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Allen Terhaar: Future Development of Cotton for the 21st Century
DATE:2011-09-26

   

  “Cotton Council International, the National Cotton Council of America, and Cotton Incorporated have all worked closely with the China Cotton Association and the broader China cotton and textile industry for many years as full partners in the growth and profitability of our respective industries.

  While it is tempting to focus on the near term supply, demand and pricing conditions for cotton, my presentation today is focused on the longer term – it is about what it might take to sustain the global cotton industry during the first decades of this century, and the commitment of the U.S. industry to work together with its partners as leaders in sustaining the growth and prosperity of the cotton supply chain,” expressed Allen Terhaar.

  “Vision 21”

  According to statistics, I want to emphasize that the world’s demand for fiber will grow strongly as we look out to the year 2025. The combination of population growth of about 1 billion, plus economic growth, will cause overall demand for all types of fiber to expand by roughly 20 million tons – and that is considered a neutral scenario. Under a high-growth scenario, fiber demand could grow even more swiftly.

     The per capita demand growth for fiber will occur particularly in the major population and economic development generators of China and India, but also somewhat in other rapidly growing countries where household incomes are expected to expand dramatically in the next couple of decades. And the absolute volume of added fiber demand in China and India will far outpace the increase in the U.S., EU, or Japan.

   So, demand for a lot more fiber will be there. The question is what role will cotton play in that growth in fiber production and demand.

   The U.S. industry has underway some of the efforts to ensure that a strong percentage of the growth in overall fiber demand will be demand for cotton and cotton products rather than for synthetics or alternatives.

   At this point I want to highlight an initiative called “Vision 21” being carried out by the U.S. cotton industry and jointly managed by NCC, CCI and Cotton Incorporated with special funding support from Monsanto, John Deere and the broad industry.

   Vision 21 mainly focuses on four major areas of work: Sustainability, Consumer Demand, Strategic Thinking, and U.S. Cotton Logistics.

   l         Sustainability

  Regarding sustainability, I want to mention specifically the Field to Market coalition that is examining ways to enhance the sustainability of agricultural crop production and processing in the United States and eventually make that approach available to other countries as well.

   The principal approach of Field to Market is to develop data sets and tools for producers to be able to minimize their environmental impact using the technologies and practices most appropriate to their specific climatic and geographic conditions. Cotton has been a leader in this effort from the beginning.

   Initial results show that a lot of progress has been made within U.S. production agriculture toward sustainability, particularly when looked at through the challenge of producing more with less.

   Furthermore, the Field to Market initiative in the U.S. provides field calculators on line on the Internet to allow cotton growers to compare their results directly with those of their neighbors to determine where and how to maximize their improvements within the same geographical area.

   Another important aspect of the sustainability work within Vision 21 is what is called Life Cycle Inventory (LCI), and Life Cycle Analysis (LCA).

   Basically the LCI is the database, and the LCA is the analysis tool to identify what process and/or material input has the biggest impact on a particular part of a product’s life cycle. The area where the biggest impact occurs is a good starting point to examine what changes can be made to improve that process. 

   You are probably wondering why I am bringing up Life Cycle Analysis here and why the cotton industry should even bother with such analysis. The main reasons are that product impact on the environment is increasingly being called into question by the press, the consumers and the retailers of products. If cotton cannot show that it is competitive in minimizing its environment footprint compared with alternative fibers and products, then we will lose market share and absolute volume and value. Cotton’s competition has aggressively marketed their LCA’s against cotton. The absence of a credible inventory of data and analysis hurts cotton.

   As we make more of these data and analysis available, I encourage us to work swiftly to Innovate and implement technologies that convince consumers that we not only have the most comfortable fiber to wear, but the most comfortable fiber for the environment throughout its life cycle.

   l         Consumer Research

  While CCI and Cotton Incorporated have done a lot of consumer research in the U.S. and some other countries, we felt that there was relatively little data available on consumers and product at retail in the two fastest growing end markets for cotton in the world – China and India.

  Our approach in both China and India were the same, involving three components: consumer surveys, retail audits and end-use cotton consumption forecast models.

   Suffice it to say that we are conducting standard in-depth consumer surveys among a variety of consumer cohorts in order to understand better their fiber preferences and purchasing patterns. This information, along with retail audits of what is being sold in stores in some major Chinese and Indian cities, should provide the industry with information that will help fill in the gaps of what is happening to cotton demand in markets that will make a major difference on global cotton supply, demand and pricing for the future. We then take that information, along with macro-economic data, and apply modeling as a tool to provide worthwhile information to the U.S. and global cotton industry.

