The Role of Governments in the Cotton Industry: First, do no Harm
Terry Townsend, PhD
Houston, TX USA
Cotton is a great industry employing hundreds of millions around the world and providing products touched by almost every person on the planet every day. In any industry this large and important, governments will be involved in a multiplicity of ways, from approving seed varieties, to funding research, to regulating labor standards. Most of these interventions are both necessary and positive. We all realize that chemicals need to be regulated, that workers need to be protected, that research must be funded, that markets need to be transparent. Indeed, the very existence of ICAC implies that the role of governments in the cotton industry is necessary.
However, while governments always mean well, they do not always do well, and some forms of government intervention have highly deleterious effects. The inefficiencies and harm associated with government measures that directly distort cotton production and trade have been well-discussed in ICAC meetings for decades. However, other forms of government involvement in global fiber markets have received less attention, even though their cumulative impacts may have great negative implications for the livelihoods of millions of people.
In particular, government industrial policies that subsidize the production and use of synthetic fibers, and government agencies whose publications and programs disseminate falsehoods, or enable others to disseminate falsehoods, about cotton production practices, are doing great disserve to consumers and great harm to producers around the world.
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Peak Cotton May Have Passed
In the Age of Sail, all lines and sails on ships were made of natural fibers, mostly hemp and sisal for ropes, and linen for sails, and millions of tons of each fiber were produced each year. Today, with the exception of museums, all ships’ lines and sails are made of nylon, polypropylene or polyester, and world production of natural fibers used in lines and sails has fallen to just a few hundred thousand tons.
Prior to the advent of “fast fashion” and “casual Fridays,” wool was a major apparel fiber. In the 1960s, wool accounted for 10% of world apparel fiber use. Today, wool accounts for 1% of world fiber use.
In the 1800s and early 1900s, cotton probably accounted for 75% of world fiber use, and in the 1960s, cotton still accounted for two-thirds of all fiber use. By the 1980s, cotton’s share had fallen to half, and today, cotton’s share of world fiber consumption is less than 30%, and falling.
World cotton consumption reached 26.6 million tons in 2007, but nine years later in 2016, despite population growth of 11% or 760 million, and cumulative world real GDP growth of 10% or US$3.1 trillion, world cotton consumption is still approximately 3 million tons, or 10%, less than it was at its peak. Just as with hemp, sisal, flax, wool and other natural fibers, the world may realize years from now that ‘Peak Cotton’ has passed.
The world economy is highly competitive, and all industries face strategic threats. However, natural fibers, more than most other agricultural commodities, face competition from manmade alternatives. The modern cotton industry based on international trade in saw ginned upland cotton is approximately 200 years old, and over most of that time governments could intervene in markets and critics could demonize the industry, secure in the knowledge that no matter how much harm they did, the world cotton industry itself would recover. However, the loss of market share to polyester during the 21st century has been so rapid and so severe that cotton has reached a point where its survival as a major fiber is in question.
As of 2016, cotton appears to be an industry in decline, trapped between low prices for polyester and huge stocks of cotton, and under attack from government agencies that wish to limit cotton production because of perceived environmental and social harm. The governments of countries concerned about the health of the cotton economy must unite to confront these threats.
Polyester is a Product of Industrial Policy, not Market Forces
The underlying story about world cotton consumption can only be understood in the context of polyester production in China. As China started to industrialize in the early 1980s, textile production was a leading area of investment. In 1990, polyester fiber production in China was about 1 million tons, but by 2015, polyester production in China had grown to approximately 35 million tons, equal to 70% of the world total . The 35-fold increase in polyester production in China in 25 years is the single biggest factor reducing world demand for cotton today .
There are no comprehensive statistics on the number of polyester fiber production plants in China, their ownership, sources of financing or operating costs. However, the growth in polyester production in China has been so rapid, so enormous and so incongruous with investment patterns in other countries in Asia, that it is impossible to believe that industry expansion is a result of competitive, private sector investment.
The cost of construction of a polyester plant with a capacity of 250,000 tons per year is estimated at about US$150 million. It has been widely reported that the national, provincial and local governments in China encourage industrial expansion through loans that are never repaid made by government-owned banks. There are numerous stories in China of “ghost cities ” and industrial plants producing only for inventory because they have no customers . Given the emphasis by all levels of government in China on textile production since 1990, it is highly likely that much of the expansion of polyester production capacity occurred with the help of loans that have become grants. It would be naïve to think that the expansion in polyester production in China occurred because Chinese consumers were demanding more polyester or that other market forces encouraged such growth. The expansion resulted from the industrial policies of the Government of China.
