PRODUCTION CHAIN

By the end of the current year, the leading cotton-producing countries saw a decline in prices due to cheaper oil, high production forecasts, and stockpiles. Nevertheless, experts believe that demand for cotton yarn and fabrics will remain stable.

Due to rising costs and climate change in the USA, China, Pakistan, India, and several other regions, raw cotton production is decreasing. Similar trends are observed in Azerbaijan: this year, production decreased by 12%, but fibre exports increased by one and a half times from January to November. This reflects the trend towards cluster-type development of cotton production, with deep processing of raw materials and production of finished products.

Global Price Downturn

The 2022-2023 period was not conducive to the global cotton industry. Extreme drought resulted in a 28-30% drop in cotton yields in China, India, the United States, and Brazil. A similar situation was observed in Pakistan, where heavy rains destroyed nearly 20% of the crop, as well as in Australia and Benin. It is imperative to recognize the magnitude of these losses, as these countries collectively contribute over three-quarters of the global cotton production. Notwithstanding the aforementioned circumstances, cotton commodity prices in 2023 have exhibited a downward trajectory, attributable to the global recession, which has led to a diminution in demand from processors in key producing nations such as Türkiye, Pakistan, Bangladesh, Indonesia, and India.

The slightly improved price situation in the first half of this year had a short-term effect. According to the International Cotton Advisory Committee (ICAC), prices are predicted to continue their downward trajectory, driven by optimistic production forecasts and substantial stock levels. However, a notable shift in outlook has emerged from ICAC experts, who have revised their estimates for global cotton production and inventories for the 2024-2025 period. They anticipate an upward adjustment, estimating world production at 25.3 million tons. The industry's market prices are also influenced by the declining share of natural cotton raw material in mass-budget products over recent years. This shift has been partly offset by the increased use of man-made fibers, such as artificial polymer yarns or, in some cases, viscose derived from cellulose. This shift has implications for the dynamics of market demand in the cotton sector.

It is imperative to acknowledge the historical significance of the cotton industry in driving economic growth and employment opportunities in numerous developing nations. According to estimates by the Food and Agriculture Organization of the United Nations (FAO), cotton provides livelihoods for approximately 32 million agricultural workers and more than 100 million individuals in 80 countries. However, according to research conducted by the Food and Agriculture Organization (FAO), climate change, severe shortages of irrigation water, and rising costs of fuel, fertilizers, and pesticides are causing significant damage to the profitability of the industry. Consequently, farmers in the poorest countries are compelled to discontinue unprofitable production and transition to more competitive crops. A similar situation is observed among cotton growers in Central Asian countries. Azerbaijan is also facing challenges related to this negative situation.

Reasons For the Decline

According to the "State Program for the Development of Cotton Growing in Azerbaijan for 2017-2022," which was approved in 2017, the annual production of raw cotton was projected to reach 500,000 tons. However, this target was not attained. According to data from the State Statistics Committee, the country's cotton harvest in the previous year amounted to 276.1 thousand tons, marking a decline of 14.4% compared to the year prior. In 2024, cotton was cultivated on an area of approximately 100 thousand hectares. As of November, the volume of cotton harvested and delivered to procurement points reached 168.1 thousand tons, with an average yield of 16.35 c/ha. It is important to note that these figures are not yet definitive, as the harvesting process was delayed due to precipitation, and the collection of raw materials data is still pending.

In recent years, cotton growers in Azerbaijan have confronted significant challenges due to climate change, including water scarcity for irrigation, particularly during the summer months. In 2023, challenges related to water supply were observed in farms in Aran and several other lowland regions of the country, coinciding with a notable increase in the number of days with temperatures exceeding 40°C. Cotton necessitates regular irrigation during the spring vegetative growth phase and the summer season; however, the autumn rains during the final stage of ripening have been shown to have a detrimental effect on the quality of the raw material and the yield volumes.

To address these challenges, the government augmented procurement rates for raw cotton on multiple occasions between 2021 and 2022. Furthermore, farmers are eligible to receive a subsidy for each ton of cotton delivered to designated procurement points.

The implementation of economical beer irrigation systems and modern harvesters has been initiated, along with the introduction of high-yielding American, Turkish, and Greek varieties of cotton. Advanced agrotechnical methods of cotton cultivation have also been adopted. Consequently, several agroparks and farms have witnessed a substantial increase in yields, reaching up to 5 and even 6 tonnes per hectare. However, the average yield of the industry in Azerbaijan remains below 2.8 tonnes per hectare. This figure stands at nearly half the level of leading global industry performers.

