THIS REPORT CONTAINS ASSESSMENTS OF COMMODITY AND TRADE ISSUES MADE BY

USDA STAFF AND NOT NECESSARILY STATEMENTS OF OFFICIAL U.S. GOVERNMENT

POLICY

Date:

GAIN Report Number:

Approved By:

Prepared By:

Report Highlights:

FAS Mumbai forecasts MY 2017/18 cotton production at 29.8 million 480 lb. bales on an acreage of

12.3 million hectares. Cotton exports are forecast to slow, while government support schemes may

boost exports of cotton garments, apparels and textile products. Domestic cotton consumption is

expected to recover from last year as mills draw down existing stocks.

Dhruv Sood

Adam Branson

Pink Bollworm incidence suggests lower production

Cotton and Products Update

India

IN7138

12/2/2017

Required Report - public distribution

Post:

Commodities:

Executive Summary:

Production forecast revised but 10 percent higher than last year

FAS Mumbai revised the cotton production forecast to 29.8 million 480 lb. bales (38.16 million 170 kg.

bales/6.5 mmt) on acreage of 12.3 million hectares. The FAS Mumbai forecast is 200,000 480 lb. bales

lower than USDA official estimate. The recent untimely rains and pest infestation issues in Telangana

and Andhra Pradesh suggest lowering production. The all India yield is expected to be around 528 kg

per hectare.

Cotton picking in progress but fear of pink bollworm remains a concern

Post travel to northern Telangana in late November indicates farmers are now harvesting the second

picking. With first pickings over, farmers are not rushing to the market to deliver seed cotton due to low

market prices. Seed cotton prices in the wholesale market yards in Telangana are staying close to

minimum support price (MSP) rates. However, much of the cotton is discounted due to poor quality

issues like discoloration and high moisture content.

Trade sources indicate a high incidence of pink bollworm and sucking pests for the first picking in

certain districts in Telangana. There seem to be limited issues with quality in the standing crop ready for

Cotton New Delhi

the second picking. In Andhra Pradesh, the government has issued advisories to install pheromone traps

to monitor the incidence of pink bollworm along with the spraying of insecticides. A similar advisory

was issued in northern Telangana. There are a number of stated reasons for the higher incidences of pink

bollworm infestations. These range from resistance of bollworm to Bt toxins, use of spurious and/or

unapproved seeds by farmers, limited or poor planting of refugia non-Bt cotton, cultivation of long-

duration hybrids which provides continuous food for the pest, poor integrated pest management

practices, and storage of damaged cotton at gins and market yards.

While acreage in Telangana has increased significantly from last year, the yield is estimated lower at

492 kg per hectare. In Maharashtra, trade sources indicate widespread reports of pink bollworm

infestations (even after the third picking), but there are no official reports on the extent of the damage.

In Gujarat, cotton picking is underway with no pest or infestation issues reported. In Karnataka, the

bolls are mature and the first picking of seed cotton in late sown crop, and second picking of early sown

crop is in progress. In Tamil Nadu, the crop is at squaring and vegetative stages, and government

advisories indicate farmers are to provide adequate drainage in rain-fed and irrigated crops in order to

prevent water standing as rains are anticipated in next few days.

Arrivals higher than last year, but farmers holding back some seed cotton from the market

All India arrivals as of November 27, 2017, are reported at 6.5 million 480 lb. bales (8.3 million 170 kg

bales/ 1.4 mmt) which is roughly 22 percent of the forecast crop. Arrivals last year were around 13

percent of the estimated crop on a much smaller overall crop size. Trade sources indicate farmers are

holding cotton in anticipation of better prices and the expectation of bonus announcements similar to

that as was issued in Gujarat (see GAIN report).

MSP turning into a maximum export price

Since the beginning of MY 2017/18, the Cotton Corporation of India (CCI) has been operating in the

market to procure cotton across various states under the MSP program. The quantum of cotton bales

procured by CCI remains relatively low as trade indicates there are quality issues with the product being

brought into the market stemming from pink bollworm infestations. MSP rates are based on quality

parameters and any departure from the same will lead to discounting of cotton. As a result, farmers are

not receiving the prescribed MSP rates and are selling to local agents at much lower prices.

