February 26, 2024
Cotton

Mexico’s Cotton Consumption Faces Challenges Amidst Global Competition

In the 2023-24 season, Mexico’s cotton consumption is anticipated to hit a low of 1.6 million bales, marking the second-lowest level in nearly three decades. This downward trend is attributed to intense competition from Chinese textile imports, macroeconomic factors and reduced demand for cotton products from both U.S. and domestic consumers.

Over the past five years, Mexico’s cotton consumption has steadily declined due to the competitive wages, lower operating costs and large-scale operations in Asian countries. The appreciation of the Mexican peso and higher manufacturing sector wages has further eroded Mexico’s competitiveness against Asian counterparts such as China, Bangladesh and Vietnam.

The stronger peso, which has appreciated over 15% compared to the U.S. dollar since March 2022, has impacted the competitiveness of Mexico’s cotton textile and product exports. Higher domestic wages are narrowing profit margins in the supply chain and prompting employees to seek higher-paying manufacturing jobs.

Despite the advantages of proximity to the U.S. and regional trade agreements like the USMCA, Mexico’s textile industry faces challenges. The “fibre-forward” rule under the USMCA, requiring products to contain member cotton fibre for duty-free entry, has sustained demand, but most imports are subject to the “yarn-forward” rule.

The weak demand for cotton lint is evident in the lowest U.S. exports and sales to Mexico in over 20 years. China’s higher textile exports to Mexico, particularly cotton yarn and fabric, have surged, while U.S. exports have declined significantly.

Mexican garment manufacturers heavily rely on the U.S. importer demand for cotton products, with recent data indicating a decline in U.S. imports of Mexico’s cotton products. Higher imports of cotton products from China and Bangladesh have also affected the domestic industry, leading to increased displacement of domestically produced goods.

Despite the benefits of the USMCA, Mexico’s cotton consumption is nearing its lowest level in decades. Efforts for “nearshoring” and reported initiatives have not revived demand, while competitive prices and the substitution of Chinese synthetic textiles continue to exert pressure on consumption.

Related Posts

Leave a Reply

Your email address will not be published. Required fields are marked *