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MEMPHIS — The U.S. cotton industry is preparing for continued difficulties — from pricing pressures to environmental concerns — as the weak economy takes a toll on consumer spending.
Despite the near-term woes, however, industry experts believe global population growth will ultimately fuel demand and lead to a return to growth.
“The outlook in the fiber part of the supply chain is strength,” said Mark Messura, vice president of Cotton Incorporated’s global product supply chain, speaking at the organization’s 21st annual EFS System Conference. “Certainly, there are a series of questions in the short term…but longer term we’re looking at reduction of global stocks. I believe we will continue to see an increase in global consumption of cotton and over time we’re going to build some strength in the fundamentals.”
More than 180 farmers, ginners, researchers and scientists gathered here last week to discuss the state of the cotton market and how to ensure the future viability of the domestic industry. EFS, or Engineered Fiber Selection, is a software package introduced in 1982 that allows qualities of a cotton bale to be quickly analyzed and evaluated, allowing for the production of a more uniform product.
According to Messura, a large part of the cost reductions that apparel manufacturers have gained by moving sourcing to China have already been realized.
“The easy gains of shifting sourcing to China are starting to disappear,” he said.
In order to maintain low production costs, manufacturers have continued to shift their operations to countries like Cambodia, Vietnam, Pakistan and Bangladesh. Those low-cost sourcing options are likely running out.
There is also further opportunity for cotton prices to increase. Messura noted that yarn prices have gone up about 14 percent since 2007, while cotton prices have increased 21 percent. Not all price hikes have been passed along to yarn manufacturers, so if demand stays strong there will be further pressure to increase prices.
Until macroeconomic pressures build and restore fundamental strength, the cotton and apparel industries are facing considerable challenges. Average prices for key cotton products have not changed significantly between 2007 and 2008. Messura presented data from NPD Fashionworld’s AccuPanel that indicated the average price of jeans was $27 in 2007 and 2008. Slacks maintained an average price of $23. The only major categories posting gains were woven shirts and dresses, and those saw increases of only $1.
“Don’t look for any help from consumers,” said Messura. “They’re really conditioned to look for things on sale and with a tough economic picture facing them, they’re looking even harder for on-sale items.”
According to Cotton Inc.’s Lifestyle Monitor, in 1996 about 58 percent of U.S. consumers said they bought apparel on sale. By this year, that number had increased to 64 percent.
“We believe we’ll see that trend continue,” he said.
Messura said recent monthly comparable-store sales and first-quarter results from major retailers showed a “shock to the retail system.” The poor economy has sent customers to discounters. Perhaps more troubling, though, has been the slowdown in buying among those between the crucial consumer ages of 13 and 34.
David Earley, director of supply chain marketing at Cotton Inc., stressed the importance of innovating treatments to improve cotton’s performance and make it more competitive with synthetic fibers. Synthetic fibers such as polyester, nylon and rayon have spurred new fiber brands and products claiming a range of performance characteristics. Under Armor even launched a “Cotton Is the Enemy” advertising campaign.
“Where some of these competitive fibers really…have an advantage sometimes is in their ability to reengineer, re-create or reinvent themselves,” said Earley. “Cotton doesn’t necessarily have that ability. So, what we have to do is infuse new innovations into cotton so that it can be reinvented and stay relevant in the industry and to the consumer.”
Cotton faces a new challenge from what Earley called eco synthetics, which are synthetic fibers that are blended with a natural product. Earley pointed to Cocona and Cocotex as examples, both of which are polyester-based fibers blended with carbon that started as coconut shells.
“This is one of the challenges we face trying to keep cotton out there as the most sustainable, natural choice for the industry,” he said.
Some of the innovations that Cotton Inc. has introduced include Wicking Windows. Cotton is 40 percent more absorbent than synthetics, which means it takes longer to dry. Wicking Windows reduces absorbency to a level more in line with synthetics. Stay True Cotton helps maintain color in denim after multiple washings and Storm Denim adds water repellency and stain resistance.
Reducing the environmental impact of the cotton industry is an area that is likely to drive efforts going forward. J. Berrye Worsham, president and chief executive officer of Cotton Inc., said the industry was well aware of the need to make improvements. Cotton Inc. is now focusing on ways to improve the amount of water, energy and chemicals used to process cotton. Before embarking on this effort, Cotton Inc. first wanted a picture of the global footprint of cotton processing.
“We really needed a candid assessment of the state of textile processing to provide for us a third-party analysis of the challenges facing cotton and other textiles,” said Worsham.
Samuel Winchester, professor emeritus at the college of textiles at North Carolina State University, helped lead that study and found wet processing has a significant environmental footprint. According to Winchester’s study, about 56 billion pounds of cotton are processed annually. To do so requires 1 trillion gallons of water a year, or roughly the amount of water in Lake Michigan, according to Winchester. An estimated 33 trillion gallons of oil a year are used in processing, which represents only 2 percent of global oil consumption. About 20 billion pounds of chemicals are used, as well.
Winchester pointed out that the majority of cotton processing is, understandably, occurring in Asia. North and South America combined account for only 11 percent of global cotton processing, whereas the region from Pakistan, India, Australia, Japan and China accounts for more than 75 percent of cotton processing.
“The big kicker, we know, is China,” said Winchester. “Forty percent of all cotton is processed through there. So it makes sense then that if we want to reduce the textile processing footprint of cotton, that’s where we have to focus.”
Winchester said 85 percent of the water, 80 percent of the energy and 65 percent of the chemicals used in cotton processing are tied to the dyeing and finishing process.
“Here again, if you want to make a huge impact to reduce the textile processing it has to be focused on the wet processing, and dyeing and finishing,” he said.
Membrane filtration can provide an immediate effect on reducing the impact of cotton processing. A series of membrane filters installed at a facility can allow factory owners to recycle and reclaim 95 percent of the water used without requiring expensive changes in the factory’s operations. The technology is widely used in the waste water industry. A sewage facility in California’s Orange County returns 70 million gallons of clean water daily to the local water table through the use of membranes.
Ultimately, Winchester believes the industry can transform its environmental footprint dramatically by improving water and energy management, employing combined processing techniques, using membrane filtration and moving to alternative energy sources like solar panels and wind turbines.
Edward Barnes, director of agricultural research at Cotton Inc., confronted some of the accusations levied at the industry concerning its environmental impact.
“We’re making more cotton and using less natural resources,” said Barnes, summing up his presentation that was titled “Beyond the Outrageous Claims.”
According to Barnes, the industry has achieved reductions in the amount of land, water and pesticides it uses.
“We’re meeting over half of the world’s fiber demands with only 3 percent of the land,” said Barnes. “That’s a good statistic, so lets embrace that one.”
Globally, consumers hold a favorable opinion of cotton and other natural fibers. Allen Terhaar, executive director of Cotton Council International, presented the results of the most recent Global Lifestyle Monitor, which focused on environmental issues.
“Consumers are concerned about the environment…but when you’re talking about fiber they’re much less concerned about cotton than they are about things like water quality, child labor practices, global warming and food,” said Terhaar.
While a sizeable percentage of those surveyed said they would seek environmentally friendly apparel, those in developing countries like Thailand, India and Columbia were even more likely to make the effort. Terhaar said the cotton industry was operating from a power position with consumers and should continue to stress cotton as a natural and sustainable fiber.
“Cotton, you can see at the consumer level in their willingness to buy, has a very good image,” he said. “It’s one we can key off of.”