CCI procurement under the MSP program across India has been limited with around 190,000 – 230,000

480 lb. bales procured. As the pace of arrivals picks up (mostly after second pickings), CCI is expected

to be more active in the market.

Gujarat bonus announcement for cotton farmers

On October 23, 2017, the State of Gujarat announced a bonus of about 3.5 cents per pound (Rs. 500 per

100 kg) be paid to farmers for seed cotton. The bonus amount to be paid will be over and above the

Government of India assigned Minimum Support Price (Refer IN7127 for more additional details). CCI

is mandated to procure cotton under the MSP program in Gujarat. During procurement, CCI has to

ensure that payments do not exceed the seed cotton yield of 3,472 lbs. per hectare (1,575 kgs. per

hectare) per farmer as there is a chance that cotton from neighboring states could be routed into Gujarat

to avail the bonus.

Table 1: India. Kharif 2017 - Cotton Sowing Acreage (in hectares)

Crop Area Sown in

2017 in 2017

Area Sown in

2016

Normal

Area

Y-o-Y

Change

Change

from

Normal

Andhra

Pradesh* 636,000

436,000

562,700 46% 13%

Telangana* 1,908,000 1,236,000

1,568,900 54% 22%

Gujarat* 2,658,000 2,404,900

2,652,600 11% 0%

Haryana 656,000

516,000

579,200 27% 13%

Karnataka 494,000

438,000

544,400 13% -9%

Madhya

Pradesh 599,000

599,000

590,800 0% 1%

Maharashtra* 4,206,645 3,810,700

3,967,900 10% 6%

Odisha 145,000

136,000

125,800 7% 15%

Punjab 385,000

256,000

435,400 50% -12%

Rajasthan* 491,000

384,700

392,000 28% 25%

Tamil Nadu 87,600

44,200

55,000 98% 59%

Others 28,600

17,000

26,400 68% 8%

All India 12,294,845 10,278,500

11,501,100 20% 7%

Source: Ministry of Agriculture and Farmers Welfare, Government of India,

* Various State Agriculture Department Sowing Data for 2017

** Normal Area is the five year average of the area from 2011-2015

Trade

FAS Mumbai forecasts MY 2017/18 exports at 4.3 million 480 lb. bales (5.5 million 170 kg bales/

936,000 mt) which is lower than the USDA official forecast as Indian cotton will need to compete with

cotton from other major exporters. While Indian Ex-gin prices have fallen by 4-5 percent since the

beginning of MY 2017/18 with expectation of a large crop, and are lower than Cotlook A-Index (FE)

making Indian cotton prices competitive, Indian cotton may not be competitive on technical or quality

parameters that affect its export prospects. Bangladesh remained the top cotton export destination,

followed by Vietnam, Taiwan and China. Preliminary cotton yarn export data shows signs of

improvement in September and October as strong demand was observed from China, followed by

Bangladesh, Pakistan and Egypt. Unites States, Bangladesh and Sri Lanka were the top destinations for

exports of cotton fabrics, made ups and other textile products.

The FAS Mumbai MY 2017/18 import forecast is 1.5 million 480 lb. bales (1.9 million 170 kg bales/

326,600 mt). This is 100,000 480 lb. bales higher than the USDA official forecast. Even though a large

crop is expected, imports will remain strong as mills import for processing and re-export to cover export

commitments. For MY 2016/17, Post has revised the export and import numbers based on trade data for

the full marketing year.

Stocks

According to data provided by the Textile Commissioner’s Office (TCO), mill cotton stocks reported in

August 2017 were 15 percent higher than same time last year, but are gradually being drawn down.

Similarly, the TCO reported cotton yarn stocks for August 2017 were 17 percent higher than same

period last year and affirmed the inability of mills to offload large yarn inventories during the past few

months.

