Economic returns from quality improvement: A structural investigation of cotton prices

In the face of increasing international and man-made fiber competition, the production of quality cotton for global markets has become a major issue for the U.S. cotton industry. This study provides a quantitative assessment of the quality variations in the U.S. cotton across four production regions over a ten-year period. There are six major quality characteristics under investigation: trash content, color, staple length, low and high micronaires, and fiber strength. A structural model is developed to evaluate cotton price impacts and the resulting economic gains generated from fiber quality improvement.; The structural quality/quantity choice model contains seventy-seven non-linear simultaneous equations for the U.S. cotton economy. The model consists of two sub-models, a quality choice model and a quantity choice model. The quality choice model follows Rosen's two stage procedure: in the first stage, the implicit price is estimated by hedonic equations; in the second stage, a simultaneous equation system is constructed to determine characteristic demand, supply, and price determination. The quantity choice model is also a simultaneous system of quantity supply, demand, and price determination equations. The quality and quantity choice models are integrated for simulation analysis of cotton prices and returns under two alternative biotechnology scenarios: a trend biotechnology (trend scenario) and a rapid biotechnological advancement (biotech scenario).; Results of interregional fiber quality comparisons indicate the U.S. cotton quality characteristics are significantly different across regions. The analysis of quality changes shows that the U.S. cotton quality has improved across regions and over the past decade. Continuation of fiber quality improvement is needed to maintain the U.S. cotton sector's competitive position with foreign and man-made fibers.; Results from the simulation analysis indicate that fiber quality plays an important role in determining cotton prices. Impacts of fiber quality improvement from biotechnological advances on cotton prices and quantity demand expansion are large. Sizable economic gains from quality improvement have been realized over the past decade and substantially large returns are projected for the next ten years. Potential annual increases in market values are greater for the biotech than the trend scenario. For the 1995/99 period, the greatest gains are expected in the Southwest and Delta regions, followed by the West and Southeast regions.