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Structural Changes and Prospects of Development in the European Cotton Market

Structural Changes and Prospects of Development in the European Cotton Market. Andrew S. Hursthouse Vice President International Cotton Association. Polite Request…. Please don’t shoot the messenger…. Economic History takes no prisoners. The Industrial Revolution. UK Cotton Consumption.

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Structural Changes and Prospects of Development in the European Cotton Market

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  1. Structural Changes and Prospects of Development in the European Cotton Market Andrew S. Hursthouse Vice President International Cotton Association

  2. Polite Request…. Please don’t shoot the messenger…

  3. Economic History takes no prisoners The Industrial Revolution

  4. UK Cotton Consumption • 1910 = 5 myn bales approx. • 1950 = 5 myn bales • 1960 = 3.5 myn bales • 1965 = 3 myn bales • 1970 = 725k bales • 1980 = 220k bales • 1990 = 140k bales • 2000 = 95k bales • 2007 = 20k bales

  5. Consider • Euro excldg Turkey = Austria, Belgium-Lux, Denmark, Finland, France, Germany, Greece, Ireland, Italy, Netherlands, Portugal, Spain, Sweden, UK • Production • Consumption compared to: • Turkey • Major Asia excldg China = China, Hong Kong, Indonesia, Japan, S.Korea, Philippines, Taiwan, Thailand • China • & South Asia = Bangladesh, India, Pakistan, Sri Lanka • Associations & Merchandising

  6. Spain & Greece • Consistent production under EU subsidy conditions • Proximity to demand • Strong innovation and quality processes • Change to subsidy structure is cause of most recent decline

  7. Expectations • Challenge to subsidy changes • Key is government action but Greece looks like may at least continue at current levels

  8. Severe Decline in Consumption

  9. Reasons • Cost base • Labour costs – shift away to service industries and the relatively cheaper costs of competition • Energy costs – power, water, land • Relative tax incentives • Environmental costs – social issues • Location vs sources of production

  10. Reasons • Multi Fibre Agreement (1974-2004 a.k.a A.T.C) – expired 1 January 2005 • Shift to Turkey • Generation shift and prohibitive buying practices • Shift from Ilyichevsk to Southern Route and Far East

  11. Summary impact • Relative competitiveness of 1kg 30s combed yarn DDU Hamburg • Turkey 2.50 EUR/kg • India 2.10 EUR/kg • China 1.90 EUR/kg • Germany 2.90 EUR/kg

  12. Reactions • Straight selling of spindle capacity • Overseas investment – Mauritius, Eastern Europe • Investment in viscose, polyester & blended yarns • E.g 2/3 yrs ago 70% cotton vs currently 30% • Cotton sourced gin direct - Greece • Any CIS

  13. Expectations • “trend” will not reverse • remaining players continue to seek niche technical advantage – “de-commoditising” their production • source remaining cotton needs from Greece and CIS

  14. Associations • Majority had domestic focus • LCA position and transition to ICA • Bremen incorporation of ICA Rules on June 29th 2006 • Further commonality may be achieved in future.

  15. Merchandising • Important hub for merchant houses • Key trading offices of major firms non US operations • Expanding operations globally from this base • Some closures of niche firms • Best of the remaining serve a key function in the supply chain • Expect this to continue

  16. Conclusion • Pain has been largely taken • Congratulations to those that remain • The wheel of Economic History will keep turning.

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