Delivered by: Dr. Lawrence H. Shaw, Executive Director.

Delivered to: Fourth Session of the Standing Committee on Commodities, UNCTAD

Location: Geneva, Switzerland

Date: 02 November, 1995

World Average Yields Below 5-Decade Trend

Between 1950 and 1994, the average world cotton yield rose at an annual rate of 2%. Yields in the late 1970s and early 1980s increased little as higher than average cotton prices encouraged expansion into lower-yielding areas. Between 1983 and 1991, the world average yield rose from 450 kilograms per hectare to nearly 600 kilograms largely because of productivity gains in developing countries, especially China and Pakistan.

Since 1991, world yields have declined, indicating that the most recent period of above-average gains in yields has passed; the world average yield is estimated at 550 kilograms in 1995/96, 25 kilograms per hectare lower than indicated by an average growth rate.

World cotton area ranged between 30 and 35 million hectares between 1950 and 1995, with no apparent tendency to rise or fall.

However, if world area is 33 million hectares and yields grow at an average rate, production would be about 20.5 million tons in 2000/01.

World cotton consumption increased rapidly in the mid 1980s but has been barely rising since. The main factors have been a cessation of rapid growth in cotton use in China (Mainland) and declines of over 50% in the former COMECON area. Per capita world cotton consumption reached 3.6 kilograms in 1987, but fell to 3.2 kilograms in 1994.

If per capita world cotton use is to return to the 1987 level and perhaps rise modestly to 3.7 kilograms, world use will need to rise to 23 million tons by 2000/01. However, to achieve 23 million tons of cotton use, world cotton area would have to rise two million hectares above the record set in 1984 to 37 million hectares.

Prices Likely To Be Variable and Higher Than Average

Consumer demand for cotton is growing, and with specific problems of disease, resistance to pests and difficult economic conditions in four of the five largest producing countries, prices will need to be above average during the 1990s to elicit the necessary supply.

The last 22 years have seen two distinct periods of cotton prices. Between 1973 and 1983, the Cotlook A Index averaged 76 cents per pound and was above the 22-season average of 73 cents eight times out of eleven years.

However, in the ten seasons between 1984 and 1993, the Cotlook A Index averaged 67 cents a pound and was below 73 cents seven times. Higher cotton prices during the first period coincided with slow growth in world yields, rising prices for most commodities and increased imports by China (Mainland); cotton prices fell after 1984 because of record production in China, changes in the USA government cotton program to expand exports, and reduced cotton consumption in Eastern Europe and the former USSR after 1989/90.The spread of the leaf curl virus in Pakistan and India, combined with economic difficulties in Central Asia and bollworm resistance to pesticides in China indicate that increases in world consumption during the 1990s may need to come from expanded area and production in countries currently accounting for less than half of world output. In the past, above-average prices have been required to sustain increases in area and production in the Western Hemisphere and Africa. Consequently, it is likely that average prices in the 1990s will be higher than in the 1980s; depending on competing crop prices and rates of growth in world cotton consumption, prices in the 1990s could be similar to the 76-cent per pound average of the 1970s.

Estimates of world cotton supply and use during the next five seasons, made in conjunction with International Monetary Fund (IMF) forecasts of economic growth and the Secretariat's model of end-use fiber demand, indicate that world cotton consumption will rise at an average annual rate of 2%, a slower pace than was estimated in 1987. A loss of market share resulting from constrained supply and higher prices for cotton than had been anticipated, combined with reduced consumption in the former USSR and slower growth in demand in China (Mainland) are the major reasons why use of cotton is growing more slowly than previously forecast.

Cotton consumption continues to grow more rapidly in cotton producing countries than in non-producing traditional importers. Consequently, increases in world consumption do not automatically lead to increases in cotton trade, as consumption growth is met by growing domestic production. In this respect, 1994, a year in which record world cotton trade occurred, could be characterized as extraordinary because tight supplies in major producing countries led to temporary import demand and growth in world trade.

World cotton imports are expected to decline from 6.7 million tons in 1994 to 6.2 million tons in 1995 and to 5.9 million tons in 1996. Trade should rise from the 1996 level to 6.4 million tons by the year 2000.

World production will likely increase by 2000 and is assumed to match consumption. Higher area in response to above-average prices, and relatively modest increases in yields will result in increased output of cotton. Market prices are assumed to be lower on average in the late-1990s than during 1995. Consequently, production in the USA is expected to peak in 1996. Nevertheless, because cotton prices are expected to average more in the 1990s than in the 1980s, production in the USA is expected to remain higher than in the seasons prior to 1994. Increases in area and yields are expected to lead to increases in production in India, Pakistan and Turkey as well as in smaller producing countries; because of a difficult period of economic restructuring, production in Central Asia is likely to remain at current levels but could decline if inputs become scarce.