Category Archives: Cotton and Economic Development

Dead Aid

 

Dead Aid: Sub-Saharan Africa

With a Ph.D. in Agricultural and Resource Economics from Oregon State University in the USA, Dr. Terry Townsend is a consultant on commodity issues. He is currently working with the African Cotton and Textile Industries Federation (ACTIF). He served as executive director of the International Cotton Advisory Committee (ICAC) and has also worked at the United States Department of Agriculture for fve years, analyzing the U.S. cotton industry and editing a magazine devoted to across-section of agricultural issues.

Dambisa Moyo, is a Zambian-born international economist and author who analyzes the world economy and global affairs. She has worked at The World Bank and Goldman Sachs and currently serves on the boards of several international companies. She argues in her 2009 book, “Dead Aid,” that foreign aid undermines economic growth in Africa by distorting incentives.

Dead Aid

She argues that more than $1 trillion in development aid has been transferred from rich countries to Africa in the last 50 years, but Africans are worse off because of it. She says that overreliance on aid has trapped developing nations in a vicious circle of aid dependency, corruption, market distortion, and further poverty, leaving them with nothing but the “need” for more aid.

The international aid industry has studiously ignored her book and its implications. Maybe it’s time to pay attention to her.

India versus Sub-Saharan Africa

Consider the contrast in cotton industry performance between India and Sub-Saharan Africa. In the 1990s, yields in both were about equal. Agriculture in both is dominated by hundreds of millions of small-holders, many of whom are illiterate or poorly educated, speaking hundreds of different languages, divided ethnically and geographically, with limited access to technology and mechanization, and exhibiting a welter of traditional cultures.

India sought and received no foreign aid devoted to improvement of cotton production and yields during the 2000s, and instead launched a Technology Mission on Cotton (TMC) that sought to increase cotton production and improve quality through research, extension, regulation and incentives, all domestically inspired and implemented.

In contrast, Sub-Saharan Africa requested and received millions of dollars in direct cotton-specific development aid, relying on donor-funded projects rather than domestic and regional initiatives.

And, the result: the average yield across Sub-Saharan Africa of 331 kilograms of lint per hectare in 2015/16 was the same as it had been two decades earlier. In contrast, the Indian yield climbed from about 300 kilograms per hectare in the early 1990s to 480 by 2015/16, after rising to 570 kilograms in 2013/14.

chart_cottonyield_deadaid

Development Assistance

Nearly $900 million in donor aid has been spent since 2004 or is committed under current projects in support of the cotton sector of Sub-Saharan Africa.

Cotton has been called a “litmus test” of the commitment of developed countries to the Development Round, and a “poster” for the Doha Development Agenda. Cotton rose to prominence in the Doha Round because the President of Burkina Faso attended a WTO meeting in 2003 (it is unusual for a head of state to attend such a meeting) and demanded that cotton be addressed specifically. In response, member governments of the WTO formed a Subcommittee on Cotton in 2004, and the WTO Secretariat began tracking development assistance provided to Benin, Burkina Faso, Chad and Mali (the C4) and all Sub-Saharan African cotton producing countries.

<https://www.wto.org/english/news_e/news12_e/cdac_29jun12_e.htm#background>

<( WT/CFMC/6/Rev.21 )>

As of November 2016, the total value of cotton-specific development assistance provided for 47 African beneficiaries and others that had been completed was $581 million, of which $310 million had been targeted at the C4. 175 separate projects were enumerated, including projects supported by the European Commission, France, Germany, Netherlands, Sweden, Denmark, the UK, Japan, Switzerland, the U.S., Brazil, the Common Fund for Commodities (CFC) with the International Cotton Advisory Committee (ICAC), the Food and Agriculture Organization of the United Nations (FAO), the International Trade Center (ITC), the United Nations Commission on Trade and Development (UNCTAD), the Organisation of Islamic Cooperation (OIC) with the Islamic Development Bank, United Nations Industrial Development Organization (UNIDO), and The World Bank. Projects ranged from support for a conference on GMO cotton, improvements in rural roads serving cotton areas, support for HVI classing, miscellaneous studies, support to producer organizations, support for technical assistance to small holders, training and capacity building for small-scale farmers, value chain cotton sector support, and approximately 165 more.

