Do not remove. This document
should be retained in the EPA
Region 5 Library Collection.
ed States
ronmental Protection
icy
Office of
Water Programs
Washington, DC 20460
EPA-440/2-79-020
October 1979 £• I
economic Impact Analysis of
Proposed Effluent Limitations
Guidelines, New Source
Performance Standards and
Pretreatment Standards for the
Textile Mills
Point Source Category
QUANTITY
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This document is available through the U.S. Environ-
mental Protection Agency, Economic Analysis Staff
WH-586, 401 M Street, S.W., Washington, D.C.
20460, 202-755-2484
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Development Planning and Research Associates, Inc.
P. 0. Box 727, Manhattan, Kansas 66502
ECONOMIC IMPACT ANALYSIS OF PROPOSED EFFLUENT
LIMITATIONS GUIDELINES, NEW SOURCE
PERFORMANCE STANDARDS AND PRETREATMENT
STANDARDS FOR THE TEXTILE MILLS
POINT SOURCE CATEGORY
By
Richard E. Seltzer
Arthur C. Barker
Linda D. Chapman
Prepared for
U. S. Environmental Protection Agency
Office of Water Planning and Standards
Washington, D. C. 20460
Contract Number
68-01-4632
October 1979
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The report has been reviewed by the Office of Water Planning and Standards,
EPA, and approved for publication. Approval does not signify that the
contents necessarily reflect the views and policies of the Environmental
Protection Agency, nor does mention of trade names or commercial products
constitute endorsement or recommendation for use.
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PREFACE
This document is a contractor's study prepared for the Office of Water
Planning and Standards of the Environmental Protection Agency (EPA).
The purpose of the study is to analyze the economic impact which could
result from the application of effluent standards and limitations issued
under Sections 301, 304, 306 and 307 of the Clean Water Act to the textile
industry.
The study supplements the technical study (EPA Development Document)
supporting the issuance of these regulations. The Development Document
surveys existing and potential waste treatment control methods and tech-
nology within particular industrial source categories and supports certain
standards and limitations based upon an analysis of the feasibility of
these standards in accordance with the requirements of the Clean Water
Act. Presented in the Development Document are the investment and
operating costs associated with various control and treatment technol-
ogies. The attached document supplements this analysis by estimating the
broader economic effects which might result from the application of
various control methods and technologies. This study investigates the
effect in terms of product price increases, effects upon employment and
the continued viability of affected plants, effects upon foreign trade
and other competitive effects.
The study has been prepared with the supervision and review of the Office
of Water Planning and Standards of EPA. This report was submitted in
fulfillment of Contract No. 68-01-4632 by Development, Planning and
Research Associates, Inc. and completed in October 1979.
This report is being released and circulated at approximately the same
time as publication in the Federal Register of a notice of proposed rule
making. The study is not an official EPA publication. It will be con-
sidered along with the information contained in the Development Document
and any comments received by EPA on either document before or during final
rule making proceedings necessary to establish final regulations. Prior
to final promulgation of regulations, the accompanying study shall have
standing in any EPA proceeding or court proceeding only to the extent
that it represents the views of the contractor who studied the subject
industry. It cannot be cited, referenced, or represented in any respect
in any such proceeding as a statement of EPA's views regarding the textile
industry.
11
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ACKNOWLEDGEMENTS
This study was conducted by a team of Development Planning and Research
Associates, Inc. (DPRA) staff members with Mr. Donald J. Wissman serving
as the DPRA principal responsible for the project. DPRA staff members
making major contributions to this project included Mr. Arthur C. Barker,
Ms. Linda Drumhiller Chapman, and Mr. Michael S. Hanrahan.
DPRA especially acknowledges Ms. L. Jean Noroian and Mr. Anthony M.
Montrone, U. S. Environmental Protection Agency, Office of Analysis and
Evaluation, who served as the Project Officers for this study and who
provided the necessary guidance in carrying out all aspects of the pro-
ject. Also valuable contributions to this study were made by Mr. James
R. Berlow and Dr. James Gallup, U. S. Environmental Protection Agency,
Effluent Guidelines Division and Dr. James Buzzell, Sverdrup and Parcel
and Associates, Inc., who provided information pertaining to the waste-
water treatment technologies and associated costs utilized in this study.
The cooperation and assistance of the industry trade associations are
acknowledged for their assistance in supplying industry information.
In particular, the following individuals and associations have been
helpful: Mr. George Wino and Mr. O'Jay Miles of the American Textile
Manufacturers Institute; Mr. Karl Spilhaus of the Northern Textile
Association; Mr. Barry Torrence of the Carpet and Rug Institute; and Ms.
Mary Jimmink and Dr. Peter Britton of INDA, the Association of the
Nonwoven Fabrics Industry.
Finally, the numerous textile mill owners and managements who submitted
information and cooperated during staff interviews are acknowledged
and thanked.
Richard E. Seltzer
Project Director
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CONTENTS
Page
PREFACE ii
ACKNOWLEDGEMENTS jjj
EXECUTIVE SUMMARY V111
I. INTRODUCTION 1-1
A. Scope of This Report 1-1
B. Organization of This Report 1-2
C. Data Sources 1-2
1. Primary Data Sources 1-2
2. Secondary Data Sources 1-3
II. METHODOLOGY II-1
A. Industry Structure and Subcategorization II-2
B. Financial Profile of the Industry II-2
C. Model Plants II-4
D. Pricing Patterns II-5
E. Waste Treatment Technological Options and Costs II-5
F. Other Regulatory Costs I1-6
G. Analysis of Economic Impacts II-6
1. Fundamental Core Methodology II-6
2. Price, Supply and Demand Impact Analyses 11-13
3. Financial Impact Analysis 11-14
4. Plant Closures and Production Effects 11-14
5. Employment Impact Analysis 11-16
6. Community Impact Analysis 11-16
7. Dislocation Analysis 11-16
8. Balance of Trade Impact Analysis 11-17
9. Other Impact Analysis 11-17
III. THE STRUCTURE OF THE INDUSTRY III-l
A. Subcategorization of the Industry III-l
1. Conventional Industry Subcategories III-2
2. Subcategorization of Mills by Type of
Process III-7
B. Plant Characteristics 111-12
1. Ownership Characteristics 111-14
2. Single vs. Multiplant Operations 111-16
3. Number of Plants and Firms 111-24
4. Size of Plants and Firms 111-29
5. Location of Plants (Mills) 111-33
6. Level of Technology 111-39
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CONTENTS (Continued)
Page
C. Employment Characteristics 111-50
1. Industry Employment 111-50
2. Industry Wage Levels 111-55
IV. INDUSTRY PROFILE IV-1
A. Production Profile IV-1
1. Production IV-1
2. Capacity and Utilization IV-8
3. Importance of Integrated Facilities IV-10
4. Level of Diversification IV-16
B. Market Profile IV-17
1. Domestic Market Description IV-17
2. International Trade IV-21
C. Financial Profile IV-32
1. General Trends in the Industry IV-33
2. Sales IV-33
3. Operating Costs IV-35
4. Interest Expenses IV-40
5. Profitability IV-40
6. Financial Structure IV-44
7. Cost of Capital - After Tax IV-47
8. Assessment of Ability to Finance New
Investment IV-47
V. PRICES AND PRICE DETERMINATION V-l
A. Supply and Demand Relationships V-l
1. Supply V-2
2. Demand V-20
B. Price Determination V-41
1. The Price Determination Process and
Influencing Factors V-41
2. Prices and Marketing Patterns V-44
3. Raw Material Prices V-48
4. Price Indexes V-58
VI. REPRESENTATIVE MODEL PLANTS VI-1
A. Model Plant Development VI-1
B. Model Plant Characteristics VI-6
C. Operational Characteristics VI-10
D. Investment Characteristics VI-15
1. Fixed Assets VI-15
2. Net Working Capital VI-15
3. Total Investment VI-20
4. Salvage Value VI-20
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CONTENTS (Continued)
E. Sales and Cost Characteristics VI-21
1. Annual Sales VI-21
2. Textile and Fiber Materials Costs VI-21
3. Labor Costs VI-21
4. Other Costs VI-22
5. Depreciation and Interest Costs VI-22
F. Model Plant Income and Annual Cash Flow
Characteristics VI-26
1. Existing Direct Discharging Models VI-26
2. Existing Indirect Discharging Models VI-26
3. New Source Models VI-31
VII. WASTEWATER CONTROL COSTS VII-f
A. Discharge and Wastewater Treatment Status VII-1
1. Current Levels of Wastewater Treatment VII-1
2. Plants Requiring Expenditures VII-3
B. Alternative Treatment Technologies VII-5
C. Wastewater Treatment Costs VII-11
1. Investment Costs VII-11
2. Total Yearly Costs VII-11
D. Proposed Treatment Options VI1-18
VIII. PROJECTED ECONOMIC IMPACTS VIII-1
A. Price Effects VIII-1
1. Required Price Increases VIII-1
2. Expected Price Increases VIII-4
B. Financial Effects VIII-6
1. Return on Sales VII1-7
2. Return on Total Assets VIII-11
3. Annual Cash Flows VIII-18
4. New Present Values VIII-21
C. Production Effects VIII-25
1. Base Case Plant Closures (without
control expenditures) VIII-27
2. Impacted Plant Closures (with control
expenditures) VIII-28
3. Production Loss VIII-34
D. Employment Effects VIII-37
E. Community Effects VII1-40
F. Dislocational Effects VIII-41
G. Balance of Trade Impacts VI11-42
H. Summary of Recommended Treatment Options Impacts VII1-42
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CONTENTS (Continued)
IX. LIMITS OF THE ANALYSIS
A. General Accuracy
B. Range of Error
C. Critical Assumptions
APPENDIX A - SELECTED REFERENCES
APPENDIX B - MODEL PLANT FINANCIAL PROFILES
APPENDIX C - DATA COLLECTION PORTFOLIO
APPENDIX D - EFFECTS OF SENSITIVITY ON MODEL PLANT IMPACTS
IX-1
IX-1
IX-2
IX-2
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EXECUTIVE SUMMARY
I. Introduction
This report analyzes the economic impacts of the imposition of water
pollution controls on the Textile Mills Point Source Category (textile
industry). Prepared under the supervision and review of the Office of
Analysis and Evaluation, U.S. Environmental Protection Agency, the study,
as required under the Clean Water Act, considers the economic effects of
the controls imposed by that law over the industry's discharge of its
effluents.
The specific economic impacts analyzed in this study include those
affecting industry:
1. prices, profitability, and growth,
2. extent and determinants of capitalization,
3. number, type, and size of plants,
4. production and employment, and
5. community and balance-of-trade effects.
To determine the industry's water pollution control cost impacts, the
study describes the industry's structural, financial, and pricing
characteristics, develops representative model plants reflective of
these, and by imposing controls costs supplied by EPA on the models,
determines the economic impacts of those costs.
The data employed in the study were derived from reports issued by federal
agencies, survey information required from industry firms, industry trade
associations, and interviews conducted among industry personnel during the
Contractor's plant visits. Common published sources included EPA's
Development Document, Robert Morris1 Statement Studies, Troy's Almanac of
Financial Ratios, and the Bureau of the Census' Census of Manufactures.
Data from these and other sources were used to develop the macro-
economic profile of the industry as well as the representative finan-
cial models.
II. Methodology
In this study, several interrelated analyses were used to evaluate likely
economic impacts resulting from effluent control requirements on the
textile industry. These in-depth analyses included: (1) a characterization
and subcategorization of the technical and economic structure of the indus-
try, (2) a description of the financial profile of the industry, (3) the
construction of representative model plants, (4) an evaluation of pricing
viii
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patterns within the industry, (5) a description of the technological
options and their costs for meeting designated levels of pollution
control, and (6) the analysis of the economic impacts. The exhibit
on the following page illustrates the schematic organization of this
study's analyses.
In the case of Best Available Technology Economically Achievable (BATEA)
and Pretreatment Standards for Existing Sources (PSES), the analyses
focused on price increases, plant closings, curtailments of production,
dislocations of production, unemployment, community impacts, and balance
of trade effects. For New Source Performance Standards (NSPS) and Pre-
treatment Standards for New Sources (PSNS), the impacts were assessed in
terms of the effects on industry growth, prices, plant locations (i.e.,
domestic or foreign production), and balance of trade.
The fundamental methodology used in the impact analysis is the same as
that generally employed in capital budgeting studies of new investments.
The budgets of the representative model plants, derived from various
data sources concerning existing industry plants, provided the baseline
case upon which the costs of pollution controls were imposed to determine
the impacts of those controls' costs.
The model plants, though not precisely representative of any single existing
plant operation, reflect the financial and physical characteristics of the
industry in 1977. Adjustments to model plant budgets reflecting pollution
control investment and annual operating costs permitted pre- and post-
pollution control economic analyses for impacts on prices, profitability,
and production.
Price increases required to return the model plants to pre-pollution con-
trol levels of profitabilities were calculated to estimate the expected
price effects. The abilities of the impacted plants to pass on such in-
creases were then determined. Based on these price analyses, the abili-
ties of plants to remain in operation after control expenditures were
assessed.
Probable plant closures, a key part of the analysis, were determined through
a net present-value analysis, by which expected future cash proceeds were
discounted at a firm's estimated cost of capital. A net present-value of
less than zero implies that it would be more practical for the owner to
liquidate the plant and reinvest the salvage proceeds at the cost of capital.
The projected model plant closures were then extrapolated to the existing
mills associated with the respective model plants. These closures were
projected for the base case (without control expenditures) and the impacted
case (with control expenditures). For new source mills (those yet to
be constructed), projections for the base case and the impacted case were
also determined utilizing the same methodology.
Finally, a qualitative analysis of economic determinants indicated the
broad macroeconomic effects on industry production and employment, on
its communities, location, and on balance of payments.
A detailed description of the study's methodology comprises Chapter II.
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Industry
Industry
Structure
Industry
Financial
Data
EPA Pollution
Control Costs
Base
Closures
Subcate-
gorization
Plant Closures
Due to Control
Employment
Effects
Community
Effects
Model Plant
Parameters
Budget Data
Development
Model
Financial
Analyses
Price
Increases
Shutdown
Analysis
Production-
Expected
Effects
Foreign
Trade
Effects
Industry
Pricing
Financial
Profiles
Schematic of economic impact analysis of effluent control guidelines
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III. The Structure of the Industry
According to the Department of Commerce, the United States textile and
apparel industry is characterized as being comprised of two distinct
industry groups: the Textile Mill Products Group—SIC 22 (the textile
industry) and the Apparel and Other Textile Products Group--SIC 23 (the
apparel industry). The processes associated with the apparel industry
are generally considered dry and do not result in the generation of
wastewater. Consequently, the facilities in the apparel industry do
not require wastewater discharge regulations and are excluded from an
economic impact evaluation in this report.
The textile industry is comprised of a diverse group of establishments
which typically create and/or process textile related materials for
further processing into apparel, home furnishings, or industrial goods.
Under the Standard Industrial Classification (SIC) system, the industry
includes 30 separate SIC industries which manufacture approximately 90
classes of products. These establishments are principally engaged in
receiving and preparing fibers; transforming these materials into yarn,
thread, or webbing; converting the yarn into fabric or related products;
and dyeing and finishing these materials at various stages of production.
Many of these establishments produce final consumer products such as
thread, yarn, bolt fabric, hosiery, towels, sheets, carpets, etc., while
the rest produce transitional products for use by other establishments
in the textile industry and by establishments in the apparel industry
as well as others. The SIC system groups establishments according to
similar end products produced and is useful in that much of the pub-
lished data of the industry are presented according to SIC groupings.
However the SIC groupings are often relatively large and thus represent
a variety of types of establishments.
Another approach to structural characterization of the industry is to
categorize establishments according to the manufacturing functions per-
formed at the facility. This functional approach is considerably more
applicable to this study since it enables the industry establishments
to be grouped into "subcategories" of wet processors with similar waste-
water characteristics. The limiting factor of this approach is that there
are very limited published data corresponding to the specific functional
categories or as subcategories. Accordingly, both categorization approaches
are utilized in this report to describe the industry structure. The SIC
system is used primarily to provide a framework in which the economic
characteristics of the industry are analyzed from available published
data. The functional categorization is used in the development of model
plants and the subsequent detailed economic impact analysis of the sub-
categories (wet processors).
Census data for the period 1963-1977 reveal that the total number of estab-
lishments in the textile industry has remained fairly stable, fluctuating
between 7,100 and 7,200. While the total number of mills has remained
stable, the numbers within the various SIC industry groups have been more
volatile. To a great extent, this volatility reflects reclassifications
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under the SIC system based on changes in the product mixes (a trend towards
greater use of man-made fibers). In the functional categorization of the
industry, a master list was developed by the Technical Contractor of 1,777
wet production facilities. Of this number, 1,165 were identified as wet
processors which would be principally affected by effluent limitations.
The remaining 612 mills were classified as low water use processing
operations.
Census data indicative of plant size by number of employees are considered
reflective of general industry characteristics. From the data, it can be
determined that the majority of the mills are relatively small with 70
percent of the mills employing less than 100 employees (in 1972). In
the aggregated industry, 37 percent of the mills were classified as small
(less than 20 employees), 32 percent were defined as medium (20 to 99
employees), 29 percent fit into the large category (100 to 999 employees)
with the remainder (2 percent) employing greater than 1,000 workers.
Textile mills were among the first type of industrial plants established
in this country. As a result, the early centers of the industry were in
the New England and Southern states. The heaviest concentrations remain
in the Northeast and South with five states, New York., New Jersey,
Pennsylvania, North Carolina, and Georgia, comprising 62 percent of the
total mills operating in the United States. The Northeast has the
greatest number of mills with 47 percent while the South has the next
greatest with 43 percent. Although the Northeast has the greatest number
of mills, the South has the largest size mills. Regarding plants with
20 or more employees, the South accounts for 51 percent of the total and
the Northeast 42 percent.
During the past twenty years, significant changes in technology have
affected the textile industry primarily as a result of the introduction
and use of man-made fibers. Increased operating efficiencies have occurred
in weaving mills with the adoption of shuttle!ess looms. The major advancements
in knitting technology have been associated with women's hosiery and double
knit fabrics made possible by developments in the use of man-made fibers.
In yarn milling, increased efficiencies have been brought about by the
development of texturized yarns and open-end spinning systems. The major
advances in carpet milling have involved tufting which produces carpets
at a speed of about six times faster than weaving.
The employment level in the industry has remained fairly stable over the
past ten years ranging between 900,000 and 1,000,000. Employment peaked
in 1973 at a level of 1,026,000; the low occurred in 1975 when it declined
to 897,000. In 1977, the level was slightly over 900,000. The largest
number of workers are employed in the weaving mills with over 300,000
workers or a third of the industry employment. The knitting mills account
for 28 percent of the industry work force. Less than 10 percent are
employed in the textile finishing plants.
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IV. Industry Profile
Production, capacity, and utilization within the textile industry closely
parallel the general economy. Total U.S. mill fiber consumption has
increased at a rate of about 3.5 percent during the last 15 years. In
recent years the increase has slowed down to under two percent annually.
While total production has been fairly stable, as reflected in the rate
of consumption of fiber, consumption by types of fiber has changed dramati-
cally. Cotton consumption has declined from over 4 billion pounds in 1965
to 3 billion in 1978; consumption of wool is less than a third of its level
in the early 1960's. While the consumption of natural fibers has declined,
the consumption of man-made fiber has nearly tripled during the period.
During the past ten years, the average rate of capacity utilization for
the textile industry was 87 percent which is slightly less than the average
rate for the total nondurable manufacturing sector. The highest utiliza-
tion (93 percent) occurred in 1973 during the industry's peak production
year. A rate of 74 percent, the lowest during the period, occurred during
the 1975 recession.
The major markets for the textile industry include apparel, home furnish-
ings, industrial fabrics and exports. The largest is apparel fabrics with
42 percent of the fibers consumed entering this market. Home furnishings
account for 32 percent of all fiber processed. The industrial market ranks
third accounting for 23 percent of the total fiber processed. The inter-
national market receives 4 percent of the textile products produced in the
industry as measured by fiber consumption.
International trade has had a significant influence on the U.S. textile
markets with the increases in the import levels overshadowing moderate
increases in export. The value of textile 'imports ($6 billion) was over
4 percent of all merchandise imported to the U.S. in 1977. As measured by
the raw fiber equivalent of semi-manufactured and manufactured textiles,
imports have doubled during the last 10 years with total pounds climbing
from under 800 million in 1968 to approximately 1,600 million in 1978. In
1978,semi-manufactured products (yarn and fabric) comprised approximately
one-third of the textile imports. This represents a significant decrease
from the composition ten years ago when these products amounted to about
50 percent of the trade.
While imports in dollar volume have doubled during the early 1970's, tex-
tile exports have tripled reaching a level close to $2.5 billion in 1976.
However, since exports have been expanding from a much smaller base, a
continuing deficit in the textile trade exists reaching $2.8 billion in
1976. This deficit represented 30 percent of the nation's $9.2 billion
merchandise trade deficit. For the past several years, textile exports have
remained at about 7 percent of domestic production. While apparel products
account for the greatest portion of imports, piece goods account for the
largest share of exports.
xiii
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Textile imports are regulated by a series of international trade agreements.
One of the major regulations involves the Tokyo Round Trade Agreement which
was signed into law in July 1977 by President Carter after almost six years
of strenuous negotiations. It is intended to harmonize existing U.S. laws
with new international codes primarily dealing with tariff levels and cer-
tain non-tariff barriers to trade. One of the most controversial issues
of the Tokyo Round involved the reduction of tariffs by an average of 21
percent on textile imports. While the agreements will promote trade by
reducing tariff levels, it could also have an adverse impact on the U.S.
textile industry. The U.S. plans to reduce the impacts on the industry by
strengthening existing legislation principally by changes to the Multi-
fiber Arrangement (MFA). Under the MFA, imports are held at an average
annual growth rate of 6 percent. There is a wide spread view within the
industry that the 6 percent rate is too liberal since it is significantly
greater than the increase in the domestic markets and that the gap between
the two should be narrowed. The industry is pressing for more restrictive
regulations which would include a reduction of the six percent quota growth
factor to come in line with the growth in the domestic market which has been
about 3 percent.
The value of shipments of the textile industry accounts for about 3 percent
of the shipments from all manufacturing industries. However, the profits
of the industry have been less than 2 percent of the manufacturing indus-
tries. After-tax profits have been traditionally low in the industry
averaging about 2.5 percent of sales over the past 10 years. This return
on sales has been significantly lower than the return for all manufacturing
which has averaged just under 5 percent.
Because of the relatively low profitability in the industry, depreciation
levels have been inadequate to permit the industry to keep abreast of its
capital requirements. This has been particularly detrimental to the industry
since it has been forced to rely primarily on internally generated funds to
meet these requirements.
V. Price and Price Determination
The economic impacts resulting from the imposition of pollution controls
are, in part, dependent upon the industry's ability to absorb or pass the
economic costs of these controls backwards or forwards. For the textile
industry, this ability would be partially dependent on the industry's
influence over the prices and pricing processes of its end products (apparel)
or its supply (fiber).
The supply and demand for textile fibers and goods are based on a number of
price and non-price factors which vacillate over time. For example, the
uncertain supply and price fluctuations of cotton were withstood for many
years prior to 1965, when advancements in man-made fibers offered mills a
xiv
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relatively steady source of raw materials. As man-made fiber quality con-
tinues to improve while prices decline, their use increasingly persists by
both textile mills and consumers.
While the utilization of the natural fibers such as-cotton and wool
has decreased since 1965, the major use of these fibers remains in the manu-
facture of apparel. Specifically, cotton supplied 56 percent of all fiber
used in apparel manufacturing in 1965, but by 1977, its use had dropped to
33 percent. Conversely, while the rate of cotton consumed by apparel manu-
facturers in 1965 was 42 percent of all cotton consumed, the rate increased
to 51 percent in 1977. During the same time, the utilization of man-made
fibers grew from 33 to 64 percent of all fibers used for apparel goods. Even
though man-made fibers are gaining increasing shares of many major textile
markets, their use remains predominately in the apparel and home furnishing
sectors.
Imports of raw materials have little effect on domestic supplies with wool
being the only fiber imported in significant quantities. However, imports
of foreign semi-manufactured and manufactured products are commanding an
increasing share of the U.S. market, which in turn, reduces the demand for
U.S. fiber.
The industry's annual production of textile products increased by 49 percent,
from 9,050 million pounds of fiber in 1965 to 13,496 million pounds in 1977,
reflecting the increasing demand for textile goods. Historically cotton
fibers accounted for the majority of total fibers used in textile production;
since 1968, however, man-made fibers, in particular non-cellulosics, have
made significant inroads into the overall textiles industry. The latest
figures available depict that in 1977, man-made fibers contributed 70 percent
of total available fibers while cotton fibers comprised 28 percent of the
supply.
In the past, the textile industry's pricing process was depicted as the
closest model of pure competition existing in the major manufacturing indus-
tries in the U.S. Today, however, the competitive environment has changed,
and accordingly the applicability of pure competition has been reduced.
