Fibers and Textiles

This industry overview has been adapted from "Fibers and Textiles: Dimensions of Corporate Marketing Structures, " a 1980 study by the United Nations Conference on Trade and Development.

Cotton is important to the agricultural cash economy of at least 77 countries. In its fiber form it is a foreign exchange earner for more than 60 countries. For nine of them-Chad, Sudan, Yemen, Egypt, Mali, Central African Republic, Benin, Nicaragua and Upper Volta-earnings from cotton exports constitute over 25% of total export earnings: the proportion is as high as 70% for Chad and over 45% for the Sudan. In certain countries, relatively small producers by world standards, the over-all employment dependency on cotton is marked: Chad (71076), Nicaragua (35%), Guatemala (20%), Syrian Arab Republic (16%), and the Sudan (13%).

The production and marketing structure of the world cotton industry varies considerably at the national level. The real earnings of tenant farmers and landless wage earners are not generally or directly affected by a rise in cotton prices on the international market. In many cases the tenant's output is compulsorily marketed through the landlord at prices below international or marketing board levels. With respect to landless laborers, there is some evidence from data for Guatemala. Although 370,000 persons inhabit Guatemala's cotton-growing lowlands, in the picking season as many as 600,000 Indians migrate for 30-90 days to earn $1.25 for a 12-hour shift. Such wage levels have helped to keep cotton at globally competitive prices.

Fifteen large multi-commodity trading companies control 85-90%-of globally-traded cotton-a share approximated in most primary commodity markets. For cotton, these include two giant European companies, five Japanese General Trading Companies (Sogo Shoshas) and eight U.S. public and private firms, (see chart). Crucial to an understanding of commodity markets is that most of these giants are dominant global marketers in other commodities: Volkart in coffee and cocoa; Cargill and Bunge in grains and soybeans; Ralli Bros. in tropical hardwoods, grain, coffee, tea, rubber and metals; and the Sogo Shosha in all commodities-manufactured and non-manufactured. Indeed, the Sogo Shoshas are the only corporate grouping to rival the seven petroleum sisters in global revenues.

Due to their self-reinforcing backward and forward linkages (e.g. Ralli and Volkart in ginning, Bunge in plantations, spinning and weaving, and massive penetration into warehousing by many), they have advantages over national marketing institutions in developing countries from which they buy cotton. Likewise, in the field of economic and trading intelligence, the large traders all possess highly sophisticated networks which lend a staggering speed and flexibility to their operations unmatched by national marketing institutions.

The top five cotton traders include the third-largest food enterprise in the world after Unilever and Nestle-the U.S. multi-commodity trader, Cargill. This world leader in grain merchandising supports and crosssubsidizes its cotton operations with activities in metals trading, flour processing, chemicals, steel manufacturing, coal merchandising, poultry processing, salt mining, oilseed processing, coal, sugar, and commodity futures trading. Its 1979 sales of over $12 billion were more than double the value of globally-traded cotton during that year alone.

Futures Markets

Operations of the giant traders cannot be investigated in isolation, but rather must be seen in relation to their impact on price formation via their dominance on the New York futures market and their penetration into all marketing circuits. Established on September 10, 1870, the New York Cotton Exchange has become one of the crucial determinants of world cotton prices.

Along with cotton farmers, spinners and textile mills, the principal operators on the Exchange are the giant multi-commodity traders, who deal simultaneously in actual cotton and futures contracts in massive trading volumes. Manipulative practices are endemic in the cotton futures market, where large traders, individually or through collusive manipulative practices, acquire substantial gains and in so doing, destabilize prices.

Of pivotal importance in the world cotton economy is that these inherently unstable price quotations from the New York Cotton Exchange are immediately disseminated globally, and act as the barometer for cotton prices in producing countries.

In consequence, the centrally-planned and developing countries who produce over four-fifths of the world's cotton play a marginal role in cotton price formation at the global level. They are instead relegated to a role of accepting widely oscillating prices with their accompanying deleterious impact, particularly for countries that depend on cotton as a major source of export earnings and development finance.

