Why Bother with Cotton Demand Enhancement?
May 18, 2011 Editor’s Note: This is a two-part feature story on cotton demand creation. Part II will appear in next week’s newsletter. Jeffrey Silberman is the executive director of the International Forum for Cotton Promotion (IFCP), and the Chairperson of the Textile Development and Marketing Department at the Fashion Institute of Technology (FIT) in New York City.
Cotton reached a record-high price of $2.44/lb. during the past cotton season–about three times the price it registered on August 2, 2010. As of May 12, 2011, the seasonal average is $1.64/lb.
The reason for the price spike is generally thought to be the result of low world carryover, lower than expected production, robust demand, and panic buying. The carryover, as a percentage of mill use, was 50 percent in the 2008/09 cotton season, sinking to 34 percent in 2010/11. The average carry over for the past decade was about 47 percent.
Production is predicted to be up by 13 percent in 2010/11 to 24.8 million tons, after three years of decline. The same is predicted for 2011/12, up 10 percent to a record 27.4 million tons, primarily due to planting expansions in current producing countries. Land expansion is expected to be up only about 7 percent, limited by competition from food crops.
World cotton mill use started to recover in 2009 as the economy improved, but high prices and competition from chemical fibers is expected to keep mill use from growing stronger. Production is expected to exceed consumption by 1.5 million tons, bringing the 34 percent carryover in 2010/11 to 39 percent in 2011/12. And price volatility adds uncertainty to the value chain. Measured by calculating the ratio of the spread between minimum and maximum price values to the average price, volatility rose to 96 percent. The 10-year average was 32 percent, and second highest year was 81 percent, in the 1986/87 season.
Because cotton deviated so far from its historical range in 2010/11–and forecasting models produce reasonable results only when prices move within the historical range–the International Cotton Advisory Committee (ICAC) Secretariat decided not to publish a cotton price forecast for 2011/12. However, the ICAC Secretariat expects the season-average Cotlook A Index to decline significantly in 2011-2012, although not to the 10-year average of US$0.60/lb.
All of this information and more is presented quite clearly in “Cotton This Month,” May 2, 2011, published by ICAC. Depending on which sector of the cotton industry you participate in, this may be enough information. If you are a cotton industry expert that needs far more depth than this, it is there as well.
But for those who influence cotton’s future market share–the fabric developer, the fashion designer, the retailer and the consumer–this is what is referred to as “too much information.” What is stated above is way more than they want to know.
The fabric development and fashion design sectors only care about whether they can get cotton, and get it at a price that does not shock their entire line’s pricing structure–or worse, possibly drive them out of a job. The retailer wants to understand the price elasticity and how much the consumer will pay. They all want to know what substitute blends are available, what difference it really makes in price and performance, and in general how to create options for their customers.
The apparel and home furnishings industries depend on the cotton industry to continue to support the consumer’s love of cotton. This has always been cotton’s trump card. People like cotton, and they consider it both luxury and utilitarian at the same time.
Cotton’s success has always been directly proportional to how well that message is communicated through the supply chain, and how effectively it is presented to the consumer. There has never been a more important time to promote cotton. Its future market share is largely dependent on the continued preference for cotton, especially in consumer products, and that is the role of demand enhancement.
For more information, please visit http://www.cottonpromotion.org.
Be sure to check out next week’s newsletter to see the second part of this compelling feature story!
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