In addition to projects already completed, another 29 projects are currently being implemented and 6 projects are in the formulation stage. These additional 35 projects are valued at $281 million, of which $151 million are targeted at the C4. Donor countries and organizations supporting ongoing projects include Australia, the European Commission, France, Germany, Netherlands, Sweden, Switzerland, the United States, The World Bank, CFC with the ICAC, FAO, ITC and UNCTAD. Some of the ongoing projects include ethical cotton production in Kenya, Support income increase of smallholder cotton producers through better quality and access to markets – Phase 2, Improvement of productivity and sustainability of farms in cotton areas, Fair trade and organic cotton in West Africa, Cotton made in Africa, Initiative Sustainable Trade (IDH): Cotton Value Chain Development, Programme for the development of the cotton sector in Africa, South-South cooperation for the promotion of decent work in cotton-producing countries in Africa and Latin America, Competitiveness and sustainable strengthening of the cotton sector through the reinforcement of cotton farmers’ capacities in the Integrated Production and Pest Management, Zambia: Empowering women in the cotton sector, and about 25 others.

Finally, in addition to cotton-specific projects, both those that have been completed and those that are ongoing, another $4.1 billion has been committed for agriculture and infrastructure-related development assistance for 31 African beneficiaries and others. These 67 projects are not cotton specific, but they are aimed at general support and improvement of the agricultural sectors of African countries, of which cotton is an important component. Of the $4.1 billion in general support to agriculture in Sub-Saharan Africa, $2.3 billion have been spent in the C4 alone. These projects have been supported by Australia, Canada, Japan, the U.S. and The World Bank. Projects under the category of general support to agriculture include Official Development Assistance for Agriculture, volunteer sending program to enhance economic and social conditions of poor and marginalized communities – support for sustainable agriculture, Farm Radio International: “Radio for Farmer Value Chain Development” – support for sustainable agriculture, Monitoring and evaluation in agricultural policy, Small-scale irrigation development Project, Project for the improvement of the living environment in the southern area of Lusaka, Millennium Challenge Corporation Board, Fostering Agricultural Productivity in Mali, and 60 more.

According to the ICAC, there are about 900,000 households producing cotton in the C4, meaning that $461 million in cotton-specific development assistance since 2004 amounted to about $500 per household, or two to three times annual average cash earnings among rural households. In the rest of Sub-Saharan Africa, there are about 2.6 million households producing cotton in any one year, and the $401 million in cotton specific development assistance averaged $154 per household, equal to about one year of annual average household cash income.

And yet, despite all that spending on all those projects, there was no gain in yields in Sub-Saharan Africa, and while yields in the C4 are higher than in other countries of Sub-Saharan Africa, there was again no gain in yields despite all the project spending.

Cotton Made in Africa and BCI

Among the development projects notified by governments in the WTO table, Germany supported the establishment of Cotton made in Africa, and Germany, the Netherlands and Switzerland supported the establishment and growth of BCI. Contributions through 2016 totaled more than $20 million, and the Netherlands is in the process of approving another tranche of $18 million through 2020.

fundingbci

Both CmiA and BCI work with farmers to identity best practices and encourage adoption. CmiA is operating in Benin, Burkina Faso, Cameroon, Cote d’Ivoire, Ethiopia, Ghana, Malawi, Mozambique, Tanzania, Uganda, Zambia and Zimbabwe. BCI is operating in Senegal, Mali and Mozambique. Between them, BCI and CmiA accounted for about 450,000 tons of cotton production in 2015/16, representing more than one-third of total production in Sub-Saharan Africa. Both initiatives report that yields rise by about 20% among participating farmers compared to control groups of non-participating farmers. And yet, despite all the spending and all the efforts, all well-conceived and executed, yields in Sub-Saharan Africa did not rise during the past decade.

