SWOT on Cotton Seed Business in India

Introduction:-

Cotton is an important cash crop in India. It accounts for highest value share in profits of most seed companies and hence is a growth driver of major importance. India is set to become the highest cotton producing nation as most of the seed companies are struggling to liquidate huge stock of cotton inventories. Productivity in India is quite low as compared to other nations yet there are quite few market leaders (good products) in this highly product centric market. A detailed SWOT analysis is required to understand the dynamics of Indian cotton seed market and develop focused positioning and liquidation strategies in a market which has a very thin differentiation in its various segments.

Strengths:-

1.     Cotton is an important cash crop in India and plays a significant role in the national economy.

As an industrial crop, it supports millions of people through cultivation, processing & trade and contributes to US$40 billion to annual exports income (approx 9.7%) for our country. In the year ending March 2014 Indian textile exports grew from 26 b $ to 30 b $, due to which overall exports income of India grew by 4 %. Had the textile exports remained unchanged, growth would have been lesser than 3%. It is a very labor intensive crop as well and provides income opportunities to Indias unemployed unskilled labor. India is one of the largest producers as well as exporters of cotton yarn and the Indian textile industry contributes about 11 percent to industrial production, 14 per cent to the manufacturing sector, 4 percent to the GDP and 12 per cent to the country's total export earnings.

2.     Bt cotton accounts for the highest value share in profits of Indian seed industry.

The companies with the right kind of product mix which were introduced in the market at right time, have seen tremendous growth in their bottom line in the last decade. 

3.     India is all set to become highest producer of cotton.

India is pegged to become the highest producer of Cotton with production estimate of 40.05 m bales of 170 kg each in 2014/15 inspite of the fact that heavy rains in September 14 in Punjab, Haryana, Gujrat and parts of MP, Maharashtra tended to dip India’s cotton production to some extent. All the major seed companies saw a major bump in the sale of cotton seeds ranging from 10% to 75% (approx. 4.5 Cr packets) in the Kharif season 2014. 2014-15 is set to be the year of historically high cotton production in India.

4.     Indian subtropical climate is highly suitable for growing cotton

Successful cultivation of cotton requires a long frost-free period, plenty of sunshine, and a moderate rainfall, usually from 600 to 1,200 mm (24 to 47 in). Soils usually need to be fairly heavy, although the level of nutrients does not need to be exceptional. Planting time in Kharif in the India varies from the beginning of April in North to the late September in Tamil Nadu. Summer cotton is also sown in a few states. In India majority of the cotton crop is rainfed (approx 65%).

Weaknesses:-

1.     All the major cotton companies are dealing with high inventories.

In the year 2014-15, except the most popular brands which still could go on Market price, seed companies had to offer discount to the MRP due to oversupply of cotton seeds. Seed companies had reduced seed production by almost 50% in the in 2013-14 due to huge carry forward stock.

2.     There are no clear segments in cotton crop, positioning and marketing strategies are very dicey in such a context.

Segments based on staple length though existent in Indian market are not of much use from marketing perspective as medium length staple is most widely grown cotton type and long staple & extra long staple are clearly restricted to particular markets only.

A more useful segmentation can be done by dividing Indian market into agroclimatic zones. With separate topography and agroclimatic situation, North South and Central zones can be defined as three broad groups of macro segments.

Further segmentation based on resource availability (irrigation, soils) and duration of the crop, divides all these zones into micro segments.

But there is not a huge dissimilarity between each of these segments. A product/hybrid which is perfect fit in one segment can also partially fit in another. The star products in India have the capability to fit in one or more number of segments. Hence extra focused efforts for product development, placement, promotions, etc are required in such a context.

A brief overview of major cotton segments and their tentative market potential is as below:

Zone	Markets covered	Important charactors	Total market potential(Lakh Packets)
North	N Raj, All Punjab, Sirsa, Fatehabad	Good Irrigation, Fertile soils, Closer spacing & CLCuV hot-spot	45
North	Bhiwani, Narwana, Hisar	Limited Irrigation ,Light soils, Para-wilt area & CLCuV hot-spot	15
North	Jodhpur/Nagaur	Limited Irrigation, Para-wilt, No CLCuV	5
Central	Khandesh, MP, Lower Buldhana	Better Water availability, good crop management, Mono-Multi cropping system	65
Central	Marathwada, Viderbha, Upper Buldhana	Major support irrigated- Rainfed area, Average crop Management, mono-cropping	115
Central	North Gujrat and Surendranagar	Better water resources, close spacing, salinity area, second cropping system	15
Central	Saurashtra	Support irrigated-rainfed, saline area, mono cropping	20
Central	South Gujrat	Highly fertile area, good crop management, Very good water resources, high yield, mono crop	10
South	Guntur, Adilabad ,Hubli, Haveri, Dharwad, Raichur	High fertility, good crop management, 2nd cropping system	60
South	Khammam, Warangal, Kurnool,  Bellary, Karimnagar	Major area under Support irrigated – Rainfed with Medium & light soil, sucking pest hotspots	75
		Others	25

