Importing Extra Long Staple Cotton
HS Code : 52010020
India is the second-largest exporter of cotton in the world. Interestingly, it is also one of the largest importers of the product. An anomaly, you may think. But there are a multitude of reasons to explain this. The growth of the textile industry and the demand for extra long staple cotton has resulted in a massive increase in imports. In fact, implementation of GST is further expected to give its imports a boost.
India, we all know is a major global player when it comes to textiles and apparels, especially those made of cotton. To put matters into perspective, in FY2017 alone, India’s exports of cotton and textiles & clothing clocked $6.63 billion and $36.66 billion, respectively. We also know that India is a major producer of cotton. What many of us may not know though is that India's textiles and apparel industry is highly import dependent. Of course, the usual reason applies – we consume more than we produce. But then, there's is another angle to it and that is India cannot grow a few varieties of cotton – especially a variety that is known as extra-long staple (ELS) cotton or ‘extra-ordinary cotton’.
And what is ELS cotton? It is an extra-fine cotton that is used for making superior cotton fabrics. In fact, it’s quite easy to identify ELS-made fabrics in the market because they look more white, smooth, strong and above all are expensive than others. But, other than ELS cotton, India also imports all other staple lengths of cotton. In fact, in FY2017, India’s total imports of cotton (of all staple length, combed or uncombed) witnessed a y-o-y jump of 142%. And, this indicates that importing cotton is a big business!
India is the second-largest producer of cotton in the world. But, we must also understand that India is also the second-largest exporter of cotton in the world and our domestic consumption is also one of the largest. The main reason for the growth in imports is because imported cotton can be at times cheaper, and there are some varieties that have huge demand in the Indian market like ELS that we hardly grow.
Last year, the yield was low. As a result, the prices of cotton went up in the domestic market, which naturally resulted in more imports. Demand for short and long stable cotton is sometimes up or sometimes down. But on year-on-year basis demand for ELS is always increasing.
The world over, various types of cotton are cultivated. And, for any trader, the profits depends on the length of the cotton staple that they trade in. There are three major types of cotton, short (up to 1-1/8-inch), long (between 1-1/8 and 1-1/4-inch) and extra-long staple (between 1-3/8-inch and 2 inches). The longer the fibre, the more durable and softer it is. This also means more profits for traders.
India imports all three types of cotton, but the demand is mostly for ELS. The scope for short and long staple cotton in India is low because India is one of the largest producers of these cotton staples. What India needs is ELS. As per our annual survey, India’s current requirement for ELS cotton is over 12 lakh bale, whereas our domestic production is less than 4 lakh bale per annum. We see a lot of opportunities in this space, especially when the textile industry is looking to grow.
History tells us that since the usage of cotton started, the short staple cotton variety has been the most used. But, once the long staple cotton was introduced it completely revolutionised the textile industry. However, in the 1990s, an even better variety of cotton, the extra long staple gained currency due to its superior quality and became the darling of the textile and apparel industry.
"India produces 4 lakh bale of ELS cotton against an annual demand 12 lakh bale"
Farmers in India soon began cultivating ELS, only to realise that the Indian climate isn’t suitable for ELS. Indian soil and climate aren’t good for ELS cultivation. There are only some areas where ELS can be grown, and it has been reported that the geographic area under ELS cultivation has been shrinking over the years. Further, farmers too shy from growing ELS because of the duration it takes to mature. it takes around 95 days to harvest short and long staple cotton, whereas ELS takes over 130 days to mature and the yield is comparable or less than other cotton types. “Farmers have started to look at ELS as a non-profitable crop". Thus, the year-on-year production of ELS is rapidly dropping in India
Concurring to the statements, a recent report submitted by USDA Foreign Agricultural Services explains that ELS production in India has been on a continuous decline since MY2012. It states that farmers prefer growing hybrid medium and long staple cotton because of better results. Records also reveal that India’s current production of ELS is only 1% of the total domestic production, while ESL consumption has been growing rapidly.
India will continue to import. And, going forward, what looks exciting are the opportunities that Goods and Services Tax (GST) has opened for new and small traders. Cotton imports are duty free.
The only thing that an importer needs to be careful about is the purchasing price of the commodity in international market as domestic consumers are price sensitive
Nevertheless, the fact of the matter is that cultivation of ELS cotton in India is on a continuous decline – while consumption is on the rise. Further, not to say, the special package of Rs.6,000 crore, which was announced last year, for the textile and apparel sector is bound to give a fillip to cotton consumption.
Well, all these facts point in just one direction – importing cotton seems to be an idea whose time has come NOW!