bolls and the low levels of cellulose production during development, which thereby affect the brightness of cotton. Environmental factors primarily contribute to colour and brightness variations while microorganisms, boll rot and insect damage cause discolouration. Leaf grade: Leaf grade is a measurement of the amount of trash that accumulates usually during mechanical harvesting of cotton. Burs, stems, weeds and leaf contribute to leaf grade. Excess leaf grade requires more cleaning, which adversely affects the quality of cotton fibre. Number of pickings: Number of pickings in seed cotton cultivation influences the quality of cotton. Quality of cotton fibre decreases with subsequent picking. In India, there are sometimes up to 6 pick per season. With increased number of pickings, especially by the fourth pick There is an increase in the short fibre content of cotton Micronaire and maturity deteriorate substantially Source: D&B India The levels of trash, micro-dust and fibre fragments in the fourth pick are higher than in the first The quality of yarns in terms of evenness, imperfections and tenacity deteriorate substantially. 1.1.27. A lot reflects the kapas of a particular variety on a given day for selling purpose. Normally, a lot has a code that indicates the particular variety of kapas. Approximately 4 kg samples of at least four different places are taken for evaluation. Those samples are mainly evaluated based on 3 main factors: grade, staple length and ginning percentage. According to the manual on good agricultural marketing practices for cotton, major grade designations in Indian markets are Special, A, B, C, D and 8 X . However, lack of uniformity in standards used by various agencies across the country is a major drawback. Moreover, visual-tactile assessment is the predominant form of assessment, thereby leading to a poor price-quality linkage. 8 Please refer to http://agmarknet.nic.in/ManualCotton.pdf for further details 42 Exhibit 1.1.10: Cotton marketing system Production Marketable surplus Retention by producers 1–2% Institutional Private marketing Marketing channels Channels CCI, Co-operative Village Traders/ Societies/Federation Merchants Wholesale Co-operative Ginning State Agencies Commission Agent Merchants & Pressing Mills Retailers Co-op./Fed./ Millers Ginning & CCI Pressing Mills Retailers Exports Consumers Source: D&B India 1.1.28. After the grading is done, the lots are auctioned to the potential buyers. Each graded lot has a tag assigned to it that denotes the ginning percentage and staple length of the lot for the inspection of potential buyers. The two methods of kapas sale practised in India are the ‗open auction system‘ in many states such as Gujarat, Rajasthan, Punjab and Haryana and the ‗closed tender system‘ in Karnataka. In an open auction, market participants openly bid for lots in the market yard, which belong to different commission agents, and the lot is sold to the highest bidder. In both these practices, there are no limiting conditions or prices. In the closed tender system, cotton is hoarded in the market yards where traders inspect these lots or samples of lots and quote their buying price in sealed envelopes. The envelopes are opened up and the lot is sold to the trader with the highest bidder. 43 1.1.29. While significant improvements have been made in the area of cotton marketing through the initiatives taken by the technology mission on cotton, certain problems still exist in the cotton marketing, such as lack of uniform grading standards, high transportation costs, lack of adequate storage facilities etc. Poor transaction practices at the market level, information asymmetry, lack of proper technology and physical infrastructure are some other major challenges encountered in the process of cotton marketing. The farmers and traders/ginners also face a problem of information failure and inadequate institutional support. COTTON EXPORT & IMPORT9 1.1.30. With robust growth in cotton production in the last few years, India has become a net exporter of cotton from being a net importer. Export scenario: 1.1.31. Indian cotton consumption has increased at a rapid pace in the last few years but the growth in consumption has not been commensurate with the growth in domestic cotton production, and therefore, since 2003-04, there has been surplus production in India. As a result, India has emerged as one of the top exporters of raw cotton in the world. Currently, India is the second-largest exporter of cotton after the US. In order to boost cotton exports, the Indian government liberalised raw cotton exports since July 2001, doing away with the system of allocation of cotton export quota in favour of different agencies and traders. Over the years, India‘s cotton export has been growing at an impressive rate, except for FY05, when exports dipped. In FY08, India exported 88.5 lakh bales of cotton. Exhibit 1.1.11: Exports of cotton fibre (in lakh bales) Source: Cotton Advisory Board and D&B India 9 Export and Import data in this section pertains to export and import of Cotton including waste 44 1.1.32. After emerging as the second largest cotton exporter since 2006-07, India‘s exports during 2008-09 are estimated to have declined to 35 lakh bales. The substantial decline in cotton exports in 2008-09 could in part be attributed to the lowered export competitiveness of Indian cotton subsequent to a hike of almost 30% to 50% (depending on quality) in the Minimum Support Price of cotton by the Government. During 2008-09, the Government raised the minimum support price (MSP) of long staple cotton and medium staple cotton to Rs 3,000 per quintal from Rs 2,030 per quintal to Rs 2,500 per quintal from Rs 1,800 per quintal, respectively. 1.1.33. Despite strong growth over the years, one of the major issues faced by the Indian cotton exports is contamination. In the latest (2007) survey by the International Federation of Textile Manufacturers, the six most contaminated cottons tested were from India. Likely sources of contamination are hand- picking, where foreign matter (such as polypropylene strands from picking bags) may be accidentally introduced, and ginning, where seed coats may not be adequately removed, and wire or metal can break off machinery and remain embedded within the fibres. Exhibit 1.1.12: Country-wise share in India’s cotton exports (including waste) (FY08) Source: Office of Textile commissioner (Official Indian Textile Statistics 2007-08) and D&B India 1.1.34. Among the most important destinations for Indian cotton exports are China, Pakistan and Ban- gladesh. In fact almost 76.10% of India‘s cotton exported to these three countries. China commands the highest share of 46.6% of India‘s cotton fibre exports to the world. Export to China has increased from 1.0 lakh bales in FY05 to 36.30 lakh bales in FY08. Imports 1.1.35. Cotton has been imported into India under the Open General License (OGL) since April 1994. Till July 8, 2008, the custom duty of 10% and 4% special countervailing duty were levied on cotton imports. However, from July 8, 2008, the Indian government abolished duty on cotton imports, thus enabling the domestic textile mills to import cotton as per their requirements. India‘s current import basket consists of the extra long staple variety due to meagre domestic production of the same. Previously, the domestic manufacturers used to import sizeable quantity of long staple cotton also, but it has 45 shrunk in the last couple of years. There has been a noticeable decrease in the long staple variety over the years. 1.1.36. Domestic cotton production coupled with price differences between the domestic and foreign cotton have been key determinants of cotton imports in India. Import of cotton has reduced gradually from around 25.3 lakh bales in 2001-02 to 6.4 lakh bales in 2007-08, barring a surge in 2004-05, when exports increased to 12.2 lakh bales from 7.2 lakh bales in 2003-04. The imports of cotton increased to 10 lakh bales during 2008-09. 1.1.37. Increasing domestic per capita income and refinement of consumer preference have resulted in an increase of imports of the extra long variety during the last few years. India generally imports ELS cotton from the US, Egypt, Sudan, West Africa and Commonwealth of Independent States (CIS) countries. Exhibit 1.1.13: India’s cotton Imports 30 25.3 25 Lakh bales of 170 kgs 20 17.7 15 12.2 10.0 10 7.2 5.5 6.4 5.0 5 0 2001-02 2003-04 2004-05 2007-08 2008-09 2002-03 2005-06 2006-07 Source: Cotton Advisory Board and D&B India 1.1.38. The US has the highest share of 31% and 39% in India‘s cotton fibre imports from the world in volume and value terms, respectively. Almost all imports come from the US and the other countries have a meagre share in India‘s imports. Egypt accounts for 20% (volume terms) of India‘s cotton fibre imports from the world. Within Africa, Egypt has the highest share in India‘s cotton fibre imports followed by Benin and Burkina Faso. Within Asia, Bangladesh has the highest share of 16% in India‘s cotton fibre imports in terms of quantity, however, in value terms, it accounts for a miniscule 1% share. This implies that the cotton imported from Bangladesh is of very low quality. 46 Exhibit 1.1.14: Country-wise share in India’s cotton imports (including waste) (FY08) Source: Office of the Textile Commissioner (Official Indian Textile Statistics 2007-08) and D&B India 1.1.39. India‘s dependence on cotton imports from Egypt and the US may be a matter of concern for the former, considering the development in the textile industry of Egypt. In future, there can a rise in domestic consumption of Egyptian cotton, which will imply lesser exports to India. TREND IN INDIAN COTTON PRICES 1.1.40. Prices of cotton across countries and varieties differ on account of a number of factors. Within a country, cotton prices during a particular year vary depending on the variety grown and the quality of the harvested cotton. Exhibit 1.1.15: Annual average prices of kapas for important varieties Prices in Rs per quintal YEAR BENGAL DESI J-34 LRA H-4 S-6 DCH-32 1996-97 1168 1770 1786 1905 2010 2316 1997-98 1773 2101 2095 2186 2278 2973 1998-99 1883 2080 2037 2135 2141 2532 1999-00 1443 1836 1835 1909 2067 2732 2000-01 1438 2068 2103 2207 2310 2784 2001-02 1833 1828 1750 1891 1901 -- 2002-03 1875 2218 2110 2215 2323 2927 2003-04 1962 2591 2470 2533 2632 3152 47 Exhibit 1.1.15: Annual average prices of kapas for important varieties Prices in Rs per quintal YEAR BENGAL DESI J-34 LRA H-4 S-6 DCH-32 2004-05 1689 1844 1835 2003 2037 2840 2005-06 1738 1999 -- 2002 2058 4111 2006-07 1871 2133 -- 2168 2280 3034 2007-08 2351 2523 -- 2483 2613 2827 2008-09 3051 2800 -- 2850 2850 -- Source: Cotton Corporation of India Ltd and D&B India 1.1.41. In line with market dynamics, the market price of cotton has largely varied according to the domestic cotton production; for instance, cotton prices surged in 2003-04 consequent to a drop in production during this period. In addition to the demand-supply dynamics, cotton-pricing mechanism in India is also influenced by the minimum support price fixed by the government. In the past few years, the MSP of cotton has been raised gradually to ensure minimum returns to the farmers. In fact, in 2008- 09, the government increased the MSP on various varieties of cotton by around 30-40% to provide support to the farmers in the depressed market conditions. A dip in cotton production on account of uneven monsoon coupled with lower demand due to global economic slowdown was expected to adversely affect the cotton farmers. Exhibit 1.1.16: Trend in prices of H-6 cotton variety 3,500.00 3,000.00 RS. Per Quintal 2,500.00 2,000.00 1,500.00 1,000.00 1997-98 2004-05 1996-97 1998-99 1999-00 2000-01 2001-02 2002-03 2003-04 2005-06 2006-07 2007-08 2008-09 MSP of Cotton - H4 Annual average market price of Kapas for H-4 Source: Cotton Corporation of India and D&B India 1.1.42. Over the years, the market price of H-6 cotton variety has largely been above the MSP set by the government. Thus, the MSP generally acts as a lower ceiling for cotton prices and prevents the price of raw cotton from falling beyond a certain level. 48 Cotton prices in India vis-a-vis other countries 1.1.43. It has been observed that the prices of Indian cotton have been around the world cotton prices. The 10 recent prices of India S-6 1-1/8 cotton, the cotlook A Index , Brazil Midd 1-3/32 and Pakistan Type 1503 have been considered for comparative analysis of cotton prices in some countries. Exhibit 1.1.17: Recent trend in cotton prices in India, Brazil, Pakistan and World 80 76.50 75 74.00 72.30 US cents/lb 70 67.50 65 60 55 50 20-Aug-09 19-Nov-09 17-Sep-09 3-Sep-09 22-Oct-09 6-Aug-09 5-Nov-09 8-Oct-09 A Index India S-6 1-1/8 Brazil Midd 1-3/32 Pakistan Type 1503 Source: Various and D&B India 1.1.44. It can be observed from the above graph that prices of Indian cotton have been slightly higher as compared with the cotlook A Index, which is an indicator of the world cotton prices. Cotton prices in Pakistan have been substantially lower as compared with the Indian cotton prices, primarily due to high contamination level in cotton produced in Pakistan. However, the price of cotton in Brazil is higher as compared with the cotton prices in India. Domestic cotton prices vis-à-vis exported cotton price 1.1.45. The landed price of Shankar-6 cotton in China has been considered for comparing the domestic cotton prices vis-à-vis exported cotton prices. In October 2009, the landed price of 1-1/8" cotton C&F 11 China was around 68 cents/lb, which is equivalent to Rs 24,524 per candy . After calculating the net price of exported cotton, it was observed that the price of Shankar 6 in the domestic market compares well with the price paid in the export market. The net selling price of exported cotton was Rs 23,289 per candy as compared with the domestic spot price of Shankar-6 cotton at Rs 23,300 per candy. 10 The COTLOOK A INDEX is intended to be representative of the level of offering prices on the international raw cotton market. 