Declining Cotton Acreage Impacts on U.S. Cotton Ginning Industry Structure and Costs

With cotton output declining by 46% from 2005-2008 (from 23.89 M bales in 2005/6 to 12.8 M bales in 2008/9) following the passage of the Energy Policy Act in 2005, cotton gins are downsizing, if not, exiting.  This paper examines how declining cotton acreage has impacted the costs of ginning and subsequently, the output size distribution of cotton gins in the U.S.  Data on output size distribution reveal that relative to the pre-2005 period, gins had a greater propensity to become smaller post-2005. Subsequently, factors that influence these patterns are analyzed arguing that in declining industries, bigger firms exit first, and that smaller firms whose operations are closer to the minimum efficient scale tend to remain.