While the available supply and market demands for specific textile goods
are major determinants of the price of the goods, numerous other factors,
such as character of the product, elasticity of supply, and product
specialization have considerable influence on the actual price received
by the textile manufacturers. In addition, demand determinants for textile
end-use products include several fundamentally important variables which
are altogether outside manufacturers' control (e.g., housing starts, per
capita disposable income, total employment). Furthermore, quantitative
evidence indicates that end-use demand is not highly sensitive to price.
However, prices are of fundamental importance in the determination of the
demand for individual textile fibers. Technological and institutional
processes, difficult to quantify, are of major influence in both markets (end-
use and fiber). Briefly, price determination for textile goods is highly complex
xv
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and dynamic. Prices are fundamentally sensitive to many factors over which
firms have no control.
In summary, there is little confidence that manufacturers' costs increases
can be smoothly passed through to consumers by way of higher priced textile
goods. If costs increase at a time; of economic vigor, with incomes and
employment strong, few impacts may occur. Conversely, if cost increases
occur during a period of weak or slow economic growth, the impacts on
individual firms or an entire industry subcategory might be greater. In addi-
tion, the technological dynamics of the fiber and fabric segments suggest
a potential for differential impacts resulting from the imposition of
effluent control costs. If any differential impacts also affect relative
fiber prices, potential fiber market dislocations will be highly signifi-
cant.
VI. Representative Model Plants
Model plants were developed to represent mills and plants - both existing
and new sources - which could be affected by the imposition of effluent
control guidelines. Models were based on the production sizes and sub-
categories contained in the Development Document; subcategories include:
1. wool scouring,
2. wool finishing,
3. low water use processing, (no economic models were developed
for this subcategory),
4. woven fabric finishing,
5. knit fabric finishing (includes hosiery products),
6. carpet finishing,
7. stock and yarn finishing,
8. nonwoven manufacturing,
9. felted fabric processing.
In addition to the above structure with its focus on mill waste characteristics,
models were further segmented into type mills in order to reflect economic
characteristics associated with product ownership and extent of integration.
Types include commission finishers, own fabric (finishers), and integrated
mills. The "commission" models represent those plants which are engaged in
job finishing on a commission or fee basis; they do not purchase the tex-
tiles processed. The own fabric finishers are similar to commission plants
with respect to the processes accomplished but differ in economic aspects.
These plants either purchase the textile inputs or are plants within multi-
plant firms which are vertically integrated. The "integrated" models
represent those mills engaged in both greige milling and finishing opera-
tions. Models were developed for the above types of mills because of the
significant differences in the financial profiles and their abilities to
absorb pollution control costs.
xvi
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The model plants were developed from a synthesis of data obtained from
surveys of the industry as well as the published sources indicated in
Chapter II. Economic aspects of the models address the operational
characteristics and financial profiles of the mills represented. Oper-
ational characteristics concern mill utilization rates and levels and
classifications of employment. Financial profiles encompass investment,
sales, cost, profit and cash flow characteristics of the mills. Further-
more, the models were designed to represent industry conditions of 1977;
these baseline models do not reflect the effects of water pollution con-
trol costs (except for BPT which was generally in-place in 1977).
VII. Wastewater Control Costs
The wastewater control costs considered in this study were provided in the
Development Document and were developed for both direct and indirect dis-
chargers (as well as existing and new source plants discussed in the previous
chapter). The discharge status of the industry was based on survey data
reported by the Technical Contractor in the Development Document. An
estimated 80 percent of the wet processors (indirect dischargers) are
discharging to publicly owned treatment works (POTW) while the remaining
20 percent (direct dischargers) are discharging to surface or receiving
waters. Of all the 1,165 wet processors in the industry, it is estimated
only about 20 percent would be affected by the guidelines. Ten percent of
the direct dischargers have advanced treatment systems while most of the
remainder have BPT systems in-place. Only about 10 percent of the indirect
dischargers are discharging wastes which would require them to add pretreat-
ment controls; these wastes are those that contain heavy metals.
A broad range of alternative treatment technologies were used in establishing
model treatment costs. These included chemical coagulation, filtration,
flotation, activated carbon adsorption and ozonation. After cost analyses
(described in the Development Document), the more sophisticated technologies
such as ozonation were excluded from further consideration because they
were either too costly or energy intensive. (However, they are included in
this analysis to demonstrate their impacts). The remaining technologies
were selected as proposed treatment options for a detailed analysis. From
these proposed options, EPA has recommended specific options to be used in
establishing limitation guidelines and performance standards.
VIII. Projected Economic Impacts
The impacts described in this report were assessed for each of the model
textile operations described in Chapter VI utilizing the various waste-
water control alternatives' costs presented in Chapter VII. The methodo-
logy used (described in Chapter II) was based on a net present value (NPV)
analysis to determine the models' required price increases, their ability
to make price increases necessary to offset control expenditures, and the
xvn
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potential financial impacts attributable to such expenditures. Other poten-
tial impacts such as plant closures, employment losses, community effects,
dislocation effects, and balance of payment effects were also assessed for
each proposed treatment option. The impacts presented are reflective of
the industry conditions as of 1977/78.
The proportion of the industry which will be required to make control expen-
ditures, the strong competitive threat from foreign textile producers, and
the existing domestic intra-industry competition indicate the U.S. textile
industry will not be able to adequately raise prices to offset wastewater
control expenditures. The projected financial impacts assume the portion of
the industry affected by control compliance requirements will absorb all
the associated wastewater treatment costs.
The impact analysis suggests some textile facilities may not choose to
continue operations after the imposition of control requirements. Although
closures and resulting losses in employment in small communities may impact
those areas, such closures are not expected to seriously disrupt the industry
as a whole. Their lost production could be absorbed by existing plants, and
their effects on the national balance of payments would be negligible.
The impacts of the recommended control options are summarized below.
1. BATEA (Existing Direct Dischargers)
For BATEA, the EPA has recommended the selection of BATEA Option 2 for Woven
Fabric Finishing (4), Knit Fabric Finishing (5 but excluding 5c), Carpet
Finishing (6), Stock and Yarn Finishing (7), and Nonwoven Manufacturing (8)
and BATEA Option 4 for Wool Scouring (1), Wool Finishing (2), and Hosiery
Products (5c) as the basis for proposal of BAT effluent limitations. BATEA
Option 1 has been recommended for Felted Fabric Processing (9).
The imposition of these options will potentially affect 214 direct discharg-
ing facilities with three felted fabric processing (9j facilities currently
achieving BATEA Option 1 and 22 facilities in the other subcategories pre-
sently achieving their respective BATEA Options 2 or 4. Compliance with
these options is anticipated to require an initial investment amounting to
$48 million with annualized costs of $21 million. The price increases
required to offset such expenditures have been projected to be 2.2 percent
or less. With respect to financial effects, assuming no price increases,
the BATEA recommended options could reduce the models' returns on sales from
a base case range of -0.9 to 5.9 percent to a range of -3.8 to 5.0 percent,
cause reductions in cash flows, and cause reductions in the models' net
present values. Prior to compliance with these options one model was a base
case closure, three models were marginal with the remainder models all being
viable. When the models were impacted with the recommended options nine
models indicated closure, four models indicated marginal, with the remainder
xvi ii
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being viable. These financial impacts resulted in the projection that 19
existing direct dischargers may close due to compliance requirements result-
ing in potential production losses amounting to 126.5 million pounds and
employment losses of 3,401 employees. Resultant community impacts associated
with the closures will vary, but it is anticipated some communities, particu-
larly in the southeast may incur impacts. Balance of payment impacts are
anticipated to be nominal.
2. PSES (Existing Indirect Dischargers)
The EPA has recommended PSES Option 2 for all existing indirect dischargers.
Compliance with this option will affect 107 indirect dischargers and will
require an initial investment amounting to $38 million with annualized cost
approximating $19 million. Required price increases needed to offset com-
pliance expenditures for the model plants were 4.3 percent or less. If no
price increases were assumed the models' financial impacts included declines
in the models' returns on sales from a range of -1.6 to 4.1 percent for the
base case to a range of -11.8 to 3.7 percent for the impacted case, reductions
in the models' annual cash flows, and reductions in the models' net present
values. Prior to control compliance (base case) one model was projected to
be a closure, four models were considered to be marginal with the remainder
being considered viable. In the impacted case twelve models indicated
closure, three models were marginal, and the remainder were viable. These
financial impacts resulted in the projection that 20 existing indirect dis-
charging facilities may close due to compliance requirements. These closures
could result in production losses totaling 74.7 million pounds and employ-
ment losses totaling 2,909 employees. The severity of the community affects
will vary but it is anticipated some communities, particularly in the south-
east, may incur impacts. Balance of payments impacts are expected to be
nominal.
3. NSPS (New Source Direct Dischargers)
NSPS Option 2 has been recommended by EPA as the treatment requirement for
new source direct dischargers. Impacts associated with new source models
were difficult to assess as they represent facilities which have yet to be
constructed. However, based on the new source models, the imposition of
NSPS Option 2 expenditures resulted in the new source models requiring pro-
jected price increases to offset control expenditures ranging from 0.8 to
3.4 percent. Assuming no price increases, projected impacts reflected reduc-
tions in returns on sales from a base case range of 3.3 to 7.4 percent to
an impacted range of 1.8 to 6.7 percent, reductions in the annual cash flows
but none to negative levels, and reductions in the models' net present values
with none becoming negative in the impacted case which were not negative in
the base case. Predicated on the financial impact analysis it was projected
that only one model changed its viability status due to the imposition of
xix
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control expenditures. This model was the medium felted fabric processing (9)
model which was marginal in the base case and became a closure in the impacted
case. This subcategory (felt) was the only projected subcategory which the
imposition of control requirements may have significant effects on the likeli-
hood of the entrance of new facilities.
4. PSNS (New Source Indirect Dischargers)
The EPA has recommended PSNS Option 2 apply to new source indirect dischargers,
As mentioned above new source model plant impacts caused by the imposition of
wastewater control requirements were difficult to assess as new source models
represent facilities which have yet to be constructed. However, based on the
new source models, the imposition of PSNS Option 2 resulted in individual
model plant projected required price increases ranging from 0.4 to 2.3 per-
cent. Assuming no price increases, projected financial impacts reflected
reductions in the models' returns on sales from a base case range of 2.7 to
8.5 percent to an impacted case range of 1.9 to 7.1 percent, reductions in
the models' annual cash flows (none to the point of being negative), and
reductions in the models' net present values with only the medium own yarn
stock and yarn (7) model reflecting a negative net present value which was
not negative in the base case (prior to control expenditures). Based on the
financial analysis it was determined it would be doubtful if new source inte-
grated wool finishing (2) facilities would be constructed even without
control expenditures and that medium own yarn stock and yarn (7) operations
may prove to be only marginally viable if required to meet PSNS Option 2
requirements. It is unlikely future growth in the other subcategories will
be significantly affected by PSNS requirements.
IX. Limits of the Analysis
There was considerable published information covering the structure and
economic data of the textile industry at the major (or total) and the minor
(or weaving and finishing, knitting, other textile products) industry levels
and also by SIC industries. However, there was very little published informa-
tion available which addressed the industry under the functional classifi-
cation system used in this study. While information and data were utilized
from a variety of sources, major sources included published governmental
and industry reports, the industry data collection portfolio, and extensive
contacts with individuals associated with the industry.
The estimated data error ranges, as an average for the industry, were as
follows:
1. Information regarding the organization and structure
of the industry, number, location and size of plants,
and other information descriptive of industry sub-
categories ± 10%
2. Price information for products and raw materials +_ 20%
3. Cost information for plant investments and operating
costs ± 20%
4. Financial information concerning the industry +_ 15%
xx
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In an economic impact analysis of most any industry, it is inevitable that
simplifying assumptions must be made to bring the problem into a framework
of analysis consistent with the constraints of time, budget, and data avail-
ability. The major critical assumptions used in this analysis were as
follows:
1. Types and sizes of the model plants were representative of plants
actually existing in the industry and of plants expected to be
built in the future.
2. It was assumed that the financial data were representative of
costs and returns of existing plants or new plants to be con-
structed after promulgation of proposed guidelines. As stated
earlier, the model plant financial data are on a constant 1977
dollar basis and can be adjusted at future times to reflect
the future economic activity.
3. Levels of profitability reflected in model plant profiles
(based primarily on the average of the period from 1970 to
1977 so as to include years of high and low profits) would
be the same in the future 21 years.
4. It was assumed that the economic impacts of wastewater controls
on those products not included in the detailed analysis of "repre-
sentative" plants could be evaluated in general terms through
associating them with those "representative" model plants for
which detailed analyses were made. This association was based
primarily on the fact that models were developed for a single
product plant which represented a majority of industry sub-
category's production. In most cases, there were actual plants
producing products in similar combinations as those described
in the model plants.
xxi
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I. INTRODUCTION
Section 301(b) (1) (A) of the Clean Water Act (the Federal Water Pollution
Control Act Amendments of 1972, as amended by P.L. 95-217, the Clean Water
Act of 1977) requires existing industrial dischargers to waters of the U.S.
to achieve by July 1, 1977, effluent limitations requiring the application
of the best practicable control technology currently available (BPT). By
July 1, 1984, these same dischargers are required to achieve effluent limita-
tions requiring the application of the best available technology economi-
cally achievable (BAT) and the best conventional pollutant control technology
(BCT) pursuant Sections 301(b)(2)(A), (b)(2)(C), (b)(2)(E). Addition-
ally, new industrial dischargers are required to comply with new source
performance standards (NSPS) under section 306 of the Clean Water Act
(the Act), and new and existing industrial dischargers to publicly owned
treatment works (POTW's) are subject to pretreatment standards (PSES for
existing sources and PSNS for new sources) under Sections 307(b) and 307(c)
of the Act.
The purpose of this study is to assess the economic impacts of these require-
ments on the Textile Mills Point Source Category (hereafter referred to as
the textile industry).
A. Scope of This Report
The analysis of the economic impacts of these effluent limitations on the
textile industry necessitates analyses at both micro and macro economic
levels. To accomplish such analyses, the aggregate industry as well as
individual firms within the industry must be represented.
This report depicts the textile industry's structure, financial characteris-
tics, marketing and pricing practices, representative model plants, proposed
wastewater control costs, and the analyses of their resulting economic
impacts. The report includes, also, a description of the methodology to
determine these impacts. The specific types of economic impacts analyses
in this report include those upon:
(1) prices (including effects upon an industry's suppliers and
consumers)
(2) profitability
(3) industry growth
(4) ability to raise capital
(5) number of plants
6) production
7) employment
(8) communities, and,
(9) others as appropriate (such as dislocation and balance of trade).
1-1
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B. Organization of This Report
This report presents an overall description of the textile industry.
This description includes discussion concerning the industry's structural,
financial, and pricing characteristics. From these data, representative
economic model plants were developed as a baseline (before the imposition
of control costs) upon which the impact analysis was based. (These models
reflect new and existing mills representing common industry subcategories
and sizes and their discharge compliance status.)
The impact analyses are presented in two parts. The first, the direct
discharger impacts, consider those resulting from BATEA and NSPS. The
second examines the impact effects from the PSES and PSNS limitations
on municipal (POTVI) dischargers. It should be noted in Chapters VI,
VII, and VIII, the material is first, presented for existing sources
followed by the material for the new sources. This order of presenta-
tion corresponds with the presentation order in the Development
Document.I/
C. Data Sources
Data utilized in the development of this report were obtained from both
primary and secondary sources. Primary data typically pertained to spec-
ific industry plants or subcategories, and secondary data typically per-
tained to published data reflecting the aggregate industry. Some of the
more commonly used data sources are described below. A bibliography is
presented in Appendix A.
It should be noted throughout this report an attempt was made to utilize
the latest data and information available. While not all sources were
available depicting 1978-79 conditions, attempts were made to qualita-
tively describe the current industry situation. The model plants pre-
sented in Chapter VI were developed from both primary arid secondary
data sources. The primary sources were reflective of 1977/78 conditions.
Accordingly, the impact analysis presented in this report reflects the
industry's impacts as the industry would incur them as of 1977/78.
1. Primary Data Sources
Information acquired directly from mills or from representatives of the
industry were considered primary data. The major sources of this study's
primary data were individual mills., as well as mill and industry represen-
tative visits by DPRA personnel.
I/ Development Document for Proposed Effluent Limitations Guidelines, New
Source Performance Standards and Pretreatment Standards for the Textile
Mills Point Source Category, U.S. Environmental Protection Agency,
Effluent Guidelines Division, EPA 440/l-78-022b, October 1979.
1-2
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Under the authority of Section 308 of the Act data collection portfolios
were sent to 532 textile plants from a list provided by the technical con-
tractor. The distribution of the mailing of the portfolios and the number
of initial responses received are shown in Table 1-1. Overall, 308 indi-
viduals receiving the portfolios responded with 100 of these being from
"dry" operations which do not generate wastewaters and 208 being from
"wet" operations. Of the 208 responses from "wet" operations, 73 percent
contained good, useable data, 13 percent contained only fair useable
data, and 14 percent contained little, if any, useable data.
The data received from the initial mailing of the survey provided much of
the basis for the development of the model plants. A follow-up survey
effort resulted in additional information being received from 74 facilities
who did not originally respond and 47 facilities who only partially responded
originally. The data received from the follow-up effort has been compared to
the initial data base and since no significant deviations were evident, the
follow-up data was qualitatively incorporated into the analysis. It is
presently planned to quantitatively incorporate the follow-up survey data
into the model plants and the analysis during the period between proposal
and promulgation of the regulations.
A copy of the data collection portfolio is presented in Appendix C. DPRA
personnel also visited several textile operations to gain insight into
their respective operational and managerial characteristics, these plant
visits were coordinated through various industry trade organizations and
the facilities selected are believed to be fairly representative of a cross-
section of the industry. The information obtained during these visits
supplemented data received from the economic survey.
2. Secondary Data Sources
The published data utilized in this analysis were predominately obtained
from various reports obtainable from both private and governmental sources.
These secondary data sources were utilized throughout this analysis to
depict historical industry trends and to supplement and check information
received from primary sources. This latter use of secondary information
was particularly important in the development of the financial model plants
to assure the representativeness and accuracy of the models. A complete
listing of the major secondary sources utilized in the development of this
report are listed in Appendix A.
1-3
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1-4
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II. METHODOLOGY
The methodological approach utilized to assess the likely economic impact
of effluent control limitations on the textile industry is summarized in
this chapter. In this impact study, economic impact is defined as the
differences between (1) the projections of the likely effects on a plant,
a local area, the United States, and on foreign activity which would
result from an industry's compliance with a given level of effluent
control standards and (2) the projection of industrial activity and
changes which would likely occur in the absence of control standards
(baseline conditions).
In particular, the principal economic variables of interest in this study
are:
(1) price effects—including effects upon industry's suppliers
and consumers,
(2) profitability—growth and capital availability,
(3) number, size, and location of plants that can be expected
to close or curtail employment,
(4) changes in employment,
(5) community impacts,
(6) dislocation effects,
(7) balance of trade consequences,
(8) other impacts.
In the case of best available technology economically achievable (BATEA)
and pretreatment standards for existing sources (PSES), the analysis
focused on price increases, plant closings, curtailments of production,
dislocations of production, unemployment, community impacts, and balance
of trade effects. For new source performance standards (NSPS) and pre-
treatment standards for new sources (PSNS), the impacts were assessed
in terms of the effects on industry growth, prices, plant locations
(i.e., domestic or foreign production), and balance of trade. The
specific bases for effluent control relating to the textile industry
are described in detail in a separate EPA report. _!/
_!/ Development Document for Proposed Effluent Limitations Guidelines, New
Source Performance Standards and Pretreatment Standards for the Textile
Mills Point Source Category, U.S. Environmental Protection Agency,
Effluent Guidelines Division, EPA 440/l-79-022b, October 1979.
II-l
-------
Several interrelated analyses were used to evaluate likely economic impacts
resulting from effluent control requirements on the textile industry. These
in-depth analyses included: (1) a characterization and subcategorization
of the technical and economic structure of the industry, (2) a description
of the financial profile of the industry, (3) the construction of represen-
tative model plants, (4) an evaluation of pricing patterns within the
industry, (5) a description of the technological options for meeting
designated levels of pollution control and the costs associated with each
option, and (6) the analysis of economic impacts.
The overall analysis, however, was not a simple sequential one; rather, it
employed interacting feedback steps. The schematic of the analytical approach
is shown in Exhibit II-l. Due to the fundamental causal relationships among
the financial and production effects and other impacts, a greater emphasis
was devoted to plant closure analysis.
A. Industry Structure and Subcategorization
The industry structure and subcategorization analysis primarily involved
describing and segmenting the industry in terms of its past and current
economic characteristics in order to provide an information base for the
subsequent analytic steps. In particular, the information on industry
characteristics was useful in determining an appropriate disaggregation
design for industry subcategorization.
The subcategorization involved segmenting the plants within the industry
into relatively homogenous classes with respect to plant; size, regional
differences, technology employed, number of products, existing level of
pollution, scale of technological processes, level of output, or other
relevant factors important for assessing the impact of pollution controls.
This delineation of industry subcategories served as the; basis for the
definition and construction of representative model plants and the deter-
mination of the wastewater treatment technological options and costs
appropriate to each.
B. Financial Profile of the Industry
The ability of firms within the industry to finance investment for pollu-
tion control was determined, in part, by the past and expected financial
conditions of those firms. Under the heading "financial profile of the
industry," various factors were studied to develop insight into the finan-
cial characteristics of actual plants in the industry. Much of the data
compiled in this section was also useful in determining the financial
profiles of representative model plants.
II-2
-------
Industry
Industry
Structure
Subcate-
gorization
Model Plant
Parameters
Industry
nancial
n-s <-i
uata
CD A Dnl 1 i i4-i* n
Crn rO 1 1 U u i 0
Control Cost
Base . Plant
Closures * Due to
/
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rr ice
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Expected
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Pricing
Financial
Profiles
N
Exhibit II-l.
Schematic of economic impact analysis of effluent
control guidelines
II-3
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Key financial statistics included after-tax profit as a percent of sales,
after-tax profit as a percent of invested capital, sales to total assets
ratios, sales per employee, assets per employee, and after-tax profit to
net worth. Other financial factors were studied with respect to the
ability of firms to generate funds to finance investment for effluent
management, either internally through cash flow or externally through new
debt or equity issues. The data compiled in this phase of the analysis
provide an information base useful for projecting key technical and
economic factors and for carrying out subsequent economic impact analysis.
C. Model Plants
The model plant analysis used was a systematic framework within which to
assess likely economic impacts on individual types and sixes of actual
plants within the industry. Usually more than one model plant was re-
quired for an industry in order to represent various types and sizes of
existing plants or plants which are likely to be constructed after the
promulgation of effluent control guidelines.
The model plant profiles represent a variety of financial, economic, and
technical variables such as sales, investment, fixed and variable costs,
profits, size, and type of process. The profiles were constructed from
information and data gathered in the industry characterization phase of
the analysis. This information was generally obtained from an industry
survey, plant visits, discussions with industry representatives, trade
publications, other secondary data sources, and from engineering cost-
synthesis methods.
In developing the model plants, the best data source was the industry surveys
which provided detailed financial data from the various types and sizes of
existing firms. However, data from the industry surveys were checked with
published financial data to assure the reliability of the data contained in
the surveys. Also data from published sources are available annually which
allow historical trends to be considered as well as enabling the industry's
financial situation to be updated without resurveying the industry.
Thus, the model plants are developed utilizing an eclectic approach which
considers data from both primary and secondary sources. In a typical
development of a model plant, key economic/financial data (e.g. sales,
production costs, margins, asset structure) are collected from numerous
sources and converted to a common base. These data are, in turn, analyzed
and compared, considering also nonquantifiable aspects of the industry,
to determine the appropriate parameter to use for the particular model
plant. The consolidation of the various parameters results in the depic-
tion of the key economic and financial components in the form of a
representative model plant.
II-4
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The applicability of utilizing model plant data for assessing expected
economic impacts of pollution controls rests principally on the repre-
sentativeness of the selected model pi ant(s). For example, the economic
concept of "economies-of-scale" in production is often present in processing
plants, e.g., average unit costs of production are usually lower for large
plants than for medium or small plants of the same type. Furthermore, there
are expected economies-of-scale in waste treatment, which, in effect, will
compound the economies-of-scale relationships among differing sizes of plants.
In general, economies-of-scale relationships in pollution control costs have
been demonstrated, and this alone would necessitate multiple model plant
analyses to evaluate differential economic effects. Other processing factors,
e.g.. type of manufacturing process employed (technology) may also affect
processing costs and wasteflows. This again may necessitate a further seg-
mentation of an industry and the inclusion of additional model plants for a
more comprehensive analysis.
D. Pricing Patterns
The analysis of pricing patterns in the textile industry focused on factors
determining supply and demand. Market structure and the nature of competi-
tion were evaluated, a step which, for the textile industry, involved the
inclusion of the influence that international markets and competition assert
on the domestic industry's prices. Finally, the ability of impacted plants
to recover the increased costs of pollution controls were assessed.