11 1 candy = 355.62 kg = 784.01 lb; Exchange rate = Rs. 46 per US Dollar 49 Box 1.1.3: Net selling price of exported cotton Net selling price of exported cotton = Landed price of cotton (Rs 24,524) - Sea freight, port handling, inland road transportation expenses (Rs 1,100) - Interest on W.C. approx. for 30 days (Rs 227) - Bank and misc charges (Rs 25) + Subsidy on exported cotton @1.5% (Rs 352) - Commission to agent for exports @1% (Rs 235) = Rs 23,289 per candy 50 1.2. COTTON TEXTILE VALUE CHAIN 1.2.1. The textile and garments industry is a key traditional industry in India. The textile industry contributes significantly to the economy in terms of industrial output, employment generation and the export earnings of the country. It contributes around 4% to the GDP, 14% to the industrial production, and 17% to the country‘s export earnings. The Indian textile industry provides direct employment to over 35 mn people. The textile sector is the second largest provider of employment after agriculture. India is one of the few countries in the world to have a well-established, complete value chain in the T&G industry. The Indian textile industry consumes a diverse range of fibres, but is predominantly cotton based. Currently, the ratio of the use of cotton to man-made fibres and filament yarns by the domestic industry is 59:41. Exhibit 1.2.1: Cotton-to-Textile value chain in India Cotton Fibre Ginning & Spinning Weaving- Dyeing & Garment production Pressing Knitting Finishing confection Raw cotton Yarn Fabric Garments fibre Dyeing & Finishing Textile Products (Cotton or blended) Source: D&B India 1.2.2. The Indian T&G industry is complex in structure, with the presence of numerous small-scale, decentralised and fragmented units along with some large-sized integrated enterprises, also known as composite mills. While the small-scale sector is largely unorganised and labour-intensive, large- scale enterprises on the other hand are mostly organised and capital-intensive. In the last few years, the industry has witnessed considerable expansion, integration and technological upgradation due to potential growth opportunities in the export as well as domestic market. 51 Exhibit 1.2.2: Increase in number of spinning mills (SSI and non-SSI) 1800 1564 1566 1570 1608 1597 1600 1400 1236 1219 1135 1161 1173 1200 1000 800 600 400 200 0 FY04 FY05 FY06 FY07 FY08 Spinning mills (Non-SSI) No. Spinning mills (SSI) No. Source: Office of the Textile Commissioner and D&B India 1.2.3. Capacity installation and utilisation in the industry has also improved considerably over the past few years. The domestic textile industry comprises of 1608 spinning mills and 200 composite mills, with an installed capacity of 35.61 million spindles, 4,48,000 Open End Rotors and 69,000 looms in the organised sector along with another 1219 small scale spinning units with 4.00 million spindles and about 1,57,226 Rotors in the small scale decentralised sector. The capacity utilisation in the spinning sector of the organised textile mill industry ranged between 80 to 93% while the capacity utilisation in the weaving sector of the organised textile mill industry ranged between 41 to 63%. Product Segments in the T&G Industry: 1.2.4. The T&G industry can be classified on the basis of product segments into four sub-heads — yarn, fabrics, made-ups, and garments. Since all these products are a part of the textile value chain, there are several integrated players in the industry, who manufacture two or more of these products. Yarn: 1.2.5. Yarn is a long continuous length of interlocked fibre, suitable for use in the production of textiles, sewing, crocheting, knitting, weaving, embroidery, and rope-making. It is usually spun from natural or man-made fibres or both. Thus, based on the raw material used, yarn could take a variety of forms — cotton yarn, silk yarn, woollen yarn, polyester yarn, acrylic yarn, viscose yarn, or blended yarn (when more than one type of fibre is used to make yarn). India‘s strength lies in the production of cotton yarn, which accounts for around 74% of total spun yarn production in India. The production of cotton yarn in India has recorded an annual average growth rate of around 6.5% between FY05-FY09. While there has been a sustained improvement in cotton yarn production since FY05, the yarn production witnessed marginal decline of 1.69% in the FY09 as compared to an increase of 4.42% in FY08 52 Exhibit 1.2.3: Trend in production of cotton yarn in India (Million kg) 3100 2900 2700 2500 Mn Kg 2300 2100 1900 1700 1500 FY06 FY01 FY02 FY03 FY04 FY05 FY07 FY08 FY09 (P) Source: Office of the Textile Commissioner and D&B India 1.2.6. India is net exporter of cotton yarn. In 2007-08, India registered 8.3% growth and 9.9% de-growth in exports and imports respectively. The dismantling of Multi fibre Agreement (MFA) in 2005 provided boost to India‘s yarn exports. Fabrics: 1.2.7. Fabrics are items made of thread or yarn, formed by weaving or knitting. Fabrics are generally used for making finished textiles — garments and made-ups. Based on the type of yarn used in weaving/knitting, fabrics can be of different types — cotton, silk, woollen, synthetic, or blended. Fabrics are available in different designs and patterns, usually prepared through dyeing, colouring, or printing. 1.2.8. India manufactures a large variety of fabrics, with a range of finishes, width, and designs. India‘s cloth production is mostly in the form of cotton or blended cloth. However, non-cotton cloth has gained prominence during the last 15 years, and currently accounts for about 37.9% of country‘s total fabric production. At the time of independence, the mill sector was the main producer of cloth in India. However, the growth of the powerloom and handloom sectors, aided through government incentives, has led to a steep decline in the share of the mill sector in India‘s overall cloth production. The share of mill sector in cloth production has gone down from over 70.0% in the 1950s to less than 6.0% in FY97 and to a mere 3.3%, currently. On the other hand, fabric production in powerloom and handloom sectors has grown considerably; currently, these account for about 74.4% of India‘s total cloth production. The production of knitted fabrics in the hosiery segment has also increased in recent times; currently, hosiery accounts for 22% of total cloth production in India. 53 Exhibit 1.2.4: Production of Cotton Cloth 30000 26000 Mn Sq Mtrs 22000 18000 14000 10000 2008-09(P) 2001-02 2002-03 2003-04 2005-06 2006-07 2004-05 2007-08 Source: Office of Textile Commissioner, D&B India 1.2.9. Cotton Cloth production in India has witnessed sustained increase since 2003-04 before witnessing a marginal decline in 2008-09. While the production in hosiery and mill sectors experienced modest increase, production in power looms and handlooms declined compared to the previous year. The decline in cotton textile during 2008-09 could be attributed to a confluence of factors like higher price of cotton, high interest rates and slowdown in demand in domestic as well as international markets. Made-ups and Garments: 1.2.10. Made-ups are non-wearable finished textiles such as bed linen, table linen, canvas, bags, blankets, carpets, mattresses, cushions, fish nets, terry towels, furnishing materials etc. Made-ups can also be classified on the basis of raw material type — cotton made-ups, non-cotton made-ups, and blended made-ups. Majority of Made-ups manufactured in India are largely cotton-based. Bed sheets constitute the largest variety of made-ups in India, followed by canvases and other made-ups. Other types of made-ups include curtains, furnishings, towels and towelling, mosquito nets, filter, lint, and bed ticking. Besides made-ups, fabric can be converted into readymade garments, which are wearable and need not be tailored. Garments are generally manufactured in the following stages — designing, cutting fabrics, sewing cut fabrics, and finishing the garment (trimming, checking, and ironing). Readymade garments are a relatively new concept in India‘s manufacturing history as Indians traditionally had garments stitched from local tailors. 54 1.3. POLICY INITIATIVES IN THE COTTON FIBRE AND TEXTILE SEGMENT 1.3.1. Cotton production in India received a fillip with the development of improved varieties and hybrids in the different staple length groups and thorough support by the Government, in addition to technological development and multiple other factors as summarised below: Extensive research and development, technology transfer and adoption of scientific and agronomic practices by the farmers Increase in area under irrigation Improvement in marketing infrastructure Launch of Technology Mission on Cotton (TMC) in February 2000 Sustained awareness programmes by NGOs like Cotton Association of India‘s (CAI‘s), Cotton and Allied Products Research Foundation (COTAAP), Cotton Development and Research Association (CDRA) under Confederation of Indian Textile Industry (CITI), etc. to adopt best management practices in modern agronomic methods and crop management techniques Spread of hybrid cotton and commercial cultivation of BT cotton from 2002, resulting in higher yield as well as economic benefits to farmers Distribution of quality inputs, village adoption programmes and support to R&D by the Government Increased application of integrated pest management (IPM) technology and effective check on pest and disease infestation Major Government policies and initiatives 1.3.2. Government policies and initiatives have been providing the requisite boost to domestic cotton production, processing as well as consumption. National Textile Policy (NTP) 2000 1.3.3. The NTP (2000) aimed at building a strong and vibrant textile industry competent of producing quality cloth at an acceptable price, increasingly contributing to employment provision and economic growth and competing with for an increased share of global market. For development of cotton sector the policy endeavoured to 55 Increase cotton productivity and upgrade its quality to international standards, through effective implementation of the Technology Mission on Cotton Though cotton is expected to continue to be the dominant fibre yet special attention will be given to bring the cotton to non-cotton fibres ratio closer to international trends Full fibre flexibility between cotton and man-made fibres will be encouraged Encourage the spinning sector to continue modernisation Liberalise and encourage export of cotton yarn 1.3.4. The objectives, measures introduced by the Government in National Textile Policy in 2000 and the impacts can be summarised as follows. Exhibit 1.3.1: National Textile Policy, 2000 – A snapshot Objectives Measures introduced Impact/progress Increasing output De-reservation of garments and knitting Growth in hosiery segment from SSI Technological Implementation of TUFS, covering all Slow progress initially, but Up-gradation manufacturing segments of the industry picked up pace in recent times — major capacity expansions underway Productivity Implementation of Technology Mission on Strengthening of raw material enhancement Cotton and Technology Mission on Jute base for the industry Quality Reviving textile research associations Substantial increase in cotton improvement (TRAs) to focus research on industry production, though no major needs progress in jute production Strengthening raw material base Infrastructure Encouraging private sector to set up 40 textiles park projects have development world-class, environment-friendly, been approved by the Ministry integrated textile complexes and textile of Textiles. processing units Product Strengthen and encourage the handloom No major progress in terms of diversification industry to produce value-added items product diversification Export expansion Marketing assistance to the industry to Increased interaction between forge joint ventures to secure global Indian textile industry and markets foreign counterparts through participation in foreign exhibitions and delegate visits 56 Exhibit 1.3.1: National Textile Policy, 2000 – A snapshot Objectives Measures introduced Impact/progress Employment Setting up a venture capital fund for generation tapping knowledge-based entrepreneurs of the industry Re-design and revamp schemes and programmes initiated in the handloom, sericulture, handicrafts, and jute sectors to ensure better returns for those from the disadvantaged categories Human resource Strengthening HRD institutions, including Development of skilled labour in development NIFT, on innovative lines the industry Source: Ministry of Textiles (Government of India), D&B India Technology Upgradation Fund Scheme (TUFS) 1.3.5. The Indian government launched TUFS in April 1999 with a view to modernise the textile industry and to increase its competitiveness in domestic as well as international markets. Under the scheme, textile firms across segments (spinning, cotton ginning and pressing, silk reeling and twisting, wool scouring and combing, synthetic filament yarn, texturising, crimping and twisting, manufacturing of viscose filament yarn (VFY) and viscose staple fibre (VSF), weaving/knitting, garment/made-up manufacturing, processing units etc) could avail of loans for technological upgradation at lower interest rates. Some of the incentives provided under this scheme included: Interest reimbursement at the rate of 5% of the normal interest rate charged by the lending agency or rupee term loan, or Coverage of 5% exchange fluctuation (interest and repayment) from the base rate on foreign currency loan, or Credit-linked capital subsidy of 15% for SSI textile and jute sector, or Credit-linked capital subsidy of 20% for the powerloom sector, or Interest reimbursement at the rate of 5% plus 10% capital subsidy for specified processing machinery. 