The Impact of New Legislation on Cotton Farming in India

March 17, 2021
India is a major producer when it comes to textiles. Further, the textile industry is greatly intertwined with agriculture as crops like cotton play a vital role in textile. New laws introduced in 2020 are changing the agriculture landscape in India and impacting the cotton supply chain.

India is a world leader in textile production, and the sector is one of the oldest industries in its economy, dating back hundreds of years. The textile industry's linkage to agriculture, like cotton used for fabric, makes it unique. The agriculture sector is massive: it employs 800 million people in India and is crucial to its economy. Farmers in India are now protesting three new contentious agriculture laws. So what is the connection to the fashion industry? Cotton led the global market for textiles in 2020, accounting for the largest revenue share of more than 39 percent. The farmer who is growing rice, sugarcane, and other crops is likely rotating it with cotton to return nutrients to the soil. So if those crops are affected, cotton is affected too. The supply chain is intractably intertwined at the field level, and cotton is one of the most important commodities in the textile sector. 

In the 1960s, India introduced agricultural subsidies promoting capital-intensive industrial agriculture known as the Green Revolution. Since then, the agriculture sector has stagnated. New laws proposed by Prime Minister Modi in 2020 attempt to revitalize the industry by overhauling how farmers conduct business. The laws allow farmers and traders to do business outside government-run wholesale markets, removing government-set floor pricing for crops. Farmers fear removing price guarantees will result in lower returns, and the global trade of cotton could become even more embroiled in controversial labor practices than it is today. The policies also criminalize residue burning, which involves burning fields after harvest because cleaning by hand is expensive and labor-intensive. From an environmental perspective, this is a positive move, but there is no solid practical alternative for farmers to use instead. Another perspective is that the policies are farmer-friendly, but there is resistance to change and innovation. Some middlemen fear losing their piece of the pie due to increased transparency in the future system. 

Only time can tell how this situation will evolve. It is difficult to link events like the farmer protests directly to future supply shortages and higher prices for cotton fabrics as there are other market dynamics at play. However, this event is notable as another example of volatility in today's cotton market. Cotton prices rose in February, leading to higher raw material costs just as brands began to see demand return. There are multiple factors behind the rising costs, including easing lockdown restrictions, lower cotton production in the US, and a faster economic recovery in China. US textile buyers' efforts to prove that their products have no forced labor links to the Xinjiang region may also lead to higher costs. These recent events demonstrate the interconnectedness of global supply chains now more than ever. While the impact of these incidents on cotton prices remains to be seen, SILQ provides local expertise and real-time visibility in one platform enabling our customers to adapt to market shifts quickly.