The agricultural economist who wrote the book on 21st Agriculture for Congress said American cotton producers must work smarter and be creative as never before to market U.S. cotton in the world this century.
Mecel “Mickey” Paggi, director of the Center for Agricultural Business and adjunct professor of the department of agricultural economics at California State University, Fresno told the 21st annual Western Cotton Conference in Fresno, Calif., recently that any future growth in U.S. cotton sales will come only via exports.
California cotton growers and marketers understand the world cotton export market better than most in the U.S. Cotton Belt because about 75 percent of their cotton is exported annually. It was no news to the merchants who market more than 60 percent of California and Arizona cotton that price often has little to do with selling cotton.
Paggi, who came to Fresno State a year and a half ago from Washington D.C., where he was the principal analyst for agriculture at the Congressional Budget Office, said international trade “is all about policy and policy has a lot more to do with whether we can move a bale of cotton than price, quality, handling” or other so-called fundamentals.
U.S. cotton has become an export industry more than ever before, said Paggi, former executive director for the congressionally mandated Commission on 21st Century Agriculture. Domestic mill use has been declining, and he expects it to stabilize at best at six million to seven million bales annually.
“If there is going to be a growth market, it is going to be in exports,” said Paggi.
That market will become increasingly more challenging in the future.
China as key
China is and seemingly always has been the key to world cotton trade. Many believed when China was admitted to the World Trade Organization, there would be more certainty in a market characterized for decades by its uncertainty.
China agreed to let 3.74 million to 4 million bales of imported cotton into the country over the next few years.
“Truth is China is not doing exactly what it said it would do,” said Paggi. It was late setting import quotas and did not allocate those quotas as the world cotton industry expected.
“So what? China is big — real big and a tremendous potential market. It also is a tremendous potential headache on the world cotton market,” said Paggi.
“Everybody wants a piece of China,” he said. While China's production fluctuates each year, it hovers around 20 million bales. However, cotton mill use can only continue to go up as China's population increases and living standards improve. That is what whets the appetites of world cotton marketers.
Import quotas China was to allocate to its mills have turned into a nettlesome, complex process “mimicking systems in the European community — God forbid we get into Beijing imitating the European Union. But that appears to be where we are headed with China.”
The National Cotton Council and several textile groups are pressuring the administration to force China to live up to its WTO agreements.
Unfortunately for domestic textile mills, the flip side of China's WTO pact that is supposed to allow more raw cotton in was opening up U.S. markets to even more imported textiles made with raw cotton shipped to China.
In January 2005, all tariffs for textiles imported into the U.S. disappear. This does not bode well not only for U.S. textile mills, but also for many of America's trading partners who are facing the loss of market share in the U.S. to China.
Since 2001, Chinese textile imports into the U.S. have increased 165 percent, and they will go up even more when quotas are gone.
When tariffs are removed, China will taken an even greater share of the imported textile business in the U.S. “at the expense of some very important U.S. trading partners” like India, Korea and Thailand. There are more than 100 countries currently exporting textiles to the U.S.
That is an example where policy will have more to do with marketing U.S. cotton worldwide than price will. “In Washington this policy arena gets into what is called the interagency process and this is where what is good for ag may not be good for state or defense.”
Paggi said future agricultural policy arena challenges will be “tremendous.” It will be tough internationally as well as in Washington where budget constraints will play a big role in government support for agriculture. Already America is at a disadvantage internationally. The U.S. tariff on imported textiles is 9 percent while other countries have tariffs of up to 70 percent on imported U.S. textile.
It sounds like doom and gloom, admits Paggi. However, he believes U.S. cotton industry is better off accepting the challenges rather than folding up the tent.
U.S. cotton will sell if it's the best quality in the world backed by timely delivery and if the industry offers to help the world textile industry in making quality goods.
At the same time, U.S. cotton farmers must find ways to hold or reduce the cost of production to offset low lint prices. Paggi has been involved in the economics of precision farming, and he believes that offers hope to meet cost-reduction challenges.
“There is a tough row to hoe in the cotton trade, but it is not an impossible task. The cotton industry is up to it, but it will take the best research and development and the best minds working on important issues,” he concluded. “I don't think we are better off not accepting the challenges.”