You are here

Uncovering the Cotton Crisis

womanWe have all seen the headlines, received email notices and heard general discussion that tell us prices in our wearable apparel market will be increasing for 2011. The demand for cotton in our worldwide global economy has resulted in cotton prices that have not been seen since the reconstruction period after the Civil War in 1870.

The weakening U.S. dollar and a combination of cool, wet weather in China and flooding in Pakistan have completed this trifecta of circumstances that have caused the cotton market to explode, or implode, if you will. Although we are struggling in a slow economy with an almost 10 percent unemployment rate in the United States, it is hard for us to imagine that prices for any consumer products would actually increase in today’s world. But no doubt, apparel prices are going up.

Contributing factors

The last two decades have seen a steady decline in apparel prices, in both the retail and ad-specialty arenas. Manufacturers have been constantly challenged to lower selling prices while keeping perceived value and quality in our wholesale apparel. This discussion has been led by the big-box retailers such as Wal-Mart, Kohl’s and Sears, who have challenged their garment supply sources to seek lower fabric costs, reduce make charges and shorten lead-times.

However, since April 2010 we have witnessed a steady increase in raw material costs, specifically in cotton prices. In our ad-specialty market, we began seeing the T-shirt industry raise prices in July and again in September as a direct result of raw cotton prices in the open market. Representing more than 50 percent of all wearable apparel sales in our ad specialty market, the T-shirt pricing challenge will only get more volatile as we enter 2011 if cotton prices remain so fluid.

If we look specifically at the cotton supply chain we will see that there are four major players in the world cotton supply: China, the United States, India and Pakistan. But if we examine worldwide cotton consumption by country, we will see that China, India and Pakistan lead the list. This is telling in that, although these countries are major cotton source suppliers, the cotton is staying home to support their respective garment manufacturing industries. In fact, India halted all cotton exports earlier this year, with fears that the worldwide cotton shortage could adversely affect its domestic garment industry.

Climate control

towelsWhy now a cotton shortage when we have struggled for two years in global economic downturn? As demand for cotton has steadily increased since the end of 2009 and the economic recovery began to lurch ahead in stops and fits in Europe and in the U.S., we have experienced severe climate- and weather-related circumstances that greatly affected worldwide cotton output.

China has gone through a disastrous bout of cool and wet weather which has hampered cotton harvests, while Pakistan has withstood the worst flooding in 40 years, with 20 million people displaced from their homes and acres of cotton under water with no workers to harvest.

In addition, the past two years of global recession has eliminated many of the yarn spinners, weavers, knitters and yarn dyers who thrived in a robust economy, thus creating bottlenecks in delivery schedules and higher finished fabric prices.

Unprecedented prices

The big picture of the global cotton supply chain can be understood by examining where cotton prices have gone in a mere 14 months: In August 2009, cotton was $0.5435 per pound. In October 2010 the price of a pound of cotton hit $1.198 per pound.

To put these numbers in perspective, as the price of raw cotton escalates, the wholesale price of finished 100 percent cotton and cotton blend fabrics increases. If the fabric cost for your favorite cotton/polyester polo golf shirt increases $0.40 per yard, and there are 1.2 yards of fabric in every shirt, we can safely assume a first increase of $0.50 per garment, plus a 20 percent duty charge to import, for a total $0.60 increase per garment before profit markups.

pantsIn the woven fabric market, cloths such as oxfords, denims, pinpoint oxfords and twills have seen increases of up to 46 percent per yard in finished fabric prices. Again, unprecedented increases in relatively short time periods.

To complicate this difficult raw materials shortage and price pressure, there has been a concerted effort to raise labor costs in some of the big garment producing countries such as Bangladesh, Vietnam and China. Bangladesh, for example, has not experienced a minimum-wage increase since 1985. Although these wage increases in apparel production labor may be somewhat less painful than yarn increases in terms of the final cost of garments, these labor cost increases only add to the big picture of higher costs for garments that land here in the United States.

In addition to these raw material and labor cost increases, the U.S. and some European countries are attempting to put pressure on China to increase the value of their Yuan, in the belief that the Yuan has been deliberately undervalued by the Chinese government to help its export industries. This will certainly affect the cost of goods in China as the Yuan increases in value.

In conclusion, it is clear that this roller-coaster price scenario for raw materials and labor costs will certainly increase the cost of wearable apparel for those of us in the United States. But we must remember that, for many years we have enjoyed steady or declining garment costs. Now, the great specter of supply and demand will dictate what we pay for our apparel.