Cotton production sets record over the previous years.

Impact Analysis: Area under cultivation for cotton is all set in reaching a record level of 12.3 million hectares by end of September, 2017. Higher production in America and Australia will however mark a fall in cotton price in the near future.

Impact: Positive

Sown area for cotton has posted a record growth of 20% in FY18 (as on 3rdweek of July). The area under sown for the crop has recorded 10.43 million hectares as on 3rd week of July in FY18 – compared to the previous year, the area was 8.68 lakh million hectares.

Area under sown for cotton was less than 11 million hectares in FY17 on account of lower cotton price in the domestic as well in the international market. The average cotton price has remained below $1.6/kg during June, 2014 to December, 2016, which was around $2.0/kg during first half of 2014. The lower price for long period has discouraged farmers to cultivate the crop. However, as the cotton price accelerated to three year high of $1.95/kg in May, 2017, the crop became the most chosen. It is understood that farmer’s crop preference is based on the price levels in the preceding year.

Based on the price trend, SMERA expects that the area under cultivation for cotton would reach a record level of 12.3 million hectares by end of September, 2017. Higher sawn area for cotton in India and higher production in America and Australia however marks a fall in cotton price in the near future. India shares nearly 25% of global yarn production. Therefore, lower cotton price will benefit the Indian yarn industry in the coming production spell.

The expected fall in cotton price and lower power and interest rate cost will be an advantage for the industry in the supply side. On the demand side, however, the industry is reeling under the impact of weaker external demand. India’s textile export growth has contracted by an average of (-) 4% over the past three years owing to a fall in export to China by -16.6%. China shares 40% in the global textile industry and destination for 11% of India’s textile exports. The country is moving towards higher value adding segment (such as aerospace, artificial intelligence, biotechnology, and robotic). Therefore, it is cutting production capacity of the lower value adding segments like textile. Under such circumstances, India needs to increase the production capacity to fill the space created by China and global market share.

Cotton production and area under cultivation:

Financial Year

Production

Area under cultivation

FY11

33.00

11.24

FY12

35.20

12.18

FY13

34.22

11.98

FY14

35.90

11.69

FY15

34.81

13.08

FY16

30.15

11.87

FY17

32.57

10.55

FY18*

37.97

12.35

Source: Ministry of Agriculture, RBI, SMERA Research
Note: (*) indicates SMERA estimates, production in million tons and area in million hectares

Movement of cotton price in global market:


Source: World Bank, SMERA Research

Our exciting journey started in 2005 with rating of bank borrowers most of whom were small and medium enterprises. At that time, credit rating was a concept known only to large issuers of capital market instruments. Since then, like a caterpillar transforms itself into a beautiful butterfly, we transformed to rate bonds, bank facilities of large corporates and issuers across industries. Along came many achievements - SEBI Registration in 2011, RBI accreditation in 2012, 50,000 ratings in 2018, 5,000 Bond and Bank Loan Ratings in 2017, launch of India's first Android and iPhone app to disseminate rating, tamper-proof QR-code-enabled rating rationales, and SMERA Terminal to name a few.

Now is the time to re-emphasize our increasing footprint across all segments of ratings through the launch of our new name - 'Acuité'.

The name has changed. The spirit of upholding highest standards of analytical rigour, continuous improvement, excellence in our processes and quest for innovation remains the same. We would like to re-emphasize that we will continue to work hard to provide independent, unbiased and timely opinion of highest standard.

Acuité means 'sharpness and clarity of thought and vision'. Let our research and ratings help you take decisions with confidence.


Sankar Chakraborti
CEO