   For example, some results from our retail audits in China: 82% of apparel contains cotton, 93% are cotton dominant; similar to US, cotton greater in men’s apparel (84%) versus women’s (79%); and 94% of bath towels contain cotton, of those 99% are cotton dominant. One of the things we plan to do is monitor these categories for changes over time to see where cotton is picking up market share and in which categories cotton is in danger of losing market share so that we can respond accordingly.

   l         Strategic Thinking

    Now I want to switch focus to what we call the Cotton’s Revolutions Strategic Thinking Initiative under Vision 21. This effort engages industry leaders from all along the cotton textile supply chain in identifying key issues that will affect cotton for the next couple of decades. The leaders involved in this initiative identified four key “revolutions” affecting business and society that are likely to affect our industry: Resource Management; Economic Integration; Technology; and Governance.

   The objectives of this strategic thinking initiative are to: showing leadership in global industry to enhance the cotton supply chain; develop information base and insights to help the industry to anticipate the future; and provide the global cotton industry with added decision making tools in competition with synthetics. 

   I do want to stress this final point. Our industry is up against tough competition, and that competition is only likely to get harder – like good chess players, we can benefit from thinking longer term and anticipating future moves to keep our fiber in the game.

   We carry out the Cotton’s Revolutions discussions through a variety of media, including a Web site, blogs, and virtual roundtables. Of course, the most valuable approach is to get these industry leaders in the same room with one another.

   In March we held such a forum in Dubai. In the case of the Dubai meeting, here are some of the key thoughts coming out of the meeting – points that I am sure resonate with many of you: price volatility is a greater threat than price level; potential need for new hedging mechanisms for cotton; need for greater communication across the supply chain to help manage volatility; need for greater transparency in governance; will cotton fiber supply be able to keep up with demand? If not, what happens?

   Cotton’s Revolutions is not meant to be the policy forum in which to address these challenges, rather it is meant to have the best information base and best long-term thinking and best complete supply chain networking on issues that the industry needs to address through the proper policy forums.

   l         U.S. Cotton Logistics

  The final Vision 21 area of work that I want to mention is U.S. cotton logistics. The U.S. industry realizes that we are in a very different business environment than characterized our industry 25 years ago, or even 5 years ago.

  In order to supply the new global customers with quality cotton on a reliable, competitive and timely basis, the U.S. industry needs to modernize its logistics. Our industry examined that topic in detail and is in the process of working out policies intended to keep us competitive. You will be hearing more about that, and hopefully seeing even better results in the future.

  Besides, I want to reiterate what I said about the cotton supply chain changing and the need to not only respond to what characterizes that supply chain today, but try to anticipate its location and needs in the future – always with the intent to keep cotton overall, and U.S. cotton specifically, competitive and profitable. Three countries – China, India and Pakistan – now spin around two thirds of the world’s cotton. What will this graph look like ten years from now?

   I also want to point out to you the key role the U.S. cotton fiber supply system plays in supplying all players. Our supply system is open, available and reliable to all customers domestic and overseas on an equal basis. We want China and the world to realize it can rely on U.S. cotton because that is what is best for our producers and every company that is involved along the supply chain. As I mentioned, this is particularly important for China since it imports 30 percent of all cotton imported in the world, and the U.S. supplies 40 percent of all cotton exported.

   What’s more?

  There are a lot of people asking themselves whether cotton supply and prices have come to a new plateau or a tipping point that means a totally different context for our cotton textile supply chain moving forward. But there seems to be no consistent opinion on the topic. I cannot give you a definitive outlook on that either, but I do want to mention a couple of factors that make me think, on average, that cotton prices will be generally higher for the next 5 years than they were 5 years ago.

   One reason for this is the tight situation in all agricultural commodities mentioned at the beginning of my presentation. But, another reason is that consumers globally prefer cotton and other natural fibers to synthetic substitutes – and this will help keep demand for cotton strong for the indefinite future.

   And I want to assure this audience that CCI, Cotton Incorporated and the U.S. industry are working hard to keep this demand strong – and we invite all of you to work toward that goal. Here you see some examples of consumer demand enhancement we are investing in through our “Cotton -- Beyond Your Imagination!” campaign in China. Note that there is no “U.S. Cotton” branding on this program. Demand growth is good for the entire cotton supply chain and all the players involved. We look forward to continued collaboration with CCA and the Chinese cotton industry in promoting the products from such an important industry within China from field to fabric to retail.

   Of course, CCI works for the U.S. cotton industry first and foremost, and receives its financial support from that industry. So, we vigorously promote U.S. cotton globally. But, even then, our COTTON USA promotions benefit the local industries and local growers in countries like China, India, Colombia or Thailand since these promotions give positive visibility to cotton in general, and the COTTON USA program only requires a 50 percent USA cotton content, with the remaining 50 percent coming from any other origin.

   With that, I want to conclude my remarks by summarizing and mentioning the U.S. cotton commitment to the future of the global cotton textile supply chain. That commitment is:

  l         Quality, Reliable, Timely Supply of Fiber

  l         Research and Development to Keep Cotton Supply Chain Competitive and Sustainable

  l         Support of Strategic Thinking and Policy Formation to Benefit Cotton’s Future

  l         Consumer Demand Enhancement Programs to Maintain Cotton Preference

  l         Collaboration with Global Partners in Mutual Interests