E. Waste Treatment Technological Options and Costs
Waste treatment options and their associated costs are obviously instru-
mental in the assessment of the economic impacts of water pollution con-
trols. In general, basic technical and cost data were developed specifi-
cally for various types and sizes of model plants using the appropriate
discharge method (direct or indirect). This analysis also examined model
plants reflecting new facilities which were projected most likely to be
built after the promulgation of the guidelines. In determining appro-
priate options and costs, it was necessary to specify 1) the points of
final disposition of discharge in each industry segment, and 2) the types
and proportions of effluent systems in place. This information was
primarily obtained from EPA, Effluent Guidelines Division through the
technical contractor.
Cost data from the technical contractor usually included estimated invest-
ment costs for various treatment options for each model plant and their
respective estimated annual operating and maintenance costs based upon
normal operating rates or annual production capacity.
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F. Other Regulatory Costs
In addition to regulations pertaining to water pollution control, plants
are also subject to other federal regulatory requirements which depend
upon the industry and the nature of its processes and/or products. These
regulations can pertain to product quality, air pollution, solid waste
disposal, occupational safety and other areas.
Unfortunately these other regulations are not uniformly required or en-
forced. Also, data reflecting the costs of compliance to these regulations
are not often available. To the extent possible, the impact analysis con-
sidered the costs associated with these other regulations.
G. Analysis of Economic Impacts
This study's economic impact analysis required the establishment of a base-
case of industry conditions that would prevail without pollution controls
in order to estimate the consequent economic impact of pollution controls
by showing the change from this basecase attributable to their imposition.
Thus, in this study a "dynamic basecase"--a projection of the industry
structure in terms of the number of its plants, production, employment and
other parameters over time—was used as opposed to a "static" basecase
descriptive of current industry conditions.
Fundamentally, the impact analysis was similar to that usually required
for any capital budgeting study of new investments in which the problem
is one of deciding whether a commitment of time or money to a project is
worthwhile in terms of the expected benefits. The analysis was complicated
by the fact that benefits and investments will accrue overa period of time
and that, in practice, the analyst cannot reflect all of the required im-
ponderables which, by definition, must deal with future projections. In
the face of imperfect and incomplete information and of time constraints,
the industry segments were described in the form of financial budgets of
model plants. Key non-quantifiable factors were considered in the inter-
pretation of the quantified data. Actual financial results deviated from
the model results; however, these variances were considered in interpre-
tating the findings based on model plants.
The analysis of anticipated economic impacts of water pollution controls
are described as follows.
1. Fundamental Core Methodology
The fundamentals for analysis are basic to all impact studies. The core
methodology is described here as a unit with the specific impact analyses
discussed under the appropriate headings following this section.
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a. Model Plant Impact Analysis
The core analysis for this study was based upon synthesizing the physical
and financial characteristics of the various industry segments through
representative model plant projections. Estimated financial profiles
and cash flows are presented in the model plant chapter. The primary
factors involved in assessing the financial and production impact of
pollution control were profitability changes—a function of the cost
of pollution control and a plant's ability to pass along these costs in
the form of higher prices. In reality, closure decisions are seldom made
on a set of well-defined and documented economic rules. They include a
wide range of personal values, external forces such as the inability to
obtain financing, or the relationship between a dependent production unit
and its larger cost center whose total costs must be considered.
Such circumstances include but are not limited to the following factors:
(1) Inadequate accounting systems or procedures. This is especially
likely to occur in small, independent plants which do not have
effective cost accounting systems.
(2) Inefficient production units. This is particularly true of plants
where the equipment is old and fully depreciated, and the owner
has no intention of replacing or modernizing it. Production con-
tinues as long as labor and materials costs are covered until the
equipment fails entirely.
(3) Personal values and goals associated with business ownership that
override or constrain rational economic rules. This complex of
factors may be referred to as the value of psychic income.
(4) Production dependence. This is characteristic of a plant that is
a part of a larger integrated entity which either uses raw materials
being produced profitably in another of the firm's operating units
or supplies raw materials to another of the firm's operations where
the source of supply is critical. When the profitability of the
second operation more than offsets the losses in the first plant,
the unprofitable operation may continue indefinitely because the
total enterprise is profitable.
(5) Temporary unprofitability. This may be found whenever an owner-
operator expects that losses are temporary and that adverse con-
ditions will change. His ability to absorb short-term losses
depends upon his access to funds through credit or personal re-
sources not presently utilized.
(6) Low (approaching zero) opportunity costs for the fixed assets and
for the owner-operator's managerial skills labor. As long as the
operator can meet labor and materials costs, he will continue to
operate. He may even operate with gross revenues below variable
costs until he has exhausted his working capital and credit.
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7. Plant-site appreciation. This factor is important in those situa-
tions where the value of the land on which the plant is located is
appreciating at a rate sufficient to offset short-term losses.
These factors are generally associated with proprietorships and closely
held enterprises rather than with publicly held corporations.
Although the above factors are present in and relevant to business deci-
sions, they are not always susceptible to quantifiable analysis. This study's
analytical techniques are sufficient, however, to provide useful and reliable
insight into such potential business responses to required investment and
operating costs for pollution control facilities. Accordingly this analysis
of the model plants' impacts was primarily based on the determination of the
model plants' net present values (NPV) both before and after expenditures
for controls. This NPV analysis was then combined with considerations for
unique influencing factors (such as those listed above) so that its assess-
ment of impacts reflects, as accurately as possible, the responses actual
businesses will make.
The computation of the net present values in such an analysis involves the
discounting of the models' cash flows over some period of time (in this
analysis 21 years) through the discounting function:
t
NPV = Z A (l+K)"n - I
n=l n °
where:
NPV = net present value ^
A = the cash flow in the n year
K = discount rate (after-tax cost of capital)
n = number of the conversion period, i.e., year 1, year 2, etc.
t = total number of conversion periods (years)
I = value of facility for nonconforming uses (salvage value
for existing facilities and initial investment for new
source facilities)
The resulting net present value indicates the excess of the present value
of projected cash flows for an operating facility over the present value
of what the equity holders could earn if they liquidated in year zero
and invested the resulting money plus any additional investments they would
normally be expected to invest to maintain the facility in operation
during the time period (in this case twenty-one years) at the firm's estimated
cost of capital. Thus, if the NPV is positive, the equity holders are
earning a return which is greater than the model's cost of capital. If
the NPV is negative, then the equity holders are earning less than the
cost of capital, and in such a situation, they would be better off liqui-
dating, realizing the salvage value in cash,!/ and reinvesting it at least
at the firm's (industry) cost of capital.
I/ Salvage value is defined here as the liquidation value of fixed assets
plus working capital, i.e. sold for nonconforming uses.
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Model plant NPV's are determined both without and with expenditures for
pollution controls. Comparison of the base case (without controls) and
the impacted case (with controls) allows the net effects of the controls
to be determined. These effects in combination with other relevant
economic considerations enable overall impacts to be determined.
b. Construction of the Model Plant Cash Flow and Capital Outlays
The cash flow and capital outlays used in this analysis of pollution
control costs were constructed in the following manner:
(1) The cash flows were presented in current dollars thus requiring
the use of different cash flows for each of the respective years.
(2) For existing model plants, the initial investment, taken in year t ,
was considered to be outlays for the model fixed assets (salvage
value) and working capital.
(3) The after-tax cash proceeds were taken for years t, to t . These
were adjusted annually for inflation.
(4) Annual reinvestment for replacement of depreciated assets was
estimated for year ti and was adjusted annually to compensate
for inflation and the net between reinvestment and depreciation.
(5) Terminal value of the model was taken in year tn and reflected
the salvageable assets plus the net working capital.
(6) Capital outlays for pollution controls, when applicable, were
added to the models' total assets in increments during years t,
to tfi.
(7) Annual pollution control expenses were incurred incrementally
between years ti and ts reflecting the stages of construction
completion for the capital outlays. After year tg, expenses were
adjusted annually for inflation.
(8) Depreciation of depreciable assets was computed utilizing rapid
depreciation techniques for tax computations and the straight-line
method for the pro forma income statements. Replacement invest-
ments of pollution control equipment began in year t^.
(9) No terminal values of the pollution facilities were computed as it
was anticipated there would be few, if any, salvageable assets in
year t .
Base case cash flows consisted of Steps 1 through 5 and excluded investments
and annual costs associated with pollution controls. Impacted cash flows
consisted of Steps 1 through 9 and reflected the model plant after the
imposition of environmental requirements.
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In the construction of the cash flow for the net present value analysis,
after-tax cash proceeds were defined as:
(1) After-tax income = (1 - T) x (R - E - I - D)
(2) After-tax cash proceeds = (1 - T) x (R - E - D) + D
where
T = tax rate
R = revenues
E = expenses other than depreciation and interest
I = interest expenses
D = depreciation charges
Depreciation was included only in terms of its tax effect and was then
added back to obtain after-tax cash proceeds.
There is a temptation to include outlays for interest payments when com-
puting the cash proceeds of a period. Cash disbursed for interest should
not affect the cash proceeds computation. The interest factor is taken
into consideration by the use of the present-value procedure. To also
include the cash disbursement would result in double counting. The
effect of interest payments on income taxes is also excluded from the
cash proceeds computation. This was brought into the analysis when
computing the effective rate of interest of debt sources of capital,
which is used in the determination of the cost of capital.
A tax rate of 20 percent on the first $25,000 income, 22 percent on the
second $25,000 income, and 48 percent on amounts over $50,000 was used
throughout the analysis. Investment credits and carryforward and carry-
back provisions were not used due to their complexity and special limita-
tions. The annual inflation rate used for this analysis was 6.0 percent.
This rate reflects, approximately, the annual rate for the past ten
years based on the historical implicit price deflators for the gross
national product. A period of twenty-one (21) years was selected for
the length of time to discount models' cash flows because this period
of time was determined to be representative of the useful economic life
of actual industry facilities. The important consideration in this length
of time is the length of service of machinery and equipment. Building life
for a facility typically is considerably longer than 21 years. However,
building costs are small relative to the costs of production equipment.
Furthermore, the 21 year period is sufficiently long enough to allow for
business cycles and fluctuations to balance out.
While profitability is an important input to the net present value analysis,
the overall assessment of a model plant's viability was not totally depen-
dent upon the plant's level of profits. The NPV concept also considers the
value of the model's equity to the equity holders as well as effects of the
timing of the cash flows including consideration for depreciation schedules.
A more common measure of profitability is return on investment (ROI) where
after-tax income (as defined in Equation 1) is expressed as a percent of
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invested capital (book value) or as a percent of net worth. Such measures
should not be viewed as necessarily different estimates of profitability
when compared to the net present value concept; rather, these should be
considered as entirely different profitability concepts. It should be
noted the data requirements for ROI and NPV measures are derived from the
same basic financial information, although the final inputs are handled
differently for each.
c. Cost of Capital - After-tax
Return on invested capital is a fundamental notion in U.S. business. It
provides both a measure of the actual performance of a firm as well as its
expected performance. In the latter case, it is also called the cost of
capital, and this, in turn, is defined as the weighted average of the cost
of each type of capital employed by the firm — in general terms — equities
and interest-bearing liabilities. Although no methodology yields the
precise cost of capital, it can be approximated within reasonable bounds.
Equity capital. The cost of equity capital was estimated by two methods--
the dividend yield method and the earnings stock price (E/P ratio) method.
Both are simplifications of the more complex discounted cash flow (DCF)
methodology. The dividend yield method is:
po * 9
where:
c = cost of equity capital
D, = dividend per share expected at end of period 1
PQ = stock price at time o
g = growth of dividend per share
The earnings/price ratio method is:
< • I
where:
c = cost of equity capital
E = current earnings per share
P = current stock price
This latter method assumes that future earnings per share will be the
same as the current earnings and that the dividend-payout ratio is 100
percent.
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Debt Capital. The after-tax cost of debt capital was estimated by using
an estimated cost of debt (interest rate) and multiplying it by 0.52 --
assuming a 48 percent tax rate.
d = .52 i
where:
d = after-tax cost of debt capital
i = before-tax cost of debt (interest rate)
Weighted Cost of Capital. The sum of the cost of equity and debt capital
weighted by the respective equity to equity plus debt and total debt to
equity plus debt (where debt is long-term debt) ratios yields the esti-
mated average cost of capital (k), after tax. This is depicted below.
k - Equity ,f Total debt .
Debt plus equity Debt plus equity
d. Investment Determination
In evaluating the feasibility of new plants, investment was thought of as
outlays for fixed assets and working capital; however, in evaluating
closure of an on-going plant, the investment basis was its salvage value
(opportunity cost or shadow price).!/ For this analysis, salvage value
was taken as the sum of liquidation value of fixed assets plus working
capital (current assets less current liabilities) tied up by the plant.
This same amount was taken as a negative investment or "cash out" value
in the terminal year.
The rationale for using total shadow priced investment was that the cash
proceeds do not include interest expenses which are reflected in the
weighted cost of capital. This procedure required the use of total capital
(salvage value) regardless of source. An alternative would have been to
use as investment, net cash realization upon liquidation of the plant
(total cash realized from liquidation less debt retirement). In the single
plant firm, debt retirement would be clearly defined. In the case of the
multiplant firm, the delineation of the debt by the plant would likely not
be clear. Presumably this could be reflected in proportioning total debt
to the individual plant on some plant parameter (i.e., capacity or sales).
Under this latter procedure, interest and debt retirement costs would be
included in the cash flows.
\J This should not be confused with a simple buy-sell situation which
merely involves a transfer of ownership from one firm to another.
In this instance, the opportunity cost (shadow price) of the investment
may take on a different value.
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The two procedures will yield similar results if the costs of capital and
the interest charges are estimated on a similar basis. The former proce-
dure total salvage value was used as it gives reasonable answers and
simplified both the computation and explanation of the cash proceeds and
salvage values.
Replacement investment was considered to be equal to 100 percent times
the annual depreciation. This corresponds to the operating policies of
some managements and serves as a good proxy for replacement in an on-
going business.
Investments in pollution control facilities were determined from estimates
provided by EPA. Only incremental values were used in order to reflect
in-place facilities.
2. Price, Supply and Demand Impact Analyses
Price and supply and demand impact analyses necessarily have to proceed
simultaneously. In order to evaluate these impacts, two types of analyses
were used: one—the micro level--utilized the model plant as the basis of
the analysis to arrive at required price impacts to maintain profitability
levels; the other—the industry level--utilized supply and demand analysis.
Application of the preceding NPV procedure to these costs yielded the
present value of pollution control costs (i.e., investment plus operating
cost less tax savings). When this was known, the price increase required
to pay for pollution control could readily be approximated by the formula:!/
x = (PVP) (100
where:
X = required percentage increase in price
PVP = present value of pollution control costs
PVR = present value of gross revenue starting in the year
pollution control is imposed
T = average tax rate
The required price increase at the plant level was evaluated, in light of
the price elasticities of the commodity involved and the competitive struc-
ture of the industry. This represented the second approach using supply
and demand analysis. The supply and demand analysis provided some insights
into likely quantities and supply responses to different prices. This
allowed a preliminary estimate of the production and price impacts of pollu-
tion control costs. Following this, further analysis at the micro level was
\l The above procedure is conceptually correct where an average tax
rate is used. However, to insure accuracy in the machine program
where the actual tax brackets were incorporated, a more detailed
iterative process was required.
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performed to obtain a more detailed insight into the plants' responses to
expected price changes, cost absorption, or plant closure (the plant closure
criteria are discussed in Section G-4, below). The indicated plant shut-
downs were then aggregated to test whether or not the lost production could
be absorbed by the remaining capacity or whether such curtailments would
increase prices.
3. Financial Impact Analysis
The financial impact analysis involved the preparation of pro forma income
statements and cash flow statements (including computations of the models'
net present values) following the assessment of the likely price change.
The analysis provided estimates of profitability with and without pollution
control costs and also provided information relative to the ability of the
industry to finance this investment and estimated financial requirements.
The ability to finance plant investment for pollution control could have a
definite bearing on judgments and estimates with regard to likely plant
closures.
4. Plant Closures and Production Effects
Plant closures may result from the inability of less profitable plants to
adequately recover required pollution abatement cost through increased
product prices, decreased input prices, or improvements in economic effi-
ciency. Often closures can be anticipated among older, smaller and less
efficient plants as a result of economies of scale in pollution control
which would lower the overall costs to competing larger operations. Since
the larger plants, whose unit pollution control costs are usually much less,
will be able to afford to sell at a lower price than the smaller high-cost
plants, the high-cost plants will have no recourse other than to sell at
the long run equilibrium price set by the low-cost plants. Consequently,
the older, smaller, less efficient plants would probably and eventually
yield to the dominance of the larger,more efficient units. However, in
the short run, a plant may continue to operate even when economic consid-
erations indicate closure, especially when the smaller, high cost plants
are protected by regional markets and other non-price impediments to com-
petition from the larger low cost plants.
Most firms would cease operations if they could not adequately absorb the
required wastewater control expenditures. The most obvious measurement of
a firm's ability to absorb the costs is its ability to maintain a positive
income or cash flow after incurring control expenditures. If incomes are
negative, some firms would remain in operation as long as they cover variable
costs (positive cash flows); however, the requirements for overhead expenses
would eventually cause such firms to cease.
The remaining situation that could arise would be one in which firms main-
tain positive incomes and generate net present values (NPV of their cash
flows at their cost of capital) which are positive. This indicates that
these firms are earning a return on their operation which exceeds their
cost of capital. If their NPV's are negative then the firms would liquidate,
realize salvage value in cash, and reinvest in a more financially viable
investment (one which would earn at least their cost of capital).
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A review of the potential financial effects of the imposition of wastewater
controls on the models results in some confusion in the determination of
which plants would be forced to close due to an inability to absorb the
control expenditures; a confusion which can result from a large number of
models and wastewater control treatment alternatives applicable to each
model. Accordingly, for this analysis, formalized closure criteria were
developed. In the development of these criteria, certain necessary assump-
tions were made to simplify the interpretation of the impact results.
The closure criteria utilized are depicted below. These criteria basically
represent the models' abilities to continue operations after incurring
expenditures for wastewater controls.
Model's
Viability
Viable
Marginal
Closure
Net Present
Value
Annual Cash
Flow
Positive
Slightly Negative If
Negative
Positive
Slightly Negative I/
Negative
Based on the above criteria, closure decisions are made for each model at
each treatment level. The number of existing facilities associated with
the representative models which will cease operations due to wastewater
control expenditure requirements are projected utilizing the following
methodology.
(1) Based on the NPV closure criteria described previously, the sub-
categories and associated models projected to close are identified.
(2) Once identified, the following factors are considered in the deter-
mination of the number of actual existing plant closures associated
with each projected model plant closure.
(a) The number of existing facilities associated with the model.
(b) The degree to which existing facilities already have at
least some of the treatment controls in-place.
(c) Historical trends for existing facilities within the sub-
category as well as projections of the subcategory's future
expectations (helps establish the base case).
(d) The severity by which the model's financial data are reduced.
Are the financial data substantially reflective of closure or
are the data reflective of a borderline situation?
I/ The criterion utilized here was that the positive cash flow must be
greater than the amount by which the NPV was negative or a positive
NPV must be greater than the amount by which the cash flow was
negative. If not, then the plant was projected to close.
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(e) Review of data utilized (both published and survey data) to
develop models. This allows the determination of the probable
distribution of the financial profiles of existing facilities
when compared to the financial profile of the closing model
plant.
(f) Consideration of the reliability of the data utilized in
the development of the model plants.
(3) Based on the above, the number of existing facilities projected to
close are made. These projections are determined qualitatively,
based on the analyst's knowledge of business and economic principles
as well as the analyst's knowledge of the industry.
The determination of the production effects resulting from the plant closures
is made by applying the projected number of existing facility closures to
production quantities associated with the applicable model plant. This is
then viewed from the perspective of whether or not the remaining facilities
have the capability to absorb the lost production and if not, whether the
lost production will be absorbed by increased foreign impacts or whether
it will not be absorbed at all.
5. Employment Impact Analysis
This analysis was concerned with estimating likely employment losses due
to curtailed production or plant closures as a result of pollution con-
trols. If the actual plants which are expected to curtail production or
to close could be identified, their employment impacts could be estimated
directly. When, however, they cannot be identified, the employment impact
analysis must involve the application of estimates of employment changes
by model plants. Employment changes in model plants would then be gen-
eralized according to the number of actual plants represented by the model
plant and aggregated to derive an estimate of total employment effects for
the industry. Employment dislocations are noted as appropriate.
6. Community Impact Analysis
The community impact analysis identified the potential impacts on local
community economies when the impacted plant represented a major source
of employment and income. This anlaysis was based on a knowledge of the
location of plants, particularly threatened plants, and a general under-
standing of the economic base of those communities and the relative im-
portance of threatened plants to local economies.
7. Dislocation Analysis
The analysis of the dislocational effects of control requirements addressed
the possibility of plants closing their existing facilities to move to other
locations offering better opportunities either for control compliance or
production or market efficiencies. The potential for dislocation was partic-
ularly true for plants required to install control technologies which were
land intensive where the plants were limited in their respective availability
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of land. This analysis was based on a general knowledge of trends in the
industry, the availability of land for the industry's plants, and the land
requirements of the treatment technologies.
8. Balance of Trade Impact Analysis
Balance of trade impact analysis dealt with those products that have
competitive import and export positions. The analysis considered whether
or not the estimated price changes would hinder the products competitive
positions with regard to exports or increases in foreign imports. Where
important, estimates on the amount of trade that potentially could be
impacted and total trade levels are presented.
9. Other Impact Analysis
Other potential impacts may be created by the imposition of pollution
control guidelines. These are unique to given industries and require
a case-by-case approach. An illustration of such an impact would be a
plant that produces a critical intermediate, an input for other indus-
tries. The loss of this plant or large price increases could produce
serious backward or forward effects on producers or consumers. To the
extent additional impacts were as important, they are noted.
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III. THE STRUCTURE OF THE INDUSTRY
The textile industry is comprised of a diverse group of establishments
varying in size, process, and product. The general characteristics of the
industry establishments range from small family-owned mills utilizing tradi-
tional manufacturing and managerial practices to large multi-mill corporations
who rely on the latest managerial and sophisticated process practices available.
The final products produced by textile establishments range from twine, sand-
paper, and tire cords to carpets, blankets, lace, hosiery, and fabrics for
apparel.
The characterization of the textile industry structure is difficult
because of the diversity of establishments and their varying levels of inte-
gration. The most common structural depiction of the industry is the Standard
Industrial Classification (SIC) system utilized by the U.S. Bureau of the
Census. This classification system, which groups establishments according
to similar end products produced, is useful in that much of the published
data concerning the industry are presented according to SIC groupings.
However, the SIC groupings are often relatively large and thus represent
a variety of types of establishments within a specific SIC grouping.
Another approach to the structural characterization of the industry is to
categorize establishments according to the manufacturing functions performed
at the facility. This functional approach is considerably more applicable to
the industry and because wastewater characteristics are predominately depen-
dent upon the process functions performed at a facility, it enables the indus-
try establishment to be grouped into categories with similar wastewater
characteristics.
The limiting factor of the functional categorization of the industry is that
there are very limited published data corresponding to the specific functional
categories. Accordingly, both categorization approaches are utilized in this
chapter to describe the industry structure. When possible, attempts will be
made to mesh the two approaches so the industry structure is adequately
represented.
A. Subcategorization of the Industry
The textile industry consists of establishments which typically create
and/or process textile related materials for further processing into apparel,
home furnishings, or industrial goods. While the SIC groupings are primarily
based on the final product shipped from the establishments, actual industry
facilities are more realistically classified according to the functions per-
formed at each establishment.
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The following material in this section discusses the subcategorization of the
textile industry using two taxonomies: (1) SIC industry groups, and (2)
categorization of plants by manufacturing process.
1. Conventional Industry Subcategories
According to the Bureau of the Census, the United States textile/apparel
industry is characterized as being comprised of two distinct industry
groups with one group manufacturing textile products such as fabric and
carpets and the other group manufacturing apparel. The Census, through
its SIC system, categorizes these two industry groups as the Textile
Mill Products Group (SIC 22) and the Apparel and Other Textile Products
Group (SIC 23), respectively.
The Textile Mill Products Group, or the textile industry, includes 30
separate industries which manufacture approximately 90 classes of pro-
ducts. These establishments are principally engaged in receiving and
preparing fibers; transforming these materials into yarn, thread, or
webbing; converting the yarn and web into fabric or related products;
and finishing these materials at various stages of production. Many of
these establishments produce final consumer products such as thread, yarn,
bolt fabric, hosiery, towels, sheets, carpets, etc., while the rest produce
transitional products for use by other establishments in both SIC Groups
22 and 23.
The Apparel and Other Textile Products Group, or the apparel industry,
includes 33 separate industries which manufacture some 70 classes of pro-
ducts. The establishments in this group are principally engaged in
receiving woven or knitted fabric for cutting, sewing, and packaging
for consumer purchase.
The processes associated with the textile industry are numerous and
some result in the generation of wastewaters. The processes associated
with the apparel industry are generally considered dry and do not result
in the generation of wastewater. Consequently, the facilities in the
apparel industry (SIC 23) do not have, nor do they require, wastewater
discharge regulations. Accordingly, an economic impact evaluation of
SIC 23 will not be necessary and thus this group has been eliminated
from further discussion in this report.
