The competitiveness of Australian cotton in Japan

The Australian cotton industry is one of the fastest growing and the most profitable agricultural sectors in Australia. Internationally, Australia produces one of the highest quality cotton in the world and is the world's third largest exporter. However, despite the increasingly strong role of cotton in the Australian economy, and Australia's high ranking among exporting countries, Australia is not a major player in the market. Australia is currently facing a number of serious problems, most of which result from heavy government assistance to cotton producers and the application of trade barriers on textiles and clothing imports in other major producing and consuming countries. The effects of these policies may have an enormous impact on world trade balance through price variation and hence, place huge pressures on non-subsidising countries, like Australia. Therefore, until trade barriers are reformed, Australia must focus on solutions that lead to an increase in its competitiveness. As such, the most important strategy for Australia is to successfully compete with the US and other major cotton suppliers in Australia's traditional cotton markets, such as Japan. The aim of this study is to analyse the competitiveness of Australian cotton in the Japanese market. The techniques needed to undertake this task include the Structural Vector of Auto Regression (SVAR) model, the Weak Separability test, the Structural Almost Ideal Demand System (SAIDS) model. The results reveal that Australia's market share increases when the Japanese textile market develops, rather than when it is in decline. However, when comparing Australia's competitiveness with the US (its largest competitor), it is shown that during a down-turn of the Japanese market, Australia would be more competitive if its prices are kept lower than that of the US. It was also found that Australian cotton is a strong substitute of US cotton. While this obviously is an advantage of Australian cotton, it stresses the importance of the need for Australia to keep a price competitive position to that o f t he U S, if these advantages are to be exploited. It was concluded t hat higher production efficiency and proper marketing strategy are the main elements the Australian cotton industry needs to maintain and expand its market share in the Japanese cotton market.