1.3.6. This scheme facilitated more investment in the sector, mostly from large players. The scheme has been so popular that the industry asked for an extension of the scheme, which was originally set to expire by March 2007. The government has now extended this scheme for another 5 years, i.e. until FY12. The benefits of Modified TUFS are available for all sectors of textile industry as it was earlier with certain modifications. The modified structure of TUFS lays emphasis on better technology adoption, additional capacity building and provides for a higher level of assistance to segments that 57 have huge growth potential like garmenting, technical textiles and processing. Some of the major 12 highlights of the modified TUF Scheme have been discussed in the below Box . Box 1.3.1: Highlights of Modified TUF Scheme: The scheme continues to provide 5 percentage points reimbursement on the interest charged by the lending agency except for the spinning machinery for which it will be 4 percentage points. The scheme continues to provide cover for foreign exchange rate fluctuation not exceeding 5% for the spinning machinery for which it will be 4%. The powerlooms units are now provided with an additional option to avail of 20% Margin Money subsidy under TUFS in lieu of 5% interest reimbursement on investment in TUF compatible specified machinery subject to a capital ceiling of Rs. 200 lakh and ceiling on margin money subsidy Rs.20 lakh. A minimum of 15% equity contribution from beneficiaries will be ensured. The SSI textile and Jute sector are now provide 15% Margin Money subsidy in lieu of 5% interest reimbursement on investment in TUF compatible specified machinery subject to a capital ceiling of Rs. 200 lakh and ceiling on margin money subsidy Rs.15 lakh. A minimum of 15% equity contribution from beneficiaries will be ensured. 5% interest reimbursement plus 10% capital subsidy for specified processing machinery is continued. The Scheme will now provide 5% interest reimbursement plus 10% capital subsidy for specified machinery required in manufacture of technical textiles and garmenting machineries. Interest subsidy/capital subsidy/Margin Money subsidy will now be provided on the basic value of the machineries and the tax component would be excluded for the purpose of valuation in view of the decision for non-subsidising the taxes. 25% capital subsidy on purchase of the new machinery and equipments for the pre-loom & post-loom operations, handlooms/upgradation of handlooms and testing & Quality Control equipments, for handloom production units. The entire range of imported second hand machinery, which have been permitted in the earlier Scheme, will now be ineligible under the modified Scheme for any benefit except automatic shuttleless looms with the value cap of Rs. 8.00 lakh per machine and 10 years‘ vintage and with a residual life of minimum 10 years. Other investments such as energy saving devices, effluent treatment plant, in-house R&D, IT including ERP, TQM including adoption of ISO/BIS standards, CPP etc (including non- conventional sources) of the earlier Scheme will now be eligible for benefits of the scheme only up to 25% of the cost of machinery. For a specific thrust to garmenting, machineries for CAD, CAM and design studios and likes will be included in the separate heading of the guidelines of the scheme with a financial cap to be determined by the Inter Ministerial Steering Committee (IMSC) under the Chairmanship of Secretary (Textiles). Investments like land, factory building, pre-operative expenses and margin money for working capital will now be ineligible for benefit of reimbursement under the scheme except meant for apparel sector and handloom with existing 50% cap. In case apparel unit is engaged in other activity, the eligible investment under this head will only be related to plant & machinery eligible for manufacturing of apparel. Source: Ministry of Textile 12 For further details please refer to http://www.txcindia.com/html/TUFS%20Tex%20Jute%20industry_sub.htm 58 1.3.7. The progress in TUFS implementation was extremely slow at the time of inception but has gradually improved. By FY10 (until June), 26087 applications have been received under the scheme, of which 25893 applications have been sanctioned, of which 25777 have been disbursed. Initially, the industry considered the interest subsidy to be very low to encourage speedy investments in modern machinery but with the introduction of credit-linked capital subsidy of 20% for the powerloom sector, investments have gradually picked up. Exhibit 1.3.2: Progress of TUFS Received Sanctioned Disbursed Year Cost of No. of No. of Amount No. of Amount project applications applications (Rs bn) applications (Rs bn) (Rs bn) FY00 407 57.71 309 24.21 179 7.46 FY01 719 62.96 616 20.9 494 18.63 FY02 472 19 444 6.3 401 8.04 FY03 494 18.35 456 8.39 411 9.31 FY04 867 33.56 884 13.41 814 8.56 FY05 986 79.41 986 29.9 801 17.57 FY06 1086 161.94 1,078 67.76 993 39.62 FY07 12336 610.63 12,589 290.73 13168 266.05 FY08 2408 212.54 2,260 80.58 2207 68.54 FY09 (P)* 6113 565.42 6,072 240.07 6111 218.26 FY10 (till June 2009) 199 1.17 199 0.82 198 0.8 Total 26,087 182270 25,893 783.07 25,777 662.84 * As the cut off date for the cases sanctioned prior to on or before 31st March, 2007 for claiming subsidy under TUFS has been fixed till the quarter ending Dec., 2008, the data up to Dec., 2008 covers units whose project was sanctioned prior to 31st March, 2007 Source: Ministry of Textiles and D&B India 59 Technology Mission on Cotton (TMC) 2000 1.3.8. TMC was launched in February 2000 with the primary objective of improving production, productivity and quality of cotton in India. The TMC was structured into four mini missions, which were implemented by different nodal agencies. Exhibit 1.3.3: Objectives of TMC Mini Mission Objective Nodal Agency Cotton Research and Technology Indian Council of Agriculture I generation Research Transfer of Technology and II Ministry of Agriculture Development Improvement of Marketing III Ministry of Textiles infrastructure Modernisation / Upgradation of G & P IV Ministry of Textiles Factories Source: Office of Textile Commissioner and D&B India 1.3.9. Objectives of TMC: Mini Mission I o Develop short duration, high yielding, disease and pest resistant varieties and hybrids of cotton with appropriate fibre parameters to meet the need of the textile industry o Develop integrated water and nutrient management practices for cotton and cotton based cropping system o Develop and validate IPM technology for different cotton growing areas of India to improve yield and reduce the cost of cultivation, thereby ensure better net return to the cotton growers Mini Mission II o Technology transfer through demonstration and training o Supply of delinted certified seed by setting up of delinting units o Accelerate IPM activities o Providing adequate and timely information input to the farmers periodically 60 Mini Mission III o Improve marketing infrastructure by setting up new market yards and activating as well as improving existing market yards Mini Mission IV o Modernise and technologically upgrade existing ginning and pressing factories so as to improve the processing of cotton 1.3.10. The following table describes the ‗Technology Mission on Cotton (TMC) in brief. Table 8: Technology Mission on Cotton (TMC) Exhibit 1.3.4: Progress of TMC Mission Focus Output Mini Development of new genotypes to improve quality Research Mission I of cotton and cotton yarn in the country Mini Technology Extension services and distribution of improved dissemination programs Mission II seed varieties for farmers Mini Improvements in market 161 Market yards (out of sanctioned 250 market yards) were modernised to avoid cotton Mission III infrastructure contamination Modernisation of the Mini 829 ginning and pressing factories (out of targeted ginning and pressing 993 projects) were modernised Mission IV sector Source: Ministry of Textiles and D&B India 1.3.11. Under Mini Mission III, development of 250 market yards has been sanctioned and 161 have been completed by September 2008. The total cost of the sanctioned project is Rs 4.9 billion out of which share of TMC is Rs 2.5 billion. Under Mini Mission IV, modernisation of 993 Ginning and Pressing (G&P) factories have been sanctioned and 829 have been completed. The total cost of the sanctioned projects is Rs 14.5 billion out of which the share of TMC is Rs 2.3 billion. Fund allocated to TMC (Mini Mission III & IV) during FY09 was Rs 500 million and is the same during FY10. The Government, by the end of the Eleventh Plan, envisages increasing the yield of cotton to 700 kg/ha. The Government also targets to increase the production of extra long staple (ELS) cotton to reduce the gap between demand and indigenous supply of ELS cotton. 61 Duty Structure 1.3.12. The Government had increased customs duty on cotton fibre exports from 5% in FY02 to 10% in FY03. But in FY09, the Government has done away with the customs duty on cotton. The customs duty on cotton yarn also has gradually decreased from 20% in FY05 to 15% in FY06 and further to 10% in FY08. The duty on cotton fabric has also decreased substantially over the years. In addition, the Government allowed 5% export incentive for raw cottons. Exhibit 1.3.5: Customs duty on different categories of cotton textiles (% advalorem) ITEMS FY02 FY03 FY04 FY05 FY06 FY07 FY08 FY09 FY10 Cotton 5 10 10 10 10 10 10 Nil Nil Cotton Yarn 20 20 20 20 15 12.5 10 10 10 Cotton **30/35* ** 30 ** 20 ** 20 **15 **12.5 **10 **10 **10 fabrics **Attracts advalorem rate or specific rate whichever is higher basis Source: Office of the Textile Commissioner and D&B India 1.3.13. Cotton production does not attract excise duty. However, excise duty is applicable on cotton yarn and cotton fabric which have been reduced substantially. Exhibit 1.3.6: Excise duty on different categories of cotton textiles (% advalorem) ITEMS FY02 FY03 FY04 FY05 FY06 FY07 FY08 FY09 FY10 Cotton Nil Nil Nil Nil Nil Nil Nil Nil Nil # Cotton Yarn 9.2 9.2 9.2 *4.08 *4.08 *4.08 * 4.12 # *4.12/Nil *4.12/Nil Cotton # 16 12 10 *4.08 *4.08 *4.08 * 4.12 # *4.12/Nil Fabrics *4.12/Nil *Zero duty without CENVAT facility #The three major advalorem rates of CENVAT-14%, 12% and 8% applicable to non-petroleum products have been reduced by 4% each, i.e., to 10%, 8% and 4% respectively and CENVAT on cotton textiles and textile articles has been reduced from 4% to Nil as a measure to stimulate the economy in the context of global economic recession by Government of India on 7th December 2008. However, in Budget 2009-10, the optional CENVAT on Pure cotton textiles restored at 4% and for other textile excluding Man-made filament yarns and fibres at 8% Source: Office of the Textile Commissioner and D&B India 62 1.4. WORLD SCENARIO FOR COTTON FIBRE 1.4.1. Cotton is mainly native to tropical countries. However, it is planted widely in both the hemispheres. Cotton is critical to economies of many developing countries. Out of the 65 cotton-producing countries, 52 were developing countries in 2007-08. Cotton is also regarded as one of the heavily traded agricultural commodities, given the involvement of over 100 countries in exports or imports of cotton. The world cotton industry has witnessed substantial improvement in terms of both production and consumption of cotton. However, the Cotton‘s share of world fibre use has declined to around 40% from about 60% in the 1960s. Nevertheless, it still is one of the major fibres produced in the world. WORLD COTTON DEMAND-SUPPLY DYNAMICS 1.4.2. World cotton production has declined for second consecutive years in 2008-09. World cotton 13 production has declined by around 2% and 10% in 2007-08 and 2008-09, respectively. In fact, world cotton production at 23.5 mn tonnes during 2008-09 is the smallest since 2004-05. World cotton production declined during the year primarily due to a reduction in world cotton area for the second consecutive season. Exhibit 1.4.1: World cotton Production (Season beginning August 1) Source: International Cotton Advisory Committee (ICAC) and D&B India 1.4.3. Significant area of cotton was shifted to grains and oilseed production due to more attractive prices than for cotton. World cotton harvested area has experienced sustained decline in the last few years. According to the ICAC data, area under cotton cultivation shrank to 30.66 mn ha (estimated) in 2008- 13 2008-09 refers to Cotton year August 2008-July 2009 (year mentioned in this section refer to cotton year from August to July unless otherwise stated) 63 09 from 32.84 million ha in 2007-08. During 2008-09, cotton yield also registered a decline compared to the previous year primarily on account of unfavourable weather conditions across the world. After witnessing sustained improvement since 2000-01, the world cotton yield has moderated to 767kg/ha in 2008-09 from a peak of 797 kg/ha in 2007-08. World cotton yield has increased by around 17.8% from 2003-04 to 2008-09 mainly due to extensive use of BT cotton varieties across the globe. Genetically modified (GM) seeds occupied around 48% of total harvested area globally in 2008-09. Exhibit 1.4.2: World Cotton harvest area and production yield (Season beginning August 1) Source: ICAC, D&B India 1.4.4. During 2008-09, almost all the major cotton producing countries witnessed a decline (y-o-y) in production of cotton except Pakistan and Australia. China, India, USA, Pakistan, Brazil and Uzbekistan accounted for almost 85% of the world cotton production in 2008-09. 1.4.5. With the global economy traversing through turbulent times, cotton consumption declined substantially by 12.75% during 2008-09. World cotton mill consumption diminished due to a drop in end-use consumption of cotton products subsequent to a slow-down in world economy, loss of competitiveness of cotton prices against polyester prices, and tightening credit conditions for textile mills. The slump in the world consumption of cotton could be largely attributed to substantial decline in domestic consumption of cotton in China, which is the largest consumer of cotton in the world. In fact, the china‘s cotton consumption declined by around 17% in 2008-09. During 2008-09, cotton consumption declined in almost all the major cotton consumers in the world. 64 Exhibit 1.4.3: World domestic consumption (Season beginning August 1) Source: ICAC and D&B India 1.4.6. Even world cotton imports and exports declined during 2008-09. World exports declined by almost 25.36% in 2008-09 primarily backed by reduction in exports from major exporting countries like US, India and Uzbekistan. With imports from some of the major importing countries like China, Turkey and Pakistan witnessing substantial decline, World cotton imports also declined by around 25.73% during 2008-09. Exhibit 1.4.4: Trend in World Cotton Export & Import Source: ICAC, D&B India 1.4.7. USA maintained its first position as a largest exporter of cotton in 2008-09 accounting for as much as 44.39% of the world cotton exports. India, however, could not secure its place as second largest exporter after USA in 2008-09 on account of significant decline of 73.86% in cotton exports from India. Uzbekistan has emerged as the second largest cotton exporters in the World during 2008-09. 