Cotton Board members have approved a $63 million budget to support the research and promotion activities of Cotton Incorporated for 2005, with a cautionary note that factors shaping the cotton market “suggest that cotton fiber and cotton products will have to improve in order to successfully compete in the marketplace.”
The board, which met in Seattle, provides oversight for the cotton checkoff program funded by assessments on producers and importers.
The new budget is only marginally higher than the $62.75 million for 2004, and Cotton Incorporated President and Chief Executive Officer J. Berrye Worsham points out that, on an inflation-adjusted basis, it has declined by more than 7 percent since 1999.
“With a number of new initiatives in recent years, including 2005, a declining real budget has resulted in reduced emphasis in some major programs, notably consumer advertising.”
The operating budget “represents changing priorities,” he says, “and we believe this allocation of resources represents the most efficient utilization of producer and importer funds invested in the Cotton Research and Promotion Program.”
Budget allocations include $8.539 million for agricultural research; $1.990 million for fiber quality research; $28.878 million for consumer marketing; $9.677 million for global product marketing; and $9.082 million for textile research.
Although several external factors are affecting the global cotton market, Worsham says, “none is as significant for 2005 and beyond as the final phase-out of textile and apparel quotas, to become effective Jan. 1, 2005.” This will affect cotton's business environment in a number of ways:
The rate of growth in textile/apparel imports will accelerate in 2005.
U.S.-manufactured textile/apparel products will likely continue to decline in volume, a trend in the past five years that has seen the shutting of hundreds of manufacturing operations in the U.S. and the loss of thousands of jobs.
Price deflation for consumer apparel will likely continue.
China will become the dominant supplier of goods to world and U.S. markets.
Another factor shaping the cotton market, Worsham says, is a “worldwide abundance of synthetic fiber capacity.”
Low man-made fiber prices, he says, along with improvements in products made from those fibers, have limited the growth in world cotton demand in recent years.
“These factors suggest to us that cotton fiber and cotton products derived from cotton will have to improve in order for cotton to successfully compete. Further, it's likely that incremental gains in cotton demand will be satisfied by increased textile and apparel activity in China.
“What will not change is that the primary point of influence for the U.S. market will continue to be the U.S. retailer, and decisions on which products to sell and their fiber content will largely remain within the U.S.”
The 2005 Cotton Incorporated budget also reflects an ongoing belief that the cotton industry “needs to continue to seek ways to stimulate demand beyond the U.S. consumer market,” Worsham says.
It was proposed that the contribution to Cotton Council International be maintained at $2.5 million in 2005 in order to leverage additional government funds through the Market Access Program and Foreign Market Development Program. The combined CCI and Cotton Incorporated international budget is currently slightly under $25 million.
With essentially fixed resources, Worsham says, Cotton Incorporated will allocate a greater percentage of resources to improving cotton fiber and cotton products. “The fiber quality research program budget will expand 16 percent and the core agricultural research budget by 8 percent. Funds for fiber management research/EFS will increase 18 percent, while textile research expenditures will increase by 5 percent.”
Many divisions will allocate a greater percentage of their efforts in support of international marketing activities.
The shift from promotion to research and technical marketing activity will result in some personnel changes, Worsham points out. “We'll be adding an additional staff member to the China office to assist in servicing the growing mill and apparel business,” and a staff change will help to provide multiple Cotton Incorporated services to key accounts in China.
About 50 percent of the U.S. global product marketing team is now working directly with major brands and retailers, he says, with the rest of the staff calling on mills in the Americas. “This is in sharp contrast with the past, when a much greater percentage was aimed at the mill sector. We will remain flexible in order to increase the non-mill percentage as market conditions dictate.”
Key fabric issues such as flammability, color fastness, wrinkle resistance, and moisture management have placed increased demands on the textile chemistry area, Worsham says, and in 2005 Cotton Incorporated will be adding a textile chemist to assist with those initiatives.
Increased demands on fiber and product testing and the increased importance of international markets — with 70 percent of U.S. cotton now exported — will require an additional fiber quality research position.
In consumer marketing, retail point-of-sale programs will be maintained. Global industry demand for fashion services has industry demand for fashion services has increased in recent years, Worsham notes, and the fashion marketing budget was increased for 2005, though no personnel additions are planned.
“We'll continue to look for ways to increase promotional efforts outside the U.S., and in advertising we'll continue to support the Joy of Shopping Website, although funds for TV promotion will be reduced somewhat.”