Organic and Fair Trade Cotton

In a testimony to futility, the WTO table includes 9 projects sponsored by the European Commission, France, Germany, Switzerland, and the United States devoted to expansion of organic and/or Fair Trade cotton in Africa and other countries. The completed projects total $19.3 million, and there is a new project worth $2.4 million sponsored by France that is still in the project formulation stage. Certified organic cotton production worldwide was only 112,000 metric tons in 2014, of which about 80% was in India. Production of organic and Fair Trade cotton in Africa might have reached about 30,000 tons in 2016. In other words, development spending on organic and Fair Trade cotton since 2004 totaled about $600 per ton of organic or Fair Trade cotton produced in 2014.

organicfair

Implications

Agriculture is complex, and there are always many culprits associated with poor performance. The major factors that affect yields are technology, technology extension to growers, logistics covering the purchase, transportation and ginning of seed cotton, and input use. While the $900 million in cotton-specific development aid, and $4.1 billion in general agricultural improvement development aid, spent in Africa during the past decade was well intended, and it may have achieved many objectives such as women’s empowerment or improvements in food security, the aid did not achieve its central objective of cotton sector development. It is time to reflect on whether aid really is Dead Aid as Moyo asserts. The assertions that CmiA and BCI result in production improvements deserve rigorous scrutiny, and the philosophical infatuation by science deniers with organic cotton should end.

Roles of Govt

The Role of Governments in the Cotton Industry: First, do no Harm

Terry Townsend, PhD
Cotton Analytics
Houston, TX USA
Terry@CottonAnalytics.com

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.

Unity Needed

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.

Conclusions

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.

Islamabad

From roses given to each participant on arrival at the airport in Islamabad, along with assistance through immigration and customs, through a week of fashion shows, an elegant dinner with the President, receptions and lunches, to a final handshake at the airport on departure, the 75th Plenary Meeting of the International Cotton Advisory Committee (ICAC) since 1939 was a triumph of hospitality by Pakistan.

The agenda was substantive, and the meeting was well organized. Topics of discussion ranged from the threat of subsidized polyester production, reducing cotton’s water footprint, expanding the use of SEEP indicators to define sustainability, and an explicit acknowledgment that government measures for cotton must avoid distorting the market.

Those who missed the 75th ICAC Plenary Meeting, missed a good meeting.

A Triumph of Hospitality

From roses given to each participant on arrival at the airport in Islamabad, along with assistance through immigration and customs, through a week of fashion shows, an elegant dinner with the President, receptions and lunches, to a final handshake at the airport on departure, the 75th Plenary Meeting of the International Cotton Advisory Committee (ICAC) since 1939 was a triumph of hospitality by Pakistan.

The agenda was substantive, and the meeting was well organized. The purpose of a plenary meeting is to move forward through agreements to cooperate and through the identification of best practices appropriate for national adoption. The 75th Plenary Meeting accomplished this purpose in a number of subject areas. Topics of discussion ranged from the threat of subsidized polyester production, reducing cotton’s water footprint, expanding the use of SEEP indicators to define sustainability, and an explicit acknowledgment that government measures for cotton must avoid distorting the market.

The 76th Plenary Meeting will be held in Uzbekistan, presumably in conjunction with the annual Cotton Fair in Tashkent in October 2017.

Polyester Subsidies

Almost all the growth in world fiber use has been in polyester in recent years. It is self-evident that hundreds of millions of consumers are not clamoring for more polyester in their clothing and home furnishings. Rather polyester has gained market share because of low prices, and while lower oil prices have contributed, the overwhelming reason for low prices of polyester is subsidized production in China. 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 since 1990 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. Based on discussions in Islamabad, the ICAC Secretariat will expand its studies of the polyester market to include government support for polyester that have stimulated overcapacity in polyester fiber.

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.

Water Management

Globally, 71% of water withdrawals are used in agriculture, and cotton is often associated with water scarcity because it is a desert crop usually grown in arid and semi-arid conditions (annual rainfall below 900 mm). Issues of resource use optimization, including water management, have been a concern of the cotton industry since at least the 1960s.

Experts in water management noted at the ICAC Plenary that cotton is a water-efficient plant (a point often missed by the World Wildlife Fund, Greenpeace and other environmental NGOs). Free or nominal water prices do not encourage efficient water use, and water should be priced according to volume (quantity) applied and not area planted. Measurement of water use is key to management of water use.