Under the SIC system, the textile industry includes establishments engaged
in performing any of the following operations: (a) preparing fiber and
subsequent manufacturing of yarn; (b) manufacturing broad woven fabric,
narrow woven fabric, knit fabric, and carpets and rugs from yarn; (c)
dyeing and finishing fiber, yarn, fabric, and knit apparel; (d) coating
and waterproofing fabric; (e) the integrated manufacturing of knit apparel:
and (f) the manufacturing of felt goods, lace goods, nonwoven fabrics, and
miscellaneous textiles.
The SIC system also divides the textile industry into nine 3-digit industry
groups and thirty 4-digit SIC industries. At the 3-digit level the overall
industry includes four groups of Weaving Mills (SIC 221-224) with a single
III-2
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4-digit SIC industry classified under each of the groups. Also at the
3-digit group level are the Knitting Mills (SIC 225), Textile Finishing
(SIC 226), Floor Covering Mills (SIC 227), Yarn and Thread Mills (SIC 228),
and Miscellaneous Textile Goods (SIC 229).
The major characteristics of the 3-digit groups are described below:
1. Weaving Mills (SIC 221, 222, 223, 224) - this classification covers estab-
lishments constructing fabric by interlacing yarns of wool, cotton or
man-made fibers. These materials can be woven into broad woven (greater
than 12 inches) or narrow (12 inches or less) fabrics.
2. Knitting Mills (SIC 225) - this classification contains establishments
constructing fabric by connecting yarns of cotton, wool or man-made
fibers. Knit production is more flexible and faster than weaving and
accordingly knitting machinery allows for rapid pattern changes. The
SIC system subclassifies knitting mills into groups including hosiery,
knit outerwear and circular knit fabrics.
3. Textile Finishing—Except Wool (SIC 226) - this classification consists
of establishments involved in the dyeing and treating of cotton and man-
made fabrics and yarn. Fabrics are dyed by different methods, depending
on the desired effect, and can be treated to resist wrinkles and static,
inhibit flames, repel water, or any number of other qualities.
4. Floor Covering Mills (227) - this classification encompasses mills pro-
ducing a variety of carpets and rugs including woven and tufted fabrics.
5. Yarn and Thread Mills (SIC 228) - this classification includes establish-
ments spinning yarn from fibers of cotton or wool or producing yarns from
man-made fibers.
6. Miscellaneous Textile Goods (SIC 229) - this classification covers estab-
lishments utilizing a variety of processes to produce numerous products
such as non-woven felt, lace goods, padding and upholstery filling, tire
cords and cordage, and twine.
Table III-l lists the respective 4-digit industries corresponding to the above
3-digit industry groups and describes their primary operations.
Selected 4-digit industry groups can be further classified according to their
respective type of organization. These industry groups, which are predominately
associated with finishing operations, can be classified as one of the follow-
ing: 1) manufacturer; 2) commission mills; or 3) contractor. Typically the
manufacturer processes fabrics and apparel utilizing their own raw materials
while the commission and contractor firms process fabrics owned by others.
The selected 4-digit industries and their respective types of organizations
are depicted in Table III-2. It should be noted that while the organizational
distinction is not particularly important from a wastewater point-of-view, it
is economically significant as the financial profiles of the various organiza-
tions would differ.
III-3
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III-5
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Table III-2. Type of organizations in the textile industry
SIC
no.
SIC Industry
SIC
suffix Type of Organization
2231 Weaving and finishing, wool
2253 Knit outerwear mills
2257 Circular knit fabric mills
2258 Warp knit fabric mills
2261 Finishing plants, cotton
2262 Finishing plants, man-made
2269 Finishing plants, NEC
2282 Throwing and winding mills
11 manufacturers
51 jobbers, commission weaving
11 manufacturers
22 converters
33 contractors
11 manufacturers
22 converters
33 contractors
11 manufacturers
22 converters
33 contractors
11 finishing own fabrics
51 commission finishing
11 finishing own fabrics
51 commission finishing
11 finishing own yarn
51 commission finishing
11 manufacturers
51 commission mills
Source: U.S. Department of Commerce, Bureau of the Census
III-6
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2. Subcategorizatlon of Mills by Type of Process
While the SIC system categorizes establishments according to their end
product, it has been determined within most SIC groups, substantial dif-
ferences in wastewater characteristics occur. The reason for these dif-
ferences is that while the general end products of different establish-
ments are similar, establishments may differ in the methods of producing
the end product. An example of this would be a fully integrated facility
producing a finished textile product being in the same SIC grouping as an
establishment which contracted or commissioned another firm to do the
majority of the processing but yet who retained title to the finished
product and who was responsible for shipping the final product. Therefore,
the SIC system is not an effective means of segmentation of the industry
with respect to manufacturing processes and waste characteristics.
Because of its structure, combinations of end products, fiber composition,
and manufacturing and finishing processes, the textile industry required
considerable study to develop well defined groupings with similar waste
characteristics. Factors that had to be considered were raw materials used,
products, manufacturing processes, size and age of mill and equipment, waste
control technology, treatment costs, energy requirements, and solid waste
generation and disposal requirements. A number of approaches have been
used in the past in addition to the SIC system; however most had serious
drawbacks regarding subcategorization.
Categorization for the most recent studies on textile waste water charac-
teristics and treatment has been based on raw materials, further identi-
fied by product lines and associated effluents. One of the most extensive
studies is contained in the 1974 Development Document on Textile Mills Point
Source Category. It categorized first on the basis of a very important raw
material distinction, the processing of wool versus other textile fibers (pri-
marily cotton and synthetics). It then categorized wool and other textile
fibers based on products that relate by types of wastes. Using this
approach, the subcategories discussed below were developed by the Technical
Contractor for the purpose of dividing the industry into segments with
similar discharge characteristics while maintaining a logical and manageable
system.
The nine subcategories and a brief description of the type of facilities which
would be classified in each subcategory are presented below.
Subcategory
(1) Wool Scouring. This subcategory covers facilities that scour
natural impurities from raw wool and other animal hair fibers as
the majority of their processing. Integrated mills that perform
wool scouring and other finishing operations fall within Subcate-
gory 2 (discussed below). Wool scouring is separated from other
III-7
-------
subcategories because wool arid other animal hair fibers require
extensive preliminary cleaning resulting in raw wastes considerably
stronger than those of other subcategories.
(2) Wool Finishing. This subcategory covers facilities that finish
fabric, a majority of which is wool, other animal hair fiber, or
blends containing primarily wool or other animal hair fibers, by
employing any of the following processing operations on at least
five percent of their total production: carbonizing, fulling,
bleaching, scouring (not including raw wool scouring), dyeing and
application of functional finish chemicals. Mills that primarily
finish stock or yarn of wool, other animal hair fibers, or blends
containing primarily wool or other animal hair fibers and that
perform carbonizing are included in this subcategory and wool
stock or yarn mills that do not perform carbonizing and scouring
are covered under Subcategory 7, Stock and Yarn Finishing. The
processes comprising a typical wool finishing operation include
carbonizing, fulling, fabric scouring, and dyeing. Wool finishing
is .differentiated from other finishing categories because of the
manufacturing processes (principally carbonizing and fulling) and
dyes and other chemicals associated with wool operations. As a
result, wool finishing operations generate high volume wastes with
pH fluctuations and oil and grease.
(3) Low Hater Use Processing. Low water use processing operations
include establishments primarily engaged in manufacturing greige
goods, laminating or coating fabrics, texturizing yarn, tufting
and carpet backing, producing tire cord fabric, and similar
activities in which either cleanup is the primary water use or
process water requirements are small, or both. These operations were
excluded from analysis since the process-related wastewater generated
and discharged from each facility is comparatively small.
(4) Woven Fabric Finishing. This subcategory covers facilities that
primarily finish fabric, a majority of which is woven, by employ-
ing any of the following processing operations on at least five
percent of their production: desizing, scouring, bleaching,
mercerizing, dyeing, printing, or application of functional
finish chemicals. Integrated mills that finish a majority of
woven fabric along with greige manufacturing or other finishing
operations such as yarn dyeing are included in this subcategory
and total finishing production should be applied to the applicable
Woven Fabric Finishing effluent limitations to calculate discharge
allowances. Denim finishing mills are also included in this cate-
gory. Woven fabric composed primarily of wool is covered under
Subcategory 2 - Wool Finishing.
III-8
-------
A wide variety of processes are used in finishing woven fabric,
and, in terms of cumulative flow this subcategory is the largest.
Processes that may be employed include desizing, scouring, bleach-
ing, mercerizing, dyeing, printing, and application of functional
finish chemicals.
Desizing results in a major difference in waste characteristics
of woven fabric finishing facilities, and the amount of desiz-
ing practiced is responsible for differences in the waste charac-
teristics within the Woven Fabric Finishing subcategory as well.
In addition, the number of processes performed at a particular
mill may vary from merely scouring or bleaching to all of those
previously listed. Consequently, it is important to further sub-
divide this subcategory.
(a) Simple Processing. This Woven Fabric Finishing subdivision
covers facilities that perform fiber preparation, desizing,
scouring, functional finishing, and/or one of the following
processes applied to more than five percent of total produc-
tion: bleaching, dyeing, or printing. This subdivision
includes all Woven Fabric Finishing mills that do not Qualify
under either the Complex Processing or Complex Processing Plus
Desizing subdivisions.
(b) Complex Processing. This Woven Fabric Finishing subdivision
covers facilities that perform fiber preparation, desizing
of less than 50 percent of their total production, scouring,
mercerizing, functional finishing, and more than one of the
following, each applied to more than five percent of total
production: bleaching, dyeing, and printing.
(c) Complex Processing Plus Desizing. This Woven Fabric Finishing
subdivision covers facilities that perform fiber preparation,
desizing of greater than 50 percent of their total production,
scouring, mercerizing, functional finishing, and more than one
of the following, each applied to more than five percent of
total production: bleaching, dyeing, and printing.
(5) Knit Fabric^Finishing. This subcategory covers facilities that
primarily finish fabric made of cotton and/or synthetic fibers, a
majority of which is knit, by employing any of the following pro-
cessing operations on at least five percent of their production:
scouring, bleaching, dyeing, printing, and application of lubri-
cants, antistatic agents, and functional finish chemicals. Inte-
grated mills that finish a majority of knit fabric along with greige
manufacturing or other finishing operations such as yarn dyeing are
included in this subcategory.
III-9
-------
Basic knit fabric finishing operations are similar to those in the
Woven Fabric Finishing subcategory and may include scouring, bleach-
ing, dyeing, printing, application of lubricants, antistatic agents,
and functional finish chemicals. Knitting is performed in conjunc-
tion with finishing at most of these facilities. Desizing is not
required in knit fabric finishing and mercerizing is uncommon in
practice. The generally lower waste loads of the subcategory can
be attributed to the absence of these processes.
As with woven fabric finishing, the number of processes performed
at a mill may vary considerably. In addition, hosiery manufacture
is distinct in terms of manufacturing and raw wastewater character-
istics. Consequently, internal subdivision is required for this
subcategory.
(a) Simple Processing. This Knit Fabric Finishing subdivision
covers facilities that perform fiber preparation, scouring,
functional finishing, and/or one of the following processes
applied to more than five percent of total production: bleach-
ing, dyeing, or printing. This subdivision includes all Knit
Fabric Finishing mills that do not qualify under either the
Complex Processing or Hosiery Products subdivisions.
(b) Complex Processing. This Knit Fabric Finishing subdivision
covers facilities that perform fiber preparation, scouring,
functional finishing, and/or more than one of the following
processes each applied to more than five percent of total
production: bleaching, dyeing, or printing.
(c) Hosiery Products. This Knit Fabric Finishing subdivision
covers facilities that are engaged primarily in dyeing or
finishing hosiery of any type. Compared to other Knit Fabric
Finishing facilities, Hosiery Finishing mills are generally
much smaller (in terms of wet production), more frequently
employ batch processing, and more often consist of only one
major wet processing operation. All of these factors con-
tribute to their lower water use and much smaller average
wastewater discharge.
(6) Carpet Finishing. This subcategory covers facilities that primarily
finish textile-based floor covering products, of which carpet is
the primary element, by employing any of the following processing
operations on at least five percent of their production: scouring,
bleaching, dyeing, printing, and application of functional finish
chemicals.
[11-10
-------
Integrated mills that finish a majority of carpet along with tufting
or backing operations or other finishing operations such as yarn
dyeing are included in this subcategory. Mills that only perform
carpet tufting and/or backing are covered under Subcategory 3 - Low
Water Use Processing. Carpet finishing is a distinct segment of the
textile industry because of the lower degree of processing required
and the typically weaker wastes that result.
(7) Stock and Yarn Finishing. This subcategory covers facilities that
primarily finish stock, yarn, or thread of cotton and/or synthetic
fibers by employing any of the following processing operations on
at least five percent of their production: scouring, bleaching,
mercerizing, dyeing, or application of functional finish chemicals.
Thread processing includes bonding, heat setting, lubrication, and
dressing, but these processes are basically dry and do not generate
much wastewater. Facilities finishing stock, or yarn, principally
of wool also are covered if they do not perform carbonizing as
needed for coverage under Subcategory 2 - Wool Finishing. Denim
finishing is included under Subcategory 4 - Woven Fabric Finishing.
Typical stock and yarn finishing may include scouring, bleaching,
mercerizing, dyeing, or functional finishing. Stock dyeing is
basically tub dyeing, but yarn or thread dyeing may include any
of the following methods: skein, package, space, or beam. As a
result of process differences, the concentrations of the pollutants
in the raw wastewater in this subcategory are lower than those found
in most other subcategories.
(8) Nonwoven Manufacturing. This subcategory covers facilities that
primarily manufacture nonwoven textile products of wool, cotton,
or synthetics, singly or as blends, by mechanical, thermal, and/or
adhesive bonding procedures. Nonwoven products produced by fulling
and felting processes are covered in Subcategory 9 - Felted Fabric
Processing.
The Nonwoven Manufacturing subcategory includes a variety of products
and processing methods. The processing is dry (mechanical and thermal
bonding) or low water use (adhesive bonding) with the major influence
on process-related waste characteristics resulting from the cleanup
of bonding mix tanks and application equipment. Typical processing
operations include carding, web formation, wetting, bonding (padding
or dipping with latex acrylic or polyvinyl acetate resins) and
application of functional finish chemicals. Pigments for coloring
the goods are usually added to the bonding materials.
(9) Felted Fabric Processing. This subcategory covers facilities that
primarily manufacture nonwoven products by employing fulling and felt-
ing operations as a means of achieving fiber bonding.
iii-n
-------
Wool, rayon, and blends of wool, rayon, and polyester are typically
used to process felts. Felting is accomplished by subjecting the
web_or mat to moisture, chemicals (detergents), and mechanical
action. Wastewater is generated during rinsing steps that are
required to prevent rancidity and spoilage of the fibers.
The major relationships between the functional categories and the SIC
system are shown in Table III-3. The table indicates those SIC industries
in which each of the functions are being performed. Conversely it points
out for each of the functional categories the SIC industries under which
plants or mills may be classified.
For example, the Wool Finishing subcategory includes mills classified
under three SIC industries: SIC 2231 (woven fabric wool), SIC 2269
(yarn finishing), and SIC 2283 (wool yarn).
Woven Fabric Finishing includes mills classified under five SIC industries:
SIC 2211 (woven cotton), SIC 2221 (woven man-made), SIC 2241 (narrow fabrics),
SIC 2261 (cotton fabric finishing), and SIC 2262 (man-made fabric finishing).
Except in the case of SIC 2261, 2262, and 2269, mills classified under each
of the SIC industries will fall either in the "low water processing category"
or one of the finishing subcategories. Mills classified under SIC 2269 will
fall for the most part, in the Stock and Yarn Finishing subcategory. All
of the mills classified under SIC 2261 or 2262, should fall within the single
subcategory - Woven Fabric Finishing.
For purposes of the impact analysis, the textile industry will be seg-
mented according to the functional classification system described in this
section. This segmentation will serve as the basis for the development of
representative economic model plants discussed in Chapter VI.
It should be noted for the remainder of the discussions of this report, an
attempt will be made to portray information according to the functional
categorization scheme. Unfortunately, however, much of the published data
are not organized in this scheme but rather are based on the SIC system.
As such, some report sections are necessarily depicted on a SIC basis.
B. Plant Characteristics
Characterization of establishments in the textile industry is somewhat
difficult due to the diverse nature of textile mills. While many textile
mills are still small, family owned operations utilizing older traditional
manufacturing processes, there also exist numerous larger, multi-plant cor-
poration owned operations who have the latest in textile manufacturing equip-
ment. In this section the major characteristics of these diverse mills will
be discussed.
111-12
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111-13
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1. Ownership Characteristics
In the early 1900's, the textile industry was characterized by a large
number of small, family-owned, highly specialized plants. About 1925, moder-
nization began to bring about significant changes in the ownership character-
istics with a trend towards concentration into larger, publicly owned corporations,
By 1974, the 100 largest corporations in the industry accounted for over 60
percent of the industry's assets while the 20 largest accounted for about 45
percent, according to data contained in the Source Book of Statistics of
Income (IRS). The concentration has resulted in the reduction of the
number of small, privately-held firms; many of which have seen acquired
by larger firms. In 1969, over 30 percent of all of the textile companies
were non-corporate enterprises, including 2,300 proprietorships and 800
partnerships. A year later, one-third of these had disappeared either as
a result of acquisitions, closures, or incorporations. According to the
Census less than 700 noncorporate firms were in operation in 1972. About
60 percent of these were single proprietorships and 40 percent were part-
nerships. Unfortunately no later data are available.
The types of operation and legal forms of organization for selected segments
of the textile industry are shown in Table III-4 for 1972 (the latest year
for which these data have been published). Of the 7,203 establishments in
the industry, close to 6,500, or 90 percent, were organized as corporations,
either as single plant or parts of multi-unit companies. The remaining 700
establishments were organized as noncorporate entities, predominantly as
single unit companies. The greatest corporate concentration occurred within
the yarn and thread segment with 96 percent of the establishments incorporated.
The least concentration occurred within the carpet and rug industry with 82
percent organized as corporations.
According to the Census data the noncorporate establishments were generally
smaller mills within the industry with close to 85 percent of the noncorporate
firms operating with less than 20 employees per plant. Approximately 30
percent of the corporate firms were in this employee-size category. The
small size of noncorporate companies is also apparent in a comparison of
shipments; while the noncorporate firms accounted for about ten percent of
the total mills in the country, they produced less than one percent of the
industry's output.
The largest publicly held corporation presently is Burlington Industries
with over one hundred plants in the U.S. and about 70,000 employees. The
second largest is J. P. Stevens with close to 45,000 employees and an estimated
70 plants. The twenty largest publicly held corporations (as contained in
The Value Line) are estimated to own close to 500 mills arid plants. The
largest privately held corporation is Peering Miliken with an estimated 50
plants, based on data contained in Davison's Blue Book.
111-14
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111-15
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Many of the largest publicly held companies are closely held according to
information contained in The Value Line. Close to 90 percent of the stock
in the Barwick Corporation is owned by its directors and officers. Over
70 percent of Spring Mill's stock is owned by insiders. Between 40 and 50
percent of the stock is controlled by insiders in companies such as Belding
Heminway, Cone Mills, Lowenstein and Sons, Martin Processing, and Reeves
Bros. Over 40 percent of Fieldcrest Mills' stock is owned by the Amoskeag
Company, a Dutch based organization.
Although most of the mills in the industry are owned by corporations pri-
marily engaged in textile manufacturing, many are owned by other types
of enterprises which have logical footholds in the textile industry.
All of the largest tire manufactures have mills specializing in the fabri-
cation of tire cord and fabrics (SIC 2296). Many of the chemical companies
producing man-made fibers for the industry have extended their operations to
include the manufacture of yarns and fabrics. About 30 percent of the sales
of Owens-Corning Fiberglas are in textile products. Dupont not only produces
man-made fiber but also is involved in the manufacture of fabrics and finishes.
GAP, with revenues in chemicals and building material exceeding one billion
dollars, manufactures felts. Armstrong-Cork which is one of the largest
manufacturers of resilient flooring owns a mill manufacturing tufted carpets.
Standard Oil (Indiana) has a textile subsidiary manufacturing synthetic
fabrics as an extension of its chemical operation.
Recreation industries involved in the manufacture of sporting goods have often
entered the textile and apparel area. Brunswick owns a subsidiary engaged
in carpeting activities. Industries involved in the production of household
and personal care items have also moved into textile activities. Colgate-
Palmolive produces nonwoven fabrics including bandages, towels, and disposable
diapers. Parke-Davis manufactures surgical materials in its textile operations,
Ownership characteristics are diverse and changing. Understanding of each
segment's ownership characteristics is important as it may be a consideration
in the determination of each segment's ability to generate capital necessary
to meet the proposed effluent discharge limitations. This determination of
ability to finance capital expenditures is discussed in detail in Chapter IV.
2. Single vs. Multiplant Operations
According to the Census Data, 34 percent of all of the plants (or mills) in
the industry operate in multiplant companies (99 percent of these are incor-
porated). These plants account for about 77 percent of the industry ship-
ments and employ over 80 percent of all textile workers. The parent companies
vary in size from the large Burlington Industries (over 100 plants) to the
relatively small 2 and 3 plant operations. The operating and financial
characteristics of these "multiplant operations" (as used in this discussion,
the term means a single plant which is part of a multiunit company) differ
not only from the single plant operations but also among the other multi-
plant operations. The differences which are relevant to this study involve
differences in sizes, type operations, and financial profiles.
111-16
-------
The single plant operations are predominantly smaller than the multiplant.
The Census of Manufactures estimates the number of small plants having less
than 20 employees for each of the 4 digit SIC industries. From these esti-
mates, approximately 2900 plants or 37 percent of the plants in the industry
are identified as small. Over 90 percent of these small establishments are
single plant operations. Table III-5 shows the percentage of small plants
in the total industry and in selected SIC industries. In addition it com-
pares the percentage of small plants in each of the two categories: single
and multiplant operations. SIC industries with a relatively large number
of small plants are wool finishing, circular knit, carpet tufting and cotton
textile finishing, each with about 40 percent of the total plants classified
as small. The percentages of small plants among the multiplant operations
in these industries range from 8 percent in wool finishing and carpet tufting
to 20 percent in textile finishing (cotton). In the single plant operations
in each of these industries, the percentages of small plants exceeds 50 per-
cent. The two SIC industries with the lowest percentages of small plants
are the man-made weaving mills and the yarn mills each with less than 20
percent. The percentage of small plants in the multiplant operations of
these industries are 3 and 4 percent, respectively. The percentages of
small plants in the single plant operations are 43 percent for the weaving
mills and 36 percent for the yarn mills. For the total textile industry, 8
percent of all multiplant operations are small as opposed to 52 percent of
the single plant operations.
Table III-6 illustrates the relatively small size of the single plant opera-
tions from a different perspective. In the table, the average size in terms
of value of shipments of the large plants in each of the two categories are
compared. In this case the large plants are those with an employment level
of 20 or more employees. The largest average sizes are found in weaving
(SIC 2211 and 2221) and textile finishing (man-made - SIC 2262) with average
shipments exceeding $13 million. In these SIC industries, the average size
of the multiplant operations is approximately 3 times as great as that of
the single plant operations. In the multiplant category, the smallest plants
are found in wool weaving and finishing (SIC 226), wool yarn mills (SIC 2283)
and felt processing (SIC 2292) with shipments averaging between $5 and $6
million.
The smallest sizes in single plant operations are found in hosiery (SIC 2251),
knit fabric (SIC 2257 and 2258) and wool yarn (SIC 2283). Shipments in these
industries average less than $2 million. The average of all plants in the
multiplant category is $10 million which is 4 times as great as the $2.3
million average for the single plant operations. The feast differences
between averages of the two categories occur in wool weaving and finishing,
carpet tufting, yarn mills and felt processing.
In addition to being characterized by size, single plant operations can be
characterized by type of plant within segments (types of plant include
commission, finishers of own fabric, and integrated mills). Table III-7
shows the percentage of single plant operations in the various segments by
types of plant; these percentages are based on the survey of the industry
111-17
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Table III-6. Plant shipments of selected SIC industries
(Average shipments of plants with 20 or more employees)
SIC
2211
2221
2231
2251
2257
2258
2261
2262
2269
2272
2281
2283
2291
SIC 22
Total
SIC Industry
Weaving mills cotton
Weaving mills man-made fibers
Weaving and finishing mills wool
Women's hosiery
Circular knit fabric mills
Warp knit fabric mills
Finishing plants cotton
Finishing plants man-made fibers
Finishing plants (n.e.c.)
Tufted carpets and rugs
Yarn mills, except wool
Wool yarn mills
Felt
Textile Mill Products
Multiplants
( *t 1
v-pi
13.5
13.9
5.5
7.9
11.0
10.3
8.9
13.4
7.2
11.8
7.1
5.6
5.2
10.0
Single plants
i nnn nnn \-~
4.2
3.0
2.2
1.3
1.9
1.4
2.2
4.3
2.1
5.2
3.6
1.7
3.7
2.3
Source: Census of Manufactures, 1972.
