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The end of cheap clothes is near

Consumer Economics
Food prices have shot up in response to a surge in crop prices. Now consumers should get ready for clothes prices to follow suit. Garment makers are seeing demand shrink as consumers in the US and Europe are cutting back on spending. US cotton consumption is set to fall 6.5% from last year whilst EU consumption is expected to fall 11%. At the same time, factories are hit by more expensive raw materials and by soaring oil prices, which make their factories more expensive to operate and which pushes up the cost of shipping to foreign markets. In India, the weaving industry is in crisis. In China, the textile sector is squeezed. And, yet again, the root cause of their problems can be found in America. In the US, ever more cotton farmers are switching to more lucrative crops - soybeans, corn, and wheat - whose market prices are rising even faster. As a result of the shift by farmers, "the cotton harvested area in the USA is projected to decline by a further 15%" in the year ahead. This year, global cotton prices are set to rise more than 8%, ICAC predicts. Financial market professionals think the rise could be even steeper. "I don't think we've had markets this wild since 1995, and we're in an environment where it could be with us for several years." Costly cotton is only one factor hitting clothing manufacturers. "It all comes down to energy. We are basically short of power in the world right now." Hence, it is not only a question of whether land should be used to grow crops for food or cotton. It is also a question of how much energy should be used to produce clothes in factories. Fertiliser costs are also soaring, adding to raw material costs, and the credit crunch is adding to the squeeze as low-margin clothes manufacturers are finding it harder to raise finance. In the end, they will either have to raise prices for the clothes they make, or go under - which in turn will reduce supply. For consumers in Europe and the US the outcome is certain: prepare to pay more for clothes in the years to come.

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