The structure and characteristics of the domestic cotton market: a macro view(5)

Cotton grown in Turkey is the Gossypium hirsutum 'Upland type', whose lint characteristics have proved to be suitable for most textile applications. Various attempts to grow long staple cotton have so far produced limited success. Therefore, even at times of self-sufficiency in quantity for Upland cotton, there will always be a need by the Turkish textile industry to import long and extra-long staple cotton.

Cotton has traditionally been grown in the Aegean, Antalya, Çukurova and south-east regions. According to the 2001 census, around 130,000 farmers are engaged in cotton farming, with an average yield of around 1,350-1,400 kg per hectare, making Turkey the country in the world with the highest yields.

During the last 60 years, cotton production in Turkey has increased 24-fold, while the increase in world production has been just 5.3. Similarly, domestic cotton consumption has increased 36-fold, while the world consumption increase has been only 5.35.

Cotton imports have become a growing necessity to meet the increased demand from the booming textile and garment sector, especially after 1993, when Turkey became a net cotton importing country and cotton exports declined to low volumes.

The Agricultural Sales Cooperative Unions (ASCUs) play a considerable role in the cotton sector, with Taris (Aegean), Antbirlik (Antalya) and Çukobirlik (Mediterranean and south-east) providing agricultural inputs (i.e seeds, fertilizers, chemicals) and finance to their members, buying the seed cotton and, after ginning, selling the lint cotton in the domestic or export markets.

Market size and prices

The annual market size of lint cotton alone is around 1.5 million tons, which translates into approximately $2 billion in value, assuming an average cotton price of 60 cents per pound.

During harvesting and ginning, seed cotton prices are established in the local markets, reflecting the price at which seed cotton is traded between cotton growers and ginners. Seed cotton is also bought by intermediaries, who subsequently sell it to nearby ginners. Price formation in seed cotton is largely linked to the prevailing lint cotton prices and cotton seed oil prices.

Until 1993 Governments implemented a support price policy through ASCUs. Since 1998 growers have been receiving 'Premium (bonus) payments', which contribute significantly to the sustainability of domestic production.

Harvesting takes place between August and November. Ginning operations commence in late September and may last until March or April in the following year. Ongoing seed cotton prices are recorded and made publicly available by local commodity exchanges.

Figure 6.26 is a simplified diagram showing the marketing channels of cotton in Turkey.

Main players in the market are ASCUs, spinners and traders. There exists a well-functioning spot market for lint cotton in the Izmir Mercantile Exchange (IME), which has been active since 1891. The trading pit operates by an 'outcry' system, each session lasting only 10 minutes on each working day. Although trading takes place mainly on Aegean (Izmir) cotton, other domestic growths, as well as cotton from neighbouring countries, can also be traded. Lint cotton prices established at the IME are registered and announced daily.

Since the beginning of the 1990s, Turkey has maintained a totally liberalized cotton trading environment with no restrictions on imports or exports. Prices in the domestic cotton market develop in close correlation with world market prices, the latter being represented by the Cotlook A Index. It should be emphasized that domestic cotton market prices have generally been higher than the Cotlook A Index values (see figure 6.27).

Cotton qualities supplied by the domestic industry

According to current official Turkish standards, domestic cotton is classed based on three parameters, which are fibre length, colour grades and trash content, and on production regions.

Most of the harvested crop is roller-ginned, while the remaining crop (roughly 10%-15%) is diverted to saw-gins, which are mostly owned and operated by the three ASCUs. Recent investments by Taris in saw-ginning facilities in some cooperatives enabled significant increases in saw-ginned cotton. Use of saw-gins is becoming more popular as the number of harvesting machines has increased considerably, especially in the Aegean region, where the cost of hand-picking has become prohibitively expensive.

In a normal crop year, the percentage of Std.1 (white) cotton will be 70%-85%, whereas the amount of HB.1 (light spotted) will be roughly 10%-15%, with the remainder covering the other qualities.

Cotton qualities supplied from abroad and from which countries

Most imported cotton is also of 'Upland type', for which there exists a large deficit. Since the price of imported cotton is generally lower than the price of domestic cotton, spinners always try to secure lower-priced imported cotton for a given quality. Furthermore, cotton with little or no contamination takes priority for spinners producing yarn for export or manufacturing fabric that is ultimately destined to foreign markets as fabrics or garments. Lastly, there is also a good demand for Upland cotton of lower quality so long as the yarn spun either from that cotton or from its suitably arranged blends meets basic quality expectations. This is especially true for cotton types which are extensively used for spinning coarse count open-end or ring-span yarns, which are used for production of denim, towelling, bed linen, etc.

The majority of Upland cotton imports come from the United States, Greece and the Syrian Arab Republic. Cotton imports from Uzbekistan, Turkmenistan, Azerbaijan, Tajikistan and recently from Brazil, Australia and India are all 'Upland cotton' of similar grades.

Continuing upwards on the quality scale, there also exists a growing demand for high quality Upland cotton, which is used for spinning very good quality combed or carded yarns of fine counts, such as Ne 40s or 50s. 'Acala' is the cotton type imported for this purpose. It is mainly imported from the United States (California) and Israel.

To complete the imported cotton types, one must also mention the long staple (LS) and extra-long staple (ELS) varieties, which are both used for production of very fine count yarns (Ne 60s or higher) up to 140s for carded or combed weaving or knitting applications, including very soft linen, towels, bathrobes, very high quality shirting fabrics and T-shirts. Countries from which this type of cotton is imported are Egypt (Giza) and the United States (Pima).

Turkey's cotton imports according to major exporting countries since 1996 are shown in table 6.11. Analysis of this table reveals that just five countries (United States, Greece, Syrian Arab Republic, Turkmenistan and Uzbekistan) cover almost 90% of imports. Annual imports from West and Central Africa have been around 5,000 tons.

What kind of cotton is exported and to which countries

The majority of exports are short and medium staple cotton from the south-east and Çukurova regions. Many importers prefer Turkish roller-ginned cotton because of its comparatively better staple length and strength, while others choose saw-ginned cotton because of its lower trash content.

Over the last 10 years, annual cotton exports from Turkey have been limited to 40,000-60,000 tons, most of which has been shipped to European countries or to Turkey's free trade zones (FTZs), from where it may be imported back to Turkey.

National production

National cotton production has been fluctuating at around 900,000 tons a year during recent years. There have been considerable production drops in the Çukurova and Antalya regions, and in part of the Aegean region, due to rising production costs and low-priced imports. Raising premium payments has not been very effective in encouraging growers to return to cotton cultivation in those regions.

Cotton production in the South-east Anatolian Project (GAP) area, however, has shown a gradual increase in parallel with the expansion of irrigated areas. This region is considered as the only region where production increases can be envisaged. Production costs in the GAP region are relatively low compared to the other regions, and thus more and more farmers in this region are taking up cotton cultivation.

Specific cotton quality requirements of the domestic textile industry

Domestic spinners' specific quality requirements can best be described as follows: cotton should have consistent quality parameters (colour, micronaire, staple length, strength, uniformity, elongation, etc.) and no contamination.

A regulation to eliminate or minimize the occurrence of contamination made it compulsory to use picking bags manufactured only from cotton. The ASCUs, especially Taris, have been on the forefront in the campaign against contamination, which is also a critical factor for imported cotton.