The Impact of Global Financial Crisis On Chinese Cotton Production

The recent global financial crisis of had a negative impact on the demand for consumer goods and the inputs to produce them world wide.  The demand for cotton in China was not excluded from these impacts. In response to declining demand cotton prices in China declined by more than twenty five percent in 2008.  The decline in prices was reported to result in a corresponding reduction in cotton planting by farmers on the order of twenty percent in 2009.  In this paper the authors utilize panel data from the seven largest cotton producing regions in China in a fixed effects econometric model to estimate cotton production. Six scenarios are analyzed representing different states for variables that account for prices, labor market variations, machinery costs, and pest control program options. The results indicate cotton area planted declined by only ten percent with an expected decline in cotton production on the order of five percent.  The results suggest that expected increases in domestic cotton prices in China and subsequent increases in cotton plantings maybe over estimated.  Such overestimation may lead to faulty estimates of Chinese demand for cotton imports and the overall impact cotton trade.