Slow Growth in Global Production Likely
March 12, 2010 The world cotton industry is in the midst of a period of retrenchment after a decade of extraordinary growth. During the next decade, world production and consumption are forecast to grow slowly, resulting in higher prices in nominal terms, but a steep decline in cotton’s share of world fiber use. Marketing margins will continue to tighten because of competitive pressures within the cotton sector and between cotton and polyester. As a consequence, consolidation among farmers and among banks, insurance companies and merchants serving the cotton sector will continue.
During the last three decades, world cotton production rose from approximately 14 million metric tons to a record 27 million in 2004-05, before falling to 22 million in 2009-10. The trend increase was about 350,000 tons per year, and a simple trend line explains almost three-fourths of the year-to-year variation in cotton production. However, the upward trend obscures periods of little or no growth. Between 1984-85 and 2002-03 (a period of peak to trough), there was no increase in world production, showing that there can be long periods of stagnation even within an overall pattern of increase. Production has fallen since 2004-05, and world production is not forecast to return to the record level in the foreseeable future.
World cotton area has varied between 30 million and 36 million hectares since 1980-81, with no trend either up or down. However, with the ratio of prices of cotton to competing crops declining in the face of rising demand for food and biofuels, it is likely that the average level of world cotton area will drop during the coming decade. Rather than varying around an average of 33 million hectares, as has been the case for decades, world area is expected to vary around an average level of 30 million hectares in coming years.
The world yield rose from 400 kilograms per hectare in the early 1980s, to about 600 kilograms in the 1990s, to almost 800 kilograms per hectare earlier this decade, but yields are leveling off and falling now. The rise in yields was linked to improved technology, expanded adoption of existing technologies, and the development of cotton production in high-yielding regions of Xinjiang, China, Central Brazil and Eastern Turkey. While researchers report many new developments in the pipeline, there are no breakthrough technologies ready for commercial application in the next few years that will give a new boost to the world yield.
Potential Responses
Actors in the cotton industry have basically three options in response to declining revenue and tightening marketing margins when adjusted for inflation: expand operations, improve quality to achieve higher margins and/or reduce costs.
The ICAC is working with governments and the cotton industry to encourage standardization of instrument testing of cotton so as to lead to rational price incentives in alignment with the needs of the spinning industry for quality cotton. The ICAC also supports the work of the International Forum for Cotton Promotion to facilitate expanded efforts by national cotton industry organizations around the world to provide positive information about cotton to consumers and to increase consumer awareness of fiber content. Through the Technical Information Section, the ICAC works with governments and private sector researchers to serve as a clearinghouse for the latest research and to showcase best production practices. The ICAC encourages pragmatic regulation of cotton production practices that protect the environment and human health while ensuring producer access to cost effective means to maintain and improve yields.
The cotton industry has experienced previous periods of slow growth in yields and tightening margins. These trends will continue. However, cotton will remain a dominant apparel and home furnishing fiber, even as industrial markets are lost, and demand for cotton will grow as population and income increases continue.
Earlier experiences teach that long-term economic success is dependent on the adoption of appropriate technologies to lower costs while improving quality and expanding the size of operations to achieve economies of scale. History suggests that a decade from now, there will be fewer farmers around the world, fewer ginners and fewer merchants, but that the industry as a whole will be larger and stronger and that cotton will continue to be an engine of income and wealth for hundreds of millions.
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