Consumption

FAS Mumbai forecasts MY 2017/18 consumption at 24.4 million 480 lb. bales (i.e., 100,000 bales

below the USDA official forecast). Trade sources indicate that cotton consumption is expected to

improve slightly over last year as various government schemes and incentives to boost garment and

apparel exports will renew mill activity. However, mills will focus on manufacturing blended yarns and

fabrics with a higher percentage of man-made fiber to offset cotton price volatility. The monthly

domestic consumption data for August (Refer Table 2) indicates the lowest level of consumption since

November 2016. In MY 2017/18, the average monthly domestic consumption is forecast around 1.96

million 480 lb. bales (2.52 million 170 kg bales) coupled with expected volume of non-mill

consumption estimated at 781,000 480 lb. bales (1 million 170 kg bales/ 170,000 mt).

Policy

Government looking to boost exports of textiles and apparels through various schemes

The Government of India has initiated a series of schemes to help boost employment generation in the

textile sector as well as support exports of textile products.

RoSL Scheme

On November 24, 2017, the Ministry of Textiles published a notification highlighting the schemes for

Remission of State Levies on export of garments and made-ups through the mechanism of rebate. The

two schemes have been merged under the Scheme for Rebate of State Levies on Export of Garments

and Made-ups (referred to as the RoSL Scheme). Effective October 1, 2017, the exporter may claim

RoSL rates for export of garments, and made-ups as per the rates notified in the schedule.

Some of the state levies that will be rebated include value added tax (VAT) on fuel used in

transportation (raw materials, finished goods and factory workers), VAT on fuel used in generation of

captive power, market yard fee (Mandi tax) on purchase of cotton, duty on electricity used in

manufacture as accumulated from stage of Cotton/MMF fiber till garment/made up stage, stamp duties

on export documents and State Goods and Services Tax (SGST) on inputs used in production of cotton

and embedded SGST in purchases from unregistered dealers

Government exempts exports from paying Integrated Goods and Services Tax (IGST)

On October 23, 2017, the Ministry of Finance published a notification to ease the procedure for

merchant exporters. Merchant exporters can now purchase goods from registered suppliers by paying

0.1 percent GST and the amount paid as GST will be refunded within 90 days of the export transaction.

Revised Rates under Merchandise Exports from India Scheme (MEIS)

On November 24, 2017, the Directorate General of Foreign Trade (DGFT), Ministry of Commerce and

Industry, issued a public notice where the incentive rates under MEIS scheme have been enhanced to 4

per cent from 2 per cent for the garment and made up sectors (linens, furnishings etc.). Under the MEIS

scheme, an exporter will be able to avail a 4 percent export benefit (4 percent of FOB value) effective

November 1, 2017 up to June 30, 2018. The revised export incentive is available on a number of textile

items under Harmonized Tariff System chapters 61 to 65.

Table 2: India’s Cotton Consumption (Mill & Small Sector Units) By Month (Figures in Million 480 lb. Bales)

Month 2012/13 2013/14 2014/15 2015/16 2016/17 2017/18

Aug 1.723 1.892 1.910 2.020 1.903 1.885

Sep 1.676 1.851 2.015 1.920 1.807

Oct 1.706 1.876 1.886 1.929 1.680

Nov 1.647 1.793 1.955 1.822 1.799

Dec 1.768 1.965 2.022 1.990 1.919

Jan 1.819 1.967 2.012 1.972 1.954

Feb 1.737 1.814 1.919 1.924 1.908

Mar 1.843 1.957 2.044 2.000 2.022

Apr 1.813 1.898 1.997 1.949 1.926

May 1.784 1.904 2.001 1.982 1.938

Jun 1.758 1.882 2.000 1.982 1.910

Jul 1.883 1.916 1.997 1.953 1.890

Loss* 0.611 0.493 0.390 1.405 1.366

Total 21.767 23.208 24.149 24.849 24.023

Source: Figures in Bold are Provisional

*Loss estimate from the Cotton Advisory Board added into total consumption Source: Textile Commissioner’s Office, Ministry of Textiles, Government of India