Just two years ago, it was generally believed that yields would flatten because of increase in incidence of cotton pests and diseases, while the demand would increase in view of the rise in population and incomes, coupled with decided consumer preference for cotton. Thus, the tightening of world supplies would help in maintaining cotton prices at levels above historic averages for the years to come. However, instead of improving, cotton prices are plunging for the last four consecutive seasons and are now as low as in 1985-86. The cumulative decline in average Cotlook "A" index, during the four year period from 1994-95 to 1998-99 has been of the order of 38 per cent, including a drop of 18 per cent in 1998-99 alone.

In view of weak global demand, changes in cotton policy in China and government subsidies that help in production to be maintained, cotton prices are not expected to rise over the next two years.

Global cotton production is forecast at 19.1 million tonnes in 1999-2000 and 18.7 million tonnes in 2001-01, compared with 18.8 million tonnes in 1998-99. On the other hand, the world consumption fell from 19.4 million tonnes in 1996-97 to an estimated 18.8 million tonens last season -- the largest decline in 25 years, mostly because of economic turmoil in East Asia, Russia and Brazil. A rise to 19.2 million tonnes is expected over the two year period comprising the current season and the next one. Little change is expected in the global closing stocks in 1999-2000. However, an important shift in the location of stocks is underway, with China determined to reduce inventory and other exporters being forced to carry more. By 2000-01, as economic growth improves and lower cotton prices discourage production, stocks of cotton may begin to decline substantially. Importers will meanwhile stand to benefit as there is strong competition for export market share.

Cotton production in the US is expected to increase by more than the rise in world consumption during 1999-2000 and the enlarged supply will keep cotton from the USA priced competitively, with or without step-2 marketing program.

Economic crisis in East Asia and the flow through the other economies led to a significant slowdown in the growth in world income. This, in turn, slowed down the demand for textiles, which depressed the offtake of cotton and its prices. The financial crisis is the primary reason for the close to zero growth in textile demand in 1998 and two per cent decline in world cotton consumption during that year. The impact of this on cotton prices has been more significant. Overall, the crisis is estimated to have substantially affected the consumption and price prospects for cotton both in the short and medium terms. After cotton consumption increased by two per cent to a record 19.3 million tons in 1997, it declined by two per cent in 1998. In absolute terms, cotton use in 1998 was estimated to be 700,000 tons lower than would have been the case without financial crisis. Similarly, world cotton consumption is expected to be 900,000 tonnes lower in 1999 and 2000 than would have otherwise been the case. Virtually allof the adjustment has taken place in developing countries where consumption fell by six per cent in 1998.

Though the world textile market has been thrown off course at present, cotton consumption is projected to rise to 2.8 million tons by 2005, with an average of 400,000 tons of additional consumption a year, once the economic recovery is on course.