Category Archives: Buffer Stocks

Overcoming Good Intentions: Government Measures do More Harm than Good

Governments always mean well, and sometimes government programs actually achieve desired results. Nevertheless, government measures that distort production, consumption and trade always do more harm than good, and in a highly competitive world economy, cotton would be better off with less government “support,” not more. Continue reading

WTO Disciplines Should Apply to All

In the Age of Sail, all lines on ships were made of natural fibers, mostly hemp and sisal, and millions of tons of both fibers were produced each year. As late as the 1960s, world hemp production was still nearly 400,000 tons per year and sisal production still totaled 750,000 tons per year. Today, with the exception of museum ships, all ships’ lines are made of nylon, polypropylene or polyester, and world production of hemp has fallen to less than 60,000 tons while sisal production has fallen to less than 300,000 tons, most of which is used in agricultural twines and cordage.

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, and wool production for all uses including carpets reached 1.8 million tons in the early 1990s. Today, wool accounts for 1.2% of world apparel fiber use, and production has fallen to 1.1 million tons.

Prior to the invention of manmade fibers, all apparel fibers were natural, and in the 1800s and early 1900s, cotton probably accounted for 85% of world fiber use. However, with the development of nylon, rayon, polyester, and other manmade fibers, cotton’s share has fallen. In the 1960s, cotton still accounted for two-thirds of all apparel 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 eight years later in 2015, despite population growth of 8% or 600 million, and cumulative world real GDP growth of 18%, world cotton consumption is still 2 million tons less than it was at its peak. Just as with sisal, wool and other natural fibers, the world may have passed peak use of cotton. Continue reading

Tough Times for Speculators/Tough Times for Cotton

There is an adage: “Be careful for what you wish; you may get it.”

The world cotton industry is experiencing price stability rarely seen, and while some segments may appreciate the tranquility, the industry as a whole will suffer. This may seem counter intuitive as most government officials and many market participants decry price volatility. However, the current stability in prices is not the result of a natural balance between cotton supply and demand. Rather, the current situation results from management of reserve stocks by the governments of China and India.

Those who wished for stable prices have them now. For many, stable cotton prices will make management decisions much easier. There will be no need to hedge sales or purchases. Farmers will plant, ginners will buy, merchants will market, and spinners will sell, each knowing with greater certainty what their returns will be. However, a market situation that seems to be an advantage for individual participants will prove to be a disadvantage for the industry as a whole. Nevertheless, whether desirable or not, stable prices are likely to characterize the cotton market for several years to come.

11. Tough Times for Speculators

What is Wrong With Buffer Stocks?

Why shouldn’t countries build buffer stocks?

 In mid-March 2015, the Ministry of Textiles of the Government of India floated a proposal to guard against year-to-year fluctuations in cotton production by limiting exports in order to build a “reservoir” for use by the domestic textile industry (Business Standard, March 18, 2015).  What’s wrong with this proposal? Continue reading