How Do High Cotton Prices Affect the Textile Industry?

• March 05, 2020

Causes of Rising Cotton Prices

In recent years the sluggish global economy saw acreage dedicated to cotton farming in all major cotton-producing countries fall considerably as farmers succumbed to the effects of the economic recession. Part of the fall in production was the lack of any subsidy efforts by governments in most cotton-producing countries. Only the United States and India have elaborate measures to promote cotton farming. The global meltdown was later compounded by floods in Australia, Pakistan and some parts of India, leading to a fall in cotton production that sparked price increases.

Rise in Competition

Spiking cotton prices result in higher operational expenses for the textile industry, and the most likely strategy is to pass this along to consumers. But this is a double-edged sword: increasing cotton product prices will rapidly correlate to an increase in non-cotton clothing in retail outlets. Competition from such products as rayon and Lycra will increase, as stores replace higher-priced cotton in a bid to retain their customers.

Bath Towel Companies

For the home textiles industry, especially the bath segment, a rise in cotton prices can be a major problem. Bath towel manufacturers will face reduced orders from retailers wary of passing higher prices to consumers and interfering with their customer base. The alternative is to retain prices but implement blending with polyester. However, given that consumers have traditionally expected that towels are for the most part an all-cotton product, blending may not be an option for many customers.

Layoffs

Although the United States is among the leading cotton producers in the world, its textile industry is small. The U.S. exports much of the cotton it produces to mills around the world and imports the finished cotton products from other countries. When these countries experience high cotton prices then the imports by U.S. retailers will significantly increase, affecting their bottom line. Layoffs are a natural consequence in the textile industries when companies are unable to meet their financial obligations, and this has a domino effect, with U.S. firms that deal in cotton products downsizing to cut their losses.

Textile Inflation

With the rising cotton costs and diminishing stocks of the raw material, textile mills around the world have rushed to secure available cotton stocks. This has had a negative impact -- textile inflation in major cotton-producing countries around the world. In countries such as India and China, the textile inflation index is now higher than overall average inflation. The situation is different for the United States, whose cotton prices have remained low relative to other crops. Still, the textile industry is globally interconnected and inflation in one major cotton producer will be experienced in the textile industry worldwide.