65 Exhibit 1.4.5: Country-wise Share in Cotton Exports Source: ICAC, D&B India 1.4.8. China continued to retain its position as the leading importer of cotton in 2008-09, accounting for almost 23% of the world‘s cotton export. During 2008-09, Bangladesh was the second largest importer of cotton having a share of 10% in world import. Exhibit 1.4.6: Country-wise Share in Cotton Imports Source: ICAC, D&B India A BRIEF REVIEW OF MAJOR COTTON PRODUCING COUNTRIES United States (US) 1.4.9. The United States (US) is the world‘s largest exporter of agricultural products. Any change in US agricultural policy markedly influences the world‘s agricultural markets. US is the largest exporter of cotton across the world. US primarily exports US upland and US Pima cotton varieties to countries like China, India, Pakistan, etc. US domestic consumption cotton showed a downward trend since 2004-05 due to increased competition from price-competitive foreign imported textile products, 66 particularly from Asia. The proportion of cotton exports in production also grew from 62.1% in 2004-05 to 99.3% in 2008-09. US is a net exporter of cotton. The following chart depicts the trend of exports proportion in production. Exhibit 1.4.7: Trend of cotton exports proportion in production Source: ICAC, D&B India 1.4.10. US usually enacts ‗Farm Bill‘ in every 5-6 years including comprehensive legislations on farm policies. The latest farm bill titled ‗Food, Conservation, and Energy Act of 2008‘ (thereon, Farm Bill 2008) is another bill in the long series of farm bills. This farm bill was structured under the purview of record high farm incomes and very high market prices, by historical standards, for two consecutive years. This was primarily in the case for grains, oilseeds and dairy. 1.4.11. The following table furnishes major policy initiatives incorporated in Farm Bill 2008 with an emphasis on cotton farming. Exhibit 1.4.8: United States Farm Bill 2008 Major Policy Objectives Measures Current Status Initiatives Direct Payments Providing income Producer has to enter Direct Payment Rates Counter-Cyclical support to farmers into an annual for upland cotton are Payments engaged in farming of agreement to receive specified at US$ upland or ELS cotton the benefit of ‗Direct 0.0667/lb. Marketing and other mentioned Payments‘. Assistance Target prices for upland crops in the bill. loans Counter-cyclical cotton are specified at payments are US$ 0.7125/lb, US$ Loan Deficiency provided, whenever 0.7125/lb and US$ Payments the current effective 0.7125/lb for CY 2008, 14 commodity price is CY 2009 and CYs lesser than the target 2010-2012 respectively. price. National Marketing Marketing Assistance Assistance Loan Rates Loans are provided for for upland cotton and 14 CY – Cotton Year for US is from August-July 67 Exhibit 1.4.8: United States Farm Bill 2008 Major Policy Objectives Measures Current Status Initiatives 9 months to protect ELS cotton are specified farmers from adverse at US$ 0.52/lb and US$ market conditions. 0.7977/lb, respectively for CY 2008, CY 2009 Loan Deficiency and CYs 2010-2012. Payments are meant to support producers Loan Deficiency with a cash payment Payments are available option without for all loan commodities indebting their except ELS cotton. commodity. Commodity Speeding up the Commodity certificates Continues cotton Certificates process of obtaining can be purchased at storage payments, but commodity loan. effective adjusted reduces rates by 10% world price for upland from rates provided in cotton. 2006 for CY 2008-11. Reduces rates by 20% USDA is authorised to for CY 2012 pay storage and other costs associated with upland cotton going into the loan program. Average Crop To reduce market risks ACRE is first time ACRE revenue Revenue Election by allowing farmers to introduced in Farm Bill payments are available (ACRE) Program lock in revenue 2008. It provides a on 83.3% of acreage guarantee. better match to the planted or considered producer‘s current planted to covered production of all commodities or peanuts covered crops in CY 2009-11 and 85% (including upland in CY 2012. cotton) than the traditional schemes. Payments under ACRE are only triggered when revenue falls below the guarantee. Recourse Loans Enhancing support to Repayment of Recourse seed cotton for High-Moisture farmers for cotton recourse loans made loans are available on Corn and Seed farming. under this section was any production of upland Cotton made at loan rate and ELS cotton. established for the commodity, plus interest. 68 Exhibit 1.4.8: United States Farm Bill 2008 Major Policy Objectives Measures Current Status Initiatives Special Upland To temporarily increase Special import quotas A limited global import Cotton Marketing cotton supplies into the are permitted quota was authorised Loan Provisions country when average monthly spot price of base- quality upland cotton exceeded 130% of average price during preceding 36 months. Upland Cotton To increase domestic Economic Adjustment From August 1, 2008 Economic cotton consumption Assistance will be through July 31, 2012, Adjustment provided to all economic adjustment Assistance domestic users of assistance equal to 4 upland cotton for all cents/lb shall be documented use of provided to domestic upland cotton during users of upland cotton. previous month Payment rate drops to 3 regardless of the origin cents/lb on August 1, of the cotton. This 2012. provision is first time Assistance can be used introduced in Farm Bill only for acquisition, 2008. construction, installation, modernisation, development, conversion, or expansion of land, plant, buildings, equipment, facilities, or machinery. Special To increase exports and Payments were made Payments were made to Competitive maintain to domestic users and lowest priced competing Provisions for competitiveness of ELS exporters when world ELS cotton was less Extra-Long Staple cotton in world markets market price was than 134% of ELS loan Cotton below the US price for rate to exporters and 4 consecutive weeks. domestic users. Cotton Price For better information Agricultural Marketing Restriction is repealed in Forecasting dissemination Act 1929 prohibited Farm Bill 2008. any prediction of cotton prices from issuance or inclusion in any government report, bulletin, or other such publication. 69 Exhibit 1.4.8: United States Farm Bill 2008 Major Policy Objectives Measures Current Status Initiatives Crop Insurance Obtaining cost savings, Title XV of the Farm Producers who will and Disaster greater compliance and Bill 2008 authorizes suffer losses on eligible Assistance giving special treatment the Supplemental commodities in to organic farmers. Agricultural Disaster designated agricultural Expanding research and Assistance Trust Fund. disaster counties and development. Timing producers with losses shifts in premium due that exceed 50% for dates and company farms in counties expense outside a disaster area reimbursement. Giving will be eligible for regular opportunities for assistance under this the Risk Management program. Agency (RMA) to evalu- ate the industry. Source: USDA, D&B India China 1.4.12. China is of particular significance in the world cotton industry given that it is not only the largest cotton producer but also the biggest consumer of cotton. There are five main cotton-planting areas in China: the South China Region, the Yangtze River Region, the Yellow River Region, the North Region, with a Special Early-Maturing Cotton Region and the Northwest Inland Region (China Agricultural Network, 2007). Among them, Xinjiang Autonomous Region (included in Northwest Inland Region) takes a significant position in cotton production in China. 15 1.4.13. According to ICAC data, the China‘s cotton production stood at an estimated 8.02 MMT during MY 2008-09. Despite being the largest producer of cotton, China‘s cotton production has been unable to meet its cotton consumption, which is estimated at 9.00 MMT for MY 2008-09. Thus, china imports large quantities of cotton and is the largest importer of cotton. China‘s cotton imports in MY 2008-09 are estimated to have been around 1.42 MMT lower compared to 2.51 MMT in the previous year. Destination-wise United States is the largest import origin for China followed by India. According to an USDA report India‘s share in China‘s cotton import has increased from 23% during MY 2006-07 to 32% in MY 2007-08. 1.4.14. Chinese government has over the years taken many measures such as providing seed subsidy, reforming the classification system etc to support the Chinese cotton as well as textile industry. While the Chinese cotton market has been liberalised to greater extent the Government has been intervening by way of state purchase and sale of cotton with an aim to maintain orderly conditions in 15 MY – Market Year for china is from August-July 70 the market. Government policies such as adjustment of sliding-scale duties, public acquisition of reserve cotton, adjustment of export rebates for textile products and cotton subsidies for improved species with a definite orientation to protect the farmer‘s interests and enhance China‘s sustainable development capacity for cotton products has provided substantial support to all the stake holders in China‘s cotton economy. Box 1.4.1: Working of the sliding scale duties and the macro adjustment by the Chinese Government As per information available, the Chinese government distributed 0.894 million tons worth of TRQs and 1 million tons worth of quotas with sliding scale duties in mid December 2009, which was done earlier than that in previous years. It is reported that a further one million tons of quotas with sliding scale duties will be distributed in April, 2010. The stated purpose of these measures is to increase cotton supply in order to stabilize domestic cotton prices while supporting the textile industry. It is estimated by Chinese authorities that a supply-demand gap of 3.3 million tons will be seen for the year, up from 1.7 million tons last year. Unlike in previous years, it may be difficult to source cotton internationally. Hence, in order to avoid ‗irrational cotton pricing‘, certain macro-control measures were decided upon during the National Cotton Modulation Conference‘ in Nov 2009. The following integrated control measures are expected to be published soon. Apart from distribution of quotas as mentioned above, cotton reserves will be sold to maintain a demand- supply balance, and avoid sharp price increases. In 2009, 2.62 million tons of reserve cotton was reportedly sold. 71 1.4.15. Some major policy initiatives of the Chinese Government to support the cotton industry have been discussed in the below table: Exhibit 1.4.9: Chinese cotton policy round-up Policy Objective Measures Current Status Cotton Quality To align China‘s Transfer responsibility of As of the end of 2008, Classification Classification cotton quality classification 1,343 gins had been System Reform System with and labelling to the Bureau of completed or were Plan international Fibre Inspection of China undergoing renovation of standards (BFIC) from the processing equipment, of which 1,257 industries. gins having a total baling To create a more capacity of 6.8 MMT were objective and Develop a National Cotton completed scientific testing Quality Database. process 85 classification laboratories equipped with Develop Quality Standards for 278 HVI instruments HVI Testing. Replace the capable of classifying 4.2 earlier testing method based MMT of cotton were on the classifier‘s subjective developed by around 82 judgment and experience to a classification agencies new system based on high spread nationwide volume instrument testing (HVI). Increasing number of gins participating in cotton HVI Replace the 85 Kg bales used classification Around 1,216 earlier with international gins participated in cotton standard of 227Kg bales. HVI classification as of the end of 2008, up 57 percent Develop a new humidity over that in 2007. control system to ensure appropriate moisture levels for cotton throughout the Total processed cotton processing chain. based on the new classification system Built Specialised Cotton reached 2.8 MMT during Warehouses where tested 2008 and classified cotton will be According to China‘s delivered on a voluntary basis cotton classification plan, without changing ownership. the new classification The seller will deliver cotton system will be fully out of the designated enforced by September warehouses after a sale is 2010; specifically ―small completed. bale‖ cotton will not be allowed to enter the Classification to be shifted market. from textile factories to the processing enterprises. Concession loans are Classifiers will be trained and being provided to the licensed before they are hired entities engaged in the reform for equipment renovation 72 Exhibit 1.4.9: Chinese cotton policy round-up Policy Objective Measures Current Status Multi-year “seed To stabilise the The subsidy provided to large According to USDA a total subsidy” cotton planted seed producers/traders for of $72 million (RMB 500 program area selected ―high quality million) per year in 2007 varieties‖ through an open and 2008 has been bidding process appropriated to cotton seed producers/traders to cover 2.25 MHa of the planted area in major cotton-producing provinces Subsidy to To facilitate the On June 23, 2008, MOFIN - Transportation shipment of published announcement on of Xinjiang outbound Administrative Measures on Cotton Xinjiang cotton Subsidy to Transportation of which is Xinjiang Cotton, whereby the generally GOC will provide a hindered by transportation subsidy for the railcars shipment of cotton out of shortages Xinjiang, effective MY08-09 through MY10-11 tentatively. The subsidy rate is $59 (RMB 400)/MT. Targeted loans To financially The Agriculture Development According to the USAD, as assist domestic Bank of China (ADBC) at end March 2008, ADBC cotton marketing provides targeted loans with disbursed loans for more favourable terms for the than 4.4 MMT of the 2007 purchase of cotton. crop Xinjiang‘s loans reached a record $3.7 bn covering more than 2.1 MMT of the MY07-08 crop in the province, up 13 percent over the previous year. State cotton To support the Government conducts sales - reserve domestic cotton and purchase of cotton management price and policy facilitate marketing of domestic cotton Enhance the ongoing classification reform by paying out a premium for large bale cotton. 