Zone wise performance in Kharif 2014   

In Kharif 2014, Ajeet, RASI and Bioseed grew exceptionally well in North and Central zone, while bigger players like Nuziveedu and Kaveri have managed to maintain their growth in market share in the growing market of South. Kaveri performed well in AP.

Sales in all the regions observed 10-11 % growth in Kharif 2014, with some states like Haryana, Karnataka and Gujrat registering very good shift in crop acreages towards Cotton.

3.     Regulatory requirements for launching a new hybrid in a particular area are very stringent in India.

 It takes three years of trials in a particular state to gain permission for sale for a particular hybrid. Government regulations will continue to be stringent regarding marketing of new hybrids/technologies in the wake of recent farmer suicides and agitations.

4.     With the investment in advertising and promotions (both ATL&BTL activities) and labor cost in India on an increasing trend, profit margins have been shrinking for those other than the major players.

Cotton being an important value driver in the portfolio of most of the seed companies, they are investing a lot on brand building and other BTL activities. A few companies like Kaveri and Nuziveedu have come up with innovative TV ads under ATL activities as well. Cotton BG II MRP is fixed at 930 INR by the government. The trade margins are very competitive and cost of production including trait royalty is almost fixed. This leaves most of the seed companies with a very thin profit margin.

Opportunities:-

1.     Change in climatic situation:

In the recent years monsreduced by almost 60% and net profit increased by almost 78%. While it resulted in drastic change in acreages of cotton, from an industry perspective, the company which was the first mover (has a notified hybrid with the technology) could reap its advantage in form of huge jump in bottom lines. With the introduction of a new technology the market dynamics always change. Many leading hybrids fade to background as new hybrids come under the spotlight. 2015 Kharif will see the launch of Round up ready hybrids(herbicide tolerance) form Mahyco-Monsanto which is  expected to become a game changer.

With new technologies, it becomes very difficult for the late entrants to predict the market demand. As a result most of the companies tend to overestimate their projected sales in these products, resulting in huge inventories.

3.     Existence of a pseudo market space

 In 2014 uneven rainfall was accompanied by delayed sowing season. Crop damage was followed by mixed sowing and resowing. With India producing almost 40 lakh bales (of 170 kg each) in 2014, cotton seed market grew significantly from 4 Cr. packets to almost 4.5 Cr. Packets. While majority of it comes from increase in cotton acreages, resowing due to damage caused by delayed and uneven rains, also has contributed significantly to these numbers especially in parts of MP, Maharashtra and AP. This seed sale can vary from 20%-40% in various regions. If not properly tracked and estimated, it will lead to improper demand estimation, which may further lead to piling up of inventories for cotton seed companies

4.     Government interventions

Also different government schemes will continue to absorb unskilled labor, further shrinking the profit margins of cotton seed companies.

High Labor Cost:-

Due to change in government policies, labor has become one of the most costly inputs.a

The share of major inputs in Cotton cost of cultivation is as follows:-

With every one rupee earned as net returns in cotton cultivation, 20 p is being spent on labor alongwith 50 p being spent on fertilizer, agro chemicals and seed etc, inputs. Thus farm labor seems to be consisting of almost 20-30% of the net returns. Developing and promoting less labor intensive hybrids (hybrids with ease of picking, sucking pest tolerance, practice of machine picking etc) seems to be the next logical step in cotton cultivation.

Conclusion:-.

Global scenario, market prices, government interventions, shrinking and expanding marketspaces, etc all these variables will always cause an impact, moresover on the market leaders in Cotton Industry

Cotton seed as is the case of any other seed product is accompanied with smaller shelf life and very uncertain market dynamics due to dependency on climate. Some of the best of the decisions in any marketplace are backed by cautious intuitions only. Nontheless cotton is there to stay as the biggest value driver for Indian seed market for a longtime to come due to its economic importance.