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Here’s a great cotton overview by Andrew Barber. It smells bad from an apparel standpoint (the trend, not the analysis!). India, which accounts for 15-20% of global cotton production, also has the lowest yield of any cotton-producing country. With 60% of the population (more than 2x the entire US population) tied directly to agriculture, and with social unrest building meaningfully in 2008 to a point that almost cost Singh the election, he needs to appease the masses. As such, he backstopped the cotton farmers with a 48% price increase vs last – despite the fact that India’s prices are already 15% above the global market price. The massive Indian textile industry is bracing itself as it has already felt the pushback from China and other major partners before this increase. I still think that the worst has yet to come from input cost pressure in this industry – nevermind the strengthening dollar. I sound like a broken record, I know, but next year’s estimates are still too high. I continue to like RL, FL, LIZ, TBL, KSWS, PSS and ZQK. I don’t like GES, WRC, SKX, GIL, DKS, PVH, and VFC.

Brian McGough



Last week the Indian Government increased price guarantees for cotton farmers by up to 48% over last season, creating a back-stop price of 3,000 INR per bale of long staple and 2,500 INR of medium Staple via the federally controlled Cotton Corp. of India. Cotton prices have already been under pressure as total hectares planted for this season declined 2% from last year as farmers shifted to food staples such as rice to capture skyrocketing prices. Critics are charging that this increase will raise domestic prices for cotton above the current global average.

A question of Yield: Manmohan Singh’s populist socialist government is obliged to provide this level of price protection to the nation’s 4.5 Million cotton farmers to maintain political support among the rural poor. For India’s farmers, every rupee counts: although improved technology (most notably the introduction of Monsanto Bt seeds) and irrigation have helped increase crop yields from 300kg per hectare five years ago to 560kg last year, Indian yields still lag every other major global producer significantly. Put plainly, Indian farmers realize smaller returns for their labor than their competitors abroad. In a socialist nation were 60% of the population is employed in agriculture that creates pressure for the government to intervene, particularly an administration that has barely survived a recent parliamentary vote.

Exports: India is the second largest producer of Cotton on earth but, thanks to its huge textile industry they remain a less significant player in the global export market than smaller producers such as the US and Brazil. Not surprisingly the biggest buyer for Indian Cotton exports is China, and rising prices and lower yields have already been felt by buyers there.

Textiles: The price increase raised howls of protest from textile industry groups. P.D. Patodia, chairman of the Confederation of Indian Textile Industry, was quoted in the Indian media on Thursday saying “It has come as a rude shock to the industry in the throes of a crisis; domestic prices are already 15% higher than international prices. This would trigger another price spiral which the industry will not be able to afford."

The textile industry argument is, basically, that the slowing trajectory of textile sales growth for Indian mills has been more than offset by increasing Chinese demand for raw cotton and that increasing the domestic price of fiber now will put Indian textile and apparel manufacturers at a grave disadvantage with competitors for their two key markets, the US –which has already provided preferential status to Central American producers, and Europe.

Andrew Barber
Director