73 Exhibit 1.4.9: Chinese cotton policy round-up Policy Objective Measures Current Status “Quality Credit To strengthen General Administration of - Assessment the inspection Quality Supervision, Measures”. and quarantine Inspection and Quarantine of supervision of People's Republic of China imported cotton, (AQSIQ) decided to implement registration Prevent from management upon the misdeeds in overseas cotton supplier trade, such as enterprises who are going to defect or export to China mainland adulteration, (overseas supplier enterprises). Guarantee the quality of imported cotton Tariff Rate To regulate the On joining the WTO, China Quota (TRQ) market and was required to establish protect the Tariff Rate Quotas (TRQ's) on interests of both a number of commodities farmers and the including cotton, permitting domestic textile imports of a stipulated amount industry at a nominal tariff (1% for in- quota cotton). The GOC adjusts the tariff rate applied to cotton imports under the additional TRQ as an when required Source: Various, D&B India Brazil 16 1.4.16. In 2008-09 , Brazil accounted for around 5.19% of the total world cotton production after increasing to 6.12% in 2007-08 from 4.05% in 2005-06. Brazil‘s cotton production declined by around 23.85% during 2008-09 primarily on account of reduction in planted area, especially in the Mato Grosso region. According to a USDA report, the farmers shifted area under cotton production to soyabean and other commodities mainly due to lack of adequate financing. In the last few years although consumption of cotton in Brazil has witnessed marginal improvement, it has been lower compared to the domestic cotton production. Consumption of cotton has declined by 7.07% during 2008-09. Brazil is emerging as one of the leading exporter of cotton. Brazil‘s cotton exports increased at an annual average rate of 21.41% in the last four years (2006-2009) 16 2008-09 refers to the period from August 2008 to July 2009 74 1.4.17. Brazilian Government has over the years devised policies to aid agriculture sector in general and some commodities in particular. While certain policies such as the Preferential credit policy are aimed at providing support the entire agriculture sector, other like the income support programs have been introduced to promote certain commodities. Preferential credit policies, which have been in place in Brazil since the 1970s, are primarily aimed at stimulating the expansion of agricultural production. New income support programs were also put in place in Brazil since the agricultural policy reform in the early 1990s. The details of some of the major policy initiative taken by Brazil to support cotton sector have been enumerated in the below table: Exhibit 1.4.10: Brazil cotton policy round-up Major Policy Objective Measures Initiatives PEP (Premium To supplement the supply of Premium is paid to wholesale buyers who are to Commercial commodities in areas of the wiling to acquire the product indicated by the Buyers) country considered to be federal government from the farmer and /or deficient in agricultural cooperative at a reference value production premium is equal to the difference between the minimum guaranteed price and the market price. PEPRO Compensate the farmers for the Government grants a premium to the farmer or (Equalization weakening U.S. dollar in relation cooperative which sells its products at public Premium to to the Reais. auction. Farmers) The premium paid is the difference between the Reference Value established by the government and the value of the premium (the maximum value paid by the government as a guarantee of the Reference Value) PROP To signal future price for the It is a subsidy program granted in the form of a (Premium to market public auction for the consumer to acquire, at a Commercial future date, a determined product directly from Buyers under a Guarantee future income to the the producer and/or cooperative at a prefixed Private Sell farmers price, utilising a private contract for the option Option to sell. Contract) Government pays buyer of the product a risk premium if the market price falls below the option exercise price AGF (Federal To ensure purchase of product The Government buys agricultural products at Government at a minimum price determined the minimum price when the market price is Acquisition ) by the Government below the minimum. To support the farmers To support commodity prices Source: Various, D&B India 75 Pakistan 1.4.18. Pakistan announced its first ever Textile Policy 2009-2014 during August, 2009. Policy targets to increase exports from the existing US$ 10 billion to US$ 25 billion by the end of policy period. The following initiatives have been taken to support domestic textile industry by the government. Exhibit 1.4.11: Pakistan cotton policy round-up Major Policy Initiatives Objective Cotton Standardisation System To earn better price in the international market (1987-1992) To allow graded cotton to be used for domestic use Clean Cotton Programme To enable production of standardised and clean (free from (2005-06) contamination) cotton Cotton Fibre Testing To encourage instrumental classification of cotton fibre Infrastructure and technological To develop clusters with amenities such as laboratories, development product development centres, research centres, etc. To develop ginning factories (import duty on ginning presses reduced to 5% Focus in value addition To introduce BT cotton on priority basis To enhance production of long staple cotton Marketing Insurance Schemes To foster the export of cotton fibre & Zero rating of Exports To protect exporters against unforeseen losses Tariff Rate Quota (TRQ) To regulate the market and protect the interests of both farmers and the domestic textile industry First Textile Policy (2009-2014) To increase exports from present level of US$ 10 billion to US$ 25 billion. Source: D&B India 76 STOCK-TO-USE RATIO ANALYSIS: 1.4.19. SU ratio can be defined as the level of carryover (ending) stock for any particular commodity as a percentage of the total demand or use. It indicates the interrelationship between supply and demand of any commodity. 1.4.20. The stock-to-use ratio can be calculated by following mathematical expression. (Beginning Stock + Production + Imports) — (Domestic Consumption + Exports) x 100 (Domestic Consumption (OR) Mill Use + Exports) 1.4.21. Stock-to-use ratio is considered as one of the important indicators of future price trend of any commodity as it indicates the surplus supply against demand. According to a study comparing the monthly world stocks-to-use estimates (in percent) with the cotlook A-index of world cotton prices (in cents per lb), the stocks-to-use ratio vary inversely with world prices. 1.4.22. World stock-to-use ratio of cotton has largely remained range bound albeit some fluctuations depending on the production and consumption of cotton across various countries in the world. During 2004-05, the growth in world cotton production (27.86%) outpaced the growth of world cotton consumption (9.63%) leading to surge in the SU ratio. The SU ratio surged to 49% in 2004-05 as compared to 41% during 2003-04. SU ratio remained stable at 49% in 2005-06 and experienced marginal decline in the two subsequent years before increasing to 56% in 2008-09. The increase in SU ratio could be attributed to the slowdown in consumption and weaker international price scenario in 2008-09. 77 17 Exhibit 1.4.12: Stock-to-Use Ratio in Major Cotton Producing Countries (Crop year: August-July) Countries 2004-05 2005-06 2006-07 2007-08 2008-09 World 49.0 49.0 48.0 47.0 56.0 India 52.0 37.0 33.0 28.0 59.0 India* 37 24 20 15 21.4 China 32 42 34 30 42 United States 26 26 53 55 41 Pakistan 36 32 30 31 28 Brazil 72 44 75 69 46 *Data is taken from Cotton Advisory Board, Indian cotton crop year: October-September Source: ICAC (cotton: world Statistics September 2009), D&B India 1.4.23. There has been no general pattern observed in the SU ratio of major countries of the world. The SU ratio varies across different countries depending on their domestic production, consumption and its trade of cotton. The SU ratio is generally calculated according to the cotton cropping season of any country. 17 Stock-to-use ratio is calculated as ending stocks divided by consumption plus exports. 78 1.5. FUTURE PROJECTIONS FOR COTTON FIBRE 1.5.1. Cotton fibres lie at the lowermost level of the textile chain with readymade garments and other final products being in the final stage. Production and consumption at each stage is influenced by the demand supply dynamics for readymade garments. D&B India has projected the cotton fibre 18 consumption on the basis of apparent cotton fabric consumption in the country. For projection of production, D&B India has taken two production yield scenarios in the country. FUTURE OUTLOOK OF INDIA’S COTTON PRODUCTION D&B Forecasts: 1.5.2. Cotton production is largely dependent on the area under cotton production coupled with its productivity. Given the issues pertaining to food security and land pressures, it has been assumed that the area under cotton production is largely constant at the current level (which is 94.06 lakh hectares). Thus, the future production is expected to be driven by improvement in cotton yield. The following exhibit showcases the forecasting methodology adopted in projecting production Exhibit 1.5.1: Production of cotton fibre forecasting methodology Source: D&B India 18 Apparent cotton fabric consumption= Production + Imports-Exports 79 1.5.3. The following two scenarios have been considered for projecting the future cotton production in India: Scenario I: Cotton yield will grow by 4.0% Scenario II: Cotton yield will growth by 4.7% (growth rate required to achieve the current average yield of cotton in the world, excluding the cotton yield in India at 873 kg/ha by 2020) Exhibit 1.5.2: Cotton fibre production forecasted by D&B India Scenario I Scenario II Year Estimated production Yield (Kg Estimated production (Lakh Yield (Kg (Lakh bales) /ha) bales) /ha) 2010-11 315 569 319 577 2014-15 368 666 384 693 2019-20 448 810 483 873 Source: D&B India Production forecast by Directorate of Cotton Development, Mumbai (DOCD) 1.5.4. The forecast of DOCD are based on the following assumptions: Area expansion is limited and there will be no increase in area. It can be ranged between 95- 100 lakh hectares Maximum production and yield obtained in major states during last few years were taken as the base for estimation Availability of irrigation potentiality in the respective states was considered. Growth rate of cotton production during the last decade in the country. 1.5.5. Based on the above assumption, the forecast of cotton production by DOCD are as follows: Exhibit 1.5.3: Forecasting of cotton fibre production by DOCD, Mumbai Estimated production Projected yield Year (Lakh bales) (Kg lint per ha) 2010-11 330 561 2014-15 395 671 2019-20 475 807 Source: DOCD Mumbai 80 FUTURE OUTLOOK FOR COTTON CONSUMPTION IN INDIA 1.5.6. The estimated consumption of cotton is derived by applying a conversion ratio to the estimated consumption of cotton fabric. The fabric consumption is determined by world GDP growth rate, India‘s PCI (per capita income) and the growth rate of MMF (man made fibre). The following mathematical expression showcases the relationship between fabric consumption and stated variables. Fabric consumption=f (World GDP growth, India’s PCI, Growth in MMF production) 1.5.7. The following exhibit depicts the forecasting methodology adopted in consumption projection. Exhibit 1.5.4: Forecasting Methodology Source: D&B India Box 1.5.1: Conversion ratio The conversion ratio shows the amount of average cotton fibre (in kg) required to manufacture one square meter of average cotton fabric. D&B India has applied the conversion ratio to arrive at cotton fibre consumption that has been derived from a certain value of cotton fabric consumption for all periods under consideration. Source: D&B India 81 1.5.8. Key assumptions World GDP growth rate – 4% (as per IMF World Economic Outlook October 2009) India‘s PCI growth rate – 6.5% (6.5% PCI growth is derived taking into consideration a GDP growth of 8% and population growth of 1.5%. GDP growth of 8.0% is expected to be driven by expected average investment rate of close to 35% and an expected consistent increase in demand.) MMF (100% non-cotton) production growth - 10% (with a GDP growth of 8%, the growth in MMF production (100% non-cotton cloth) has been estimated at around 10% 1.5.9. On the basis of the above assumptions, cotton consumption is forecasted to increase to around 413 lakh bales by FY20. Exhibit 1.5.5: Cotton consumption forecast Cotton fibre consumption Year (Lakh bales) 2010-11 267 2014-15 323 2019-20 413 Source: D&B India Based on these forecasts cotton fibre consumption is expected to have 52% share in the total fibre consumption as compared with 48% of MMF consumption in FY20. IMPLICATION: 1.5.10. The forecast for domestic cotton consumption and production for the next 10 years reveal that the surplus of production over consumption will decline gradually. Exhibit 1.5.6: Scenario I – Yield growth 4% (in lakh bales) Year Production Consumption Surplus 2010-11 315 267 48 2014-15 368 323 45 2019-20 448 413 35 Source: D&B India 82 Exhibit 1.5.7: Scenario II - Yield growth 4.7% (in lakh bales) Year Production Consumption Surplus 2010-11 319 267 52 2014-15 384 323 61 2019-20 483 413 70 Source: D&B India 1.5.11. The robust increase in domestic consumption is likely to drive down the surplus in cotton over the years. Thus, it is essential to focus on significantly improving the domestic production of cotton to meet the expected increase in domestic demand for cotton. 