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Chinese investing in US cotton sector

The Chinese are investing in the cotton industry in the US. Input costs of cotton production derive mainly from raw materials and energy, both of which are cheaper in the US than in China. China has actively encouraged vertical integration in the food sector as a part of its ‘Go Out’ strategy of overseas capital investment.

Since 2011, China has built up a significant stockpile of cotton as part of its price support operations for its agricultural sector. This has led to higher input costs in China’s cotton processing industry, and with no barriers to the import of yarn (processed cotton) Chinese cotton companies have taken the hint and set up shop where they can access cheaper raw materials, moving plant and machinery out of China.

If China eventually stops price support operations for cotton, then cotton production will inevitably migrate to where it is most efficient and productive. Since 2000, China’s agricultural production – despite solid productivity gains – has not kept pace with domestic demand, meaning that China has gone from a position of approximate net food security to being the largest food importer in the world, with the US becoming the largest single agricultural exporter to China.