In the last 20 years the world textile industry has changed from one dominated by the United States in the cotton export market to one with China as the dominant market force in cotton imports and with synthetic fibers preempting cotton.
“In the last 25 years, the global cotton market has shifted from one dominated by the United States as the key fiber exporter to one dominated by China as a fiber importer and the leading exporter of textile fabrics, said Don Ethridge, agricultural economist at Texas Tech University in Lubbock.
Ethridge discussed the changes in the global cotton markets during the recent World Cotton Research Conference in Lubbock. “We've seen rapid changes in the cotton market over the last two decades,” Ethridge said. Production and consumption are up 50 percent; trade has increased 35 percent.”
He said overall textile production has jumped by more than 95 percent. Synthetic fiber production has increased 125 percent. He said changes have sped up significantly over the last five or six years. “Until then, trade had been fairly flat.”
Production for most cotton-growing nations remained fairly flat for the last two decades. “Exceptions are China, the United States, India and Brazil. Those increases came from countries that already had the largest production.”
Mill use of cotton increased in China, India and Pakistan with decreases in the United States and the European Union.
Ethridge said fiber mill use has increased steadily for the last 20 years. “The rate of increase for man-made fibers increased in the 1990s and overtook cotton. The gap has been widening ever since. The most rapid increase in man-made fiber use has been in China.” Taiwan has also increased use of synthetics.
He said the United States led the world in export rate increase of cotton over the past ten years, primarily because of the decline in the U.S. textile industry. Even so, the United States is a net importer of cotton because of the cotton in the textile products coming in.
“China is the largest and the fastest growing importer of raw cotton fiber, but when cotton in clothing and textiles is factored in, China is a net exporter of cotton and is the fastest growing exporter of cotton fiber. China produces more cotton than it consumes,” Ethridge said.
He said two general forces have driven changes in the global cotton market. One includes the general changes that affect many industries; the other includes factors specific to cotton and textiles.
Trade agreements, beginning with GATT following World War II, and including WTO (starting around 1994) are general forces that influence trade.
Ethridge said technological innovations that improve communication also affect general trade. “Production and marketing technology is available at a reduced cost and more quickly than before through the Internet. We get a more rapid dispersal of knowledge. More technology gets out much faster.”
Shifts in the textile industry affect just the cotton and textile market. “The industry has been driven by costs to low-labor cost countries such as China, India, Pakistan, South Korea, Taiwan, and Turkey.”
He said lower textile barriers, primarily in the United States and the European Union, enable the movement.
“Many developing countries maintain trade barriers. We still do not have a level playing field.”
Biotechnology also played a significant role in cotton market changes. “Increased land clearing, especially in Brazil, contributed to higher production,” Ethridge said.
“But most production increases come from better yields and much of that comes from bio-tech varieties.”
He said yield increases have been most significant in China, the United States and India. “Yield increases have occurred in all the cotton production nations in the last five years except those in West Africa.
“Biotech has reduced cost of production per pound, but technology comes with a high fixed cost per acre because of technology fees.”
The higher production cost with biotech varieties varies from one country to another based on how serious governments are about protecting intellectual property rights. Those that enforce the rules have higher production costs than those that do not, so those that do not can produce biotech cotton cheaper.
Ethridge said manmade fiber production comes with high fixed costs but once those costs are in place, production is consistent for years.
“Manmade fiber production capacity increased by 237 percent in the past 20 years,” he said. “China has dominated that growth.”
Ethridge said the WTO remains a strong force in the global cotton trade. “The ruling against the United States created a system for “affecting a country's domestic programs,” he said.
“Developing countries tend to use trade protection and production input subsidies more than developing nations, which are more likely to use income supports.
“Both are trade distorting. But the WTO ignores input subsidies, which could change.” Ethridge believes China's recent dominance changes the basic market structure for cotton.
“China's dominance, in concert with the (Chinese) government's control of trade in the internal market, insulates the industry from global factors. China's marketing practices have the potential to exert downward pressure on world prices. That helps explain why traditional price prediction models have not worked well in recent years.”