NEW DELHI — Terry Townsend is known for his knowledge and understanding of global cotton markets. He is a consultant on commodity issues, especially on cotton, having served as executive director of the International Cotton Advisory Committee from 1999 to 2013, and worked with the U.S. Department of Agriculture.
Here, Townsend talks with about the global outlook for cotton, as the USDA estimates world production in the current growing season will be 23.68 million metric tons, 8.6 percent lower than the previous season’s production of 25.90 million metric tons. India continues to increase its share of the global cotton market as China, which was long the largest producer in the world, continues to decline.
WWD: Will cotton markets continue to grow in overall terms?
Terry Townsend: There is good news and bad news. The good news is that the cotton industry is growing and that it remains a viable and important industry. But the bad news is that it is losing market share and that will put pressure on marketing margins, and prices right down the value chain.
WWD: By what percentage do you see cotton slipping when you look ahead?
T.T.: If you do the arithmetic and look at population growth and income growth, which countries are showing the greatest rate of growth and that sort of thing, by 2025 I expect that world cotton consumption will have risen to 30 million metric tons, but that will only represent 27 percent of world fiber use by that time. Polyester will have grown even more.
WWD: Do you see the last year with its volatile cotton prices influencing the future?
T.T.: Cotton prices fell between March and November 2014 from more than 90 U.S. cents per pound to about 70 cents. Commodity prices are always changing, but cotton prices were especially volatile during and immediately after the Great Recession of 2008-09. In response, the government of China established a state reserve beginning in March 2011, and that state reserve eventually grew to approximately 12 million metric tons, which is a huge number in the context of the world cotton industry. China began liquidating that state cotton reserve in March 2014, and that is why prices fell last year. It is not clear how much China intends to sell from its cotton reserves. If they continue to sell cotton from the reserve, world prices could fall much further. I believe that there is a high probability — you can never say with certainty — that the Cotlook index is going to remain near the current level for another year or two.
WWD: What will the impact be on cotton-producing countries like India, which is racing ahead to be the biggest producer?
T.T.: The impact of the decline in prices is obviously going to be harsh on cotton producers. Producers in India have been shielded by the minimum support price by the government. So the Cotton Corporation of India has been very, very busy since November 2014 — just as they did in 2008-09, the previous time that prices plunged. There is going to be an enormous impact on the Indian federal budget and the union budget, and it has to put an enormous amount of stress on CCI and their personnel. Furthermore, I believe that CCI is going to be buying cotton in the next year as well, in 2015-16, to support the MSP. So CCI is going to become the single biggest holder buyer of cotton in the world over the next two years. And it’s going to be a great challenge for the union government and CCI.
WWD: Unless the Indian textile mills step up and use more cotton.
T.T.: Back to the issue of low prices. Because of very high prices cotton consumption fell to 23 million [metric] tons, it’s back to 24.5 million [metric] tons and over the next two years while the prices are low, it will boost consumption. So in the next two years, consumption will get back up to 25 or 26 million tons.
WWD: But with man-made fabrics gaining strength, is cotton itself going to become less important in the next five years?
T.T.: Yes. Back in the Eighties, cotton accounted for half of the world fiber consumption. But today it is about 30 percent and, inevitably, cotton’s share is going to continue to go down. The competing fiber is polyester. You have small amounts of nylon and rayon and viscose, acrylic and other fibers; and there are natural fibers such as wool and silk and so on, but overwhelmingly the dominant fiber in the world today is polyester, and the bottom line is that it is cheaper to make polyester than it is to grow cotton. A lot of people prefer cotton, and cotton will remain the most important fiber used to make some kinds of apparel, especially underwear and bed sheets and things where people put a premium on “soft” and comfort. But in terms of outerwear, cotton is going to continue to lose market share and that’s just a reality.
WWD: What do you feel has been the most dramatic change in terms of cotton production in India over the last few years?
T.T.: The Technology Mission on Cotton has been fantastically successful in upgrading the quality of cotton in India and extending better production processes to farmers all over the country. Cotton farmers in India have improved ginning, avoided contamination and improved marketing to negate some of the duplication and inefficiencies.