111-19
-------
Table III-7. Single plant operations in segments by type plant
(Plants responding to industry survey)
Type plant
Segment
Percent of plants
in segment
commission
finishers, own
texti1es
integrated mills
wool scouring
wool finishing
woven fabric finishing
knit fabric finishing
stock & yarn finishing
woven fabric finishing
hosiery finishing
stock & yarn finishing
wool finishing
woven fabric finishing
knit fabric finishing
hosiery finishing
carpet finishing
stock & yarn finishing
75
100
70
100
100
20
60
50
70
40
40
60
35
50
Source: Development Planning and Research Associates, Inc.
111-20
-------
done as a part of this economic analysis. The largest portion of all com-
mission mills are single plant operations. Based on the survey results, all
of the commission mills found in three segments (wool finishing, knit fabric,
and yarn- finishing) were single plant operations. In wool scouring and woven
fabric finishing about 70 percent of the commission mills were single plant
operations. Among finishers of their own textiles, the percentage of single
plant operations varied widely between the three segments involved. In the
woven fabric finishing segment, only 20 percent of the plants were found to
be single plant operations. In hosiery and yarn finishing, the percentages
were 60 and 50 percent respectively. Among the integrated mills, the percentages
of single plant operations varied from a low of 35 percent in carpet finishing
to a high of 70 percent in wool finishing.
As can be expected from the difference in sizes and type plants, there are
significant differences in the financial profiles of single and multiplant
operations as reflected in Table III-8. The table compares value of ship-
ments and cost of materials (both expressed as percentages of value ship-
ments) and the inventory turnover ratios between the single and multiplant
operations in selected SIC industries. With one exception, the value added
(percent) of single plant operations of all industries is greater than that
of multiplant operation while the cost of materials is less. This relation-
ship indicates primarily the economies of scale which can be attributed to
differences in sizes. The greatest differences in value added occur in the
knit fabric mills (SIC 2257 and 2258) and the man-made textiles finishing
plants (SIC 2262). Relatively minor differences occur in several of the
SIC industries. In man-made weaving (SIC 2221) and textile finishing (SIC
2269) the difference in the value added amounts to only a percentage point
between the two categories. The inventory turnover (the ratio of value of
shipments to inventories) for single plant operations is generally higher
than that of multiplants. This can be attributed to a combination of factors.
Significant considerations are the specialized markets and products with
which the single plant operations can be expected to be involved.
While the most significant differences in financial profiles stem from the
size and type plant characteristics of each category, difference also result
from the financial accounting systems inherent in the two categories. The
economic viability of a single plant operation can be directly measured by
its income statement and balance sheet. There is relatively no flexibility
in accounting for increased costs associated with pollution control. Reduc-
tion in profits because of the imposition of controls will directly reflect
a change in viability of the plant. However, the viability of the multi-
plant operations is tied in with the profitability of the parent company.
The financial accounting is more flexible and the impacts of controls can
not be as easily discerned. However, the degree of flexibility still
depends to a great extent on the type organization of the parent company.
Exhibit III-l shows the basic corporate organizational structures found in
the industry: (1) parent-subsidiary and (2) corporate headquarters - division.
111-21
-------
Table III-8. Financial characteristics of single and multiplant
operations—selected SIC industries
SIC
2211
2221
2231
2251
2257
2258
2261
2262
2269
2272
2281
2283
2291
Total
SIC Industry
Weaving mills cotton
Weaving mills man-made fibers
Weaving and finishing mills wool
Women's hosiery
Circular knit fabric mills
Warp knit fabric mills
Finishing plants cotton
Finishing plants man-made fibers
Finishing plants, (n.e.c.)
Tufted carpets and rugs
Yarn mills, except wool
Wool yarn mills
Felt
SIC 22 Textile Mills Products
Plant
Operations
(as a %
Multi-
Single
Multi-
Single
Multi-
Single
Multi-
Single
Multi-
S ingle
Multi-
Single
Multi-
Single
Multi-
Single
Multi-
Single
Multi-
Single
Multi-
Single
Multi-
Single
Multi-
Single
Multi-
Single
Value
Added
Cost of
Material
of shipments)
40
49
47
53
51
58
43
50
35
46
29
52
51
54
33
60
42
43
31
42
38
43
41
45
56
51
40
49
60
52
53
47
51
43
55
50
67
54
73
49
50
46
67
40
58
57
70
62
62
58
63
56
44
49
60
52
Inventory,
Turnover!/
(ratio)
6.8
11.6
6.8
7.5
4.5
6.1
5.2
7.9
7.8
11.3
5.6
9.3
9.6
13.2
9.2
21.9
12.9
15.1
5.4
6.5
9.4
8.7
5.6
7.4
5.3
8.9
6.8
11.6
— Shipments divided by inventory
Source: Census of Manufactures, 1972.
111-22
-------
Exhibit III-1. Multiplant coroorations.
PARENT-SUBSIDIARY
(Single plant subsidiary)
Corporation
(Single or Multi-
Plant)
Plant (Inc.)
(Multiplant subsidiary)
Corporation
Corooration
Headquarters
_L
Plant
Plant
CORPORATE HEADQUARTERS & DIVISIONS
(Divisions horizontally integrated)
Corporation
Headquarters
(Divisions vertically integrated)
Corooration
Headquarters
Source: Development Planning and Research Associates, Inc.
111-23
Greige
Mill
Plant
Finishing
-------
In the parent-subsidiary organizations, the accounting system for separately
incorporated plants is very similar to single plant operations with very
little flexibility. The income statement may be consolidated with the
parent corporation; however, separate systems are usually maintained. The
impacts of pollution control costs on these plants would be about the same
as on single plant operation. Corporate headquarters - division organiza-
tions have considerably more flexibility in the accounting systems and con-
sequently, a much greater viability may be portrayed when compared to single
plant operations. Accounting systems used in these organizations may incor-
porate cost or profit centers. With the use of these centers, the viability
of individual plants can not be easily discerned. Consequently, the impacts
of pollution control costs will be felt only at the corporate level. With
horizontally integrated companies (one or more wet processes) the impact
is going to be relatively great since all plants can be expected to be sub-
jected to increased costs. Although the impacts are great they are not as
severe as those of single plant operations since the indirect costs can be
reduced by allocation to two or more centers. In the case of vertical
organizations, this allocation of costs is much more flexible and the
viability of a given plant is much less apparent.
In the cost center system, profits are not normally identified with the
plants. Consequently, the impacts of pollution control can be ascertained
only at the corporate level. A corporation with greige mills and finishing
operations can absorb costs more readily than either single plant operations
or horizontally organized multiplant operations. Under profit center systems,
the profits between plants are normally allocated on a cost basis. Conse-
quently, the costs will in effect be absorbed both by the greige mill and
the finisher. This amounts to a partial price pass through.
3. Number of Plants and Firms
The number of plants and firms in the textile industry is discussed in this
section. The section is divided into two parts. The first part describes
the industry in aggregate form according to Census data. The second part
of this section concentrates on the number of textile mills which are
believed to be wet processors, that is, those facilities which are capable
of generating wastewaters.
a. The Aggregate Industry
The aggregate number of establishments (mills and plants) and companies
comprising each of the SIC industry groups (3 digit leve;l) within the
textile industry are shown in Table III-9 for the period 1963-1977. Dur-
ing this period, the total number of establishments remained fairly stable,
fluctuating between 7,100 and 7,200. However, the total number of companies
declined from over 6,300 in 1963 to approximately 6,100 in 1972 (data is not
available for 1977), revealing a trend towards greater concentration within
the industry. While the total number of textile mills has remained stable,
111-24
-------
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111-25
-------
the numbers within the various industry groups have been somewhat more
volatile. It should be noted that, to a great extent, this volatility
represents reelassifications under the SIC system based on changes in
the product mixes produced by the mills. It does not necessarily reflect
the actual plant closings and openings. The greatest change among the
industry groups occurred in the weaving mills with the number of establish-
ments declining from over 1,500 in 1963 to below about 1,200 in 1977. The
knitting mills (SIC 225) showed a slight decrease with the number of mills
going from over 2,800 in 1963 to about 2,700 in 1977. The greatest increase
occurred in the floor covering mills (SIC 227) with the number of mills
growing by 70 percent; an increase from 349 mills in 1963 to about 600 in
1977. The remaining industry groups saw moderate increases in their number,
varying between 5 and 15 percent.
Table 111-10 depicts the number of establishments for each of the SIC indus-
tries during the period 1963-1977. In Industry Group 221 (Weaving Mills),
the most significant change involved the wool weaving and finishing mills
which experienced a 60 percent decline during the period with the total
number of mills dropping from 361 in 1963 to 157 in 1977. The total number
of broad woven mills(SIC 221 and 222) remained fairly constant with a
decrease of less then 20 mills which amounted to a 3 percent decline. How-
ever, among the two type industries there were wide fluctuations. The
number of cotton mills (SIC 221) decreased by about 25 percent while the
man-made fiber mills (SIC 222) increased by about the same percentage. As
pointed out previously, this reflects more a change in classification of
mills than it does in mill openings and closings.
In Industry Group 225 (knitting mills), the total number of hosiery, under-
wear, and outerwear mills decreased by about 25 percent during the period
1963-1977. The number of mills producing gloves and other products (SIC 2259)
fluctuated between 60 and 80 during the period 1963-72 arid then increased
dramatically between 1972 to 1977, rising from 73 to 189. The bulk of
the increase can be attributed to a 250 percent increase in the number of
small plants (those that employ less than 20 workers) which climbed
from 40 to 141. The number of knit fabric mills increased from 518 in 1963
to over 900 in 1972. In 1972, the knit fabric mills were reclassified into
two separate SIC industries: circular (SIC 2257) and warp (SIC 2258).
Between 1972 end 1977, the number of circular knit fabric mills decreased
about 200 mills with the total number dropping from 716 to 518. The number
of warp knit fabric mills increased from 203 mills in 1972 to 233 in 1977.
The total number of plants in Industry Group 226 increased by about 7 per-
cent with the number climbing from 621 in 1963 to 668 in 1977. The number
of plants finishing woven fabric (SIC 2261 and 62) increased by about 10
percent going from 443 to 485. Within these two SIC industries, the changes
between the cotton and the man-made fiber plants paralleled those within the
weaving industries. That is, in 1963, the cotton plants outnumbered the
man-made fiber plants; however, in 1977 the man-made fiber plants outnumbered
the cotton plants.
I.II-26
-------
Table III- 10.
The textile industry, number of firms and establishments
(SIC Industries-4 digit level)
SIC
221
2211
2221
2231
2241
Industries 1
WEAVING MILLS
Weaving Mills Cotton
Weaving Mills Man-Made Fibers
Weaving & Finishing Mills-Wool
Narrow Fabric Mills
963
229
227
304
350
TOTAL T7T60
225
2251
2252
2253
2254
2256
2257
2258
2259
226
2261
2262
2269
227
2271
2272
2279
228
2281
2282
2283
2284
229
2291
2292
2293
2294
2295
2296
2297
2298
2299
TOTAL
KNITTING MILLS
Womens Hosiery
Hosiery (n.e.c.)
Knit Outerwear Mills 1,
Knit Underwear Mills
Knit Fabric
Circular Knit Fabric Mills
Warp Knit Fabric Mills
Knitting Mills (n.e.c.)
TOTAL 2,
TEXTILE FINISHING EXCEPT WOOL AND
Finishing Plants, Cotton
Finishing Plants, Man-Made Fiber
Finishing Plants (n.e.c.)
TOTAL
FLOOR COVERING MILLS
Woven Carpets and Rugs
Tufted Carpets and Rugs
Carpet and Rugs (n.e.c.)
TOTAL
YARN AND THREAD MILLS
Yarn Mills Except Wool
Throwing and Winding Mills
Wool Yarn Mills
Thread Mills
TOTAL
MISC. TEXTILE GOODS
Felt Except Woven Felts and Hats
Lace Goods
Padding and Upholstery Filling
Processed Textile Wastes
Coated Fabrics Not Rubberized
Tire Cords and Fabrics
Nonwoven Fabrics
Cordage and Twine
Textile Goods (n.e.c. )
TOTAL
363
504
175
104
487
--
--
36
719
KNIT
220
193
174
587
56
167
103
326
234
165
136
59
554
28
145
168
137
149
12
64
148
127
978
6,364
Source: U.S. Department of Commerce, Bureau
Firms
1967
218
272
262
345
1,097
302
423
1,156
99
489
--
—
61
2,530
202
212
187
601
55
210
78
342
256
159
127
63
605"
33
134
133
134
157
12
65
147
189
984
5,773
Establishments
1972
190
256
178
323
947
256
375
882
74
—
629
174
72
2,462
181
200
189
570
64
334
78
476
264
177
92
61
35T
38
99
119
102
184
9
66
134
338
1,089
6,138
of Census, 1972
1963
407
355
361
384
1,507
411
528
1,185
118
518
—
--
38
2,848
238
205
178
621
64
181
104
349
317
180
144
71
7I2~
36
152
183
141
162
20
69
167
137
1,067
7,104
Census
1967
393
396
310
384
1,483
355
448
1,179
113
541
--
—
62
2,698
216
233
192
641
61
244
80
385
377
181
135
75
768
40
142
151
141
178
20
68
169
196
1,105
7,080
1972
307
412
198
376
1,293
312
415
917
87
«
716
203
73
2,723
196
259
201
656
65
381
83
529
426
212
99
73
810
47
105
132
106
202
18
82
156
345
1,193
7,204
1977
308
437
157
326
1,228
(NA)
414
(NA)
(NA)
--
518
233
189, /
27670^
213
272
180
665
72
446
72
"390"
455
194
74
70
^793
44
70
119
97
196
21
94
171
(NA)
1,1 57l/
7,103^
of Manufactures,
I/ Estimated
-------
The total number of mills in Industry Group 227 (carpets) increased signi-
ficantly going from 349 in 1963 to 590 in 1977. The increase reflects the
dramatic jump in the number of tuftsd carpet mills which ran from 181 in
1963 to 446 in 1977. The number of woven carpet mills remained fairly con-
stant varying between 60 and 70 mills. Other carpet mills (Industry 2279)
experienced a substantial decline with a decrease in the total number from
104 to 72 during the period.
The total number of mills in Industry Group 228 (yarn) increased from 712
in 1963 to 810 in 1972; it then dropped to 793 in 1977. In this group the
yarn mills (SIC 2281) have shown a continued increase going from 317 to 455
during the period. The wool yarn mills (SIC 2283) have shown a significant
and continued decrease dropping from 144 in 1963 to 74 in 1977. The other
industries in the group have experienced a relatively stable level in their
total numbers during the period.
In Industry Group 229 (miscellaneous), the total number of plants has re-
mained relatively stable, fluctuating between 1006' and 1200. Several of
the SIC industries have shown significant decreases including lace goods
(SIC 2292), padding (SIC 2293) and processed textiles (SIC 2294). Indus-
tries showing appreciable increases in thei'r total number include non-
woven fabrics (SIC 2297) and textile goods (n.e.c.) (SIC 2299).
In the knitting mills group, the number of mills producing knit apparel
underwent a substantial decrease; these mills include those fabricating
hosiery, outerwear, underwear, and gloves. In contrast, the mills produ-
cing knit fabric experienced a dramatic increase reflecting the large
production of double knit goods during the early 1970's. In 1963, the
total number of mills producing knit fabric was just a little over 500.
By 1972, the number had almost doubled to over 900 mills,, It should be
noted that between 1963 and 1972, the knit fabric segment (SIC 2256)
was split into two separate industries under the SIC system: circular knit
(SIC 2257) and warp knit (SIC 2258) fabric mills. As a consequence, the
dramatic increase may have resulted to a degree from a reelassification of
small mills and, as pointed out previously, it does not necessarily repre-
sent the actual opening of 500 new mills.
During the period 1963-1972, the number of textile finishing plants in-
creased by close to 5 percent. The changes in the number of plants finish-
ing cotton fabric and those finishing man-made fabric primarily reflects
the change in the production of the two types of fabrics as discussed for
the weaving mills. The actual number of finishing plants in operation
changed only slightly increasing by about 40 plants.
The dramatic change in the number of floor covering mills occurred because
of a doubling of the number of tufting mills (SIC 2272) from about 180 in
1963 to close to 380 in 1972. There was very little change in the number of
mills producing woven carpets (SIC 2271). The other type of mills (SIC 2273)
experienced a significant decline in its number.
111-28
-------
b. "Wet" Processors
Because the textile industry is comprised of a diverse group of establish-
ments, many which are essentially dry and thus would not be affected by
wastewater regulations, the Technical Contractor conducted a major survey
of the facilities in SIC 22. The survey resulted in the development of a
master list of those textile mills believed to have wet production opera-
tions. This master list was developed based on information from several
sources including the Standard Industrial Classification (SIC), the Census
of Manufacturers, data collected during previous textile industry studies,
information from trade associations, and information contained in a com-
mercial directory, Davison's Textile Blue Book.
As a result of this effort the technical contractor developed a master
list consisting of 1,777 wet production facilities. Table III-ll depicts
these facilities according to their respective functional subcategories.
It should be noted there were 1,165 mills classified in the nine functional
subcategories which were considered to be wet processors. Additionally
there were 612 mills classified as low water use processing operations.
These low water use operations are predominately greige mills with weaving
and slashing operations.
4. Size of Plants and Firms
Information used to indicate mill size can be obtained from the Census of
Manufactures. Using the number of employees as a basis for mill size, the
textile industry was grouped into four size levels. Included as divisions
were: small, medium, large, and extra-large mills. The mills which form
the small category employed 1 to 19 workers, those in medium-sized mills
engaged 20 to 99 employees, 100 to 999 were classified as large, while
extra-large mills were defined as employing over 1,000. Table 111-12
depicts the four size levels for each SIC industry group and provides
totals for each level in the textile industry as of 1972 (later data is
not available). In the aggregated industry, 2,698 (37 percent) of the
7,203 mills were classified as small mills, 32 percent were defined as
medium, 29 percent fit into the large category with the remainder (2 per-
cent) employing greater than 1,000 workers. It can be determined from
this data that the majority of the mills are relatively small. Specifi-
cally, 70 percent of all the textile mills employed less than 100 employees
in 1972.
When the groups were analyzed on an individual basis, it was determined
each varies independently of the others. The weaving mills, for example,
reported that of 1,293 mills, 500 (39 percent) employed 100 to 999 workers.
The small level accounted for 30 percent of the mills, 27 percent were at
the medium level, and 5 percent operated at the extra-large employment level
111-29
-------
Table III-11. Wet processors, in the textile industry
Functional category Total mills listed
Wool scouring 17
Wool finishing 37
Low water use processing 612
Woven fabric finishing 336
Knit fabric finishing 282
Hosiery products 160
Carpet finishing 58
Stock and yarn finishing 217
Nonwoven manufacturing 38
Others (felted fabric processing) 20
TOTAL 1,777
Source: Sverdruo and Parcel and Associates, Inc.
1.11-30
-------
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The remaining industry groups are discussed below based on data depicted
in Table 111-12.
a. Knitting Mills (Industry Group 225)
Knitting mills were evenly distributed among small and medium firms. The
small mills accounted for 37 percent of the total, 2,723 mills, whereas the
medium-sized mills amounted to 38 percent. Collectively, the small and
medium levels comprised 75 percent of all knitting mills. In addition,
24 percent of the mills maintained, an employment level of 100 to 999
workers, while the remaining one percent of the knitting mills were
classified as extra-large.
b. Floor Covering Mills (Industry Group 227)
Mills in this group were relatively small in comparison to the mills in
the other groups of the textile industry. Floor covering mills accounted
for 528 mills of which 248 mills, or 47 percent, employed less than 20
workers. Twenty-six percent of the mills were of medium size. Grouping
the small and medium employment levels together resulted in 73 percent of
the floor covering mills maintaining employment levels of less than 100
workers. The large and extra-large mills accounted for the remaining 25
percent and 2 percent respectively.
c. Yarn and Thread Mills (Industry Group 228)
This group consisted of a total of 810 mills. Among the yarn and thread
mills, large mills predominated, the employment level of 100 to 999 employ-
ees with 51 percent, or 413 mills. The small and medium levels comprised
an additional 21 percent and 25 percent respectively. Similar to the
other groups in this industry, the number of mills employing over 1,000
workers was small as only 2 percent of the mills in the yarn and thread
category reported this level of employment.
d. Dyeing and Finishing Plants - Excluding Wool (Industry Group 226)
This group differed from the other groups in its distribution of employees.
In the dyeing and finishing plants, the small, medium, and large employment
levels were about the same size. Specifically, the small level accounted
for 34 percent of the mills, 35 percent were at the medium level, and 30
percent were classified as large. This was the only group in the industry
with such an even distribution of employment levels. Only one percent
of the mills in this category employed over 1,000 workers.
e. Miscellaneous Textile Goods (Industry Group 229)
The great diversity between mills in this group accounted for the majority
(56 percent) of the total 1,193 mills reporting employment figures in the
small size level. An additional 31 percent classified as medium-sized
mills resulted in 87 percent of the miscellaneous textile goods mills main-
taining employment levels of less than 100 workers. Only 13 percent of the
mills were large while one percent were in the extra-large size division.
111-32
-------
f. Size of Plants by Functional Subcategories
While the above text and data presented in Table 111-12 presents the plant
sizes according to Census employment groupings, size information was also
obtained for a majority of the facilities believed to be "wet" processors
which appeared on the master list developed by the Technical Contractor.
Table 111-13 presents the total number of facilities for each "wet" func-
tional category, the number of facilities which either did or did not furnish
production information, and for those who did provide information, their
respective responses by production size ranges. As shown in Table 111-13,
the majority of the respondents produced less than 13 kkg/day. This was
also true for most of the functional categories with the notable exceptions
being the wool scouring, low water processing, and carpet finishing cate-
gories.
It should be noted data in Table 111-13 were based in terms of wet produc-
tion which is dependent on the weight of the material found in the final
product. Thus mills producing light weight products such as hosiery and
other sheer knit goods occupy the smaller production ranges while mills
manufacturing heavy weight woven goods (upholstery and drapery fabric)
and carpet occupy the larger production ranges.
5. Location of Plants (Mills)
Textile mills were among the first types of industrial plants established
in this country. As a result, the early centers of the industry were in
the New England and Southern states. While textile mills are geographically
distributed throughout 37 states according to the 1972 Census, the heaviest
concentrations remain in the Northeast and South. Table 111-14 shows that
five states, New York, New Jersey, Pennsylvania, North Carolina and Georgia,
comprise 62% of the 7,203 mills operating in the United States in 1972. The
textile industry is divided into four geographic regions; Northeast, South,
North Central, and West. These regions are subdivided into two or three
divisions consisting of several states each. The Northeast region is the
largest area of concentration accounting for 3,409 of the total 7,203 mills.
Within this region, the Middle Atlantic division contains 76% of the area
total. The majority (1,328) of the plants are located in New York. The
Northeast region is closely followed by the South region in terms of total
mills. This region consists of 43% of the total in comparison to 47% in
the Northeast. The heaviest concentration is found in the South Atlantic
area, specifically North Carolina. The North Central and West region pro-
vide relatively few mills, amounting to 8% of the total figure. These
extremities in geographical distribution of textile mills provide for one
of the most fragmented industries in the United States (Exhibit III-2).
Table 111-14 also depicts the geographic location of the mills by the
Standard Industrial Classification system (SIC codes) and into plants
which employ twenty or more workers. Regarding the plants with twenty
or more employees, the South accounts for 51% of the total and the North-
east 42%; therefore, while the Northeastern region has more total plants,
the South region has larger plants.
111-33
-------
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111-34
-------
Table 111-14. State and regional location of textile mills, 1972
Geographic location
Northeast Region
New England Division
Maine
Hew Hamoshire
".node island
Massachusetts
Connecticut
Vermont
Middle Atlantic Division
New rork
New Jersey
Pennsylvania
South Region
South Atlantic Division
Virginia
West Virginia
North Carolina
South Carolina
Georgia
Maryland
Florida
Delaware
East South Central Division
Tennessee
Alabama
Mississippi
Kentucky
West South Central Division
Arkansas
Texas
Louisiana
OH ahoma
North Central Region
East 'forth Central Division
Illinois
Ohio
W1 scans In
Indiana
East North Centra) ttLylsion
Illinois
Ohio
Wisconsin
Indiana
Michigan
West North Central Division
Missouri
Minnesota
West Region
Pacific Division
California
Washington
Oregon
Mountain Division
Idaho
New Mexico
Utah
Other mills not specified
individually
TOTAL
Weaving
Mills
(SIC 221)
total
596
252
23
27
91
74
26
4
344
125
34
135
597
509
34
*
184
133
83
5
5
*
71
19
45
2
*
14
1
13
»
*
43
29
9
7
1
*
29
9
7
1
*
•*
14
1
2
28
26
17
1
7
NA
29
1.293
20 or
more emp.
