Markets, Institutions, and the Quality of Agricultural Products: Cotton Quality in India

Abstract

India is the world’s second largest exporter of cotton, but quality problems with Indian cotton are evident in surveys of international textile mills and the discount Indian cotton receives on world markets. Using a unique data set of Indian cotton prices and quality attributes from 5 Indian states, this study uses hedonic price modeling to demonstrate that the linkages between cotton quality and price are weaker in India than they are in the United States. Fiber quality attributes measured by High Volume Instrumentation (HVI) were found to account for about 50 percent of the variation in observed prices. Comparable studies in the United States have determined quality attributes can account for about 75 percent of price variation. Cotton appears relatively undifferentiated compared with breakfast cereals or automobiles, but the attributes of cotton are crucial to its users and can vary considerably.The modern global textile industry requires cotton with strong and consistent fibers in order to produce high quality goods at the high speeds necessary to recover capital costs. The introduction of high volume instrument (HVI) measurement of cotton fiber quality has strengthened the link between cotton prices and attributes on world markets. The spread of genetically modified (GM) cotton in India has driven India to the second ranked producer and exporter of cotton in the world. However, contamination and other quality problems are endemic to Indian cotton. Using a unique data set of Indian cotton prices and quality attributes from 5 Indian states, this study uses hedonic price modeling to demonstrate that the linkages between cotton quality and price are weaker in India than they are in the United States.