1. Structural Changes and Prospects of Development in the European Cotton Market Andrew S. Hursthouse Vice President International Cotton Association

2. Polite Request…. Please don’t shoot the messenger…

3. Economic History takes no prisoners The Industrial Revolution

4. UK Cotton Consumption 1910 = 5 myn bales approx. 1950 = 5 myn bales 1960 = 3.5 myn bales 1965 = 3 myn bales 1970 = 725k bales 1980 = 220k bales 1990 = 140k bales 2000 = 95k bales 2007 = 20k bales

5. Consider Euro excldg Turkey = Austria, Belgium-Lux, Denmark, Finland, France, Germany, Greece, Ireland, Italy, Netherlands, Portugal, Spain, Sweden, UK Production Consumption compared to : Turkey Major Asia excldg China = China, Hong Kong, Indonesia, Japan, S.Korea, Philippines, Taiwan, Thailand China & South Asia = Bangladesh, India, Pakistan, Sri Lanka Associations & Merchandising

6. Spain & Greece Consistent production under EU subsidy conditions Proximity to demand Strong innovation and quality processes Change to subsidy structure is cause of most recent decline

8. Expectations Challenge to subsidy changes Key is government action but Greece looks like may at least continue at current levels

9. Severe Decline in Consumption

12. Reasons Cost base Labour costs – shift away to service industries and the relatively cheaper costs of competition Energy costs – power, water, land Relative tax incentives Environmental costs – social issues Location vs sources of production

13. Reasons Multi Fibre Agreement (1974-2004 a.k.a A.T.C) – expired 1 January 2005 Shift to Turkey Generation shift and prohibitive buying practices Shift from Ilyichevsk to Southern Route and Far East

18. Summary impact Relative competitiveness of 1kg 30s combed yarn DDU Hamburg Turkey 2.50 EUR/kg India 2.10 EUR/kg China 1.90 EUR/kg Germany 2.90 EUR/kg

19. Reactions Straight selling of spindle capacity Overseas investment – Mauritius, Eastern Europe Investment in viscose, polyester & blended yarns E.g 2/3 yrs ago 70% cotton vs currently 30% Cotton sourced gin direct - Greece Any CIS

20. Expectations “trend” will not reverse remaining players continue to seek niche technical advantage – “de-commoditising” their production source remaining cotton needs from Greece and CIS

21. Associations Majority had domestic focus LCA position and transition to ICA Bremen incorporation of ICA Rules on June 29 th 2006 Further commonality may be achieved in future.

22. Merchandising Important hub for merchant houses Key trading offices of major firms non US operations Expanding operations globally from this base Some closures of niche firms Best of the remaining serve a key function in the supply chain Expect this to continue

23. Conclusion Pain has been largely taken Congratulations to those that remain The wheel of Economic History will keep turning.