337
171
21
19
63
J6
18
3
166
43
38
35
521
449
32
*
156
170
74
4
3
*
62
15
41
2
*
9
1
3
*
*
22
11
4
5
1
*
11
4
5
1
*
*
11
1
2
13
13
6
1
5
NA
9
902
Floor
Knitting Covering
Mills '111 Is
(SIC 225) (SIC 227)
23 or
total siore emp. total
1,463
95
3
10
16
43
14
3
1,352
833
233
294
1,094
934
34
1
738
70
35
*
37
3
H9
32
32
IS
5
18
4
5
2
*
64
47
9
12
19
*
47
9
12
19
»
*
10
1
7
95
87
76
*
4
3
2
1
*
7
2.723 1
• Not applicable NA Not available Source: U.S.
852 69
74 22
1
10 1
11 8
34 5
13 *
2
777 47
451 8
119 2
206 27
774 368
653 321
30 3
1
506 33
60 25
25 237
« *
18
2
105 29
64 18
23 6
13 1
5 3
13 15
4 4
4 3
2
* 5
45 22
33 17
4 4
9
17 *
* 1
33 17
4 4
9
17 *
* 1
• *
9 NA
1
6
53 56
48 53
41 52
* *
4 '
3 NA
2
1
*
1 13
.725 523
Department of
20 or
ao re emp
32
11
*
1
4
3
*
*
21
2
2
15
205
176
3
*
10
16
145
*
*
*
18
9
6
1
2
11
4
2
»
4
3
7
3
*
*
1
7
3
*
*
1
*
NA
35
34
33
»
*
NA
-
280
Coinnerce,
Yarn and
Thread '.'.ills
'SiC 223)
total
243
102
10
4
25
34
11
146
37
13
64
503
453
12
*
275
63
100
2
*-
*
61
15
41
1
3
5
1
3
*
2
11
11
2
1
5
*
11
2
1
5
*
*
NA
11
10
9
*
»
NA
10
810
Bureau of
20 or
more emp.
155
69
5
3
17
24
10
*r
S6
17
8
55
469
403
11
*
252
54
81
2
*
*
59
14
40
1
3
5
1
2
*
2
7
7
1
1
4
7
1
1
4
*
*
NA
5
5
5
*
*.
NA
-
63S
the Census
Dyui.ig and
Finishing Tex-
tiles, exc.'.iool
(SIC 225)
20 or
total more emp.
390
110
*
3
25
51
19
230
122
110
41
208
176
11
*
31
43
23
*
*
1
23
14
3
*
*
6
1
*
*
*
24
21
11
1
*
*
21
11
1
•
*
1
NA
22
19
18
*
NA
12
656
, Census
249
77
*
2
24
35
14
*
172
66
78
28
162
143
10
*
71
37
18
*
*
1
16
3
3
*
It
2
1
»
*
*
12
11
5
1
*
*
11
5
1
*
*
1
NA
7
7
7
*
*
MA
3
433
"ilSC.
Textile
G300S
(SIC 220)
total
643
242
5
3
74
112
21
401
203
117
65
330
227
2
*
82
42
44
*
«
*
51
7
12
1
1
45
r'*
22
4
*
125
93
17
21
9
3
93
17
21
9
3
22
14
3
2
60
52
33
*
*
NA
35
1.193
of Manufactures,
20 or
more emp.
264
110
4
3
29
54
16
W
154
72
45
29
161
112
2
*
48
23
20
*
*
w
30
5
9
1
1
18
1
9
2
*
65
56
10
15
4
2
56
10
15
4
2
12
5
3
2
30
27
21
*
*
NA
9
529
1972.
Total
20 or
total more em;
3,409 1.389
323 512
41 32
48 33
250 143
319 197
91 71
7 5
2.5SO 1,375
1,328 651
564 290
626 413
3,127 2.292
2.626 1.936
96 88
1 1
1.398 1.043
426 350
522 363
7 6
42 21
4 3
374 291
155 115
139 122
20 13
12 11
104 58
12 12
46 25
6 4
7 6
289 159
218 125
52 27
42 31
29 25
4 3
213 125
52 27
42 31
29 26
4 3
23 13
38 25
10 5
11 10
272 143
247 134
205 113
1 I
11 9
3 3
2 2
1 1
* *
106 22
7,203 4,505
(.Data are not available for 1977 Census)
111-35
-------
•o
(J
(O
c
(O
IS)
c
-------
As has been discussed previously, the SIC system categorized the textile
industry into six industry groups. Included as industry groups are:
Weaving Mills (SIC 221-224), Knitting Mills (SIC 225), Floor Covering
Mills (SIC 227), Yarn and Thread Mills (SIC 228), Dyeing and Finishing
Textiles - excluding Wool (SIC 226), and Miscellaneous Textile Goods
(SIC 229). The locational characteristics of each of these major groups
are discussed below.
a. Weaving Mills
The mills in the weaving mills groups are almost equally divided into the
Northeast and South regions. The South makes up 597 of the 1,293 total
plants in this segment while the Northeast accounts for 596 mills. The
combination of these regions supplies the textile industry with 92% of
the total weaving mills. Specifically, North Carolina, South Carolina,
New York, and Pennsylvania contain the majority of plants in these regions,
maintaining 184 and 183 mills respectively in the southern two states, and
135 and 125 respectively in the two northern states. Five percent of the
weaving mills are found in the North Central and Western regions, leaving
the remaining 3% unclassified.
For the weaving Mills groups, 902 establishments of the segment's 1,293
total mills employed 20 or more employees. The location of these weaving
mills reporting twenty or more employees is similar to the total weaving
mills geographic distribution. For example, 521 of the total 902 mills are
located in the Southern region. Within this Southern region, South Carolina
is the major contributor of woven goods, with 170 mills having 20 or more
employees. The Northeast region represents 37% (337 establishments) of
the larger mills, while the North Central and West regions supply the
remaining portion.
b. Knitting Mills
The Northeast region represents 54% of the total knitting mills. The second
largest locational area of knitting mills is the South which accounts for 40%
of the 2,723 mills in this category. The remaining knitting mills are found
in the West and North Central regions which contain 3% and 2%, respectively,
of the mills.
Within the total knitting mill group, 63% of the knitting mills (1,725
establishments) employ twenty or more workers. This indicates that the
majority of the mills are relatively large. The greatest concentration
of these larger mills are located in the Northeast region. This area
accounts for 852 mills, or 49% of the total 1,725 mills. The South region
represents 774 mills, while the North Central and West regions collectively
account for 98 mills.
111-37
-------
c. Floor Covering Mills
The floor covering mills group consists of 528 mills. The location of
70% of the floor covering mills is in the South region. Georgia alone
accounts for 45% of the total floor covering mills, with the remainder
distributed throughout the region. The northeast plays a minor role in
this group, accounting for only 13% of the mills. The West region is
comparable to the Northeast amounting to 10% of the category.
Although the number of mills within this group is relatively small, 53%
of the mills maintain a payroll of twenty or more employees. Here again
the South is accountable for the majority of the plants. Specifically,
73% of the larger mills (205 mills) are located in this area. The West
region plays a slightly more significant part than the Northeast in this
group. The larger mills in the West region represent 13% of the total in
comparison to 10% accounted for by the Northeast. The remainder of plants
are found in the North Central region.
d. Yarn and Thread Mills
The South region is credited with having the most yarn and thread mills in
the United States. This area represents 62% (503 mills) of the total 810
mills now manufacturing yarn and thread. North Carolina alone accounts
for 275 mills, with South Carolina and Georgia totaling 163 plants. In
the Northeast, yarn and thread mills are sparse, amounting to 31% of the
mills in this segment. The North Central and West regions are equally
paired with 11 mills each.
The yarn and thread group represents a significant number of mills with
20 or more employees, having 636 mills in that classification. The mills
are geograohically distributed similarly to the total yarn and thread
mill segment distribution. The majority of the mi 11s are found in the
South region, followed by the Northeast, North CentraU and West regions.
e. Dyeing and Finishing Plants - Excluding Wool
The dyeing and finishing group consists of the fewest establishments found
within any group of the textile industry. In this group, 390 of the 656
plants are distributed within the Northeast region. Within this region
New York and New Jersey have plants totaling 232, which is over one-third
of the total number of plants in the group. The South region accounts for
208 plants, or 32%, with the North Central and Western regions providing
4% and 3% respectively.
The majority (66%) of dyeing and finishing plants employ at least 20 workers
This represents a total of 433 plants with 249 in the Northeast, 162 in tne
South, 12 in the North Central, and 7 in the West regions.
111-38
-------
f. Miscellaneous Textile Goods
This group is the most diversified of those within the textile industry
and it is the third largest, accounting for 1,193 mills. Fifty-four
percent (643 mills) of the 1,193 mills are in the Northeast region. New
York accounts for 203 of the 643 mills within this region; Massachusetts
is next with 112 mills. The South contains 330 mills followed by 125 in
the North Central region, and 60 mills in the west.
The majority of the mills represented in the miscellaneous textile goods
group employ fewer than 20 employees. Only 44% of the mills reported
more than 20 workers, the greatest portion of which were located in the
Northeast region. The South accounts for 30% of the larger mills while
the North Central and West regions collectively account for 18%.
g. "Wet Processors"
The geographical distribution of the "wet processors" is shown in
Table 111-15. As shown, the distribution is very similar to that based
on the Census data. Over half of the wet production facilities are
located in the southeast (EPA Region IV), particularly the Carolinas
and Georgia. Another 25 percent are in the Northeast (New England,
New Jersey, and New York). Less than 5 percent of the "wet processors"
are located in the west (EPA Regions VI through X).
6. Level of Technology
During the past twenty years significant changes in technology have affected
all of the textile industry groups. While each segment has experienced
unique changes, the generally accepted cause for many of the changes for
all categories was developments in man-made fibers. In a recent study by
the Department of Treasury I/, the major textile technological changes
were identified and assessed. While the objective of the Treasury study
was an evaluation of capitalization rates in the industry, it did provide
an overview of the technological changes experienced by each of the groups.
These are summarized below.
a. Weaving
Significant changes in weaving technology began during the early 1950's
with the introduction of shuttle!ess looms and developments to increase
operating efficiency of the older conventional shuttle looms. As shown
in Table 111-16, the number of conventional looms has declined consistently
since 1950 from 650,000 looms to 280,000 in 1974. While much of this decline
is a result of the exit of weaving mills from the industry, portions of
the decline are attributable to increased operating efficiency of existing
looms and the introduction of shuttleless looms. Shuttleless looms were
originally introduced during the mid-1950's but the number was relatively
insignificant due to the limited capabilities of the early machines.
— U.S. Department of the Treasury, The Textile Industry, 1976.
111-39
-------
Table 111-15.
Geographical distribution - mills on master list
Manufacturing
Subcategory
EPA Region-L' All
i II III IV V VI VII VIII IX X Regions
Wool Scouring
Wool Finishing
Low Water Use
Processing
Woven Fabric
Finishing
Knit Fabric
Finishing
Hosiery
Products
Carpet
Finishing
Stock & Yarn
Finishing
Nonwoven
Manufacturing
Felted Fabric
Processing
All Subcateqorie
6
20
60
69
27
2
0
33
10
_7
s 234
1
2
75
54
58
2
1
19
3
_2
217
3
4
72
34
45
9
4
31
4
_3
209
3
3
390
155
134
139
39
120
11
_3
997
0
1
6
11
9
5
1
6
7
_2
48
3
1
7
3
1
2
4
3
2
_0
26
0
1
0
1
2
0
0
1
0
_0
5
0
1
0
2
0
0
0
0
0
_0
3
0
0
2
7
6
0
9
4
1
_3
32
1
4
0
0
0
1
0
0
0
_0
6
17
37
612
336
282
160
58
217
38
20
mi
— EPA Regions represent the following states:
I Conn., N.H., Maine, Mass., R.I., Vermont
II Del., N.J., N.Y., Puerto Rica, Virgin Islands
III MD, PA, VA, W. VA
IV Ala., Fla, GA, Miss., N.C., S.C., Tenn.
V 111., Ind., Mich., Minn., Ohio, Wise.
VI Ark., La., N.M., Okla., Texas
VII Iowa, KS, MO, Neb.
VIII Colo., Mont., N.D., S.D., Utah, Wyoming
IX Ariz., Calif., Guam, Hawaii, Nev.
X Alaska, Idaho, Oregon, Washington
Source: Sverdrup & Parcel and Associates, Inc.
111-40
-------
Table 111-16. Broad woven looms in place, United States
Yoa r
c <* •*•
1950
1957
1959
1961
1963
1965
1967
1968
1969
1970
1971
1972
1974
Conventional
650,000
613,000
499,000
459,000
464,000
495,000
415,000
386,000
377,000
349,000
329,000
310,000
280,000
Shuttleless
NA
NA
NA
NA
NA
NA
NA
NA
9,000
11,000
13,000
20,000
30,000
Total
650, 000
613, 000
4.99, 000
459,000
464,000
495,000
415, 000
386,000
386,000
360,000
342,000
330,000
310,000
Output
(Million linear yds)
NA
12, 114
12,412
11,863
12,104
13,430
12,785
12,923
12,591
11,454
11,147
11,292
10,721
Sources: American Textile Reporter, Textile World,
GATT, U. S. Department of Commerce
111-41
-------
By 1969, improvements in the design of shuttle!ess looms made them more
attractive to the industry. Accordingly, shuttle!ess looms began to replace
conventional looms either in existing mills or were used in lieu of con-
ventional looms in new mills. Although the initial cost for shuttleless
looms was considerably higher (up to four times) than conventional looms,
their speed and efficiency made their purchase attractive. One additional
factor contributing to the attractiveness of the shuttleless looms is their
ability to operate at reduced noise levels. This is presently a significant
factor as the industry is being required to reduce noise levels in weaving
mills.
b. Knitting
In the knitting group, the major advances in technology have been associated
with women's hosiery and double knit fabrics. Technological advances in
this group have included developments in man-made fibers and the evolution
of new machinery which was necessary to handle the man-made fibers.
Following World War II, nylon almost totally replaced silk and rayon in
the production of women's hosiery because of its strength and capability
of being drawn in fine deniers. With the dominate use of nylon, narrow
guage knitting machines became practical and thus nylon hosiery began
to replace full fashion hosiery (silk). These trends are illustrated
in Table 111-17 which depicts the declining number of full fashion machines
and the increasing number of circular knit machines. Table 111-17 also
depicts the technological advancements in developments of the circular
machines which is illustrated by the increasing number of multi-feed
machines. These multi-feed machines have all but replaced the less ef-
ficient single feed machines. These advances in machinery coupled with
developments in stretch yarns, have resulted in the introduction of tubular
hosiery and panty hose which have completely dominated the hosiery market.
The development of textured polyester fibers during the late 1950's enabled
the creation of the double-knit market in the early 196G's. As shown in
Table 111-18, the number of double-knit machines rapidly increased from
1963 to 1973. Also, as the double-knit markets grew, the industry replaced
older, smaller machines with larger, more efficient machines (larger number
of feeds). In 1974, the total number of machines declined because of a
peak in the demand for double-knit fabrics and the trend for the larger
multi-feed machines.
c. Dyeing and Finishing
With the developments in man-made fibers and changes in the fashion industry,
significant changes in technology have occurred in the dyeing and finishing
segment. With the increased requirements for versatility in dyeing and
finishing operations, the segment has replaced older relatively simple
I11-42
-------
Table 111-17. Hosiery knitting machines, 1950-1972
Number of full
Year fashioned machines
1950
1953
1956
1960
1963
1966
1969
1972
2,575
2,830
2,190
1,310
520
140
20
5
1 feed
-
-
-
35,394
43,037
37,932
30,642
11,588
Circular machine
2 feed 4 feed
-
-
-
5,092
28,618 5,270
42,516 49,915
53,488 54,300
55,444 63,855
6, 8 feed
-
-
-
-
-
6,690
76,940
84,140
Source: Dept. of Treasury, The Textile Industry.
111-43
-------
Table 111-18. Double knit machines in place, 1963-1964
Year
1963
1966
1970
1972
1973
1974
Number of
Machines
1,800
3,400
10,000
22,000
24,000
23,000
24
65
58
50
25
20
18
No. of feeds
36
34
38
35
45
45
43
(% of Total)
48 and over
1
4
18
30
35
37
Source: Dept. of Treasury, The Textile Industry.
111-44
-------
equipment with modern sohpisticated equipment. Table Ill-lg illustrates
this trend as the older style roller printing machines have been replaced
by the newer, more versatile, more efficient machines. With respect to
changes in the level of technology associated with dyeing operations,
Table 111-20 illustrates the decrease in the more traditional methods and
the increase of the newer, higher temperature dyeing methods.
d. Yarn
Two significant advances in technology associated with this segment are the
development of texturized yarn and the automation of open-end spinning systems,
The developments of texturized yarns were necessitated by the increased
utilization of man-made fiber yarns. Since the early 1960's, throwsters have
crimped and stretched man-made fibers to produce yarn similar to qualities
of natural fiber yarns. With the increased utilization of man-made yarns,
there was a need for the development of faster, more efficient machinery
capable of creating this false twist texturing characteristic. This need
was met by the development of extremely fast spindles. Table 111-21 illus-
trates the development and implementation of these faster spindles. As
shown, in 1956 there were 20,000 spindles in place operating at speeds of
40,000 RPM. By 1973, these had all been replaced with machines operating
at considerably higher speeds (over half a million spindles operating at
400,000 RPM alone).
The second technological advance for the yarn group was the automation of
open-end spinning. This type of spinning, which handles only selected yarn
counts, is capable of producing two to five times more yarn per pound per
machine than conventional ring spinning.
e. Carpet Milling
The major technological advances in carpet milling have involved tufting.
Tufting, which produces carpets at a speed of about six times faster then
weaving, was first introduced into the industry in the early 1950's. How-
ever, tufting did not gain a dominant share of the market until 1958, when
bulked continuous filament nylon was developed for commercial use. Table
111-22 shows both how tufting has virtually taken over the carpet market
and how the use of face yarns has shifted to nylon and other man-made
fibers.
f. Miscellaneous Textile Products (Nonwoven fabrics)
In the 1960's, production of nonwoven fabrics was primarily limited to
interlinings and disposable products such as towels and diapers. Since
then, these type fabrics have made significant inroads into other markets.
Technological advances are numerous and, as the demand for such products
continues to increase, additional advances are expected.
111-45
-------
Table III-!9. Printing machines in place, U. S.*
for selected years
Roller Printing Machines
Screen Printing Machines
Flat Bed, Screen
Flat Bed, Rotary Screen
Transfer Printing Machines
Stripe Printing Machines
1963 1965
460 450
310 300
20
-
-
1973
394
211
136
77
16
*0oes not include carpet equipment.
Source: Dept. of Treasury, The Textile Industry.
111-46
-------
Table 111-20. Piece goods dyeing machines in place, U.S.*
(units)
Jet
Dyeing
Year Machs.
1960
1963 6
1964 7
1965 12
1966 33
1967 67
1968 117
1969 201
1970 374
1971 599
1972 758
1973 858
Pressure
Dyeing
Machs.
34
56
65
98
160
230
400
650
750
810
810
Atmo-
spheric
Dyeing
Machs.
5,000
4,980
4,902
4,880
4,790
4,750
4,602
4,510
4,350
4,150
4,048
*Non-carpet machines.
**(Thertnoso1-pad steam ranges).
Source: Dept. of Treasury, The Textil
Jig
Dyeing
Machs.
3,800
3,680
3,510
3,480
3,460
4,208
2,804
2,440
2,208
2,110
1,957
e Industry.
Con-
Padder tinuous
Dyeing Dyeing
Machs. Ranges
650
648
646 200(30)**
644
642
640
638
636
634
632
630 295(132)**
111-47
-------
Table 111-21. Number equivalent false twist spindles
in place by RPM, U.S.
Mid
Year
1956
1957
1958
1959
1960
1961
1962
1963
1964
1965
1966
1967
1968
1969
1970
1971
1972
1973
40,000
RPM
20,000
25,000
28,000
11,000
11,000
11,000
11,000
11,000
11,000
11,000
9,000
8,000
6,000
4,000
-0-
-0-
-0-
-0-
120,000
RPM
2,000
25,000
27,000
31,000
36,000
40,000
42,000
52,000
53,000
53,000
53,000
53,000
50,000
46,000
40,000
38,000
240,000 345,000 400,000 (Single
RPM RPM & Double Heater)
10,600
32,000
52,000
60,000 13,000
66,000 32,000
66,000 102,000
66,000 114,000 70,000
66,000 124,000 149,000
66,000 130,000 309,000
66,000 140,000 556,000
Source: Department of Treasury, The Textile Industry.
111-48
-------
Table 111-22. The relationship between the growth of tufted carpet
manufacturing and the use of man-made fibers
between 1954 and 1974
Percentage of face yarns used in the
manufacture of tufted carpets by
type
Year
Tufted carpets as a
percent of total
broadloom shipments
Cotton Wool
Man-fflade fibers
Rayon Nylon &
& other
acetate MMF
1954
1958
1967
1974
32.6%
58.1
88.8
97.5
74.3%
13.0
3.6
0.2
0%
22.5
5.5
0.8
24.7%
45.2
15.6
0.4
0%
19.3
74.4
98.6
Source: Bureau of the Census, U. S. Department of Commerce Census of
Manufactures, 1954 thru 1974.
111-49
-------
C. Employment Characteristics
The textile industry employs approximately five percent of all manufactur-
ing industry workers. The characteristics of textile employees, with empha-
sis on the number of workers and the wages for each SIC industry group, are
discussed in this section.
1. Industry Employment
Between 1966 and 1974, the employment level of the industry varied between
950,000 and a million except in 1969 and 1973 when it exceeded the one million
mark (Table 111-23). In 1975 the level dropped to slightly over 900,000
and has remained at about that level subsequently with a low of 897,000
occurring in 1976. Employment in the industry has amounted to just over
40 percent of the combined employment in both textiles and apparel with
the percentage increasing from 41 percent in the 1960's to 42 percent in
the early 1970's. In 1976 it dropped back to 41 percent.
As shown in Table 111-24, over 300,000 workers or a third .of all textile workers
were employed in the weaving mills (Industry Group 221-224) in 1977. -Seventy
thousand or 8 percent of all textile workers were employed in dyeing and
finishing (Industry Group 226). The combined employment in the two groups
amounted to 42 percent of the total industry employment. The knitting mills
group, which had twice as many establishments as the weaving mills groups,
accounted for only 28 percent of the textile employment: with about 260
thousand workers. There were 141 thousand workers employed in the yarn and
thread mills group which amounted to about 16 percent of the industry employ-
ment. Over 55 thousand workers were employed in the floor covering mills
group which was about 6 percent of the textile employment.
When viewing the trends of the individual groups, it is apparent that the
number of employees in the weaving and knitting mi Us experienced a decline
from 1967 to 1973 while the number in the other segments generally showed an
increase as shown in Table 111-25. After 1973 all groups have shown a decline
in their total levels although the trends have stabilized in the last two
years. The employment level in the weaving group has decreased from 380,000
in 1967 to about 300,000 in 1977. Employment in this group reached a low in
1975 dropping below the 300,000 level. Employment in the knitting mills
group increased from 240,000 in 1967 (not shown in the table) to over 275,000
in 1972; later data is not available for the entire group. The knit fabric
industries (SIC Industry 2257 and 2258) showed a significant drop of about
20,000 employees from 1972 to 1977. Since then the levels have stabilized
at around 75,000 employees. Employment in the dyeing and finishing plants
(Industry Group 226) has remained at relatively consistent levels around
72,000 employees. The maximum level was reached in 1973 with over 80,000
workers while a low occurred in 1977 with the level dropping below 70,000.
The employment level in the floor covering group increased from 44,000 in
1967 to over 60,000 in 1973. Since 1973 it dropped to 49,000 in 1975 and
1976. In 1977 it climbed back to a level in excess of 55,000. The trend
in employment in the yarn and thread mills group was similar to that of
floor covering. The level climbed from under 120,000 in 1967 to close to
160,000 in 1973 and then declined to 147,000 in 1977.
111-50
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While employment trends among the groups generally followed similar patterns
(i.e., increasing to 1973 and then decreasing), trends within the groups
among the SIC industries often varied appreciably (Note: data within groups
are not shown in the tables). In the weaving mills group, the cotton mills
(SIC 2211) had an 80,000 employee reduction while the man-made fiber mills
(SIC 2221) experienced a 40,000 increase during the period 1967-1972. In
actuality, this represented a shifting of employment figures between the
industries to accommodate the reclassification of plants to reflect the
increasing trend towards man-made fiber products. The overall reduction
in the employment level among the broad woven fabric mills (both SIC 2211
and SIC 2221) was about 40,000. The employment in the woolen fabric mills
was cut in half during the period dropping from over 40,000 in 1967 to
under 20,000 in 1972. Since 1977, employment level in the cotton mills
has remained just short of 120,000 while that of the man-made fiber mills
has fluctuated between 150,000 and 160,000.
As previously discussed, the overall upward trend in the knitting mills
group reflected a significant increase in employment. However, this
50,000 worker increase was experienced in the knit fabric mills (warp
and circular) industries only, with a jump from 36,000 in 1967 to 90,000
in 1972. All of the other knit groups (knit apparel-hosiery, outerwear,
and underwear) declined, losing 20,000 employees. Since 1972 employment
in the fabric mills has declined from 90,000 to just over 70,000.