1.5.12. Given that the area under cotton cultivation in some of the major cotton producing countries such as the US has declined in the last few years, India has an opportunity to emerge as a leading exporter of raw cotton. Moreover, cotton drives India‘s strength in the global T&C markets. In the coming years, this strength is expected to accelerate considering the fact that both area under cotton cultivation and production are declining in China and the US. Over the past few years, there has been an increasing inclination towards shifting the textile processing base to emerging countries. Thus, India will be able to make use of the growing opportunities in the cotton industry by increasing its cotton production and strengthening its textile value chain. ESTIMATING THE INVESTMENT REQUIRED FOR STRENGTHENING THE TEXTILE VALUE CHAIN 1.5.13. Given that the production of cotton fibre, MMF fibre and filament yarn is expected to witness a substantial increase in the next 10 years, the installed capacity for value addition under the textile value chain also needs to improve substantially to absorb the expected increase in fibre production. It is estimated that investments worth Rs 176,510 crore will be needed during FY10-FY20 for creating the required capacity along the textile value chain. The required capacity has been estimated on the 19 basis of the increased fibre production . The underlying assumptions used to arrive at investment estimates (mentioned against each segment below) are based on the Vision for Indian textile and clothing industry CITI 2007-2012, Report of working group on Textiles & Jute industry for the eleventh 19 The D&B estimates for fibre consumption for cotton and MMF are an underlying assumption for these investment estimates. The consumption for cotton fibre in 2020 by domestic mills is assumed as 6885 mn kg and that for MMF fibre and filament is assumed as 6001 mn kg. The investment estimate therefore considers both MMF as well as cotton segments. 83 five year plan (Ministry of textile) and inputs from major industry stakeholders, who are members of the sub-group. Exhibit 1.5.8: INVESTMENT REQUIRED TILL THE TERMINAL YEAR 2020 (RS CR) Spinning 63,525 Weaving 38,485 Knitting 12,499 Processing 26,695 Garments 35,305 Grand total 176,510 Source: D&B India Estimated investment in spinning sector 1.5.14. The estimated investment in the spinning sector has been arrived at on the basis of the assumptions stated below: 49. It is assumed that the average conversion ratio of cotton and MMF fibre to spun yarn will be around 0.9. 50. The productivity level for new spindles is taken as 190 gms/spindle/shift @95% utilisation. 51. It has been assumed that 1.65 mn spindles will be replaced every year from the existing spindles. 52. Productivity of spindles replaced is taken as 175 gms/spindle/shift and 90% utilisation. 53. It has been assumed that 20% of the discarded spindles will be reused although at lower productivity level of 155 gm/spindle/shift and at 80% utilisation. 54. For estimating yarn production on old spindles, it has been estimated that 8 mn spindles are out of use. Therefore, the present spindles capacity is 32 mn spindles (as against 39 mn spindles mentioned by the Office of Textile Commissioner). 55. The productivity for existing spindles is taken as 150 gms/spindle/shift @90% utilisation. 56. Second-hand spindles will be used to replace 15% of the required spindles. 57. As compared with the cost of modernisation per spindle (Rs 10,000) and the capital cost for new spindle (Rs 35,000) a second-hand spindle will cost Rs 10,000. 84 Exhibit 1.5.9: INVESTMENT REQUIRED IN SPINNING SECTOR BY 2020 Spinning Units 2019-20 Yarn production on spindles replaced Replacement spindles-1.65 mn per year mn 18.15 Annual output (per spindle/per shift -175 gm @90% utilisation) kg 168 Annual yarn production on replaced spindles mn kg 3,053 Yarn production on existing spindles No. of old spindles ( 32 mn -18.15 mn) mn 13.85 Annual output/spindle (per spindle/per shift -150 gm @90% utilisation) kg/year 144 Annual yarn production on existing spindles mn kg 1,997 Yarn production on discarded spindles which will be reused (3.63 mn) (20% of discarded will be reused (of 18.15 mn) , productivity 155 gm/per mn kg 481 spindle/per shift and at 80% utilisation Total yarn production mn kg 5,531 Projected spun yarn production (2019-20) mn kg 8,330 Additional yarn production for which new spindles required mn kg 2,799 Annual output /spindle (per spindle/per shift -190 gm at 95% utilisation) kg/year 193 No of fresh spindles required mn 15 No of spindles for fresh capacities acquired second hand mn 2 Capital cost for a new spindle Rs 35,000 Capital cost of a second hand spindles (per spindle) Rs 10,000 Cost of modernisation of spindles ( per spindle) Rs 10,000 Total projected investment (for approx. 34 mn additional spindles) For new spindles Rs crore 43,197 For second-hand spindles Rs crore 2,178 For replacement Rs crore 18,150 Total Rs crore 63,525 85 Estimated investment in weaving and knitting 1.5.15. The estimated investment in the weaving and knitting sector has been arrived on the basis of the below stated assumptions. Assumptions for weaving 1. The estimated fabric production has been arrived at by assuming a CAGR of 7% during FY09-FY20. Therefore, total fabric produced in 2020 is 114 bn sq meters. 2. 75% of the fabric produced is woven & 25% of the fabric produced is knitted 3. The break-up of additional fabric production would be as follows: On shuttle-less looms = 30%; On automatic looms = 30%; On semi-automatic looms = 15%; On plain looms = 25% 4. Average productivity of shuttle-less loom is assumed to be around 615 sq mtrs/day; production per automatic loom per day = 175 sq mtrs/day; production per semi-automatic loom per day = 110 sq mtrs/day; production per plain loom per day = 100 sq mtrs/day 5. Capital cost of new shuttle-less loom = Rs 25 lakhs; Capital cost of new automatic loom = Rs 10 lakhs; Capital cost of new semi-automatic loom = Rs. 1 Lakh; Capital cost of new plain loom = Rs. 1 lakh 6. Capital cost of second hand shuttle-less loom= Rs. 12 lakh; Capital cost of second hand automatic loom = Rs. 3 lakh 7. Number of working days in a year = 356 days Exhibit 1.5.10: INVESTMENT REQUIRED IN WEAVING SECTOR BY 2020 Weaving Units 2019-20 Additional fabric required by 2019-2020 bn sq mtrs 42.6 % of additional fabric production on shuttle-less looms 30% % of additional fabric production on automatic looms 30% % of additional fabric production on semi-automatic looms 15% % of additional fabric production on plain looms 25% Production per shuttle-less loom per day sq mtrs/day 615 Production per automatic loom per day sq mtrs/day 175 Production per semi-automatic loom per day sq mtrs/day 110 Production per plain loom per day sq mtrs/day 100 86 Exhibit 1.5.10: INVESTMENT REQUIRED IN WEAVING SECTOR BY 2020 Weaving Units 2019-20 Number of working days in a year days 356 Capital cost of new shuttle-less loom Rs lakh 25 Capital cost of new automatic loom Rs lakh 10 Capital cost of new semi-automatic loom Rs lakh 1 Capital cost of new plain loom Rs lakh 1 Capital cost of second hand shuttle-less loom Rs lakh 12 Capital cost of second hand automatic loom Rs lakh 3 Number of shuttle-less looms required No. 58,316 Number of automatic looms required No. 204,939 Number of semi-automatic looms required No. 163,020 Number of plain looms required No. 298,870 % of second-hand shuttle-less loom % 35% % of second-hand automatic loom % 15% % of second-hand semi-automatic loom % 0% % of second-hand plain loom % 0% Investment for new shuttle-less loom Rs cr 11,925.64 Investment for new automatic loom Rs cr 18,342.07 Investment for new semi-automatic loom Rs cr 1,630.20 Investment for new plain loom Rs cr 2,988.70 Total investment required Rs cr 34,886.00 Assumptions for knitting 1. Conversion factor (sq mtrs to kg) = 6 2. Average production per machine per day = 180 kg 3. Capital cost of new Machine = Rs 0.35 cr 4. Capital cost of second hand machines = Rs 0.1 cr 87 Exhibit 1.5.11: INVESTMENT REQUIRED IN KNITTING SECTOR BY 2020 Knitting Units 20019-20 Estimated additional fabric required in the terminal bn sq mtrs 16.7 year Conversion factor (sq mtrs to kg) 6 Additional fabric required mn kg 2,786 Average production per machine per day kg/day/machine 180 Number of working days in a year days 356 Average production per machine per year kg / year / machine 64,080 Number of machines required No. 43,476 Capital cost of new Machine Rs cr 0.35 Capital cost of second-hand machines Rs cr 0.1 % of second-hand machines % 25% Investment required Rs cr 12,499.00 Estimated investment in processing 1.5.16. The estimated investment in the processing sector has been arrived on the basis of the below stated assumptions. Assumptions: 1. It is assumed that 75% of the total fabric produced is processed 2. 75% of the additional fabric produced by the shuttle-less and automatic looms will require modernised processing units and the existing capacity could cater to the remaining production 3. Conversion ratio of linear mtr to sq mtr = 2.18 4. Number of meters processed per day = 100,000 linear mtr / day 5. Additional investment required for modernisation of existing process houses (assumed as 20% of investment in new process houses) 88 Exhibit 1.5.12: INVESTMENT REQUIRED IN PROCESSING SECTOR BY 2020 Processing Units 2019-20 Incremental fabric required for domestic bn sq mtrs 19 consumption by 2020 Additional processed fabric demand bn linear mtrs 8.80 Number of meters processed per day linear mtrs / day 100,000 Number of working days per day days 356 Rs cr per 100,000 mtr/day Cost of modern process house 90 capacity Investment required for new modern process Rs cr 22,246 houses Additional investment required for modernisation of existing process houses (assumed as 20% of Rs cr 4,449 investment in new process houses) Total investment required in processing Rs cr 26,695 Estimated investment in garmenting 1.5.17. The estimated investment in the Garmenting sector has been arrived on the basis of the below stated assumptions. The estimates for investment in garmenting excludes investment requirement of the technical textile sector. Assumptions 1. Conversion ratio for home textiles = 4.3 sq m/piece 2. Conversion ratio for garments = 2.03 sq m/piece 3. 75% of the processed fabric would be converted into garments by the garmenting industry 4. 60% of the fabric is produced for apparel segment 5. 35% of the fabric produced on shuttle-less looms is for home textile 6. 5% of the fabric produced on shuttle-less looms is for Technical textile 89 Exhibit 1.5.13: INVESTMENT REQUIRED IN GARMENTING SECTOR BY 2020 Garmenting Units 2019-20 Additional pieces required bn pieces 13 Number of pieces per day per machine pieces 15 Number of working days in a year days 356 Number of pieces per year per machine pieces/year 5,340 Number of machine required No. 2,353,686 Capital cost of new machine Rs lakh 2 % of second-hand machine % 0 Investment required Rs cr 35,305 90 1.6. THE SUB-GROUP ON COTTON TO FORMULATE NATIONAL FIBRE POLICY OVERVIEW 1.6.1. The sub-group on cotton was created to make suggestions towards the National Fibre Policy with regard to the cotton fibre, to ensure its sustained availability over a 10-year period. The sub-group has identified key issues and made recommendations towards the above goal. KEY ISSUES IDENTIFIED BY THE SUB-GROUP 1.6.2. Lack of irrigation facilities: Predominance of rain-fed area has been one of the major hindrances to cotton cultivation in India. Almost 65% of the area under cotton cultivation is rain fed and only 35% of it is irrigated, thus, exposing the cotton productivity to the vagaries of monsoon. This is more prominent in the central and southern zone where nearly 80% and 60% of area under cotton cultivation is rain-fed respectively. While the north zone has relatively better irrigation facilities, rising water table, salinity, high temperature in the early stages and emerging problem of CLCV are some of the major yield limiting factors. 1.6.3. Cotton contamination: Cotton is vulnerable to contamination at the harvesting, marketing and ginning stages if proper care is not taken. The two kinds of contaminants predominantly found in cotton are: Fibrous – Human hair, animal hair, bird feather, yarn pieces, cloth pieces, polypropylene fibres, jute etc. Non-fibrous – Stones, metallic wire, nails, rubber, leather, tin, insects etc. These contaminants are easier to remove, but can cause damage to the mechanical parts of the cleaning machinery. 1.6.4. Poor quality: Due to average cotton quality, a globally competitive cotton sector has been difficult to develop. With growing demand for high quality products, the cotton sector and larger textile enterprises have initiated imports of quality cotton. 1.6.5. Lack of infrastructure: Infrastructure in terms of transport is poor. The cost of transporting cotton fibre from one state to another incurs substantial cost. 1.6.6. Problem of admixtures (Different varieties of cotton fibre with different physical properties is mixed together). This leads to inconsistencies in strength, length, micronaire, colour and reflectance in 91 cotton. Admixture also makes the grading and testing of cotton difficult. Admixtures occur both at the harvest and post harvest stages when (a) different varieties of cotton are picked and stored together, (b) when different lots are mixed by local traders or farmers for transportation to the market, (c) in the markets before sale by farmers and traders and (d) at the ginner yard, where kapas is mixed before ginning. As a result, the average fibre quality in a bale of cotton has become unpredictable. Quality conscious mills, particularly the export oriented ones, are compelled to engage themselves in expensive bale management exercises to maintain yarn quality. 