Despite the increasing desire for polyester around the world, global cotton demand continues to grow. Indeed, levels of cotton inventory and stocks-to-use ratios continue to improve. This has translated into a price of greater than $A500 a bale, meaning the outlook for most Australian cotton producers is a highly profitable one.
"…the outlook for most Australian cotton producers is a highly profitable one."
Mark Bennett, Head of Agribusiness, Australia, ANZ
Australian cotton is a genuine world leader in producing high-quality fibre. Continuing yield improvement and attention to land and water management, along with quality plant breeding has ensured the country has a profitable production sector and a highly sought after product.
With targeted research and development and noted involvement, support and encouragement of women, youth and science in the sector, the cotton industry has become a leading example within Australian agriculture.
It's not surprising then to see great success and a growing footprint for the sector in Australia’s southernmost cotton regions. In the north, a healthy rivalry gives way to a collective view of what's best for industry. Crops are highly technical and controlled and the industry is blessed with professional, business-minded owners and operators.
Australia’s cotton industry employs 15 times as many people as grazing and five times dryland cropping, according to Cotton Australia. With over 1,200 farms in the country, the sector directly employs 10,000 people in a non-drought year.
As the sector grows, so does the creative opportunity for growers and ginners as they diversify investment and create new opportunities for local farmers and their communities. The regional prosperity which follows new and considered investment is visible in people, in landscape and in commercial trade.
At the start of August, the 18th annual Australian Cotton Conference drew a record 1,950 attendees to explore current industry dynamics and future. The feeling amongst attendees was a positive one.
Australia’s cotton industry was built on a heavy influence and investment from the US in the 1960s. From there, a local focus to research, science and technology adapting to local conditions has proven incredibly successful.
This pioneering spirit is evident in many generational enterprises and the balance of investment and knowledge is a great recipe for expanding Australian production.
While Australia produces only 3 per cent of global output, almost 100 per cent of the crop is exported into a market where it is the third-largest exporter (behind the USA and India).
The water story in the sector is improving. Long-awaited rain is now filling dams in our critical production zones, in particular in northwest New South Wales.
There is already an enormous focus to water use efficiency in the cotton industry. Anyone interested in the Murray-Darling Basin should spend time in cotton country to gain an appreciation for the commitment farmers have to managing water sustainably and the importance irrigation has on these communities.
With water back in the system, it's evident it's having a big impact on confidence, profitability and personal well-being.
Global conditions dictate the price for cotton. Incredibly, Australian yields are three times the global average and double the biggest producers India and China.
Competition is tough given the subsidisation across the waters, but the current balance of water and price is allowing our producers to lock in profit from near future crops.
China like in everything else is important. They hold large inventory of cotton and how they manage this will influence global prices. But we do see growing and significant demand out of countries like Vietnam and Bangladesh which are demanding more current cotton than China as it works its way through domestic inventory.
The model of cotton production in Australia lends itself to external investment which will continue to drive growth and productivity in the sector. Matching capital with the right management is still the difficult part, but examples of success are plentiful and there are more on the horizon.
Fortunes within the industry will always follow the volatility of commodity prices and water availability but we genuine resilience and natural optimism will persist.
Australia’s drive for efficiency and productivity provide the ultimate protection in a tough market and an uneven playing field. It continues to promote innovation and adaptability which is highly evident. It's something everyone in industry should feel proud of.
Mark Bennett is Head of Agribusiness, Australia, ANZ
The views and opinions expressed in this communication are those of the author and may not necessarily state or reflect those of ANZ.
16 Aug 2016
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