The second factor that fundamentally changed the structure of the cotton industry in India was the introduction of biotechnology, or GMO. In India there are about 35 million households that grow cotton and they speak hundreds of languages and many of the people are illiterate so the technical information required to control weeds and insects in India has been difficult to communicate to farmers. With the introduction of biotechnology, the ability to control the bollworm, a particular species of pest that attacks cotton, was embedded in the seed itself so farmers did not have to worry about complex lessons in chemistry; they did not have to understand different processes of pesticide or calibrate spraying equipment to apply correct doses; they did not have to wear protective equipment; it was all there in the seed. So it fundamentally improved insect control in India.
The intrinsic yield potential of cotton has always been there, but prior to the introduction of biotechnology, insects destroyed a lot of the crop. With biotechnology, it has been protected and it has led to increasing yields. With higher yields, farmers were making more money, so they expanded the cotton production area. So, cotton production increased dramatically since 2002, which has had an extraordinary impact.
So this particular season — our statistics are kept on an August to July basis rather than October to September as in India, but it is more or less the same — the International Cotton Advisory Committee is predicting that India will produce 6.75 million metric tons, which will make it the largest cotton producer in the world.
WWD: Many activists oppose biotechnology in India and feel it is a scam by multinationals to exploit farmers.
T.T.: In the United States, we have a part of the population who believes that the sun revolves around the earth. Eight percent of U.S. children are not being vaccinated against childhood diseases like chicken pox and measles because some people believe there is a giant conspiracy involving government regulations and doctors and pharmaceutical companies. There are a plethora of conspiracy theories of people who distrust multinationals — people who believe that researchers, government officials and companies that produce inputs are corrupt and working to disadvantage farmers. None of these conspiracy theories have any objective basis.
WWD: Another prominent theory is that the genetically modified cotton is a major cause of farmer suicides in India.
T.T.: India has 35 million households producing cotton. Any time you have a population as large, you’re going to have suicides. The cost of planting seed, including the biotechnology seed is one of the lowest input costs in cotton production. The cost of preparing land, the labor cost associated with planting, the weeding and harvesting are all far greater than the cost of seed itself. Biotechnology is one of the reasons that the area under cotton has climbed from six million hectares in the early 2000s to 12 million hectares today. The reason that has happened is because farmers are making more money. Cotton is attractive. And the reason they’re making more money is because their yields are up and their input costs are down.
But it’s true that in any large population you are going to have tragedies and there are farmers who commit suicide. And, of course, you can always get an aggressive reporter who will interview the grieving family and there are always people looking for scapegoats who will try to explain these tragedies. But biotechnology has been the fastest adopted technology in history, going all the way back to the days of the Sumerians in Mesopotamia. The reason it has been adopted so readily is not because of the government — the government of India has not required farmers to use it — and not because of advertising by Monsanto or Mahyco and not because of a conspiracy among researchers; it’s been adopted because farmers demanded it. And in fact an interesting sidelight to this is that the government of India was initially reluctant to approve the biosafety protocols that enable the commercialization of biotechnology. They were forced to approve those protocols in the early 2000s by farmer demands.
So, yes, there are NGOs, there are campaigners for organic cotton who attack biotechnology. They are in the same category of people who believe that the earth is flat, who believe the sun revolves around the earth, who believe that childhood diseases are a conspiracy by the CIA and that sort of thing. They have no objective basis in empirical reality.
WWD: How does the quality of Indian cotton measure up on a global scale?
T.T.: Any country that produces 6.8 million metric tons of cotton is going to have an enormous range of quality. India produces the finest variety of cotton in the world in a small variety called suvin, which grows in the southern part of India. India also produces some of the worst cotton in the world in terms of length and strength, and it produces an entire spectrum of quality in between, but the biggest single challenge is still contamination.
WWD: Is contamination a bigger issue than quality?
T.T.: Yes. The biggest challenge confronting the Indian cotton industry still relates to contamination. This means everything from bird feathers to head scarves to pieces of wire or just stuff that flies around and gets caught in the cotton bale. Although India has made a lot of progress in handling this, a part of the problem is that India still has a couple of thousand cotton gins and by international standards those gins are very small and have low operating efficiency. Contrast this with the United States, which produces half as much cotton as India does but it has only 600 gins. But each of them is operating at a much higher efficiency. They are larger and it is much easier to control contamination in the U.S. with the smaller number of ginning points. While India has consolidated in the last decade, still there are too many small gins operating across the countryside, many of them are very inefficient.