1.6.7. Absence of uniform standards: Another issue related to quality of cotton has been the absence of uniform quality standards across the country. While there are various agencies involved into quality testing and grading of cotton across, uniform standards are not being used. 1.6.8. Need for an Indian arbitration for imported cotton: Indian textile mills importing cotton have to encounter onerous problems because foreign buyers invariably stipulate Arbitration by International Cotton Association (ICA), Liverpool, in the sale contracts. India has been a regular importer of cotton and imports will continue in future. Therefore, unless corrective action is taken in right earnest, problems in future will get compounded. Various importing countries believe that ICA Bylaws and Rules are biased in favour of sellers. Cotton business, both national and international, needs to be codified with updated rules and regulations, based on the principle of natural justice. Historically, arbitration machinery was introduced in Liverpool when it was a major trading, Since Liverpool is no longer a trading centre, Liverpool Arbitration machinery has lost its relevance and therefore Indian Arbitration should be brought in its place. RECOMMENDATIONS OF THE SUB-GROUP: 1.6.9. The following broad objectives for the National fibre policy have emerged from the deliberations of the sub-group: The National Fibre Policy should be fibre-neutral. The fibre policy should look to accord priority to the cotton fibre value chain in the following order of priority: o Farmers o Domestic mills o Other cotton consuming countries It should enhance production, sustainability and growth of cotton It should target enhanced competitiveness of cotton fibre, as well as ensure most judicious and efficient utilisation of country‘s strength for sustainable development of all the sub sectors of the cotton economy through backward and forward integration. 92 To strengthen and improve vibrancy in cotton economy, through upgraded and reformed marketing system and conscious branding of cotton for use. To create an institutional mechanism which monitors, coordinates and also create unified platform of all other interests on lines of National Cotton Council of USA. 1.6.10. The recommendation made by the sub-group members can largely be divided under the following broad heads: I. Recommendations for enhancing production: 1.6.11. The members of the sub-group opined that major interest of the policy for cotton fibre should be enhancing the production of cotton. Augmenting cotton production would not only help India to meet the growing domestic demand but also explore export opportunities. The following recommendations have been made by the members of the sub-group for augmenting cotton production in India: An institutional framework could be created for development of cotton fibre. The institution thus established could provide funding and direction for research in a holistic manner. Improving irrigation facilities and water harnessing was considered imperative for enhancing production and lowering its dependence on monsoon. The area under irrigation could be increased to 60% from its present level of 38% at national level. Further, members opined that drip irrigation system could be adopted for better water management. Drip irrigation system could be adopted in at least of 30-40% of total cotton area. Initiative should be taken to increase awareness among farmers for adoption of rain water harvesting, soil moisture conservation techniques, suitable agronomic practices in order to increase the utilisation of rain water. 1.6.12. Improving Cotton Yield – New Practice: New farming practices could be developed in order to increase the cotton yield. Various programmes could be devised to increase awareness regarding rain water harvesting, soil moisture conservation techniques and suitable agronomic practices among the farmers. Precision farming was considered as important too for enhancing cotton productivity. Emphasis could be given to spread of ‗Precision farming‘ to improve yield per unit area for all areas. Measures could be taken to enhance production and supply of ‗Green manure / FYM / Compost / Vermi-compost‘ in the country to maintain soil productivity at sustainable level. Green manure / FYM / Compost / Vermi-compost production and supply has to be taken up at large scale under organised sector so that it become available to all cotton growers. This is must for maintaining soil productivity at sustainable level. 93 1.6.13. Extension Services: Improved extension activities and certification facilities with subsidised inputs could be provided to cotton farmers to sustain their income level. In field extension, Public-Private Sector Partnership projects may be launched on ―Large Area‖ basis, ensuring technology inputs and marketing tie-up, so that diversion of cotton area to other competing crops can be minimised. 1.6.14. Research Thrust: National research thrust for the cotton production sector could continue. It was recommended that the focus of the national research on cotton could be laid on increasing the lint productivity through improvement in ginning outturn of varieties / hybrids to the level of 40 – 42% as compared to 34 – 36% of current cultivars. 1.6.15. Integrated Pest Management Practices: On line pest monitoring system at block level and IPM network to advise the farmers could be strengthened. Integrated disease and pest management strategies could be implemented vigorously on cluster basis. 1.6.16. Nutrition Management: Availability of sufficient quantity of micronutrients as in case of NPK could be ensured. Fertiliser companies could give equal importance to micronutrient manufacturing & marketing. 1.6.17. Training and awareness: The system of transfer of knowledge to farmer through Farmers Field School (FFS) could be continued and it could be taken up in each Gram Panchayat of Cotton growing area. Sufficient number of Cotton Masters Trainer needs to be generated through season long ToF training in order to ensure availability of one cotton Master Trainer at each Block level. 1.6.18. Co-ordination and interaction of various NGOs: Lessons can be derived from micro examples of yield improvement and production enhancement programs run by CAI, CITI, CDRA and SIMA in different states of the countries. The case studies of some projects conducted by CITI-CDRA and 20 SIMA-CDRA have been appended in the Annexure . 1.6.19. Contract Farming: The practice of Contract Farming can augment production, also create demonstrative models, for improving farm practices, increasing productivity and sequentially direct itself towards balancing overall supply and demand of cotton. 1.6.20. Wasteland Commissioning: Commissioning and restructuring of land can increase availability of land for profitable cotton farming, through contract and company – driven corporate farming. 20 The submission of Dr. KR Kranthi, Acting Director, CICR Nagpur have been supplemented with this report 94 II. Recommendations for enhancing investment along the textile value chain: 1.6.21. The interest compensation of 5% available under the Technology Upgradation Fund Scheme (TUFS) has helped in incentivising investments in the T&C industry. TUFS has had a major role to play in the growth of the industry and increased investments in recent years in the sector. Given the significant estimated investments required for the textile value chain, it is therefore recommended that the Technology Upgradation Fund Scheme is continued, so that the industry may avail of the benefits under it. III. Recommendations for Improving Quality: 1.6.22. Improvement of Fibre parameters: The focus of the national research on cotton could be on optimising the components of fibre quality parameters to meet the end use requirements of the spinning sector which is producing yarn, in a wide range of spinning counts. Improvement of Fibre parameters through ―Fibre Engineering‖ by deploying Bio Technology and commissioning researches 1.6.23. Research Integration: Constant Research to improve and optimise fibre properties comparable to benchmark international high rank qualities for cotton. There should be focus on Fibre Balancing Research (Between Supply & Demand) and an attempt to integrate research to capacitate every node of the value chain. 1.6.24. Use of coloured poly propylene bags: To prevent contamination and also, to facilitate detection of contamination the use of white poly propylene bags for packing fertilisers should be replaced by the use of coloured poly propylene bags. 1.6.25. Infrastructure of Cotton: There is a serious need to improve ―Logistics of Cotton‖. The Logistics includes conduct of cotton and its upkeep in warehouses and at port. The ware housing should be scientific and IT enabled to develop into dematerialised trading and movement of goods. Pressed cotton also needs to be stationed and warehoused at accessible affordable places. The members of the sub-group recommended that steps could be taken to improve logistics for transporting cotton, so that cotton fibre can be supplied from surplus to deficient areas in a clean manner. IV. Recommendations for improving infrastructure: 1.6.26. There is a serious need to improve the logistics of cotton, which includes conduct of cotton and its upkeep in warehouses and at port. The ware housing should be scientific and IT enabled to develop into dematerialised trading and movement of goods. Pressed cotton also needs to be stationed and warehoused at accessible affordable places. Steps could be taken to improve logistics for transporting cotton, so that cotton fibre can be supplied from surplus to deficient areas in a clean manner. 95 V. Recommendation pertaining to export of cotton fibre: 1.6.27. A healthy stock-to-use ratio could be maintained in order to avoid any distortions in the cotton market. 1.6.28. Trade policy for cotton could target exports of surplus cotton after meeting the requirements of domestic mills. Imports can happen in slots, where there may be deficit in domestic production. No import duties are needed, and any restrictions on imports could be need-based. 1.6.29. Exports of cotton fibre should be monitored on a time-to-time basis each cotton-year, so as to ensure stability in supply as well as prices for cotton fibre to the domestic mills. VI. Recommendations for improving marketing and branding of cotton: 1.6.30. Grading of Kapas is imperative for improving the marketing and branding of Kapas and lint. The grading system by independent agency, better organised, regulated ware housing system, better contracting system with risk management instruments, will raise the dynamics of Indian cotton to a greater level of acceptance, fine image and remarkable branding. Creation of a Competing Crops Pricing Index could be explored so as to ensure judicious allocation of resources in crop patterns. A structured mechanism for promotion of cotton use could be developed, in order to sustain domestic consumption on a long term basis, so as to maintain the strength of cotton economy. Pilot projects for marketing of lint by the farmers, instead of kapas as at present could be considered. This might result in higher income to the farmers and accelerate cotton production. The role and functions of Government agencies involved in marketing of cotton fibre can be looked into for any reorientation of their role towards inclusion of price stability. VII. Recommendations towards value addition in the cotton value chain: 1.6.31. Returns on cotton fibre can be enhanced through backward integration of the cotton value chain. The example of the sugar industry could be adopted for the cotton industry, through such activities as de- linting and use of cotton stalks which presents great opportunity with minimal investments. Further, realisation on seed can be improved through more R & D on cotton oil and cotton seeds. 1.6.32. Considering that governments across the world are starting to action to reduce green house emissions. For example the Australian Carbon Pollution Reduction Scheme is likely to cover cotton, due to emissions from application of nitrogen fertilizer, release of carbon dioxide from biological decomposition, methane from water logging, emissions from processing cotton etc. Therefore, careful 96 study is recommended so that a strategy for countering Carbon Emission Reduction Scheme can be framed. VIII. Recommendations towards Risk Management: 1.6.33. Effective risk management is crucial for protecting the interest of all stakeholders in the Indian cotton economy. An efficient, integrated contracting system covering spot transactions forward transactions and futures transactions would be required for effective risk management. IX. Recommendations towards drawing lessons from policies of other cotton producing countries: 1.6.34. A policy review of some of the cotton producing countries has been outlined in section 4.2 of this report. Lessons could be drawn from policies in these countries that are pertinent to India and could be suitably adopted. For example, the independent gradation certification system of total crop existing in US could be studied and a similar system could be developed after suitable modifications. 97 1.A. ANNEXURE 1.A.1. CASE STUDIES SPECIFIC PRODUCTION TECHNOLOGY AND YIELD ENHANCEMENT PROGRAMMES RUN BY CITI-CDRA AND SIMA-CDRA 1.A.1. Front Line Demonstrations (FLDs) under Mini Mission II of Technology Mission on Cotton are focused on transfer of modern/improved cotton production technologies including farm implements/machinery as well as improved cotton varieties and hybrids. FLDs helped farmers to increase yields and reduce the use of pesticides and production cost significantly by demonstrating high yielding varieties and hybrids suited for various agro-climatic conditions, approved transgenic cotton varieties, integrated nutrient management (INM), integrated pest management (IPM) and application of bio-fertilisers. Under this initiative, scientists receive feedback from cotton farmers, which subsequently help to improve as well as disseminate of technology. CITI-CDRA (Confederation of Indian Textile Industry- Cotton Development and Research Association) and SIMA-CD&RA (The Southern India Mills Association–Cotton Development and Research Association) conducted various FLDs in state of Rajasthan and Sothern India, respectively. CITI-CDRA (Confederation of Indian Textile Industry-Cotton Development and Research Association) 1.A.2. CITI-CDRA conducted 1200 FLDs on production technologies (PTs) for cotton and 3 FLDs on integrated pest management in Banswara and Bhilwara districts of Rajasthan during 2008-09 with an investment of Rs 27.5 lakhs for the FLD programmes on PTs, IPM and awareness programmes. The total expenses as on January 31, 2009 were estimated at Rs 26.5 lakhs. The villages and the farmers to be covered under the FLDs on Production Technology and IPM were selected by the Deputy Directors of Agriculture (Extension), Banswara and Bhilwara districts. 1.A.3. These are following objectives of CITI-CDRA initiatives: Transferring modern/improved cotton production and protection technologies among cotton farmers by giving training to the farmers through organising field visits, arranging field days and ‗Kissan Melas‘ and conducting Awareness Campaigns. Demonstrating high yield ‗High Yield Varieties‘ (HYVs) and hybrids including approved transgenic cottons (Bt. Cottons) suitable for various agro-climatic conditions prevalent in Banswara and Bhilwara districts of Southern Rajasthan. 