Cotton

Introduction

The 1990s witnessed sluggish growth in world cotton production, consumption and trade. Average annual output during 1999-2001 was 19.9 million tonnes, 900 000 tonnes more than a decade ago. The annual growth rate was only 0.4 percent, far less than during the previous few decades. Growth in trade was also slow. The annual growth rate between 1989-1991 and 1999-2001 was only about 0.6 percent, about one-third of the 2 percent growth rate in the previous few decades. Cotton prices have weakened significantly since 1997 and reached an historical low in late 2001. However, since 1996, at the regional and country level, several significant developments in production and trade have shaped and will continue to shape world cotton demand, production and trade in the next decade. These include the cultivation of new genetically engineered or transgenic cotton varieties; the emergence of new low-cost producers and implementation of the Agreement on Textiles and Clothing (ATC); global economic growth, population growth and price competition from man-made fibres.

Consumption

With the advance in technologies and emerging low-cost producers, it is assumed that cotton's competitiveness with man-made fibres will not further deteriorate in the current decade. It is projected that world cotton consumption would increase by 1.5 percent annually to reach 23.1 million tonnes by 2010. Such a growth rate is significantly lower than the actual growth rate between 1980 and 1990 of about 2.8 percent but higher than 0.6 percent between 1991 and 2000. The lower growth rate may be attributed to the near saturated demand in developed countries and competition for land by other crops, especially food crops in developing countries. Between 1990 and 2000, China, India and Pakistan experienced little or no expansion in their cotton planting areas. It is expected that total consumption in developed countries and developing countries reach 12.7 million and 10.4 million tonnes respectively by 2010.

Cotton mill consumption is driven by both domestic consumption and trade in textiles. Mill consumption in developed countries is expected to decline by 0.3 percent annually in the current decade, with the increased demand for cotton textiles in these countries being met by imports. Mill consumption is likely to continue to decline in the United States, Japan, Australia and many countries in Western Europe. However, the annual declines in mill consumption would be much slower than the 3.9 percent of the last decade. After a sharp decline in mill consumption since the 1960s, total mill consumption in developed countries was only about 4.2 million tonnes in 2000, which was less than 20 percent of the world total mill consumption.

While mill consumption declined by 4 percent in many developed countries in the last decade, the United States and Italy, the world's major high quality textiles and fashion producers, saw little change in their mill consumption level. Japan is likely to experience a continuing decline in mill consumption, but the rate of decline would slow while countries in the former Soviet Union and Eastern Europe are expected to have some recovery after a sharp decline in mill consumption in the last decade.

Driven largely by textile exports rather than domestic demand, countries in the Far East are expected to continue to enjoy above average annual growth. It is projected that total mill consumption will reach 14.8 million tonnes by 2010 with an annual growth rate of 2.4 percent, which is higher than the average in developing countries. China, India and Pakistan are expected to continue to be the largest mill consumption countries in the world with annual growth rates of 3.1, 1.6 and 2.2 percent, respectively. By 2010, total mill consumption is projected to be 7.2 million tonnes in China, 3.4 million tonnes in India and 2.2 million tonnes in Pakistan. These three countries would account for more than half of world mill consumption.

Growth in mill consumption in Latin America is projected to be only 0.5 percent in the current decade compared with 2.6 percent between 1990 and 2000. Growth would slow down in Brazil and Mexico, the largest mill consuming countries in this region, but would be higher in smaller consuming countries such as Colombia, which is expected to grow by 3.5 percent. However, if the North American Free Trade Agreement (NAFTA) were to expand to include Brazil and several other countries in this region in the current decade, their mill consumption level would be significantly higher.

In Africa, total mill consumption is expected to decline at an annual rate of 3 percent, largely due to stagnating domestic consumption and weak competitive position in the world textile and apparel markets.

After experiencing rapid growth in the last decade, consumption in countries in the Near East region is expected to continue to grow but at a slow pace. Turkey, the largest consuming country in this region, is expected to reach 1.35 million tonnes by 2010 with an annual growth rate of 1.2 percent compared with 7.6 percent during the 1990s. The economic and political relationship with the EU benefited Turkey, which had very strong growth in textile exports in the last decade. However, the removal of textile quotas by 2005 would put more competitive pressure on textile exports from Turkey.

Production

Increased global demand for cotton should induce higher production in the next decade. World cotton production is projected to increase by 1.5 percent annually in the current decade to reach 23.1 million tonnes by 2010. Developing countries would continue to account for the largest share of world cotton production. Production from developing countries is expected to reach 16.2 million tonnes by 2010, about 70 percent of world production.

Production in African countries is projected to grow strongly at 3.2 percent annually to reach 1.7 million tonnes by 2010. The annual growth rate is expected to reach 2.1 percent in Latin America. Brazil would produce one million tonnes of cotton by 2010, largely due to expansion into new production areas.

Production expansion in the Near East region is expected to slow down. The annual growth rate is expected to be 0.4 percent next decade, which is much slower than 2.7 percent in the past decade. Production in Egypt is expected to stabilize with higher irrigation costs continuing to be a major constraint to expansion. Irrigation development has contributed to significant growth in production in Turkey over the past decade and will continue to foster further production expansion but at a slower pace.

