Cotton Group's Counsel: Step Up Quality

Don Hogsett, June 18, 2007

As worldwide demand for cotton continues to outpace production, putting upward pressure on prices, the cost of home fashion's most basic raw material is forecast to rise an average 3.6% this year and then jump up another 6.4% next year.

And in a surprising take on the near-term outlook for the worldwide business of growing and selling cotton, an international consortium of cotton producers is forecasting that the world textiles industry, their biggest customer, "may be moving into a period of slower growth," putting fresh pressure on Asian textile producers to build a stronger infrastructure, step up quality and develop a more straightforward business model for dealing with customers.

At a convention of cotton producers held this month in Bangladesh, the International Cotton Advisory Committee (ICAC) said that as the worldwide textiles business begins to slow, "in order to expand business, Asian textile industries need access to high quality cotton, including longer cotton with better color, and lower contamination. Cotton industries need to provide improved inspection procedures, better delivery and transparent business interactions."

Going forward, the cotton cartel said, "India and Uzbekistan are likely to remain reliable cotton suppliers to Asian markets. Transportation costs from India and Uzbekistan are being reduced through investments in infrastructure, and the U.S. cotton industry will remain competitive through an emphasis on quality."

Two big cotton players who won't have much trouble adapting to a new environment are China and India, said the cotton cartel. "Low costs and vertical integration are contributing to the success of China and India in gaining export shares in textile and clothing markets."

Addressing the host nation's outlook, the ICAC said, "Bangladeshi entrepreneurs can better position themselves to face the challenges of competition in a world economy" by taking a broader international view, becoming more nimble and flexible, and linking up with international trade groups with long-term experience. "The world cotton industry is highly competitive and long-term economic viability requires constant adjustment to changing conditions."

Scoping out the immediate future, the cotton growers said in a monthly update of their annual production, demand and pricing forecast, that the gap between demand and production will continue to widen this year and next, driving cotton prices higher. Consumption during the current cotton year is pegged at 26.1 million tons, almost a million tons more than the 25.3 million tons expected to be produced. And the divide grows even wider next year, to 1.7 million tons, with demand forecast at 26.8 million tons, running ahead of production at 25.1 million tons.

World Cotton Supply and Pricing Forecast
(in millions of tons, except for cotton prices)

2005/06 (ACTUAL) 2006/07 (PROJ.) 2007/08 (PROJ.)
Source: International Cotton Advisory Council (ICAC)
Production 24.7 25.3 25.1
Consumption 24.9 26.1 26.8
Cotlook A Price Index $0.56 $0.58 $0.62

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