The loss of market share for cotton has been largely the result of policies of the Government of China following China’s accession to the World Trade Organization (WTO) in 2001 and the end of the Multifiber Arrangement (MFA) in January 2005. Unless governments with an interest in the health of the world cotton industry unite in the WTO to oppose China’s subsidization of polyester production, in the same way that governments have waged a campaign in the WTO to reduce direct government measures that distort cotton production and trade, cotton’s loss of market share will continue, and the livelihoods of cotton producers will be further compromised.
Technology Denial Strangles Cotton
The denial of agricultural technology by government agencies is contributing to the strangulation of the world cotton industry and the loss of competitiveness to polyester. In order to compete with polyester, cotton yields have to rise and the cost of production must fall; this is a fundamental reality of a competitive world economy in which consumers exercise choice based on fashion, fit, color, feel, price, availability and other factors. If cotton cannot supply market demands at prices consumers will pay, cotton will go the way of wool, linen, silk, ramie, hemp, sisal and other fibers whose markets were once measured in millions of tons and are now niche fibers.
It is technology that will enable yields to rise. It is technology that will enable farmers to produce more cotton with less resource use, thus lowering real costs and environmental impacts, and it is technology that will enable an improvement in intrinsic fiber quality parameters to meet consumer preferences. However, regulators and trade officials in many countries, and especially in Europe, often reject the science underlying modern agricultural production technologies.
The Partnership for Sustainable Textiles <https://www.textilbuendnis.com/en/> is a current example of government action that reinforces campaigns of demonization against cotton.
The Partnership is an initiative of the Federal Ministry for Economic Cooperation and Development, Government of Germany. The catalyst for the start of the Partnership was the collapse of a building called Rana Plaza in Bangladesh in 2013. The underlying premise of the Partnership is that deficiencies in the cotton, textile and garment value chain can be corrected by encouraging retailers in Germany to only source products made from cotton that is “sustainably” sourced.
Within the structure of the Partnership, a Working Group on Natural Fibres has developed a preliminary set of recommendations for adoption by the Partnership that would use moral suasion and public criticism to pressure German retailers to avoid sourcing consumer textile and apparel products made from cotton that is not produced under an identity program such as organic, Fair Trade, Cotton made in Africa or BCI. Cotton grown outside these programs, including almost all cotton produced in ICAC member countries, would face discrimination in international trade by retailers sourcing products for sale in Germany, and eventually the entire European Union.
If the Textiles Partnership were an entirely private sector activity, such actions would be outside the interest of the ICAC, and it would be the responsibility of cotton producers to counter the claims made by those who would avoid purchasing their product. However, the Textiles Partnership is funded, organized and enabled by a government agency. Accordingly, this is a matter for ICAC concern.
Under the preliminary recommendations developed by the Working Group on Natural Fibres, even cotton grown in Greece, Spain and Turkey (Turkey is a member of the EU customs union) would face discrimination in Germany. Even if the definition of “sustainable” cotton eventually adopted by the Textile Partnership is ultimately broadened to include cotton grown outside the identity programs, it will still communicate to consumers that only “certain cottons” should be allowed.
The danger of the Partnership for Sustainable Textiles is not that it will ever amount to anything, because it is so impractical it can never be implemented. The danger is that a government agency is lending it’s credibility to the demonization of cotton, and this will hurt all producers.
Cotton and its sister natural fibers have long and romantic stories as some of the most important commodities in the history of mankind. However, just as horses have been supplanted by cars, so are natural fibers threatened by synthetic alternatives, particularly polyester. To survive as more than just a niche fiber displayed in museums and to remain commercially relevant, cotton must compete with polyester on both price and technical performance characteristics.
Among the major threats to cotton’s long run viability as a commercial fiber are government policies that encourage polyester production and prevent cotton prices from being competitive with polyester, government policies and regulations that inhibit adoption of technology, and government programs that reinforce consumer attitudes born of ignorance that reject agricultural science.
To combat these threats, the cotton industry, and governments of countries with an interest in cotton, must unite and advocate for government policies that, “first, do no harm.” Governments must oppose subsidies to polyester production just as vehemently as they have campaigned against subsidies in the cotton sector. Governments must also premise policies and programs on sound science so as to enable cotton producers to innovate, adopt and implement latest technologies that produce increased yields at lower costs so as to provide fiber to textile mills at prices competitive with polyester.