98 Increasing yield and reducing production cost (including pesticide cost) through INM, IPM, application of bio-fertilisers and bio-pesticides and emphasis on water management and inter- cropping system. Promoting quality consciousness among cotton farmers via improved practices for picking of kapas, its storage and transportation for marketing. Improving the overall economic conditions of farmers Production Technologies 1.A.4. The production technology and integrated pest management to be demonstrated at the above Front Line Demonstration Villages were recommended / approved by the Agriculture Research Station (ARS), Banswara attached to the Maharana Pratap Agriculture University, RCA Campus, Udaipur as the concerned FLD villages of Banswara and Bhilwara districts fall within the jurisdiction of the University. The technologies finalised and demonstrated in the FLD villages included the following:- 1.A.5. Production technologies (PTs) demonstrated in FLD Sowing of BT Cotton and refugee crop. Intercropping of Maize, Soya Bean, Pigeon Pea and Black Gram. Ensuring proper plant population by adopting of gap filling to maximise yield. INM including use of micro-nutrients - Zinc Sulphate, Planofix (NAM) including foliar spray. Clean – weed Free – cotton cultivation including cleaning of borders. Water management: Preparation of ridges and furrows at the time of last hoeing in-situ moisture conservation of run-off excess rain water. ETL (Economic Threshold Level) based pest and disease management Checking flower and fruit shedding through harmon spray Nipping of terminal 10th-12th node for arresting terminal growth. Need based use of pesticides, including use of bio-pesticides 1.A.6. Technologies demonstrated in FLDs on IPM: Keeping cotton fields weed free including borders by removing parthenium plants and other alternate host plants. Trap cropping with Okhra. 99 Installation of bird perches (at the rate of 2-3 per acre), pheromone traps for different boll worms and yellow sticky traps for white flies. Use of Bio-Agents (Trichogramma and Chryso Perla spp) and bio-pesticides (Neem Leaf extract 10%, Neem Kernel extract 5% and Neem Oil 1%). Pest Surveillance by the scouts at weekly interval by randomly selecting 10 plants from the fields of each participating farmers and recording of observations Clipping, hand picking and destruction of spotted boll worm larva in case of heavy infestation Need based use of recommended chemical insecticides at recommended dose on ETL Creating awareness among the cotton growers about the IPM Technology and its dissemination to reduce pesticide consumption on cotton crop. Strategy adopted for implementation of Programme: 1.A.7. In keeping with the guidelines issued by the Government of India, in the Ministry of Agriculture, to introduce a more effective system to develop closer coordination with State functionaries, Panchayat Raj Institutions, ICAR and SAUs Institutions, while implementing FLD Programmes both for P.T and IPM, CITI-CDRA adopted a well thought out strategy, which inter-alia aimed at the following:- a) Close coordination with the Agriculture Department of State at district level: 1.A.8. The Office of the District Deputy Director of Agriculture (Extension) was actively associated with the selection of villages, the selection of beneficiary farmers in keeping with the guidelines for implementation of Special Component Plan (SCP) for SC and Tribal Sub-Plan (TSP) for ST and Gender Budgeting giving preference to Women cotton growers. b) Involvement of Scientists from KVKs- Bhilwara, Banswara and ARS, Banswara: 1.A.9. The scientists from Krishi Vigyan Kendras of Bhilwara and Banswara and also Agriculture Research Station of Maharana Pratap Agriculture University, Udaipur were invariably involved in Awareness Programmes, Farmers‘ Field Visits, Kissan Gosthis and Kissan Melas with a view to disseminate the knowledge regarding new technologies of cotton crop management in general and effective pest management in particular among the participating cotton growers. c) Implementation Committee at District Level: 1.A.10. The District Level Implementation Committees were set up at Banswara and Bhilwara with the Deputy Director of Agriculture – Extension, Scientists from KVKs/ARS Bhilwara and Project Coordinator of the CITI-CDRA as its members. The Implementation Committees met periodically to review the progress of cotton crop in the district and made recommendations in respect of the inputs to be supplied to the 100 beneficiaries. Special emphasis was laid on the pesticides / fertilisers and bio-agents to be distributed among the beneficiaries, on need basis and within the budgetary ceiling of Rs.1400/- per FLD. The members of the implementing Committee were also associated with awareness programmes and kissan melas. Implementation of the FLD Programme 1.A.11. To supervise effectively and undertake continuous surveillance of the cotton crop, the CITI-CDRA deployed Project Coordinator and required scouts at each district. The scouts were selected by the implementation committees in the respective districts. They were given training by the scientists from KVKs and ARS, Banswara, Officers from the Department of Agriculture, Scientists from Bayer Crop Science, Mumbai and the Project Coordinators. The scouts were selected by the Project Coordinators in consultation with the concerned Deputy Directors of Agriculture. All of them were provided with magnifying glasses for conducting on the field survey/inspection of the fields of participating cotton growers. In Banswara - 6 and in Bhilwara – 9 training camps were conducted with the assistance of the State Agriculture Officers by the Project Coordinators. 1.A.12. A Bench Mark Survey was undertaken of all the participating farmers to ascertain their cultural practices, the economics of cotton cultivation, the usage of pesticides / insecticides, the yields obtained, the varieties grown, etc to facilitate impact assessment of the project implemented in these villages. Various inputs were distributed under FLDs in both the districts. Results of execution of the FLDs on Production Technology: 1.A.13. The results of the FLDs on P.T. were very encouraging as would be evident from the following data:- _________________________________________________________ Bhilwara District (800 FLDs) Gain in terms of money in Bt. Cotton over the Local Varieties cultivated in Bhilwara District:- 1. Local Cotton Variety - Average Yield: 12.00 quintals/hectare; (Projected by the Agriculture Department) 2. Bt. Cotton – average yield in Non FLDs: 21.00 quintals/hectare; 3. Average Yield in FLDs: 28.35 quintals/hectare; 101 4. Farmer incurred extra expenditure for Bt. Cotton in terms of Rupees/hectare:- a) Seed Cost Rs.3000.00; b) Micronutrients, etc. Rs.1100.00; c) Extra Labour charges Rs.2500.00 Total: Rs.6600.00 Other expenditures are common in both the cotton. 5. Saving of 4 Insecticidal sprays each costing Rs.750/-: Rs.3000.00 6. Extra expenditure on Bt. Cotton: (Rs.6600/- - Rs.3000/-) = Rs.3600/-; 7. Prevailing price: Rs.2850/- peer quintal 8. Gross Profit per hectare: a) Bt. Cotton= Rs.59850/-, b) Local Variety = Rs.34200/-; 9. Extra Gain over Local Variety: Rs.59850/- - (Rs.34200/-+Rs.3600/-) = Rs.22050/-; 10. Extra Gain in FLDs: (Rs.80797/- - Rs.37800/-) = Rs.42097/-; 11. Increase in the percentage in terms of Rs. Gain:- a) In Non-FLDs: 158.3%, b) In FLDs: 213.7% Exhibit 1.A.1: Bhilwara district (800 FLDs) Yield Kg/Ha Average yield (Seed cotton) in demonstration fields 945 Average yield in control fields 237 Last year‘s average yield for the district – Lint / Ha 237 Source: CITI-CDRA, D&B India 102 Exhibit 1.A.2: Banswara district (400 FLDs) Non- Irrigated Yield irrigated (kg/ha) (kg/ha) IT 905 (BT) (Demonstration fields) 495 359 DCH-32(local) (Check fields) 265 179 PCH 406 (BT) (Demonstration fields) 337 290 DCH-32(local) (Check fields) 237 194 Last year‘s average yield in kg of lint per 340 hectare Source: CITI-CDRA, D&B India Summary of collaborative project “Cotton Productivity Improvement – 150%” implemented in Banswara district of southern Rajasthan, during 2008-09 1.A.14. CITI-CDRA is implementing a collaborative project for enhancing cotton productivity and production in Banswara District in collaboration with State Government of Rajasthan and Bayer Crop Science, Mumbai with an outlay of Rs.12.00 lakhs. The Project is targeted to enhance cotton productivity in the district by 150% (from 470 kg/ha of lint to 605 kg/ha) in the next three years (at the end of 2010-11). The Project is implemented in 9 clusters, covering 100 gram panchayats and 562 villages with an area of 9,900 hectares and 24,500 cotton growers. It is proposed to extend the project area to 50,000 acres by covering Bhilwara and Rajsamand districts (covering further 25000 acres) during 2009-10. SIMA-CD&RA (The Southern India Mills Association–Cotton Development and Research Association) 1.A.15. SIMA-CD&RA is endeavours to supplement the efforts of central and state governments to improve production, productivity and quality of extra long staple (ELS) cotton in the country. The main efforts undertaken by SIMA-CD&RA include extensive development and research activities, popularising location specific and cost effective production techniques at farm level in the states of Tamil Nadu, Karnataka and Andhra Pradesh. 1.A.16. SIMA-CD&RA has also undertaken a project for restoration of Suvin with improved fibre properties, stable yield and crop duration. There is an improvement in Suvin plant population has been noticed. It has also initiated to maintain the purity and the fibre quality standards of DCH-32. 103 1.A.17. Additionally, SIMA-CD&RA Identified and developed an early maturing variety SIMA-1 with a short duration of 130 days is another land mark under the breeding work carried out by the association. It has proved its superiority in yield over the existing variety, MCU-7 in the rice-fallows of Tamil Nadu, where crop duration is a limited factor. Its fibre properties and spinning performance are at par with MCU-7, the area under cotton in rice-fallows is expected to increase with the spread of SIMA-1. 1.A.18. SIMA-CD&RA had undergone 6 years of inter-specific hybrid (SIMA-HB-3) trial in Tamil Nadu, Karnataka and Andhra Pradesh under All India Co-ordinated Cotton Improvement Project (AICCIP) - South zone. These trials showcased below mentioned results. Fibre properties of SIMA HB-3, particularly micronaire and strength are better than TCHB – 213 and DCH-32. Strength to length ratio is also better than TCHB-213 and DCH–32. Standard CSP value for carded 80s / 100s is better than TCHB-213 and DCH-32. The U% and neps of the yarn 80s / 100s lie in ―Good‖ category and better than TCHB-213 and DCH-32. Suitable for drought situation–Summer/Winter/Irrigated conditions. Purataasi pattam is highly suitable for yield and quality as well. (Temp:32-40 degree Celsius day and 22 degree Celsius night) 1.A.19. SIMA-CD&RA has been providing over 500 M. tonnes seeds annually in MCU-5, MCU-5 VT, LRA- 5166,MCU-7, LRK-516, Surabhi, Supriya, Suvin, SIMA-1, L-389 and hybrids such as Savitha, TCHB- 213, NHH-44 and HB-3, popularly known as ‗SIMA Seeds‘. These seeds are popular not only in the Southern States, but also in other States like Maharashtra, Madhya Pradesh, Gujarat and Orissa. The following table furnishes the data on the seeds produced and distributed to the cotton growers and the area covered. Exhibit 1.A.3: SIMA-CD&RA: Seed production and distribution Period Seeds distributed (M. tonnes) Area covered in hectares 1985-86 to 1989-90 966 1,26,226 1990-91 to 1994-95 2,037 2,74,624 1995-96 to 1999-2000 2,026 3,36,033 2000-01 to 2006-07 1,810 1,77,180 Total 6,889 9,14,063 Source: SIMA-CDRA, D&B India 104 1.A.20. SIMA-CD&RA also identified many improved production techniques to reduce the cost of cultivation. Studies conducted by SIMA-CD&RA showcased that application of bio-fertilisers (Azospirillum and Phosphobacteria) on 21st day after sowing, increased 20% seed cotton yield and reduced the fertiliser cost by 20-05%. Skip row planting was found to give 24% higher yield than normal planting method besides saving 40-45% irrigation of water requirements. The trials on drip irrigation showcased that it produced 50% higher yield over the conventional method of flood irrigation. All these results have been incorporated into cotton cultivation for adoption by the cotton farmers in the development scheme areas of SIMA-CD&RA. 1.A.21. SIMA-CD&RA continued to distribute bio-fertilisers (Azospirillum, Phosphobacteria and Rhizobium) as a value addition along with seeds. Application of bio-fertilisers reduces the cultivation cost, usage of fertilisers and minimizes soil pollution and saves the ecosystem. The following table depicts the production and supply of bio-fertilisers to cotton producers. Exhibit 1.A.4: SIMA-CD&RA: Production and supply of bio-fertilisers Period Bio-fertilisers supplied in (M. tonnes) 1992-93 to 1994- 95 179.38 1995-96 to 1999-2000 144.95 2000-01 to 2006-07 64.22 Total 388.550 Source: SIMA-CDRA, D&B India 105 1.A.2. COMPOSITION OF THE SUB-GROUP ON COTTON TO FORMULATE NATIONAL FIBRE POLICY S. No Name Designation 1. Shri J. N. Singh, Joint Secretary, Ministry of Textiles Convenor 2. Shri Shishir Jaipuria, Chairman, Confederation of Indian Textile Industry Co-convenor 3. Shri S.C. Grover, CCI Member 4. Shri D.K.Nair, Confederation of Indian Textile Industry Member 5. Shri Rakesh Vaid, AEPC Member 6. Shri vimal Kirti Singh, AEPC Member 7. Shri V.S. Velayutham, TEXPROCIL Member 8. Shri Siddarth Rajagoapl, TEXPROCIL Member 9. Shri Dhiren N. Seth, Cotton Association of India Member 10. Shri J. Thulasidharan, SIMA Member 11. Shri T. Kannan, Thiagrajar Mills Ltd. Member 12. Shri Suresh A. Kotak, Kotak & Co. Ltd. Member 13. Shri M. Senthil Kumar, Palladam Hi-Tech Weaving Park Member 14. Shri Manikam Ramaswami, Loyal Textile Mills Limited Member 15. Shri S.V. Arumugam, Bannari Amman Spinning Mills Ltd. Member 16. Dr. M.S. Mathivanan, PDEXCIL, Mumbai Member 17. Shri A.L. Ramachandra, Vijayeswari Textiles, Coimbatore Member 106 107
"SECTION I COTTON FIBRE"