In the dyeing and finishing group, employment in plants finishing cotton
fabrics lost 10,000 employees while plants finishing man-made fabric
experienced a 10,000 increase July 1967-1972. As pointed out in the case
of the weaving mills, the difference, in actuality, represents a shifting
of employee figures associated with reclassification of mills because of
the dramatic increase in the production of man-made fabrics. Since 1972,
both type plants have seen reductions of around 2,000 employees in each
of the two SIC industries.
In the yarn and thread mills group, all industries experienced increases with
the exception of wool yarn mills. Employment within this industry dropped from
over 11,000 in 1967 to 8,500 in 1972. Employment in those mills spinning
cotton and man-made yarns increased close to 40 percent, rising from 93,000
in 1967 to 127,000 in 1972. Since 1972, this employment has dropped off.
In the floor covering mills group, employment in the tufting mills has
shown a dramatic rise increasing from just over 30,000 in 1967 to over
50,000 in 1972. The employment level in woven carpet mills experienced
a gradual decline of about 2,000 workers during the same period and had
dropped another 2,000 by 1977. In 1977, the level in the tufted mills was
50,000 about the same as 1972.
In the miscellaneous textile goods group, slight decreases occurred in
most of the industries during 1967-1972. However, in the nonwoven
fabrics industry, the employment level doubled during the period increas-
ing from about 5,000 in 1967 to over 10,000 in 1972. Since 1972, it has
remained at about the same level.
111-54
-------
As measured by the proportion of production workers to total employment
within the industry, the textile industry is the most labor intensive
group among the non-durable goods, as shown in the 1977 data below. The
percentage of production workers in the textile industry exceeded 87 per-
cent as opposed to about 72 percent for the composite of non-durable
goods. Apparel was the next most intensive industry with close to 86
percent production workers.
Industry Percentage of Production Workers (1977)
Total Non-durable 72.3%
Food Processing 67.6
Tobacco 83.8
Textile 87.1
Apparel 85.7
Paper 75.1
Printing 57.4
Chemical 57.4
Petroleum 65.7
Rubber 78.3
Leather Tanning 85.1
Source: BLS Handbook of Labor Statistics.
Within the aggregate textile industry, the most labor intensive groups are
in the weaving mills and yarn and thread mills group with percentages of
production workers at 90 and 94 percent, respectively, as was shown in Table
111-24. The least intensive are the floor covering mills and the miscellan-
eous textile goods industries, with 79 and 82 percent, respectively.
2. Industry Wage Levels
The average weekly hours of production workers in the textile industry are
similar to the hours for all manufacturing industries, as shown in Table
111-26. However, the average hourly earnings have been significantly lower.
In 1977, textile employees averaged $3.97 per hour, which was $1.10 less
than the average earnings in all nondurable industries. Between 1962 and
1977, the average earnings of textile industry workers was about 20 percent
below the average wages for all nondurable industry employees. The least
wage difference between textile workers and other manufacturing industry
employees occurred in 1968. The relationship of the two rates are about
the same now as it was in the early 1960's (78 percent).
Industry wage surveys have recently been conducted by the Bureau of Labor
Statistics in the textile industry covering selected SIC industries. The
following discussions are based on these surveys with each survey's results
covered separately.
111-55
-------
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Survey Category SIC Date BLS Publication
Textiles (Yarn and Weaving) 221, 222, 223, 1975 Bulletin 1948
228
Textile Dyeing and Finishing 226 1976 Bulletin 1967
Hoisery 2251, 2252 1976 Bulletin 1987
a. Textiles (May 1975) Survey
Straight-time average earnings were S3.08 per hour for yarn and weaving
mills as reported in the May 1975 Survey. (Note: These earnings excluded
overtime and consequently are not comparable with the earnings listed in
Table 111-26). As shown in Table 111-27, the highest wages were paid in
the Middle Atlantic states with an average hourly rate of $3.33. In the
Southeast, where over 90 percent of the workers are located, wages averaged
$3.07.
Wages were highest in the weaving mills, averaging $3.25, and lowest in
the yarn mills, at $2.90 an hour. The difference was due in part to the
higher skilled jobs in the weaving mills. Wages in mills employing 500
or more averaged $3.11 per hour which was about 3 percent higher than
mills employing between 100 and 499; the survey excluded mills employing
less than 100.
About one-sixth of the employees were in mills operating under labor-
management contracts. The greatest union strength was in New England
with about one-half of the employees covered by contract. The least
concentration was in the South with about one-eighth of the work force
under contract.
b. Textile Dyeing and Finishing (June 1976) Survey
The average wage of production workers in textile dyeing and finishing
was $3.82 an hour according to this survey. The lowest rate was in the
Southeast where two-thirds of the workers were employed; there the earnings
were $3.66 an hour. The rate in New England was $3.97 and in the Middle
Atlantic $4.45. One reason for the low average in the Southeast was
the relatively high employment of women. Women make up over 30 percent
of the workers in this industry in the Southeast with their wages amounting
to about ten percent less than men. Another contributing factor was the
effect of unionization. Workers covered by union contracts had wages close
to 15 percent higher, nationwide, than those that were not covered by union
contracts. In the Southeast less than 20 percent of the workers in this in-
dustry were covered by contracts. However, in the other regions as many as
90 percent of the work force was unionized.
c. Hosiery (July 1976) Survey
Production workers in all hosiery mills averaged hourly earnings.of $3.02
in July 1976. The rate was lowest in the Southeast where 90 percent of
the workers are employed; there the rate was $3.01 an hour, the rate was
slightly higher, $3.13, in the Middle Atlantic.
111-57
-------
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111-58
-------
Because the surveys discussed above were conducted at different times,
comparison between the wages in the various groups is not feasible. How-
ever, the 1977 Census provides sufficient data to illustrate the wage
differentials between the various type mills. The average hourly earnings
of production workers for 1977 are listed in Table II1-28.
The highest rates were generally earned in the less labor intensive indus-
tries in the miscellaneous group. Among the other groups, the highest rates
were found in the finishing plants with an average rate of $4.47 and $4.61
in the cotton and man-made fiber finishing plants respectively. Other high
rates were found in the man-made fiber weaving mills ($4.24), and the woven
carpet and rugs ($4.27) industries. The lowest rates occurred in the
labor intensive hosiery industry with $3.41 an hour and the knitting mills
N.E.C. industry with $3.18 an hour.
111-59
-------
Table III- 28. Average hourly earnings of production workers --
textile industry—1977
Average Hourly
SIC Industry Earnings
2211
2221
2231
2241
2251
2252
2253
2254
2257
2258
2259
2261
2262
2269
2271
2272
2279
2281
2282
2283
2284
2291
2292
2293
2294
2298
2296
2297
2298
2299
Heaving Mills
Weaving mills, cotton
Weaving mills, man made fiber
Weaving and finishing mills, wool
Narrow fabric mills
Knittinq Mills
Womens, hosiery
Hosiery, n.e.c.
Knit outerwear mills
Knit underwear mills
Circular knit fabric mills
Warp knit fabric mills
Knitting mills, n.e.c.
Dyeing and finishing
Finishing plants, cotton
Finishing plants, manmade fiber
Finishing plants, n.e.c.
Floor covering mills
Woven carpets and rugs
Tufted carpets and rugs
Carpets and rugs, n.e.c.
Yarn and thread mills
Yarn mills, except wool
Throwing and winding mills
Wool yarn mills
Thread mills
Miscellaneous Textile Goods
Felt goods
Lace goods
Paddings and upholstery filling
Processed textile waste
Coated fabrics
Tire cord and fabric
Nonwoven fabrics
Cordage and twine
Textile goods, n.e.c.
4.08
4.24
4.05
3.66
(NA)
3.41
(NA)
(NA)
4.17
4.15
3.18
4.47
4.61'
4.07
4.27
4.15
4.07
3.86
4.15
3.74
3.85
4.85
3.91
4.41
3.68
5.63
4.90
4.74
3.78
(NA)
Source: Census of Manufactures, 1977.
111-60
-------
IV. INDUSTRY PROFILE
The production, marketing and financial situations of the textile industry
have remained fairly stable, although individual establishments have ex-
perienced changes due to economic fluctuations, product popularity,
technological improvements, and increased textile imports. Increasing
incorporation and efficiency through integration have typically widened
the sales and profit gap between small and large firms.
A. Production Profile
Total U.S. mill fiber consumption, an indicator of production, has in-
creased during the last 15 years, although the predominant types of fibers
have changed from wool and cotton to man-made. While production of broad
woven fabrics has declined, its loss has been offset by significant in-
creases in the production of knit goods and carpet and rugs. Capacity has
increased at about the same rate as production, a result of increased
efficiency in looms and a significant increase in the number of double knit
machines put into operation.
Production, capacity and utilization closely parallel the general economy.
In order to profit from rises and protect against recessions, the textile
industry has increasingly consolidated, integrated and diversified within
plants and among operations within multi-unit firms.
1. Production
Domestic production of the textile industry, represented by total fiber
consumption, has increased at an average annual rate of about 3.5 percent
during the last 15 years (Table IV-1). However, in the past five years,
it has stabilized at a rate of less than two percent. While total pro-
duction has been relatively stable, there has been a dramatic change in
the type of fiber consumed. Less than one-third of the wool is now being
consumed as compared to the early 1960's, declining from over 450 million
pounds in 1965 to about 140 million in 1978. Cotton consumption has de-
clined also, although not as dramatically as wool, from over 4 billion pounds
in 1965 to 3.0 billion in 1978. Consumption of man-made fiber has nearly
tripled during the same period, increasing from about 3.6 billion pounds
to over 9 billion.
As measured by the Federal Reserve Board industrial production index (Table
IV-2), production in the textile industry has increased at an annual rate
of about 2.7 percent a-s compared to a 3 percent increase for total indus-
trial production. The most significant increase occurred between 1971
IV-1
-------
Table IV-1. Fiber consumption—textile industry
(million pounds and percent)
Year
1965
1966
1967
1968
1969
1970
1971
1972
1973
1974
1975
1976
1977
1978
Man-made
fiber & silk
(million
pounds)
3,620.4
3,994.7
4,248.1
5,309.5
5,555.4
5,502.7
6,530.9
7,567.8
8,667.0
7,700.6
7,417.5
8,055.3
8,890.5
9,237.2
(%)
42.5
44.2
47.0
54.2
56.2
57.6
60.9
64.9
69.3
69.2
69.9
69.5
72.9
74.4
Cotton
(million
pounds)
4,452.6
4,621.0
4,414.2
4,104.1
3,972.6
3,773.6
3,965.1
3,849.8
3,643.3
3,306.1
3,068.7
3,389.0
3,169.8
3,040.4
Wool
(%) (million (%)
52.2
51.1
48.9
41.9
40.2
39.5
37.0
33.0
29.2
29.7
28.0
29.2
26.0
24.5
pounds)
457.0
427.9
366.6
378.4
354.9
273.3
219.3
246.9
182.1
116.5
132.0
145.9
133.9
141.6
5.3
4.7
4.1
3.9
3.6
2.9
2.1
2.1
1.5
1.1
1.2
1.3
1.1
1.1
Total
(million
pounds)
8,530.0
9,043.6
9,028.9
9,792.0
9,882.9
9,549.6
10,715.3
11,664.5
12,492.4
11,123.2
10,618.2
11,590.2
12,194.2
12,419.2
(%}
100
100
100
100
100
100
100
100
100
100
100
100
100
100
Source: Textile Organon, March 1979.
IV-2
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and 1972 for the textile industry when a 14 percent increase occurred. The
highest level of production occurred during 1973 with an index of 142.9
(1967=100). Between 1973 and 1975 the production index declined by nearly
14 percent with the index dropping to 122.3 in 1975, reflecting the reces-
sion of that year. For 1976, the index increased to 136.4, and remained
at about that level for the past two years.
As also shown in Table IV-2, the greatest increases in production among
the industry group have occurred in the manufacture of knit goods where
output has nearly doubled since 1968. Relatively high increases have also
occurred both in the manufacture of man-made fabrics arid carpeting, with
the production of man-made fabrics increasing 70 percent since 1968 and
carpeting increasing just slightly less with a 66.4 percent increase.
Significant declines in production have occurred in the manufacture of
cotton fabrics and wool fabrics. The production of cotton fabrics has
decreased 20 percent since 1968 while the production of wool fabrics has
decreased by about 50 percent.
Total production of broad woven goods measured in linear yards of material
has been decreasing at an annual rate of 1.5 percent since 1967 from close
to 13 billion yards in 1967, to about 11 billion in 1976 (Table IV-3).
The production of woven cotton goods in this segment decreased from about
8 billion yards in 1967 to 4.0 billion in 1978. Man-made fiber woven
fabrics increased from about 4 billion in 1967 to over 6 billion yards in
1978. Woolen and worsted woven goods decreased from about 240 million
yards to less than 100 million during the same 1967 to 1978 period.
Because of a change in the reporting and classification systems by the
Department of Commerce, it is not possible to construct a meaningful pro-
file of knit fabric production between the 1960's and mid-701s. Prior to
the fourth quarter 1973, data was collected on shipments which involved
knit cloth physically shipped, including interplant transfers. Current data
includes not only shipments but also "captive" production which represents
the knit fabric produced in a plant that will be used for the manufacture
of knit goods and apparel in the same plant. For the period since 1973,
the knitting mills segment's production data are depicted in Table
IV-4. The impact of the change is apparent in the comparison of 1973
shipment data with 1973 production data which shows that the production is
approximately twice as great as the shipments. Between 1969 and 1973,
total shipments increased from 800 million pounds to about 1.2 billion
pounds. Since 1973, as reflected in production data, the output has
declined slightly, decreasing from over 2 billion pounds in 1973 to 1.7
billion in 1978.
The production of carpets and rugs has nearly doubled since 1967, increasing
from about 500 million square yards to over 1 billion in 1978 (Table IV-5).
The manufacture of tufted carpets has more than doubled, increasing from
about 400 million square yards in 1967 to over 1 billion in 1978. Woven
carpets, which represent a minor portion of the total carpet production,
incurred a significant decline with a 50 percent reduction between 1967
IV-4
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and 1978. Production of other carpets which include mats and other specialty
items reflected only a slight increase during the same period. These latter
type carpets and rugs constituted only a very minor portion of the carpet
industry production representing approximately 2.0 percent of the 1978 total
carpet and rug production.
2. Capacity and Utilization
Since 1967, total capacity in the textile industry has increased at an
average annual rate of 2.7 percent (Table IV-6). Capacity is broadly
defined as the greatest level of output an industrial plant can achieve
within a normal work pattern. It reflects both the number of machines in
place and modernization in the industry. The increase has primarily in-
volved specific growth products, such as denim and certain knit fabrics.
Capacity peaked at an index of 158.1 (58 percent above 1967 production) in
1974. This reflected an increasing efficiency in looms weaving man-made
fabrics and a dramatic increase in double knit machines put into operation
between 1967-1973. The abrupt drop in the capacity level between 1974 and
1975 was due to the closing of over 200 knitting mills as a result of the
1974-1975 recession. In the future, modernization in the industry, with
the use of more high-speed equipment, is expected to maintain capacity at
adequate levels to meet demand; however, no significant increases are
anticipated in the near future similar to those which occurred prior to
1974.
During the 1967-1973 period, the average rate of capacity utilization, as
shown in Table IV-6, for the textile industry was 87.0 percent, just
slightly less than 87.6 percent recorded for the total nondurable manu-
facturing sector. Peak utilization rates for the industry occurred during
the years of 1968 and 1973 reflecting the business cycles of those years.
Troughs occurred during 1970 and 1975 with the business recessions. The
low rate of 73,8 percent for 1975 was the lowest rate for the entire 10
year period. Quarterly data (not shown in the table) published by the
Federal Reserve Board show a difference in the peak and trough utilization
rate of all nondurable manufacturing to be 23.8 percentage points for the
period 1967-1976 with rates varying from 93.9 percent to 69.9 percent. The
variance in the textile industry was somewhat higher with the extreme rates
being at 93.9 percent and 60.1 percent for a total variance of over 33
percentage points.
Utilization rates also vary considerably between the differently sized
companies. Based on data in the Federal Reserve Bulletin covering the
period 1965-1973, large companies in nondurable goods manufacturing (with
assets $100 million and over) averaged utilization rates of about 9 per-
centage points higher than the small companies with assets under $10
million. Although no specific data are available for the textile industry,
it is expected that the differences in utilization rates would be about
the same.
IV-8
-------
Table IV-6. Output, capacity, and utilization -- textile industry
Capacity
(percent of
Year Output (1967=100) 1967 output)
Utilization
rate (percent)
Excess
capacity
(percent)
1967
1968
1969
1970
1971
1972
1973
1974
1975
1976
1977
1978
100.0
107.9
112.6
111.8
116.5
132.7
142.9
132.8
104.3
114.5
113.3
117.3
109.9
116.9
123.5
130.0
134.7
147.6
153.3
158.1
141.3
139.4
142.2
144.4
91.0
92.3
91.2
86.0
86.5
89.9
93.2
84.0
73.8
82.1
79.7
81.2
9.0
7.7
8.8
14.0
13.5
10.1
6.8
16.0
26.2
17.9
20.3
18.8
Source: Federal Reserve Bulletin
IV-9
-------
Utilization rates for the various SIC industry groups within the industry
for the fourth quarters of 1974 and 1975 are shown in Table IV-7. The
highest rates shown for the two quarters are for the cotton weaving mills,
with an 82 percent utilization rate recorded in 1974, increasing to 89
percent in 1975. The lowest rates occurred in the narrow fabric mills seg-
ment with a 61 percent in 1974 and 67 percent utilization rate a year later.
The knitting mills segment maintained the most stable rate with an 80
percent rate in 1974 and 83 percent in 1975.
Loom activity is frequently considered a good measure of productivity in
the industry and generally reflects changes in utilization rates. Table
IV-8 lists the average hours looms operated for the cotton weaving mills.
The greatest activity is shown for the years 1969, 1972 and 1973, corres-
ponding with the high utilization rates recorded for those years. The
least activity occurred during the 1975 recession. The operation of
spindles is also a good measure of productivity. As shown in Table IV-9
peaks in activity occurred during 1968 and 1973 again corresponding closely
to peaks in the utilization rates.
3. Importance of Integrated Facilities
Increasing concentration and greater industrial efficiency in the textile
industry has been accompanied by a trend of increasing integration, both
within plants and among operations within multi-unit firms. Many large
plants combine all of the stages of processing from raw fiber to finished
fabric (and apparel) and often include a variety of textile products. The
degree of integration is illustrated in the findings of a survey conducted
by the Treasury Department (as shown in Table IV-10).
Table IV-10 shows a number of plausible configurations of industry activ-
ities within plants representing both horizontal and vertical integration.
For each of the major activities' categories, possibilities in vertical
integration include:
. Yarn preparation -- greige milling + dyeing and finishing
Weaving — yarn preparation + greige milling + dyeing and
finishing + cut and sew
. Knitting -- yarn preparation + greige milling + dyeing and
finishing + cut and sew
. Carpet milling -- yarn preparation + greige milling + dyeing
and finishing
In horizontal integration, feasible configurations include milling
operations in weaving, knitting and carpet milling.
The highest level of integration is apparent in carpet and rug manufac-
turing. In those plants fabricating carpets, over 50 percent were involved
in dyeing and finishing and about 20 percent were producing yarn. The
IV-10
-------
Table IV-7. Utilization rates: fourth quarter, 1974-1975
Industry Group
Weaving mills, cotton
Weaving mills, synthetic
Weaving and finishing mills, wool
Narrow fabric mills
Knitting mills
Textile finishing, except wool
Floor covering mills
Yarn and thread mills
Miscellaneous textile goods
Source: U.S. Department of Commerce,
1974
82
78
74
61
80
74
62
69
68
Survey of Plant
1975
89
89
78
67
83
84
71
84
72
Capacity, 1975
Supplement. MQ-Cl(75)-2
IV-11
-------
Table IV-8. Loom hours operated - cotton broad woven goods
(average hours per loom per week)
Period Monthly average
1967
1968
1969
1970
1971
1972
1973
1974
1975
1976
1977
125.7
124.4
126 .,5
125. .4
126 .,6
128 .5
128. .0
120, .9
111.3
125.0
123. ,3
Source: American Textile Manufacturers Institute, Textile Highlights
IV-12
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IV-14
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next highest level of integration occurred in weaving. Over 50 percent of
these mills were producing yarn and between 15 and 20 percent were dyeing
and finishing. In the knitting mills, about a third of the plants were
dyeing and finishing and over 10 percent were spinning yarn. About twice
as many of the knitting mills were involved in cut and sew operations as
were weaving mills.
Since Table IV-10 focuses on type activities as opposed to type mills, the
extent of integration involving the dyeing and finishing plants and the
yarn mills is not clearly delineated. However an examination of production
data contained in the 1972 Census provides some insight to the integration
within these groups. Of the total production of yarn (cotton and man-made)
spun in SIC Industry 2281 (yarn mills), about 50 percent was finished in
the mills spinning the yarn while the remainder was shipped to plants in
the SIC Industry Group 226 for finishing. Although this does not reveal
the number of plants involved, it does point out that about half of the
yarn spun (by spinning mills) is produced in mills in which greige milling
and finishing is being accomplished as integrated processes.
In 1972, 10.1 billion linear yards of broad woven fabric were produced in
the weaving mills. Close to 70 percent of this was finished on commission
by SIC Industry Group 226. Only about 13 percent was finished in the same
establishments in which the fabric was woven. The greatest portion of this
fabric was produced in the largest 68 mills representing 10 percent of the
total number of mills in the broad woven industry. This 10 percent figure
corresponds roughly with the 16.4 percent contained in Table IV-10 revealing
the approximate number of weaving mills which perform finishing as a part
of their integrated operation.
Since knit fabric finishing can be accomplished without mercerization or
desizing, integration of greige milling and finishing is much greater in
this segment. However, the Census data do not facilitate an accurate com-
parison of how much fabric is finished in integrated facilities as opposed
to separate facilities. According to the data, over 70 percent of the
knitting mills were classified as producing finished fabric. However, the
statistics do not reveal how many of these mills were engaged in finishing
only. The Department of Commerce's Current Industrial Report (MQ-22K) in-
dicates a total of 1.8 billion pounds of knit fabric was produced in 1976.
Of this amount, 1.1 billion pounds, or 61 percent were shipped to other
plants for finishing, leaving 39 percent to be finished in the knitting
mills. This, again, corresponds roughly with the 31 percent integration
shown in Table IV-10.
As shown previously in Table IV-10, over half of the weaving mills were
involved in yarn preparation. However, on a production basis, the greatest
portion of yarn consumed in the weaving process was produced within the
weaving mills. The 1972 Census data show that over 3.6 billion pounds of
fiber (raw cotton and staple and tow) were purchased directly by the weaving
mills, while only about 600 million pounds of yarn were purchased.
IV-15
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4. Level of Diversification
The textile industry is not generally diversified at the mill level. Most
plants specialize in one process; while types of fabric and fiber may differ,
the general processes are similar. If the firm manufactures a variety of
products, they are often handled in separate plants. Many large textile
companies are multi-plant firms and do not depend on one type of fabric to
carry the company. The Value Line mentioned one large but specialized
company which manufactures mainly bottomweight fabrics, such as denim and
canvas. Its narrow product line makes this company especially vulnerable
to changes in style. Most of the larger textile companies guard against
this risk by handling a diverse number of products. For example, two major
companies manufacture furniture while others also produce foods and plastics.
Following is a sampling of some large textile firms and their products:
Belding-Heminway
home sewing products, thread, zippers,
buttons and engineering plastics
Burlington Industries hosiery, sheets, pillowcases, drapes,
and furniture
Chelsea Industries
Collins & Aikman
Ludlow Corporation
Mohasco Corporation
Spring Mills
narrow fabrics, dairy protein derivatives,
shoe products and plastics
woven, knitted and tufted fabric, wallpaper
floor mats, carpet cushions, furniture,
packaging materials, and printing papers
for graphic arts industry
carpets and rugs, one of 5 largest furniture
companies in the U.S., and furniture rental
woven fabrics for apparel, home furnishings
and packaged frozen foods
Source: The Value Line
Some of the diversification is a result of company mergers, while other
firms add new products. Occasionally these additions are an extension of
an established specialty, such as primarily textile home furnishing indus-
tries manufacturing furniture or wallpaper. Other companies may manufacture
seemingly unrelated items such as fabrics, foods and shoe products. A 1977
report in Textile World stated that diversified textile firms recovered more
quickly and strongly from the recession than did non-diversified companies _!/,
II "Survey Shows Diversified Firms Lead 1976 Industry Comeback," Textile
~ World, June 1977, 24 and 27.
IV-16
-------
B. Market Profile
The final market value of all textiles is estimated to be about 10 percent
of disposable income. At a disposable income level of $1,309 billion in
1977, the textiles market value would approach $130 billion. Textile
industry shipments were just under $40 billion in 1977, which amounted to
a third of the final textile market. The major outlets for textile products
include apparel, home furnishings, industrial fabrics, and exports
(according to Textile Organon). The largest market for the textile industry
is apparel fabrics, accounting for about 42 percent of mill output (these
fabrics include those sold in home sewing stores). This market can be
expected to fluctuate widely over a period of time; however, basic gains
can be anticipated with the growing importance of fashion in clothing.
