long run promises a great reduction in the most costly part of the Government's program for cotton.

There can no longer be any doubt-absolutely no doubt about what must be done if we are to have a sound, healthy cotton industry. Those who have said that price is virtually the same basis for meeting modern fiber competition have been proved wrong.

Without question, price is, and certainly will remain, of crucial importance, especitlly in competing against rayon and foreign-grown

cotton.

But the price of American cotton has dropped sharply in recent years. Under the acts of 1964 and 1965, the Government has demonstrated its willingness to give great help in making out fiber competitive in price. Our losses have been slowed by this action, but they continue. Our surplus mounts.

The reason for this is abundantly clear. We are losing out to the noncellulosic fibers-fibers such as nylon and polyester-all much higher in price than cotton.

And why are we losing to these expensive fibers? Certainly not because of price. We are losing to them because of their massive outlays of money, effectively spent, for quality improvement, for development of new and different products, and for sales promotion at all levels from the textile mills to the ultimate consumers.

Ever since the mid-1950's, it has been evident that the great new thrust in textiles was coming from these expensive fibers. It has been evident that cotton, to survive, would have to raise some really big money to fight back-especially in the areas of product development and promotion.

The National Cotton Council, which is supported by all branches of the industry, recognized the new dimension in fiber competition in 1956; the council doubled its finance plan and its income. The council has produced excellent results in terms of the money it has spent. But even with a doubling of its income, the council's resources were hopelessly inadequate. It was obvious that the council had reached a practical limit on how far it could go in raising dues for all interests. It was apparent that cotton producers themselves were the only members of the industry who were in a position to put up the big money that was needed.

Accordingly, in 1960, producer leaders took steps which led to the formation of the Cotton Producers Institute, whose whole purpose was to supplement the work of the council and other groups in research and promotion, and move us to the point where we could compete.

The institute, financed by voluntary contributions of a dollar a bale from producers, quickly achieved an income of $3 million a year. Then its income leveled off and threatened to drop-for a reason which led us to the proposal now before this committee. I will discuss this reason a little later. But at this point, I would like to get before you some basic economic facts about our present market situation, and the critical role that research and promotion will play in making cotton's outlook take a great new turn for the better- or for the worse. I want to call on Dr. M. K. Horne, the council's chief economist, to review these facts with you.

STATEMENT OF M. K. HORNE, JR., CHIEF ECONOMIST, NATIONAL COTTON COUNCIL OF AMERICA, MEMPHIS, TENN.

Mr. HORNE. Mr. Chairman and members of the committee, for the record I am M. K. Horne, chief economist of the National Cotton Council. I live at Memphis, Tenn., and with your permission, sir, I would like to make use of some charts in order to present my statement. I believe I can make it more clear by doing it this way.

This first chart presents the record of fiber consumption in the United States, across the period of years from 1952 to 1965. These numbers are all expressed in equivalent bales of cotton, in millions of cotton bales. What you will notice immediately is that in recent years there has been a very strong and great increase in total fiber consumption in this country. It has gone up from 14 million bales equivalent, in 1958, to well above 21 million bales equivalent in 1965.

The cotton portion of this market is shown by the blue section at the bottom of the chart. You see that in 1964, and again in 1965 the consumption of cotton increased in this country, but it did not increase appreciably through all of these recent years. During these recent years, cotton has failed to share in this total market expansion sufficiently so that we could get the market growth that was needed so much. It is very interesting to note the fibers which have achieved this market gain. It was not wool, as you can see. Wool is represented by this narrow band here. The green portion of this chart reflects the rayon consumption. And you see here that through the years, from 1960 to 1963, cotton consumption—the blue-was declining a little. Rayon consumption-this green part-increased about 1 million bales equivalent.

Now, in 1964, rayon's rate of increase diminished sharply, and in 1965 it virtually disappeared, while cotton did get some increase for a change. But, obviously, the great expansion in this domestic market has been primarily in these noncellulosic fibers. They include nylon and the whole range of synthetic fibers that go by such names as Dacron, Fortrel, Orlon, and so on. They now have a market expressed in cotton bales equivalent which is the equal of about 7 million bales, and over 2 million bales of that increase has come in the last 2 years.

