U.S. cotton growers taking prices on exported fiber and then imported finished product from China is not a sustainable situation, according to Allen Terhaar, executive director of Cotton Council International, Washington, D.C.
Terhaar told the 5th U.S. Pima Industry Seminar in San Diego, Calif., recently that U.S. cotton uptake is now subject to a much more concentrated market structure and arbitrary decision process than it has been at any time than perhaps during periods of war and rationing.
China is the world cotton trade's 800-pound gorilla, and it is creating unnerving price volatility.
“The combination of the world's largest producer and processor of cotton being the largest market for the largest exporter of cotton is a volatile mix,” said Terhaar.
Terhaar had only to go back to November 2003 to prove his point. That is when the initiation of World Trade Organization-legal safeguards for a few minor apparel product categories against China resulted in the cancellation of a buying team and a futures sell off resulting in a price drop close to 25 percent in the market within a month's time.
However, Terhaar said the U.S. does not have to live with this uncertainty. The U.S. cotton industry is taking a page from its own history book to lessen that uncertainty, focusing on stimulating underlying consumer demand for cotton product worldwide just like it did in the U.S.
Increasing consumer demand is the key, said Terhaar, “to taking the negative pressure off our economy for textile products and reducing price volatility in cotton fiber.”
Forty-six percent of the world's annual cotton consumption comes from three markets, the U.S. at 22 percent; Japan at 11 percent and Western Europe at 13 percent.
“It is a heavily skewed market,” said Terhaar. It must be expanded.
It is unrealistic to expect China, India and Latin America to increase cotton consumption to the current per capita levels of Western Europe or the U.S. However, he said it is reasonable to work toward increasing it to the level of a country like Taiwan.
If the cotton consumption could be raised to that level in China, Indian and Latin America, global cotton demand would soar to 122 million bales, 25 million bales more than today's demand.
Cotton consumption increased globally by 8 percent. However, global fiber demand rose 14 percent.
“Cotton has not, for whatever reason been competitive with manmade fiber demand in benefiting from global fiber demand growth,” he said, adding that outside the U.S. where the cotton industry has heavily promoted cotton at retail, cotton consumption in total and per capita terms has declined.
Without growing consumer demand for cotton, “we cannot break out of the cycle of overproduction, low prices and dependence on minor changes in stocks or arbitrary decisions in one importing country seriously sending prices gyrating.”
Consumers worldwide prefer cotton, according to CCI research, even in countries where manmade fibers have made their biggest inroads.
“The problem is in many of those developing countries is, frankly, the consumer is not offered a good quality or attractive cotton product at retail,” he said.
CCI and Cotton Incorporated are working to change that with individual consumer promotions and technical servicing programs overseas. India, CCI and CI also are working on what is called the Cotton Gold Alliance program. It is not a cotton brand program, but rather a promotional effort for quality cotton products made from cotton of any origin.
India is the world's second most populous country and its third largest producer.
“We are excited about the progress we have made to date on the Cotton Gold Alliance in India,” said Terhaar. “We are also, for the first time, getting motivated, top-notch textile manufacturers, brands and retailers in this major developing country to put up their own financial resources to promote cotton. That is the key to success.”
The U.S. cotton industry has carried the financial burden in the U.S. to build a market not only for U.S. manufacturers but for every nation that imports finished products into the U.S.
However, the U.S. cotton industry cannot carry the financial burden to promote cotton worldwide, he said.
India is in the midst of economic growth and is classified as a “must succeed” target for consumer promotion. China is another nation that fits into that category as the fastest growing economy in the world.
China, he said, “represents one of the best opportunities to really make a difference in the global supply and demand situation for cotton.”
Terhaar said it is not unrealistic to hope Chinese consumers could consume half their domestic spun cotton internally. That would remove 4 to 5 million bales from the world market. If they consumed their domestically produced fiber, it would raise world offtake to about 14 million bales.
The U.S. is the world's second largest cotton producer. Its 285 million people consume about 25 percent more cotton at retail that it produces on cotton farms. On the other hand, China with 1.3 billion people consumes less than half the cotton its farmers produce.
Terhaar believes CCI, CI and others can be the catalyst to increase cotton consumption within China.
CCI is currently carrying out some Cotton USA promotions in major urban areas of China with select long-time brands and licensees from Hong Kong. The next step will be to expand that presence with non-Chinese high-end partners in China. The Cotton Gold Alliance model from India may work in China as well.
Increasing world consumption with the U.S. as the promotional catalyst is the “world we should be working toward,” he said.