Cotton industry stuggles to recover from the pandemic in Brazil

Brazil, world second largest cotton exporter, retreat the cotton crop because of the Covid-19’s impacts.

The pitfalls faced by the international industry caused a smaller crop area in the 20/21 harvest, 12% decrease.  AgriBrasilis invited Milton Garbugio, president of Cotton Farmers Brazilian Association (ABRAPA), to tell about the impacts of the corona virus pandemic in the cotton industry.

AgriBrasilis – The 2019/20 harvest had a record of 2.9 million tons of cotton lint, however, Conab estimates a drop for the next harvest. Which are the main reasons?

Milton Garbugio – The pandemics that stroke the world and Brazil from March 2020, occurred during the harvest year 2019/2020. Our crops were already sown and the cultures developing, not having consequences for the productive activity during the period. After the harvest, the COVID-19 effects were noticeable, specially, towards exports. This happened because the decrease in consume on the sales end all over the world had an impact on global industry (majorly focused on Asia). There were cases in which major brands broke contracts with industries and, many of these, postergated buying raw materials, such as cotton. Because of that, shipments were “elongated, which, in a super harvest situation, generates bigger passage supplies for the next year. The COVID impacts will be more accentuated on the 2020/2021 harvest, which is sown in December, but it was already decided previously. With soybean and corn prices paying more, the Brazilian cotton farmer has decided to sow a bit less on the 2020/2021 harvest. Estimations predict an area of 1.4 million hectares of cotton sown, over 1.6 million hectares of the previous cycle (-12%), with an expected yield of 2.5 million tons of cotton lint, 13% less than the 2019/2020 harvest, when the country harvested 2.9 million tons.

AgriBrasilis – The cotton Market fluctuates because its consumption is proportional to the economic levels. Brazilian farmers sowed at the end of 2019, when the economical estimations for 2020 were positive, however, harvested during a global pandemic where the textile consume had a huge decrease. Which were the impacts of such facts on the market? Are we operating with high supplies?

Milton Garbugio – The pandemic mainly affected the commercialization of Brazilian cotton, both in the international scenario and in the national territory. Due to the lockdown adopted in several countries and various containment measures in the first four months of the pandemic (March, April, May and June), the global retail sector lost its sales force continuously, causing clothing, knitwear, weaving and spinning supplies to increase every week.

Due to the high world stocks of yarn, fabrics and clothing, there was a series of extensions in the Brazilian cotton shipping contracts, which resulted in a lower volume of Brazilian fiber exports in the first months of the pandemic. As of August 2020, shipment volumes are already above that recorded in the same period of 2019, effectively signaling the resumption of the global textile industry. In terms of international prices, the world reference for cotton is the New York Stock Exchange, which registered a drop, from the beginning of the pandemic, from 70 cents / pound to 48 cents / pound, in less than one month, corresponding to a 32% reduction. Currently, prices have already returned to the level of 65 to 66 cents / pound, which is even lower than the beginning of the pandemic.

In the case of the domestic market, also due to the restrictive measures of COVID-19 adopted by the state governments and the Brazilian federal government, retail sales fell significantly, reflecting the increase in stocks in the textile industry, which made the prospect of purchases for the 2020/2021 season of Brazilian cotton by the national industry reduced from 750,000 tons / year to 520,000 tons.

The textile and clothing sector has already recovered part of sales, but it is still far from the ideal scenario. Currently, the biggest difficulty for the Brazilian cotton grower is the storage of bales, since the forecast is for three million tons of plume, the largest production volume in recent years, and shipments are returning to normal month by month.

Regarding the final cotton supply in Brazil for 2019/2020, estimations are of 422,000 tons, however, with a great possibility to decrease if Brazilian exports over the first three months of 2021 are satisfactory and reach good results.

AgriBrasilis – Brazil has been on the Top 10 cotton producers in the world. What can be said about the Brazilian cotton competitivity internationally? What is the yield and exports balance?

Milton Garbugio – In the last three years, Brazil has doubled its cotton production area, from 939 thousand hectares in 2015/2016 to 1.6 million hectares in the 2019/2020 harvest. He did this without even needing to open new areas, just balancing the crops of the productive matrix of cotton farms, which also plant soybeans, and other crops such as corn. In the same period, its production grew from 1.3 million to 2.8 million tons, and the country became the second largest exporter of fiber in the world, behind only the main competitor, the United States. Planting cotton in Brazil is a big challenge. The costs are high: about US $ 2 thousand per hectare, of which a large part goes to the protection of crops, which are under constant attack from tropical pests and diseases. Entrepreneurship in cotton farming is a decision that Brazilian farmers assume at their own risk because there are no government subsidies, and, in truth, not even effective rural insurance to mitigate the danger. One word sums up this success story: sustainability, understood as a concept that is based on the environmental, social and economic pillars.

This sustainable mentality is the result of a decision shared by all and guided by a strong class association, which is a symbol of a highly organized sector, nationally led by Abrapa, and its state companies, which implement, regionally, the programs developed for the scope quality, traceability, sustainability and promotion & marketing.

For each of these four commitments, Abrapa prepares strategic and integrated programs. The intensive adoption of technology in the fields, the professionalization of the producer and the constant improvement of the techniques have allowed the Brazilian cotton culture to reach impressive numbers in productivity. There are around 1,800 kilos of cotton per hectare, which makes us global champions when it comes to cotton planted without irrigation. In the 2019/2020 harvest, 92% of the crops received only rainwater. In the productivity ranking, we are second only to Australia, which irrigates 100% of its cotton. Our productivity is twice that of our farmers in the United States and four times that of Indians, with India today being the world’s largest producer of cotton.

• The commercial balance surplus is at US$ 745 million and the estimation is that Brazil once more surpasses the US$ 3 billion until the end of the exports season.