Biotechnology in Cotton

Since commercial introduction in 1996, the use of biotechnology in all crops has increased by 3% per year. As of 2013, 18 million farmers in 27 countries planted crops with biotech traits on 175 million hectares. Therefore, it is not surprising that the use of biotechnology has begun to affect the pattern of insect infestations around the world.

Chart courtesy of Khalid Abdullah, 75th ICAC Plenary Meeting

India and Pakistan account for almost 50% of world cotton area, and the pink bollworm caused huge losses in yields in both countries during 2015. The situation is better in the current season, but this pest still requires vigilance. The pink bollworm has developed resistance to the first insect-resistant biotech gene. Consequently, farmers in some countries are returning to older pest control methods based on insecticides. In contrast, where the regulatory environment allows, farmers have access to second and third generation biotech events that remain effective against the pink bollworm.

Biotech cotton events providing resistant to the whitefly are at advanced stages of development. When commercialized, these new events will bring large benefits to growers. Similar progress on transgenic cotton resistant to the leaf curl disease is in development in Pakistan.

Adoption of biotechnology is a measureable indicator of overall technology adoption. A lack of biosafety protocols, high technology fees, a lack of incentives for public sector development of biotech events and inadequate public funding for research inhibit development of biotechnology in developing countries.

Contamination: Incentives Needed

The key to reducing contamination is to provide incentives. However, the marketing system in Pakistan and most other developing countries undermines efforts to provide incentives to growers. In Pakistan, farmers sell to intermediaries (middlemen or country merchants) who aggregate lots of seed cotton from multiple small holders for delivery to gins. Consequently, it is difficult to identify sources of contamination and reward delivery of clean seed cotton upon inspection at gins. In addition, picking costs are already relatively high, making the payment of additional incentives to pickers for cotton without contamination untenable. Machine-picking may be the ultimate solution to reducing contamination.

Reducing Corruption Through Electronic Documentation

Paperwork linked to the movement of cotton is associated with trade restrictions, including tariffs, quotas, import and export licenses, subsidies, local content requirements, and embargos. Many of these requirements are associated with conformity and pre-shipment requirements, plus inspection and certification procedures on arrival. Each exchange of papers, each required stamp or signature, each face-to-face interaction, creates the opportunity for corruption. There will always be individuals who will be willing to pay to speed or slow or to facilitate or block. By eliminating the involvement of the human hand, electronic documentation can enhance efficiency and lower costs, and make corruption more difficult.

road

Photo Courtesy of Peter Wakefield, 75th ICAC Plenary Meeting.

Eliminate Phytosanitary Documents from Shipment-to-Shipment

One document that is required for all cotton shipments is a phytosanitary certificate. On the recommendation of the Private Sector Advisory Panel, the ICAC has been urging countries to adopt the FAO model phytosanitary certificate for trade in cotton since 2009. However, an even more effective reform would be to recognize that phytosanitary practices in each exporting country do not vary from shipment to shipment. Accordingly, individual phytosanitary certificates for each shipment are unnecessary and could be replaced with a “confirmation of compliance” with harmonized standards for fumigation and phytosanitary practices. Thus any shipment originating from a country in compliance with such a harmonized standard would not need an individual piece of paper for each shipment.

Compliance Benefits

There are 16 separate trade agreements registered with the WTO that affect agriculture and textiles, ranging from the Agreement on Agriculture (AoA) negotiated during the Uruguay Round of GATT to the Information Technology Agreement. Cotton production and trade has increased since 1990 in developing countries that observe these agreements. The lesson is obvious, compliance with trade norms leads to increased trade.

Ginning for Profits, Rather than Ginning for Volume

Fiber length distribution is always damaged by ginning. Operational choices facing ginners include processing speed and fiber moisture content. Slower speeds result in better fiber properties but increase energy consumption and ginning costs per kilogram. Moisture affects fiber strength and elongation, but moisture management is expensive. Ginners with moisture management capabilities should increase the moisture percentage in seed cotton entering the gin stand, reduce moisture during pre-cleaning and ginning, and then increase moisture again as lint enters the bale press.

