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Recession Hits Cotton Hardest

May 28, 2009
By: Sara Schafer, Farm Journal Media Business and Crops Editor
 
 

 
Linda Smith, Top Producer Executive Editor
 
The recession is a mixed bag for consumer demand for ag commodities, according to economists at Rabobank. In general, food demand is quite inelastic – people have to eat. Interestingly, consumers are least likely to give up coffee, meat, fish, and bottled water. At the grocery store, they are more likely to give up or switch away from things like sauces, dry soups and canned vegetables. (See table; the larger the negative number, the more sensitive to price changes or income losses.)

click to enlarge

 
There is some swapping from "luxury” products and "lifestyle” foods—a switch from steak to sausage, and slowing in organic purchases, for example, they say. As you would expect, eat-out meals are being hurt more than grocery-based at-home meals, they add. A 2008 survey found 21% of consumers cutting back on entertainment/going out; 14%, dining in restaurants; 5%, fast food/takeaway; 4% "luxury foods”; and 3% groceries.
 
However, cotton demand is languishing as housing sales have plummeted. New homes require draperies, rugs, furniture and the like. In addition, new clothing can be delayed until better times, whereas food cannot. Meanwhile, a major factor in cotton demand is its rapidly shrinking share of the textile market in developing countries. In the 1980s, cotton represented more than 60% of all textiles used in developing countries; today that has fallen by more than half. (See graph.)

 
Watch unemployment numbers for a signal the U.S. economy is ready to turn back to the positive side, the Rabobank economists say, based on eight completed recessions in the post WWII period.
 

 
You can e-mail Linda Smith at lsmith@farmjournal.com.

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