Pass-Through Analysis Of Cotton Prices

A common question when analyzing supply chains is how much a change in input costs at one stage in the supply chain affect prices downstream. To address this question, research has been conducted that examines the extent that changes in prices are “passed-through.” Much of the pass-through research that has been conducted has been focused on changes in prices at the beginning of supply chains - at the commodity-level. To date, however, there is no known research analyzing the effect of changes of cotton fiber prices on cotton textile goods, neither at different stages in the cotton supply chain, nor at the retail level. While pass-through analysis of the cotton supply chain presents certain challenges in terms of data collection, it also presents great opportunity in terms of understanding the many relationships involved in the manufacture of cotton apparel. The purpose of this paper is to develop a greater understanding of price relationships throughout the cotton supply chain and to inform interested parties about the extent that changes in cotton prices influence changes in yarn, fabric, and apparel prices. Findings suggest that the sharp increases in cotton fiber prices in the 2010/11 have resulted in increases in yarn and fabric prices, but have yet to influence prices for assembled garments or retail prices for cotton apparel.