Small improvements in length distribution result in big improvements in yarn performance, but accurate and fast instruments to measure length distribution in gins is not available. Therefore, management of gin speeds and moisture are based on average or expected fiber quality results, combined with expected price premiums for improved quality. If the cotton marketing system does not reward improved fiber quality, ginners will have no incentive to optimize ginning speeds and moisture content. Cotton suffers in competition with manmade fibers because quality premiums are poorly communicated to farmers and ginners by most marketing systems.

Roller Ginning vs. Saw Ginning

There has historically been a tradeoff between saw ginning and roller ginning, with roller ginning being slower and more expensive but producing higher quality fiber. However, new high speed double-roller gins with capacities of 400-600 kilograms of lint per hour can bridge the difference with saw gins. The operating costs per kilogram of new high speed roller gins operating at 600 kilograms of lint per hour are half the cost of previous roller ginning systems. Rotary knife roller gins are suitable for use on Upland cotton and can be cost competitive with saw ginning while maintaining the traditional fiber quality advantages of roller gins. High speed roller ginning may begin to supplant saw ginning for medium staple Upland cotton varieties.

ginning

Photos provided courtesy of A. Engin Dirik, 75th ICAC Plenary Meeting

HVI Requires a System, not just an Instrument

The use of High Volume Instrument systems for testing cotton quality involve much more than just buying a machine. HVI systems must be part of national classing systems with 100% bale sampling. When national HVI systems are implemented, marketing systems must be revised to provide quality premiums to growers and ginners in accordance with market results. Such marketing systems necessarily involve permanent bale IDs and national bale numbering systems to enable bale quality to be assigned accurately to gins and producer groups. Reliable, high speed internet connectivity is a must.

Organic Cotton: Zero Comfort Advantage Over Conventional

Regarding textile and apparel products made from organic cotton fibers, a specialist in testing fabric for properties associated with comfort reported that there is absolutely zero physical difference between products made of conventional cotton, including biotech, and organic cotton.

Photo provided courtesy of Tanveer Hussain, 75th ICAC Plenary Meeting.

Conclusion

If you were not there, you missed a good one.

Pakistan proved a wonderful host country, the ICAC Secretariat did its customary good job supporting the meeting, and delegates not only learned a lot, they achieved a lot. I enjoyed myself.

Will India Lead?

Cotton is an industry in decline. For approximately two centuries, cotton benefited from industrialization, population growth and income growth to drive consumption higher. However, two centuries of an upward trend has come to an end unless structural changes in cotton’s competitive situation are made.

At the time of the invention of the cotton saw gin in the 1790s, world production of cotton for commercial use was probably only about 2,000 tons of lint. (Commercial producers are distinct from what may have been millions of households producing yarn and fabric by hand for own-consumption using cotton harvested from wild plants or garden-like crops.) By the start of the civil war in the United States in 1861, world cotton production had climbed to about one million tons, and by the mid-1930s, prior to the start of World War II, world cotton use had reached about 4 million tons per year. Between the end of World War II and 2007, world cotton consumption climbed to 26.6 million tons. However, eight years later in 2015, despite population growth of 8% or 600 million, and world real GDP growth of 18% since 2007, world cotton consumption was still 2.9 million tons, or 11%, less than it was at its peak.

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. As late as the 1960s, world hemp production was still nearly 400,000 tons per year, sisal production totaled 750,000 tons per year, and flax fiber production used to make linen fabric totaled about 700,000 tons. Today, with the exception of museums, all ships’ lines and sails are made of nylon, polypropylene or polyester, and world production of hemp has fallen to less than 60,000 tons, sisal production has fallen to less than 300,000 tons, most of which is used in agricultural twines and cordage, and world linen production is estimated at 300,000 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, and production for all uses including carpets reached 1.8 million tons, clean basis, in the early 1990s. Today, wool accounts for 1% of world fiber use, and production has fallen to 1.2 million tons. Just as with wool and other natural fibers, the world may realize years from now that Peak Cotton has passed.

The Role of China

The primary reason for cotton’s decline is the growth of polyester production, combined with the operation of the Chinese State Reserve. World production of polyester climbed from 5 million tons in 1980 to 9 million by 1990, to 19 million by 2000 and then to 37 million in 2010 and 50 million tons this year. Production of polyester in China has increased from about 10% of the world total in 1990 to about 70% today, and as shown by Ethridge, “Policy-Driven Causes for Cotton’s Decreasing Market Share of Fibres,” this growth is a direct result of policy choices in China.