These fibers are going into the manufacture of shirts, trousers, dresses, bedsheets the whole range of the markets that is covered by cotton, and these increases consist mainly of competitive losses by

cotton.

If the cotton program which has received so much of your attention is to work successfully, obviously cotton has to meet its competition so that the domestic market can get a good strong rate of growth in the future.

This first chart gives the big picture by full calendar years. There is not enough room on this chart to show precisely some things that should be observed in recent years, so I will move to my second chart, giving some figures on the consumption of cotton on cotton spindles.

This gives some figures on the consumption of fiber in cotton mills or on cotton spindles. Virtually all of the cotton that is consumed is on cotton spindles, and a great deal of the rayon and the noncellulosic fibers is spun right into yarn in these cotton spinning mills. I show here that the percentage of this market, which was cotton, rayon, or noncellulosic fiber, and in every case the three figures add up to 100 percent.

I give here certain calendar quarters which would be most interesting and significant.

The middle one is the first quarter of 1964, which was just before the Agricultural Act of 1964 was adopted. And then I give you for com

parison the same quarter 4 years earlier, the first quarter of 1960. And then the bottom one is the very latest quarter, the fourth quarter of 1965.

Look at rayon. You see back in that earlier period rayon was gaining upon us very rapidly. It was a most alarming thing. But after the price of cotton for domestic consumption was lowered under the act of 1964, rayon was turned back, and everyone must certainly recognize that the action of this Congress in lowering the price of cotton for domestic consumption was the essential thing in checking these serious inroads against our markets. But then we have to look at these noncellulosic fibers which I described to you before. They were gaining upon us back in this earlier period, and they have kept on gaining in this later period very seriously. In fact, these gains by the noncellulosic fibers have been so great, in spite of our success against rayon, that cotton's share of this market has still continued to decline. The key to an understanding of this matter is that rayon competes without us mainly by means of price, whereas these noncellulosic fibers compete with us mainly by means of something other than price. They are exploiting these great programs of promotion, and the like.

The price of rayon delivered to a consuming plant today is about 27 cents a pound. The price of cotton, back in this period of 1964, for domestic consumption, expressed in terms of the 15 official spot market average was about 33 cents a pound, but today it is below 24 cents a pound. And this is, essentially, why we are meeting this competition. But the prices of the noncellulosic staple fibers are three and four times as much as that. Orlon is 80 cents a pound; Dacron is 84 cents a pound; and nylon is 88 cents a pound, and they are the ones that are gaining on us today.

Here is the record of estimates of the investment in research and development on the manmade fibers by the small group of companies that manufacture these fibers in this country. The

MILLIONS OF DOLLARS 150

EXHIBIT 3

MAN-MADE FIBER RESEARCH
& DEVELOPMENT in the U.S.

great bulk of this money was spent upon the noncellulosic fibers. I have the figures here for certain years, 1940, 1948, 1953, 1963, and 1965. The solid red bars are estimates that were published by the Chemstrand Corp. Chemstrand Corp. is one of the big manufactuers of synthetic fibers, doing a great deal of this research. It is in a position to make a good sensible estimate of what the whole industry is doing. This figure is also based on a projection that was published by Chemstrand Corp. We have other sources of information that indicates that this is a conservative estimate for 1965.

Look at that. It goes from $6 million back to 1940, to about $135 million in 1965.

Now a comparison of what is going on in cotton research. The figures that we have compiled represent what is done by all agencies, public and private, for cotton in the field of research. We find that it comes to about $26,500,000 about one-fifth of this figure; $26 million is a big sum of money but not enough to keep us in the running with this kind of competition.

Here

And now let me turn to the subject of "Promotion." I have some figures that I also obtained from the Chemstrand Corp. These figures are more recent. The first figure that they put out was for 1959. The scale is different from the other charts, but again you see the dramatic picture of this great increase. This is money spent for advertising the promotion of these synthetic fibers. We have to put those two things together. Keep in mind the chart that I just showed you on research. This one is on promotion. It is the way that they work together that really explains how our markets are being taken away from us.

Most of the research on synthetics that I showed to you is in the field of what is called product development, turning up something new to promote-a new yarn, a new fabric, a new finish, and so on.