The development of the industry is further influenced by subjective factors, including the escalating costs of production due to increased tariffs on diesel fuel, water, gas, electricity, and gasoline. Reports have repeatedly highlighted the substandard quality of imported pesticides, as well as the escalating costs of foreign agrochemicals, machinery, and components. The phenomenon of imported inflation contributes to the escalating costs that farmers, producers, and processors must shoulder.

The Need For Innovation

According to FAO experts, it is possible to achieve substantial transformations within the cotton-growing and processing sectors through the augmentation of chemicalization and mechanization in agricultural procedures, alongside the enhancement of processing profitability by means of increased added value. This approach entails the comprehensive processing of raw cotton, encompassing the production of yarn and fabrics, as well as the tailoring of products. In this scenario, the export portfolio would be dominated by finished products rather than raw materials. However, it is observed that the majority of Azerbaijan's exports currently comprise raw cotton, along with partially processed materials such as yarn and thread. Only a negligible portion, amounting to less than one-sixth of the total, consists of finished products.

During the panel discussions on "Decarbonization and climate adaptation of the value chain—from cotton to clothing" at the UN COP29 conference in Baku, the necessity for innovation in cotton production and the development of a cluster approach to the industry in the country was also discussed. According to Deputy Agriculture Minister Sarvan Jafarov, Azerbaijan is implementing a development strategy in the field of cotton production and processing, incorporating best practices from other countries and international organizations. In recent years, joint projects with the International Atomic Energy Agency have included research and the study of the possibilities of applying nuclear technologies in creating new cotton varieties. These innovations, among others, have contributed to a substantial increase in the yield of new varieties, reaching a level that is double the yield of previous pilot planting plots. Furthermore, the country has expressed an interest in fortifying its domestic value chain by modernizing its cotton processing infrastructure.

Significant advancements have been made through the establishment of new large-scale weaving and garment enterprises in Sumgayit, Mingachevir, Baku, and other cities. Textile factories are currently operational in Baku and the Saatli district, while garment factories have been established in Ganja, Yevlakh, and Lankaran. Concurrently, cotton ginning enterprises are undergoing a gradual transformation in their external supply structure. According to the Ministry of Agriculture, 112,597 thousand tons of cotton fibre, valued at $168.920 million, were exported from January to November of this year. This figure signifies a 1.5-fold increase in exports compared to the same period in the previous year, and a 1.8-fold surge in the value of exported goods.

It is noteworthy that not all weaving and garment enterprises utilize domestic raw materials, opting instead to procure finished yarns and fabrics from foreign markets. Consequently, their market is predominantly constrained to their domestic sales. The absence of customs Baum tariffs on the export of raw materials, coupled with the inadequacy of fiscal and other export mechanisms, hinders the capacity of major producers of raw cotton and cotton ginning factories to fully process materials and generate fabrics and clothing.

Uzbek Investments

In recent years, Azerbaijan has engaged in intensive negotiations with business circles in Türkiye, Pakistan, and Uzbekistan to attract investment in the spinning, textile, and garment industries. This initiative encompasses agro-industrial clusters being formed in the Garabagh region and in the industrial zone of the Alat Free Economic Zone (FEZ).

A notable breakthrough was achieved in July when TST Textile Group LLC of Azerbaijan and Tukimachi Sanoat Tekstil LLC of Uzbekistan signed an agreement to cultivate cotton and produce cottonseed oil in the Imishli Agropark. The Uzbek investor is set to direct investments amounting to ₼92.5 million over the 2025-2029 period into the development of yarn, textile, and garment enterprises within the confines of the Mingachevir Industrial Park.

Another project in the cotton-textile sphere, which is being realised by the local company Azersheker and Uzbek Global Textile, covers a number of regions of Azerbaijan, where about 2,400 jobs will be created.

In the agricultural sector, plans are underway to collaborate with farmers from Yevlakh, Aghjabedi, Imishli, Fuzuli, and other districts of Azerbaijan who specialize in cotton. The subsequent phase involves the construction of processing facilities for cotton in Ujar and Aghjabedi. Additionally, plans are underway to initiate yarn production. The total estimated cost of the joint Azerbaijan-Uzbekistan project in the field of textile cluster is $104 million. By mid-2026, the objective is to produce up to 11,000 tons of yarn, which will be utilized for the production of clothing—a product with higher added value. Azerbaijan is poised to become a regional exporter of textile products.