In addition to promoting polyester production, the Government of China maintains a strategic reserve of cotton, serving as a national buffer stock. China releases cotton to the domestic market from the reserve through a system of auctions when there is a shortage, and replenishes the reserve in times of abundance, thus supporting prices.

The result is that cotton consumption in China is being discouraged through a process of rationing associated with the operation of the State Reserve. At the same time, the same State Reserve withholds cotton from the world market, and therefore world cotton prices are being maintained above a level to which they would otherwise fall in competition with polyester.

Relative fiber prices are extremely important in determining fiber market shares. When introduced in the 1950s, prices of polyester were far higher than those of cotton, but prices of polyester reached parity with cotton in 1972 and have been correlated in the decades since. The most recent 8-year interval, from 2008 to 2015, has been brutal to the competitive interests of cotton. During this period, cotton prices have averaged 42 cents per kilogram more than prices of polyester, a premium of 26%.

High cotton prices are undermining the competitiveness of cotton relative to polyester. Since 2007, cotton’s share of world apparel fiber consumption has fallen from 38.4% to 27.6%, a staggering loss of market share of more than 10 percentage points. The volatility in cotton prices during 2008 and 2010/11, before China began building a state reserve in 2011, caused much demand destruction. Arguably however, China’s persistence in maintaining a state reserve at a time while polyester prices have fallen to less than 50 cents per pound in China is contributing to a continued slide in market share that now threatens the long term viability of cotton as an industry. It is not too strong a statement to say that the world cotton industry, and the welfare of millions of producers, is being held hostage to the intentions of the Government of China regarding industrial policies that promote polyester production and the cotton reserve that prevents cotton consumption.

Biofuel Mandates

As of 2016, 64 countries have biofuel mandates or targets for their domestic liquid fuel supplies. The mandates with the largest impacts are in the United States, the EU-27 and China. The U.S. government requires that 18 billion gallons of biofuel, primarily corn ethanol, be blended into the U.S. fuel supply during 2016, and approximately half of all the corn produced in the United States is devoted to biofuel production. In the EU-27, between 5% and 7.5% of liquid fuels must be composed of biofuels, and China hopes to reach a 10% biofuel share of the national fuel supply by 2020.

The result of the biofuel mandates is that prices of corn, and soybeans which are a substitute for corn in cattle rations, have moved structurally higher over the last decade. The U.S. average farm price for corn was $1.28 a bushel from the end of World War II to 1972/73 (a bushel of shelled corn is defined as 56 pounds or 25.4 kilograms). The average farm price rose to $2.36 through 2007/08, and since 2007/08 the average U.S. farm price has increased to $4.35. The structural increase in corn prices coincide with the announcement of biofuel mandates in 2007. Prices of soybeans have followed a similar pattern.

Meanwhile, the average level of the Cotlook A Index is the same today as it was during the 1970s, 1980s and 1990s, while costs of cotton production have been rising, while yields per hectare have been flat. As a result, with the prices of grains structurally higher while the price of cotton is the same as it has been for decades, farmers are exercising rational judgment and shifting land from cotton to grains where possible.

World cotton area has varied in a relatively narrow channel between 31 million hectares and 36 million hectares since 1950, with no trend either up or down. However, cotton is now at the bottom of that band, and with biofuel mandates encouraging shifts toward grain and oilseed production, cotton area may slip below 31 million hectares over the rest of this decade.

Can Cotton Unite? Will India Lead?

To avoid the fate that has befallen other natural fibers, the world cotton industry must unify to educate governments on the impacts of Chinese policies that promote production of manmade fibers while preventing the consumption of cotton. While cotton has many advantages over polyester, it must nevertheless compete with alternative fibers on the basis of price. No fiber, not even premium fibers such as wool and silk, much less cotton, can maintain demand for long if prices are uncompetitive. No matter what technical performance advantages a fiber may possess, nor how preferred by consumers, if the incentive to substitute becomes great enough, engineers and designers will find a way to utilize the cheaper fiber. Only India possesses the diplomatic and economic influence sufficient to lead a world effort to induce the Government of China to change its current mix of policy options that are proving so toxic to the interests of the cotton world.

