Textile Business: Supply, Demand, and Price

In order to produce the product consumers want, the owners of their company need to make sure there is a balance in their business. They must be informed of the prices of the raw material needed for production of the good and the price they will sell it, the types of product to produce and also the quantity of each according to the demand. These factors are valuable information for all companies that look for success. They all try to reach the equilibrium point where the demand equals the supply, otherwise the problems would be surplus or shortage. An efficient procedure on working must be done, in order to get owners and customers happy.

According to the Cotton Council of America, China, India, and the United States are the three largest cotton producers. Cotton prices can change based on weather conditions, changes in supply and demand. And if prices changes, they affect farmers, spinners, manufacturers, and retailers. For example Arizona reduced its production of cotton due to freezing weather in late 2012 and this affected people in this business. They had to increase their cotton prices because of the scarcity of supply and the increase of demand. This benefited farmers, but not textile companies. These companies had to look for available supply with the lowest price as possible while they’re in competition.

This also benefited workers in the production of cotton by pushing the labor costs up. Workers started to receive higher wages because of the increase of cotton price and also because workers noticed the industry was improving so they asked for higher salaries. This also happened in Arizona, its labor costs went up from $27.43 in 2009 to $28.01 in 2011. This shows how demand can influence the price.

Because of the high cotton prices, retailers had a complicated decision to make. They had to decide what their selling prices would be. If they increase their price, buyers would not purchase as before as when it was cheap, which will make their production unworthy. But if they decrease their prices, buyers would purchase more than before, since the product is cheaper, which will make the retailers lose money. So the solution for the retailers is purchasing less expensive garments from manufactures and cut down on their choice. After a while, if the cotton prices are still high, then retailers have to raise the prices of their products. That’s what happened in Arizona.