Asia will continue to be the major cotton producing region in the world. This region is expected to produce about 11.2 million tonnes by 2010, about 44 percent of world output. However, competition for land from other crops, especially food crops, is a major constraint. China is expected to produce 6.1 million tonnes by 2010, with an annual growth of 3 percent. India is expected to reach 3 million tonnes by 2010 with an annual growth of 1.8 percent, and Pakistan would produce 2 million tonnes with annual growth of 1 percent.

Production should remain stable in developed countries in current decade except in South Africa and a few Eastern European and former Soviet Union countries. Production in the United States would be essentially remain at the current level of 4 million tonnes by 2010, while production in Western Europe would decline by nearly 5.6 percent annually in the current decade to 0.3 million tonnes. Increases in textile imports and labour costs discourage domestic production expansion. If the current agricultural policies were to be reformed, these developed countries would see their production contract further. Although some countries in Eastern Europe and in the former Soviet Union would have great potential to expand production, both institutional and financial constraints may prevent countries such as Uzbekistan and Tajikistan from reversing their declining trend. As a result, production in Eastern Europe and the former USSR is projected to be 1.64 million tonnes by 2010, reflecting growth of 0.6 percent annually.

Trade

Growth in world cotton trade has significantly slowed down over the past decades. However, while the trade pattern from developed countries to developing countries continued, trade among developing countries grew. In particular, Africa emerged as an important exporter in the world market. However, given the competition from man-made fibres and the slow growth in textile trade, no major increase in trade in cotton is expected. World cotton trade is projected to continue to expand at an annual growth rate of about 1 percent in the current decade. It is expected that world cotton trade will reach around 6.6 million tonnes by 2010, about 9 percent higher than the current level.

Developed countries would continue to account for more than half of world cotton net exports. The United States, the world's largest cotton exporter, is expected to export 2.45 million tonnes by 2010 with an annual growth rate of 3.5 percent. The increase in exports is largely attributed to the lower domestic mill consumption and increased in imports of textiles and apparel. In contrast, net exports from the EU would decline from 0.35 to 0.21 million tonnes by 2010, due to increased imports of textiles and apparel, and lower production levels. After the 7 percent annual expansion in exports during 1990-2000, Australia would see its exports decline in the current decade to 0.5 million tonnes. Exports from Eastern European countries and the former Soviet Union are expected to stabilize at around the current level of 1.25 million tonnes in the current decade, largely due to the slow growth in production and an increase in domestic mill consumption.

After declining over the past decade, total net exports of cotton from developing countries are expected to increase in the current decade. Exports from Africa are expected to continue to increase by 4.4 percent annually to reach 1.5 million tonnes by 2010 largely due to increased production. Developing countries in all other regions are likely to see their net exports decline or become net importers in the current decade.

Although cotton production is expected to increase, Latin America would see its exports stabilize at around the current level. Declines in exports from Argentina would be offset by higher exports from Paraguay while exports from Brazil would remain at the current level. As a result, total exports from this region would be only 0.25 million tonnes by 2010.

Exports from the Near East are likely to decline from the current level of 0.38 million tonnes to 0.28 million tonnes by 2010, with lower shipments from Syria and Turkey contributing to the reduction. Given the need to meet the increase in textile exports coupled with slow expansion of production, exports from the Near East would continue to contract.

Developing countries play an increasingly important role in cotton imports. They accounted for about 68 percent of world cotton imports in 1999-2001, which was significantly higher than the 50 percent share recorded during the late 1980s. It is expected that this share will go up to 71 percent by 2010, largely due to the increase in demand for raw material to meet textile exports from developing countries. Latin America and Asia would account for most of these imports which could reach 0.7 and 3.4 million tonnes, respectively, by 2010.

As imports of manufactured cotton products increase, developed countries including Japan and member nations in the European Union are expected to reduce their raw cotton imports in the current decade. Total raw cotton imports by developed countries by 2010 is projected to be around 1.9 million tonnes, which will be the same as the current level but about 23 percent lower than the 1989 -1991 level.

Issues and uncertainties

The 1990s witnessed substantial variations in world cotton prices. After reaching more than US $2.00/kg in 1995/1996, the Cotlook A Index dropped below US $ 1.00/kg in late 2001.

In the next decade, both supply side and demand side factors will affect the world cotton market significantly. Expansion in production in low cost areas and application of high yielding biotech cotton will place downward pressure on world cotton price. On the other hand, if the new WTO negotiations were to succeed in reducing domestic support levels in developed cotton producing countries, these countries would reduce their trade and exports. Thus, the world price could rise and production would shift to low-cost producing countries.

Furthermore, tariff reductions for all manufacturing goods including textiles and clothing have been proposed in the new WTO negotiations. If significant and effective tariff reductions in textiles and clothing were to emerge from the Doha Development Agenda (DDA), especially when the completion of the ATC is taken into account, the world cotton market would face some dramatic changes. Tariff reductions in textiles and clothing would stimulate higher demand for both natural and man-made fibres in developed and developing countries. The Multifibre Arrangement (MFA) restricted trade, but the quota system acted to give preferential treatment to some countries that have limited comparative advantage in the world textiles and clothing markets. The removal of quotas along with tariff reductions would intensify global competition in textiles and clothing. Many of these high-cost producing countries may be driven out from the textiles and clothing market and even become importers, thus changing the pattern of world trade in cotton. Overall, cotton production and trade could be higher and the world market could be more stable with higher prices in the current decade.

Table 2.68. Raw cotton, actual and projected production

Source: ICAC Bulletin (CD-Rom) June 2002