Petrochemicals and Chemical Fibers

Cotton's share of fiber end-use markets has been persistently eroded by chemical fiber corporations, from its dominant 70% slice in 1955 to its current share of under 50%. Cotton producers' weakness is perceived in the minuscule share they garner of the retail price breakdown of apparel items. In most countries, the cotton producer receives between 2 and 15% of such retail breakdowns, as against 40% by giant retailers at the other end of the marketing chain.

The post-World War II explosion of the chemical fiber industry, and the petrochemical industry that is its feeder base, present a challenge to cotton greater than that faced by most other natural primary commodities. Petrochemicals are produced by the seven petroleum sisters (combined 1979 sales $349 billion) and chemical corporations or via joint ventures between them. Chemical fibers fall more exclusively under the control of the chemical giants, although certain of the textile majors (e.g. Courtaulds) are significant forces on the market. The meshing of chemical and petroleum oligopolies that are the propellants of the petrochemical industries assumes a myriad of forms, including joint ventures, common purchasing arrangements for raw materials, cross licensing, licensepooling, sharing of marketing facilities etc.

Petrochemicals are the creations of chemists manipulating carbon molecules and another 100-odd elements. The 7,000 products of the petrochemical industry account for about 30% of the chemical industry's global sales, and (in Western Europe) for around 15% of aggregate industrial output. Of this production of petrochemicals, a quarter is absorbed by the chemical fiber industry, a segment of the total chemical industry which has historically recorded the highest returns on investment.

Traditionally, the chemical fiber oligopoly has been highly concentrated. By 1979, around 13 giant firms produced about three-fifths of the world's chemical fibers, accounting for 80-90% of world trade. During the last three decades, all major chemical fibers swelled their shares of fiber end-use markets (apparel, domestic and industrial), despite prices much higher than those of cotton. The mechanisms deployed include research and development, blending techniques; advertising and marketing technology; transfer pric ing; inter-corporate patent swaps, and increasingly massive state interventionist measures.

The textile industry represents the crucible where the world's fibers are transformed through processing. It is one industry in the global economy which is a common denominator of all countries, though attaining its highest technological expression in a handful of developed countries. At present, textile processing is comprised of a loose oligopoly, with approximately 35-40 large textile corporations exerting a paramount force on world markets. In general, these are horizontally integrated firms, although vertical integration and conglomeration, as in Courtaulds, Agache Willot, Burlington and Japanese members of the textile oligopoly, will gather momentum in the eighties. This oligopoly continues to be one of the major propellants behind the gigantic shift in textile output and exports from developed to a leading group of developing countries.

Although formally autonomous, these 35-40 textile transnationals largely dominate global textiles through a complex interlocking marketing network with their power base mainly in five countries: the U.K., the U.S., France, West Germany, and Japan. Corporations from these five countries alone account for 94% of the top 100 firms' turnover.

Global textile exports reached $60 billion by 1980, approximately 3% of , world trade. As one of the leading industries in the changing international division of labor, textiles have become a battleground, for struggle both among developing countries and between developing and developed nations. South Korea, Hong Kong and Taiwan account for over 39% of developing' country' textile exports. For most of the remaining countries, prospects are bleak for breaking into the international market, and as industrialized countries impose import quotas on textiles, the major developing countries have shifted exports into the less developed nations, often outcompeting local industries there.

Currently, negotiations -are underway in Geneva between textile-importing and textile-exporting countries. The Multi-Fiber Arrangement Talks (MFA), as they are called, are pitting the major Third World textile exporters, who seek open international markets for their goods, against European countries, who wish to protect their domestic markets. The U.S. position, as both a major exporter and an importer, is more complicated.

Next month, Multinational Monitor will analyze the MFA talks, assessing the tensions between countries, the position the U.S. is adopting, and the interests and influence of the textile transnationals in the talks.