Better by that T-shirt now because as of next year, CNN reports that the average price of cotton-based products is going up! This price increase in cotton can be blamed on the recent drought in China (number one exporter of cotton), restricted exports in India and the devastating floods in Pakistan. The article mentions that the price of raw cotton has almost doubled in the past year from almost a 40-50 cent average to about 90 cents a pound. CNN highlights the fact that this is already a tough time for the Apparel Industry in the American economy - there has been a small rise in demand, but it can be expected to fall back down with the rise of cotton prices.
On another note, polyester is expected to make a pretty good come-back!
8 comments:
Though this may seem like a real bad thing I don't feel it will have much of an effect on demand for the clothes. It's not real often that people think too much into the fact that a shirt raised in price a couple of dollars. If someone likes the shirt or jeans they'll buy it regardless. However, for the people with an extremely low income where the price increase may affect their clothing buying habits, they will just go to the secondhand market for clothes which is an enormous market in America and many other countries around the world. Also as Natasha said there are the other materials for clothing that can always become a substitute if the prices get too out of hand.
If there is a shortage of cotton from China, the United States should move in and attempt to grow the cotton industry. The U.S. used to be the largest exporter of cotton many years ago but if they could start becoming a leader in this industry again it could be huge for the U.S. economy.
I totally agree with Andrew Martin. The cotton price draws great incentive for cotton farmers to start rolling more cotton production. It used to be that the US cotton farmers were getting paid on average of 75 cents per pound (through government subsidies). Now it can earn roughly 20% revenues without any type of governmental assistance.
Cotton farmers in Texas would benefit from this as they have been recently outsourced farming to China due to the cheaper labor costs. Once the cost of Chinese cotton rises to the point where US farmers have the comparative advantage, that is when the US agricultural industry will benefit from the Chinese drought. Even though there is a rise in the price of cotton in China, it still may be cheaper to stay in the Chinese cotton market as it would be more expensive to re-set up shop, so to say, in the US, than it would be to stay in China until this season rotated back around and the next cotton crop comes about.
I agree with Andrew and Mesaban, the U.S. has the technology and resources to be a dominant factor in the cotton industry however it is the cheap labor that is the the biggest factor holding the U.S. back. China and other countries use child labor and other ways to keep the labor prices down. American manufacturing companies cannot compete with this and it forces companies to outsource.
If America can take an initial forward step in the cotton industry, even though prices might go up somewhat on cotton, it will help America establish itself as a cotton contender.
I found it so ironic when the U.S export its own cotton while importing that of China and other countries. I wonder where else could the U.S export cotton to when its labor cost is one of the highest in the world. Also, It sounds reasonable that apparel companies import cotton into the U.S because of cheaper labor and material cost in Asia compared to that of domestic. I think even if we actually buy shirts that made in USA, the price will still be considerably higher than that made in Asian countries in the current situation. Polyester production is known for for polluting the environment. There's a cotton substitute, hemp, which was widely used in the past until Rockefeller and DuPont decided to become richer by producing polyester and influence the govt to produce a new law against hemp. Hemp can be used in many different ways such as: rope, camping supplies, fabric, biofuel, and shoe production. Hemp also adds nutrients back to the earth and costs less to grow than cotton. Up with hemp and down with imported and contaminated products with an inflated cost. Put Americans back to work by increasing our self sufficiency and decreasing our dependency.
Honestly the current profit margin for t-shirts and jeans is astronomical, and the prices don't really reflect the actual value. Even a price in crease in cotton as significant as this should not significantly effect the profit margin for producers and if it gets passed on to consumers it is only because demand is highly inelastic.
I believe that the US should relax their cotton policies for domestic growers. In the past the US was a huge player in growing/supplying cotton to China's manufacturing plants. They lost their edge as the government imposed more and more trade regulations. If the government were to loosen up on some of their cotton regulations, it could be a great potential market for American farmers to enter.
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