Cotton is the most extensivemoney-making crop in the world. Its production is the source of income for morethan 250 million people in the world. In the developing countries, nearly 7% ofall laborers are engaged in the production of cotton. As per the United StatesDepartment of Agriculture (USDA), World Agricultural Supply and DemandEstimates (WASDE) report 25.9 million metric tons of cotton has been produced allover the world in cotton season (August-July) 2014/15. Five major contributors China,India, United States, Pakistan and Brazil have produced more than 75% of total production.

Facts: "20000 liters of water are needed to produceone kilogram of cotton; equivalent to a single t-shirt and pair of jeans."

Cotton market boomed after the greatrecession, which was the worst global recession since the world war, in which aglobal economic weakening was witnessed mostly all over the world by the end ofthe first decade of the 21st century. One side - the world economy was tryingto settle, on the other side - cotton market was expanding. Due to enormous gapbetween demand and supply, there was a price hike all over the world.

To soothe the cotton acreages in thecountry, Chinese government announced a policy named 'China Cotton ReservePolicy'. This policy included guaranteed cotton prices to farmers. After imposingthis policy, a major portion of the Chinese cotton started moving intoreserves. But China, also being the world's largest cotton consumer, in orderto fulfill its local demands got attracted towards the international marketwherein cotton prices were comparatively cheaper than the domestic market.

The boost in demand resulted in pricehike all over the world. In the cotton crop year 2010-11, due to a very sharphike in the gap between demand and supply the world over, world's cotton pricesbroke all its records by reaching an all-time high level of 243.65 US cents/poundon 8th March, 2011 and of 229.60 US cents/pound monthly average forthe month of March, 2011

Currently, the scenario is totally opposite than what was at the time of announcement of Cotton Reserve Policy implementation. In China, lots of cotton was available at the cheaper rates than the international cotton market which resulted in strident fall in the cotton import quantity to China. This change not only affected the cotton fibre market but also the cotton yarn import to China as China has been the largest cotton yarn importer in the world. As an overall consequence, cotton fibre demand declined sharply not only in export market but also in domestic market the world over. And, cotton prices started declining and were offered at more than five-year low price level by settling down at 65.30 US Cents/pound on 26th January, 2015 and monthly average for the month of January, 2015 at 67.35 US Cents/pound.

Moreover, when cotton prices were at their peak in year 2011, many textile manufactures chose to shift to comparatively low-priced man-made fibre, like polyester. And till date polyester is available at a cheaper price due to lower Crude Oil prices which enforces them to stick to the same.

Influence of piercing cotton price drop on cotton market players

Cotton farmers, ginners, spinners, weavers, dyeing and finishing firms, and garment manufacturers were all directly or indirectly affected by cotton price plunge. Cotton farmers, ginners and spinners were affected the most by the diving cotton prices. Although, the definite effect of the same differs country to country depending on their individual cotton industry supporting government policies. The most effected countries like India, Pakistan, and U.S which are major cotton producing and exporting countries provided subsidies and/or Minimum Support Price (MSP) to their cotton farmers to support them to survive in a crunch.

China, the world's largest cotton producing country since 1982 decayed its production figure on the third consecutive cotton year. As per the August WASDE report published by USDA, China's estimated cotton production for current cotton season is 26000 thousand 480-pound bales as shown in the figure 2 which is lowest since 2003, a 12 years' low. Now, India has become the largest cotton producing country in the world with estimated production for current cotton season, 29000 thousand 480-pound bales as shown in the figure 2. As cotton prices have touched the lowest price level of last five years; cotton farmers are attracted towards more competitive crops like corn and soybeans.

The U.S., which is the world's third largest cotton producing country; its cotton market mostly depends on the export market as it is exporting almost 75% of its cotton production. As it is highly dependent on the export market, low prices in the international market influence a lot and has left country's cotton growers helpless. Government's subsidies to its cotton growers have played a major role for supporting them. In future, farmers are likely to grow significantly less cotton crop and more grains.

Pakistan is the world's fourth largest cotton fibre producer and third largest cotton consumer in the world. And, at the same time it is the second largest cotton yarn exporter in the world. Amendment in the China Cotton Reserve policy, resulted in the sudden fall of the cotton yarn buying inquiries from China which resulted in drop of cotton fibre demand in the domestic market. Pakistan's government also supported their cotton growers via subsidies and/or MSP. But, the farmers were influenced to grow more money making crops like soybean instead of surviving by getting the MSP of cotton. Some cotton growers have shifted to other more profitable crops like high yielding hybrid corn and wheat as these are more profitable and their quality seeds are easily accessible to them.

Brazil, which is the fifth largest cotton producing country in the world remained unaffected by the after effect of amendment in the China Cotton Reserve Policy. Brazil cotton prices have increased artificially backed by positive WTO ruling.

Australia is comparatively a small cotton producing country in the world but at the same time fourth largest cotton exporter in the world. It exports almost 99 per cent of its production mainly to China, Indonesia and Thailand. Thus, any movement in China's demand directly affects the Australian Cotton farmers and ginners. Due to shrinking demand in China after amendment in the China's Cotton Reserve Policy, Australia has also reduced its production.

Some other small countries like Burkina Faso, Mali, Benin, Tanzania, Zimbabwe and Kenya which are contributing very less amount of cotton to the world cotton industry but whose farmers severely rely on cotton farming get affected harshly affected in absence of any satisfactory support from their governments. Thus, they are also shifting to more profitable crop like Tanzania farmers shifted to onions and a large number of Zimbabwe farmers shifted to tobacco.

Major Cotton players are trying to overcome from the impacts of nonstop fall in the cotton prices and slow demand from the domestic as well as international market, especially from China. Major cotton consuming countries are trying to take advantage of the lower cotton fibre prices globally by rising their local mill consumption capacity by increasing their operating rates and/or with the set-up of new spinning units.

Countries which are having more ending stocks are trying to curtail it as much as possible by limiting their imports, minimizing cotton harvesting, and increasing domestic consumption. Following this practice, ending stock will minimize gradually and it might take minimum 10 years to exhaust if continued with the same pace.

There is a large gap between cotton and polyester prices which has been depressing the usage of cotton and encouraging the use of polyester in the textile world. In coming days, a shrinkage in gap between cotton and polyester prices will possibly encourage the textile players to shift towards cotton. But vice versa, if this gap will enhance further and China which is the largest cotton consuming country and having the largest ending stock with them will continue to move towards Polyester then the overall cotton market scenario might change.