Dr. Gary Adams, the National Cotton Council, US Vice President Economics and Policy Analysis discusses the Global Cotton Market.

Gary, I’d just like to ask you a few questions about the global market here at the Beltwide in San Antonio Texas. What sort of changes in production are we seeing at the moment and do you think we’re reaching permanent changes in production or is it just going to be a continual flux?

Well certainly the last two years, 2004 we had a 120 million bale crop worldwide. We’re following that up with another 115 million bale crop, so we’ve certainly jumped to a new level. A part of that has been due obviously to favorable weather in many of the major cotton producing regions but I think also we are seeing some of the benefits of new adoptions of technology that have led to some yield improvements in some places such as India. I think we’ve seen some yield improvement in the United States for example in the last couple of years. It’s probably due to technology and that may have boosted us perhaps to a new level.

We hear a lot about Brazil in Australia and you’ve talked about it here today. Where does Brazil sit in terms of this perception that we all have that it could have a huge increase in production?

Yeah Brazil is certainly one we have to watch. I think there’s still, you know if we look at the commodities they produce they’re still a smaller player in cotton than they are obviously in the soybean market, but over the last few years they’ve grown from about 2 million bales of production up to about 6 million bales right now. Short term they’re facing some challenges with the strength of their currency, it’s reducing their competitiveness, it’s increased their input cost, so that may slow some of their expansion but when you look at the amount of land that Brazil has you have to think that going forward they’re still going to be a country that can expand production and probably a majority of that additional production will come onto the world market.

And what about consumption? What are we seeing in terms of trends in consumption and I suppose that question really has to be divided into consumption of raw cotton and consumption of finished goods in a way?

That’s a good point, let’s talk about consumption of raw cotton at the mill level. The growth there that we have seen has been driven in large part by China to a lesser extent also by India and Pakistan. When you look at those three countries together they’re accounting for some 60/65% of global mill consumption of cotton. China is obviously the largest at 45 million bales as estimated for this year and I think you really have to look forward and expect those three countries to continue to increase their share of world mill consumption.

What about the US in terms of consumption? Again in terms of raw cotton and finished cotton product?

Now the US textile industry has obviously been under a lot of pressure from imported textile product so it’s gone from 11 million bales down to its current level of about 6 million bales. What you really have to look at on the US side is the retail market that has been expanding at a strong rate over the last several years and now we’re going to talk about a retail market that’s probably somewhere in the neighborhood of 22 to 23 million bales or consuming the equivalent in textile products of 22 to 23 million bales of cotton and hopefully will continue to see some modest growth there. Probably the real challenges as we go forward is what happens in some of the key retail markets outside of the US?

Just on the US situation, the increase in export of raw cotton from the US has caused the Australian industry some pain over the recent years apart from our local drought and different things that we have to contend with. What is the situation in the US in regard to what you might call ‘dirt to shirt’, you know the cotton that’s actually produced here, manufactured here and sold here?

As we try to estimate that looking at the data that we have on not only the fibre trade but also the textile trade it looks to us like what we refer to as a ‘dirt to shirt’ component that completely stays within the US all the way to the consumer. It’s now down to maybe only one to one and a half million bales, so a very small amount of the rest of it is entering the export channel at some stage of processing. A big part of it is raw fibre but also a significant amount at yarn thread and fabric.

In terms of consumption generally around the world you noted in your presentation that European consumer particularly is not pulling their weight, what opportunities are there do you think for increased consumption globally?

You can look at the European Union because they are a fairly high income country and then you look at how much their consumption is lower than the United States roughly 20 to 22 pounds per person in terms of cotton textile products. Another country that is also a high income country that lags the United States is Japan. Those are two developed economies that you could key in on but obviously if you look at some of the big population bases such as China and India, they’re lagging as well. Obviously you have to adjust for their income but even when you look at their trends we’re losing some significant market share to man made fibre and that really leads us to one of the battles that we’re having to fight right now.

Man made fibres in particular, where’s the main battle ground for the man made fibre problem or competition?

Well man made fibre production has just really exploded over the last decade. Much of that additional production and new capacity that has come on line is in Asia and subsequently we’ve seen China’s retail demand for man made fibre increase. But if you look at it on a global basis we’re consuming somewhere in the neighborhood of 180 million bales of man made fibre, whereas cotton is about 115 and back in about 1990 they would have been roughly at the same level between cotton and man made fibre.

And just a question about trade, just how the WTO round in Hong Kong. Have you got any comments about that and the position of cotton from that meeting?

Well certainly as someone representing the US cotton industry we’re all too familiar with the WTO and the role that cotton is played in the WTO. We obviously feel like the US program has received some unwarranted attention but that is the situation we find ourselves in. I think what we’re expecting to see going forward is that if there is a WTO agreement it is going to all for further constraints on domestic support particularly those that are considered to be trade distorting domestic subsidies. It’s also going to lead to an elimination of export subsidies and hopefully some gains in market access, so longer term those type of constraints can affect what we do in the way of farm programs in the United States.

We’ve heard a little bit at this conference about the conservation program or part of the farm program. Do you think that there will be some traction in the US in regard to going down that track, having a kind of green subsidy rather than a farm program, a support program?

I don’t know to what extent you get to a point where there’s a complete replacement. I think there’s still going to be the view for a need for a farm program that provides a good safety net but as you look at that farm program and as you look at the potential for some type of conservation program to be a compliment to that I think that’s certainly a possibility. We know that within the WTO those green box payments are viewed differently than what we see in the trade distorting payments and so if there can be payments that are tied to your environmental practices that are providing environmental and conservation benefits then I think that is something that will be looked as we approach the next farm bill debate.

Just lastly have you got any ideas or opinions about how the global industry can take advantages or opportunities to try and promote demand or increase demand?

Yes certainly if you look at the global industry we’re always going to see different growths of cotton competing against themselves for different markets and that’s just going to be with us but I think as you look at cotton as a whole and one of the challenges facing cotton is the growth that we’ve seen in man made fibre and you look at the potential to expand that demand base in some of the markets around the world, that’s where cotton producers can be united and really look at the impact we could have with some effective promotion and advertising and can base some of the other benefits of cotton to the consumers and hopefully lead them to increase their purchases of cotton products.