The Impact of Soaring Cotton
Prices on Consumer Apparel
Prices
Esteban Balseca
International Price Program
19 Jan 2012
Cotton Prices

Soaring cotton prices
300% to 400% increases in 2 year period

Why has this sharp increase occurred?

How will it affect consumer prices?
2
Cotton Industry






Millions of people worldwide depend on
cotton related activities
≈ 90 countries grow cotton
≈ 55 countries export cotton
≈ 150 countries import cotton
Despite all of this, the industry is relatively
concentrated.
Over 65% of Total Production: China, India,
U.S.A.
3
China
World’s largest producer
 World’s largest consumer
 World’s largest importer

China Cotton
Relative to World Totals
Aug-July Seasons: 2007/08 2008/09 2009/10
Production
30.91% 34.20% 31.50%
Consumption
41.26% 39.89% 42.02%
Imports
29.26% 22.95% 30.03%
2010/11
26.45%
40.28%
33.61%
Source: USDA
4
India
World’s second largest exporter
 World’s second largest producer
 World’s second largest consumer

India Cotton
Relative to World Totals
Aug-July Seasons: 2007/08 2008/09 2009/10
Production
20.05% 21.06% 22.64%
Consumption
15.05% 16.14% 16.64%
Exports
19.18%
7.95%
18.54%
2010/11
22.03%
18.13%
14.33%
Source: USDA
5
United States
World’s largest exporter
 World’s third largest producer

US Cotton
Relative to World Totals
Aug-July Seasons: 2007/08 2008/09 2009/10 2010/11
Production
16.04% 11.93% 12.01% 15.70%
Exports
34.78% 44.04% 33.71% 40.45%
Source: USDA
Exports
50
40
30
20
10
0
2007/08
2008/09
USA
2009/10
India
2010/11
World
6
Production and Consumption:
Production
Consumption
140
140
120
120
100
100
80
80
60
60
40
40
20
20
0
0
2007/08
USA
2008/09
China
2009/10
India
2010/11
World
2007/08
2008/09
China
2009/10
India
2010/11
World
7
Export Prices
2008
 Financial Crisis
 Five consecutive months of export price decreases, for a total
decline of 21%
2009
 China and India governments increase purchase of local cotton
 Demand for U.S. exports increases
 Prices begin to rise
US Cotton Exports
IPP Index Values
150
130
110
90
70
50
8
Export Prices
2010
US Cotton Exports
400
350
300
250
200
150
100
Mar-11
Feb-11
Jan-11
Dec-10
Nov-10
Oct-10
Sep-10
Jul-10
Aug-10
Jun-10
May-10
Apr-10
50
Mar-10

Feb-10

Jan-10

Dec-09

Unfavorable weather conditions
India bans exports
High commodity prices
Post-recession consumption
 Prices increase 153.8%
IPP Index Values

9
Export Prices
The market reacted: volumes and prices trended
downward.
US Cotton Exports
400
2,500
350
250
1,500
200
1,000
150
100
480 lb bales (1000)
2,000
300
500
50
Volume of U.S. Cotton Exports
IPP Cotton Export Index
May-11
Mar-11
Jan-11
Nov-10
Sep-10
Jul-10
May-10
Mar-10
Jan-10
Nov-09
Sep-09
Jul-09
May-09
Mar-09
Jan-09
Nov-08
Sep-08
Jul-08
May-08
0
Mar-08
IPP Index Values

10
Import Prices
Post-recession consumption
 Transportation costs linked to oil prices
 Dollar vs. Yuan
  Higher apparel import prices


What will the effect be on domestic
apparel prices?
11
Pass-through?

China:
40% of U.S. Apparel Imports
33% of U.S. Cotton Apparel Imports

Labor markets in China
Labor accounts for 20% of textile
manufacturing costs
Increased internal demand
12
Pass-through?

Consumer apparel prices have been on
the rise and bear watching in the near
future
112.0
110.0
108.0
106.0
104.0
102.0
100.0
98.0
96.0
94.0
92.0
IPP Cotton Apparel Index
CPI Apparel less Footwear
13
Updates
Prices and U.S. exports have continued to drop
US Cotton Exports
400
2,500
350
250
1,500
200
1,000
150
100
480 lb bales (1000)
2,000
300
500
50
IPP Cotton Export Index
Sep-11
Jul-11
May-11
Mar-11
Jan-11
Nov-10
Sep-10
Jul-10
May-10
Mar-10
Jan-10
Nov-09
Sep-09
Jul-09
May-09
Mar-09
Jan-09
Nov-08
Sep-08
Jul-08
May-08
0
Mar-08
IPP Index Values

Volume of U.S. Cotton Exports
14
Updates
However, textile import prices have continued
their upward trend and seasonally adjusted
U.S. apparel prices have followed.
120.0
115.0
110.0
105.0
100.0
95.0
IPP Cotton Apparel Index
Oct-11
Aug-11
Jun-11
Apr-11
Feb-11
Dec-10
Oct-10
Aug-10
Jun-10
Apr-10
Feb-10
Dec-09
Oct-09
Aug-09
90.0
Jun-09

CPI Apparel less Footwear
15
Contact Information
Victor Esteban Balseca
Economist
International Price Program (IPP)
www.bls.gov/mxp
202-691-7123
[email protected]