To avoid the fate that has befallen other natural fibers, the world cotton industry must unify to standardize industry practices in order to improve efficiencies and promote consumption. The industry needs to adopt worldwide universal permanent bale identification tags (PBI) with barcodes linked to standardized instrument testing of cotton (SITC). The industry must adopt and actually enforce a zero-tolerance policy for contract defaults. The industry needs to move toward universal adoption of standardized bale sizes, densities and coverings. And, the industry must adopt best practices in field and gin hygiene to reduce contamination. As the largest cotton producer, only India possesses the diplomatic and economic influence sufficient to lead such a world effort.

To avoid the fate that has befallen other natural fibers, the world cotton industry must unify to advocate for technology acceptance among consumers and regulators. The denial of technology by NGOs and 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. But, just as conservative politicians in the United States reject the science underlying global warming, so NGOs, thought leaders and regulators in the United States, and especially in Europe, reject the science underlying modern agricultural production technologies. As the largest cotton producer, only India possesses the diplomatic and economic influence sufficient to lead an effort to overcome the trend toward technology denial now building in the United States and Europe.

Will India Lead?

For approximately a century, since World War I, the United States has been the de facto trend setter, innovation developer and political leader of the cotton industry. However, the United States is now in decline within the world of cotton. With 2.8 million tons of production in 2015/16, the United States accounted for just 13% of the world total, the lowest proportion of world cotton production accounted for by the United States since the invention of the saw gin in the 1790s.

India is now the largest cotton producer, the second largest exporter, and within a few years India will be the largest producer of cotton textiles. With increases in economic power, will India have the political capacity, the judgment, the temperament and above all, the national will, to supplant the United States in leadership of the cotton world?

“I Believe in Science”

“I believe in science,” said Secretary Hillary Clinton, candidate for president of the United States, in her acceptance speech in late July before the national convention of members of the Democratic Party who had gathered to formally endorse her nomination. Secretary Clinton was paraphrasing President Barak Obama who wrote in his book, “The Audacity of Hope,” that he believes in “evolution, scientific inquiry and global warming, …” Continue reading

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

Natural Fibers and the World Economy

World natural fiber production in 2013 (the latest year of complete data) is estimated at 33 million tons, including 26 million tons of cotton, 3.3 million tons of jute, 1.2 million tons of clean wool, and 900,000 tons of coir (fibers made from coconut husks). Production of all other natural fibers, including abaca, flax, hemp, kapok, ramie, sisal, silk, and other fibers summed to approximately 1.6 million tons.

The farm value of natural fiber production in 2013 was around US$60 billion, of which cotton accounted for $45 billion, wool $8-9 billion and jute $2 billion. All other natural fibers together accounted for the balance of about $3 billion.

It is difficult to estimate employment in the agricultural segments of natural fiber value chains because most production occurs in developing countries with weak systems of data collection, most producers are small holders and most labor is hired informally and seasonally, and because many households go in and out of fiber production from one season to the next, making it difficult to know who and how many are employed in any one year. Nevertheless, a reasonable estimate of total employment in natural fiber industries, including family labor, hired labor and employment in industries providing services to agriculture, and including both full time year round employment and part time or seasonal employment, is around 60 million households (about 300 million people), or about 4% of the world’s population. Continue reading

Incentives Matter: Why Environmentalists, Retailers and NGO’s are Slowly Strangling the Cotton Industry

Summary: The world cotton industry is being slowly strangled by loss of market share to polyester. Campaigns of demonization contribute to this strangulation. As one example, the C&A Foundation Annual Report 2014 uses evocative language, exaggeration, and repetition of allegations years out of date to demonize, rather than inform, in the service of enhancing the C&A brand. The report is unremarkable, except that it is recent, and serves as an example of efforts by NGO’s, retailers and environmentalists to build sales and enhance careers, while undermining the livelihoods of tens of millions of cotton households. Only by volubly challenging those who demonize, with public, specific, fact-based rebuttals, will the cotton industry be able to make demonization expensive and thus shift the structure of incentives that currently makes demonization profitable.

12a. C&A Foundation report 2014

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