The next largest market for mill products is home furnishings which consumes
about 32 percent of all fiber processed. Products entering this market
include carpet, draperies and upholstery, sheets, and towels. Of these,
carpeting is the only area in which growth has occurred during the 1970's.
In the other areas, the overall upgrading of product quality has caused a
down-turn in sales volume both because of higher prices and an increase in
product life. The industrial market ranks third in the amount of fiber
utilized accounting for about 23 percent of the total fiber processed.
Products showing growth in this market include medical products, belting,
filtration fabrics, thread, and fish line. Finally, significant gains have
occurred in international markets as a result of product improvement, more
aggressive marketing, and devaluation of the dollar. In 1977, the inter-
national market accounted for about 4 percent of the fiber produced.
1. Domestic Market Description
In spite of a considerable trend towards integration of manufacturing activ-
ities, the textile industry continues to be characterized by a segregation
of successive operations generally performed by separate firms. This is
reflected by a series of intermediate markets and a separation of whole-
sale and retail distribution. The structure persists even though integrated
firms may transfer goods directly from one operation to another without
resource to the markets. The market channels lead through eight levels as
listed below.
(a) Raw fiber markets
(b) Processed fiber markets
(c) Yarn markets
(d) Greige goods markets
(e) Finished goods markets
(f) Fabricated product markets
(g) Wholesale markets
(h) Retail markets
IV-17
-------
These market levels (except wholesale and retail) are identified with
products which are closely related and produced from the same equipment or
type of mill. Although the markets are clearly identifiable, considerable
overlap exists between them. The flow of goods through the various channels
and the interrelationships between markets are shown in Exhibit IV-1.
In the raw fiber market, the trading of cotton is characterized by large
fluctuations in yield, a large number of sellers, and a certain amount of
government control over the marketing process. Only a small amount of raw
material is purchased directly by the mills from the growers. Most of
the cotton enters the grower's market in which the raw cotton is assembled
for ultimate distribution through central markets. In these markets, the
cotton is traded between the commission merchants, shipper, factors, and
other representatives of the growers (such as co-operatives) on one hand
and the purchasers representing the mills, exporters, and other interests
on the other hand. These central markets exist throughout the cotton belt;
however, New Oreleans is the leader in spot pricing.
The market for man-made fibers is considerably different from that of natural
fibers since it is a manufactured rather than an agricultural product. The
basic difference in markets is that there are no intermediaries between
the producers and mills, as in the case of cotton; therefore, the producers
normally sell directly to the mills.
Processed fibers are those that have undergone processing beyond the raw
fiber state but have not yet been spun into yarn. One of the chief products
traded on this market is wool tops which are utilized in worsted mills.
Yarn production is generally integrated wherever possible with weaving,
knitting and other manufacturing. However, a substantial amount is dis-
tributed through the yarn markets principally to the knitting mills,
carpet mills, and small weaving mills. The relatively small size of the
spinning mills has brought about a market organization in which selling
is done through relatively few agents. The principal*"yarn markets are
in the consuming areas. Yarn used in the knit apparel mills is usually
sold through jobbers while the weaving yarns and yarns to the large
knitting mills are sold directly by the spinner or his agent to the
using mills.
In selling thread, there are two distinct markets: domestic and industrial.
Industrial thread is sold similar to yarn, by the pound, on cones ranging
from 3,600 to 30,000 yards each. On the other hand, thread entering the do-
mestic market is sold on small thread spools.
The greige fabric market is concentrated in the hands of a few selling
agents and brokers with main offices in New York City. In this market,
quotations are made on a bid and ask basis; there are no list prices.
Selling may be on either a spot or future delivery basis with widely
used standard constructions sold for spot delivery and cloths of special
construction sold for future delivery.
IV-18
-------
Exhibit IV-1. Textile marketing, flow of goods
AGRICULTURE
CHEMICAL INDUSTRY
Source: Development Planning and Research Associates, Manhattan, Kansas.
IV-19
-------
The finished goods market differs from the greige fabric market principally
by type of customer served. While the greige manufacturers deal with pro-
cessors within the textile industry, the finished goods producers sell their
products outside of the industry to "cut and sew" operator:! in the apparel
industry. The apparel customers are greatly influenced by the retail markets
and are usually under-financed. The combination of these two factors con-
tribute to an instability in the finished goods market.
Some of the instability is offset by the method of merchandizing used in
the market. In the market, "lines" of goods are prepared comprising an
assortment of fabrics, colors, and designs which contain some materials
intended to appeal to all of the manufacturers customers. Part of the line
is a carry over from previous seasons and part are goods introduced to the
markets for a single season. In this system, the manufacturers are reluctant
to change prices during a "season" and consequently prices tend to remain
stable during the period.
Finished goods are purchased both for spot and future deliveries. However,
the volatility in the retail markets tend to make selling on a future basis
unsatisfactory since the purchasers are unable to anticipate which garment
patterns will be selling. Textile manufacturers are usually unwilling to
enforce the "blanket" orders associated with the future deliveries because
of the risk of losing the goodwill of their major customers.
Finished goods are normally sold from list prices as opposed to selling by
"market" quotations as is the case in the greige markets. As pointed out
above, these prices usually remain stable during the season, dropping off
at the end of the period on closeout goods that cannot be carried over into
the next season.
Types of fabricated products included in the textile industry are:
(a) sheets, towels and blankets
(b) knitted underwear, outerwear, and hosiery
(c) carpets
Sheets, towels and blankets are produced by weaving mills and require only
a minimum of fabrication. Fabrication usually consists of a simple cutting
operation and hemming or binding of the edges. The markets for these
products are similar to those of finished goods.
Knit apparel (hosiery, underwear, and outerwear) are end products and enter
directly from the mills into the wholesale and retail distribution systems.
Carpets and rugs enter the broad home furnishings markets through the whole-
sale and retail marketing system.
IV-20
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Within the textile industry, competition is keen at most of the market
levels, not only between type fibers used, but also between fabrics. The
dramatic trends in the last decade towards the use of man-made fibers
points out clearly the inter-fiber competition in the textile markets.
However, it is important to note fibers compete with others for only a part
of their uses. For example, cotton has very little competition in the manu-
facture of sheets and pillow cases. In contrast competition between fibers
is considerably greater in dress goods. Competition also exists between
fabrics. This competition is reflected in the substitution of double knit
fabrics for woven fabrics in the manufacture of suits.
2. International Trade
International trade has had a significant influence on the U.S. textile
markets. The considerable growth in the level of imported textiles and
apparel has not been offset by increases of exports of U.S. produced tex-
tile and apparel products. Also efforts by the U.S. industry to limit
the future growth rates of imports have not been successful. While this
section will not attempt to analyze the pro's and con's of the trade
situation, it will attempt to depict the trends in the levels of imports
and exports as well as describe the basic trade agreements the U.S.
currently has in effect.
a. Import market channels
The market channels for textile and related goods being imported to the U.S.
are very similar to those associated with the domestically produced goods.
Depending upon the level of manufacture of the imported good, the typical
sequence of its entrance into the U.S. markets would begin with an import
broker and from this step, the good would funnel into the normal market
channels described in the previous section. As long as the imported good
was of comparable quality, once it entered the domestic market channels,
very few distinguishable attributes would be associated with it unless,
of course, it was priced differently.
b. Level of imports
After more than doubling in the 1960's, U.S. textile imports reached a
value of $5.9 billion in 1977, a 50 percent increase over the previous
high of $3.9 in 1974 (Table IV-11). The value of these imports amounted to
over 4 percent of all merchandise imported to the U.S.
As measured by the raw fiber equivalent of semi-manufactured and manufactured
textiles, imports have doubled during the last 10years with total pounds
climbing from under 800 million in 1968 to close to 1,600 million in 1978
(Table IV-12). Products of man-made fiber more than tripled during the
period jumping from about 200 million pounds to close to 650 million pounds.
Cotton products increased from 473 million pounds to 845 million which
amounted to an increase of 75 percent. Wool products dropped from 104
million pounds in 1968 to under 50 million in 1975 during the recession.
IV-21
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Table IV- 11. U.S. textile trade
(millions of dollars)
Period
1967
1968
1969
1970
1971
1972
1973
1974
1975
1976
1977
Imports
1,416
1,818
2,125
2,402
2,913
3,411
3,722
3,952
3,780
5,269
5,926
Exports
660
694
753
776
837
993
1,497
2,168
2,027
2,480
2,567
Deficit
801
1,124
1,372
1,626
2,176
2,418
2,225
1,787
1,783
2,789
3,359
Source: American Textile Manufacturers Institute, Hi-Lights.
IV-22
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Table IV-12. Raw fiber equivalent of imports of manufactures
(million pounds)
Year
1968
1969
1970
1971
1972
1973
1974
1975
1976
1977
1978
Man-made
193.3
257.5
329.3
451.1
480.5
465.3
371.3
400.4
479.5
531.1
642.6
Cotton
473.8
488.0
463.1
392.5
610.7
563.5
502.7
501.2
708.6
669.5
845.4
Wool
104.3
96.2
85.9
66.2
63.0
61.3
53.3
48.6
66.7
85.5
92.2
Total
771.4
841.7
878.3
1,009.8
1,154.2
1,090.1
927.3
950.2
1,254.8
1,286.1
1,580.2
Source: Textile Organon
IV-23
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It has subsequently climbed back to about its 1968 level. Over a third of
the total imports in 1978 consisted of semimanufactured products (yarn and
fabric) with the remainder made up of apparel, industrial and home furnish-
ings. This is a significant change from the composition ten years ago when
semimanufactured products amounted to over 50 percent of the total textile
imports.
The trend towards trading in apparel products is revealed in the growth
rate of the various products (Table IV-13). Broad woven fabric imports
amounting to 5 percent of domestic production in 1967 rose to 8 percent by
1976. Knit fabric has remained under the one percent mark. In contrast,
imports of sweaters rose from about 33 percent of U.S. production to over
100 percent during the same period. Imports of knit slacks showed even a
greater growth by rising from 4 percent of production in 1967 to over 35
percent in 1976. Over half of the imports in 1976 (textile and apparel
products) were shipped from the Far East: Hong Kong, Korea, Japan, and
Taiwan. In the past several years, the share of imports among these
countries has changed significantly. Korea's share has been increasing
while that of Japan's has been decreasing.
While total textile imports amount to about 10 percent of the domestic
textile products market, wool textile imports represent a substantially
higher share of the wool products market. For the past ten years, wool
imports have fluctuated between 20 and 25 percent of the market. The high
occurred in 1968 with wool imports representing 25 percent of the market.
The low occurred in 1975 with imports having less than 20 percent of the
share. The level in 1976 was just over 23 percent.
In contrast to the growing textile imports discussed above, overall imports
in rugs, carpets, and carpeting have not gained a significant share of the
domestic markets, except in the case of wool carpets. The total imports
in carpets (man-made, cotton, and wool) have shown a slight decline over
the past ten years decreasing from about 3 percent of domestic production
in 1967 to about one percent in 1976. However, wool carpet imports which
have been accounting for about half of the total carpet imports in recent
years have shown significant increases in the 1970's. In 1976, these imports
were at a level of about 6 percent of the domestic production. With sub-
stantial yearly increases, imports reached 5.6 million square yards in
1976; this was close to two-thirds of total domestic production.
c. Level of U.S. exports
While imports in dollar volume have doubled during the early 1970's, textile
exports have tripled, climbing close to $2.5 billion in 1976. However,
since exports have been expanding from a much smaller base, a continuing
deficit in textile trade exists. In 1976, the deficit reached $2.8 billion
which represents 30 percent of the nation's $9.2 billion merchandise trade
deficit. In exports of cotton and man-made textiles, shipments increased
from just over 300 million pounds in 1968 to a record 798.1 million in
1977 (Table IV-14). Exports dropped off to under 700 million pounds during
1975. For the past several years, exports in cotton and man-made textile
IV-24
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CMOOOJCVJi— I
OOOCOCMi— I i— i CM i-l
O> CO O >—I i—I CO to I— UD UD
OOi—ICMUOCM.—lOOO
lO^Hr-lOLOf-HCOOOCM
r—ICMCMCMr-tr—li—Ir—4l—ti—I
CT* CT> CT* (T* CTV
CT> CT*
CT*
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a.
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-------
Table IV-14. Raw fiber equivalent of export of manufacturers
(million pounds)
Year
1968
1969
1970
1971
1972
1973
1974
1975
1976
1977
1978
Man-made
129.0
146.2
147.4
146.7
177.6
288.2
390.7
322.4
352.2
367.6
441.7
Cotton
188.2
232.1
199.2
226.3
290.4
325.2
292.5
353.7
413.2
369.5
355.7
Wool
5.7
5.2
4.9
9.4
30.6
30.8
23.0
19.2
13.9
11.5
11.6
Total
322.9
383.5
351.5
383.4
498.6
644.2
706.2
695.3
779.3
798.1
614.0
Source: Textile Organon
IV-26
-------
and apparel products have remained at about 7 percent of domestic produc-
tion. In wool products, exports rose to a high of 30.8 million pounds
in 1973; about 13 percent of the domestic production level. These imports
dropped to about 6 percent of the production level in 1976.
While apparel products accounted for the greatest portion of the imports,
piece goods accounted for the largest share of the exports. In cotton
piece-goods, exports climbed from around 300 million square yards in the
late 1960's to a record level of 527.3 million in 1976. During the same
period, exports in man-made fiber piece goods increased from around 150
million square yards to close to 360 million square yards.
d. Trade restrictions
In order to prevent disruption of developed countries' textile industries
by low-wage competition from exporting nations, textile imports in most
countries are regulated by a series of international trade agreements.
Of major importance to these textile trade regulations is the Tokyo Round
Trade Agreement of the Multilateral Trade Negotiations (MTN). This trade
agreement was negotiated under the auspices of the General Agreement on
Tariffs and Trade, or GATT. As in all GATT talks, the Tokyo Rounds were
conducted on the principle that any favorable concession granted to one
country will be extended to all GATT members. This treatment, referred
to as the Most-Favored-Nation principle (MFN), is usually granted to include
non-GATT countries also. The U.S. is the one exception to this principle
as it will not apply the MFN to countries or areas dominated or controlled
by communism. The U.S. acceptance of the Tokyo Round was signed into law
in July 1979, by President Carter after almost six years of strenuous
negotiations. It is intended to harmonize existing U.S. laws with new inter-
national codes primarily dealing with tariff levels and five non-tariff
barriers to trade. These are discussed below.
One of the most controversial issues of the Tokyo Rounds involved the
reduction of tariffs which a country levies against the price of foreign
goods being imported. As a result of the Tokyo Rounds negotiations,
tariffs on textile products are to be reduced by an average of 21 percent.
The textile products tariff reductions will be numerous and varied by
product classification with approximately 3,500 different textile and apparel
classifications considered in the negotiations. The current tariff rate,
the proposed new rate, and the resulting reduction for selected textile
products are depicted in Table IV-15. As shown in the table, proposed
reductions range from relatively small decreases (5.9 percent for woven
wool) to reductions of over one-half (60 percent for cotton furnishings).
The projected economic ramifications of the industry's tariff reductions
vary. According to William R. Cline, main investigator for the Brookings
Institution's study on the effect of trade negotiations in the Tokyo Round,
the major impact of the revised tariff levels will be on employment. Even
so, Cline predicts only a 1.65 percent employment reduction in the industry,
which is considered minimal. He also contends that some of the lost jobs
will be regained by additional U.S. exports. Furthermore, initial tariff
IV-27
-------
Table IV-15. Proposed tariff reductions on major textile products
Product
Wool yarns
Man-made fiber— /wool blends
Man-made^-' fabrics
Woven wool (over $9/1 b)
Woven wool (less than $9/lb)
Cotton shirting
Cotton towels
Cotton corduroy
Cotton velveteen
Cotton terry
Cotton velveteen furnishings
Corduroy furnishings
Cotton terry furnishing
I/ Comprised of acetate, nylon,
Source: Daily News Record, July
Current Proposed
tariff tariff
13-23.
18.2
24.5
44.4
44.4
16.7
14.0
38.0
22.5-30
15.4
30.0
33.0
15.0
and/or
-expressed as a
4 9-15.0
15.0
17.0
33.0
41.8
12.2
10.5
23.0
.0 16-20.0
11.1
12.0
15.2
7.2
polyester.
Reduction
30.77-35.90
17.6
30.6
25.7
5.9
26.9
25.0
39.5
33.3
27.9
60.0
60.0
52.0
13, 1979.
IV-28
-------
cuts will not take effect until 1982, with additional liberalization over
a period of eight to ten years. The American Textiles Manufacturers
Institute (ATMI) have an opposing view of the impact of tariff reductions,
however. They assert that total U.S. job losses due to the economic
effect of the reductions, would decrease employment by 40 percent, or
800,000 workers. The ATMI predicts the smaller, family-owned manufacturers
will be most severely impacted, while the larger, multi-corporations can
more readily absorb the changes.
In addition to tariff reductions to promote international trade, the
Toyko Round also legislated a series of codes to help eliminate the five
major non-tariff barriers to trade. One of the codes involves regulation
of government subsidies for exports of manufactured goods. The new code
attempts to expedite the time required to make official investigations and
determinations in countervailing and anti-dumping (flooding a market with
specific imports) cases. The length of the investigations by the Treasury
Department would be cut from six or nine months to 120 days. It would also
reduce to 120 days the period of time the International Trade Commission
(ITC) has to rule on whether or not the imported products were harming
domestic industries. In addition, the Tokyo Round allows for the Treasury
Department and ITC investigations to overlap, further reducing the time
constraints. It also restricts the President to 30 days to act on ITC's
suggestions instead of the 90 days allotted historically. Under previous
trade agreements, the Treasury Department had a year to reach its final
decision in countervailing duty cases; however, now the Department will
have a total of 195 days to make its final decision. A major concession
in the agreement provides that the U.S. cannot apply countervailing duties
on subsidized products unless it can prove the domestic industry suffered
injury as a result of the imports. The somewhat nebulous guidelines of
determining injury entail that the U.S. must prove "harm which is not in-
consequential , immaterial or unimportant" has taken place. The agreement
also expands dumping duties to include the 3 months of imports before the
preliminary dumping findings. Furthermore, a deposit of the estimated
dumping duties will be required from the exporting country if injury is
proved.
Another significant code aimed at reducing non-tariff barriers to trade,
bars the use of arbitrary product standards to discourage imports. In
the past, countries when faced with a surplus of domestic goods, would
raise the products minimal requirements (e.g. health or technical) of
imported goods while maintaining the original standards for domestic goods.
The new code does not dictate what the standards must be, per se, but
rather calls for open procedures in adopting standards, and sets up a
review procedure for settling disputes.
A third code established in the trade agreement eliminates the numerous
arbitrary methods that governments use to inflate the value of imports to
calculate custom duties. As a result of the false value placed on the
products, the goods are over-priced and not competitive with the domestic
markets. Under the new code, countries that do not accept a manufacturer's
invoice price must use an elaborate, carefully devised formula to establish
a revised value.
IV-29
-------
The final two codes anticipated to have major impacts on breaking down
trade barriers include regulation of official purchasing practices and
import licensing. The revised purchasing practices allows countries to
bid on foreign government's contracts. This results in not only a broader
market for exporters, but also makes the bidding more competitive and
efficient. In the past, import licenses have been difficult, if not im-
possible, to obtain for certain domestic products. This provided the
manufacturers protection against lower-priced, imported goods. The estab-
lishment of this code insures licenses are available at a reasonable time
after they are requested.
It is clear that while the Tokyo Round trade agreements will promote trade
by reducing tariff levels and eliminating some of the major non-tariff
barriers to trade, it will also have an adverse impact on the U.S. textile
industry. Although the severity of the impact is argued by several special
interest groups, the U.S. plans to strengthen existing legislation in order
to assist the beleaguered industry. It is anticipated that the "Arrangement
Regarding International Trade in Textiles," also referred to as the Multi-
fiber Arrangement, will be one area of change. The Multifiber Arrangement
(MFA) is an extension of the General Agreement on Tariffs and Trade. The
MFA was originally negotiated by 50 major textile trading countries in
December 1973, with its four year term scheduled to expire December 31,
1977. At that time, it was extended to December 31, 1981. The MFA regu-
lates the importation of textile products manufactured from cotton, wool,
or man-made fibers, and all blends among the 50 countries.
The basic objectives of the MFA entail expansion of trade, reduction of
trade barriers, and progressive liberalization of world trade involving
textile products. In addition, it ensures the orderly and equitable
development of trade aimed at preventing disruption of individual markets.
Other goals of the MFA include enhancement of the social development of
developing countries, securing substantial increases in their export
earnings from textile products, and providing the opportunity of a greater
share in world trade.
Under the provisions of the MFA, the U.S. may restrain textile imports from
particular countries by negotiating bilateral agreements with exporting
countries or through unilateral actions. Currently, the U.S. has 18 bi-
lateral s in force including agreements with all of the major exporting
countries. These countries and the textile categories involved are pre-
sented in Table IV-16.
A significant feature of the MFA is that it calls for an annual six percent
growth in the levels established by the bilaterals. Although the MFA pro-
vides the general framework for trade, specific restrictions are covered
in the bilateral agreements. Under most of these bilaterals, aggregate
limits are established for total imports (which may or may not conform with
the six percent growth rate) and then quotas are set for each group of
production to include textiles, apparel, and wool. Within these groups,
IV-30
-------
Table IV-16. The Textile Industry—countries with which the U.S.
has bilateral agreements as allowed under the auspices of the
Multifiber Arrangement
Country
Textile category involved
Arab Republic of Egypt
Brazil
Colombia
Haiti
Hong Kong
Cotton
Cotton
Cotton, wool and man-made fibers
Cotton, man-made fibers
Cotton, wool and man-made fibers
India
Japan
Korea
Macao
Malaysia
Mexico
Pakistan
Philippines
Poland
Romania
Singapore
Taiwan
Thailand
Cotton
Cotton,
Cotton,
Cotton,
Cotton,
Cotton,
Cotton
Cotton,
Cotton
Cotton,
Cotton,
Cotton,
Cotton,
wool
wool
wool
wool
wool
wool
wool
wool
wool
wool
and
and
and
and
and
and
and
and
and
and
man-made
man-made
man-made
man-made
man-made
man-made
man-made
man-made
man-made
man-made
f i bers
fibers
f i bers
fibers
fibers
fibers
fibers ]_/
f i bers
fibers
f i bers
I/ This is the 2nd of 2 agreements negotiated by Romania.
Source: U.S. Dept. of Commerce
IV-31
-------
specific import quotas are set for specific items. Quotas generally reflect
the market sensitivity of the specific product. U.S. bilaterals have pro-
vided for an annual one percent growth in the import of wool products
because of the small size of the wool industry and because of market
problems in this industry. Restrictive quotas also have been negotiated
on more sensitive apparel products such as gloves, sweaters, and knit
shirts.
There are also features of the bilaterals which permit import levels to
increase over the 6 percent annual level established in the MFA. One such
feature allows unused quotas to carry over from one period to the next.
For example, if one country had an import level of 36 thousand tons of
wool per year, but in a given year only 30 thousand tons were actually
imported, the next period's import level would still be a 6 percent increase
over the 36 thousand tons originally allowed (38.2 thousand tons of wool)
plus the unused 6 thousand tons would be allowed to accumulate for the next
period resulting in a total import level of 44 thousand tons in the second
year. The following period's level of importation would then be 6 percent
of 44 thousand tons rather than 6 percent of 38 thousand tons. Several
periods of compounding growth in this manner can have a severe impact on
importing countries.
The U.S. textile industry has strongly urged that drastic changes are
needed in the Multifiber Arrangement. In the view of many, the MFA will
lead to major disruption of the textile and apparel industries with
resultant widespread reductions in employment. The view is also held that
imports could grow to 50 percent of the textile markets by the late 1980's.
To counter this, industry and labor are pressing for more restrictive
regulations which would include a reduction of the six percent quota growth
factor to come in line with growth in the domestic market which has been
approximately three percent.
C. Financial Profile
Textile industry sales have increased at a rate of about seven percent
annually over the last ten years. Domestic mills are facing a growing
threat from foreign markets, which now dominate about one-fourth of U.S.
sales. Operating costs for the textile industry have remained steady over
the last ten years, always slightly higher than the average for all manu-
facturing industries. Depreciation levels are inadequate to permit the
industry to keep abreast of its capital requirements since new machinery is
two to four times as expensive as that being replaced. Long term credit is
scarce in the industry and firms must rely on internally generated funds.
Deficits have grown from 29 percent of the firms in the entire industry in
1972 to 38 percent in 1974; returns on sales, equity and assets continue to
rank among the lowest compared to all other manufacturing industries.
IV-32
-------
1. General Trends in the Industry
While the quantities of textile products produced have grown at an average
annual rate of 3.5 percent during the past ten years, the values of ship-
ments of textile products have grown at an annual average rate twice the
production growth rate, increasing from approximately $20 billion in 1967,
to over $40 billion in 1978. The value of shipments for the textile indus-
try during this period was approximately three percent of the total value
of shipments from all manufacturing industries. However, the textile
industry proportion declined during the ten year period from 3.3 percent
in 1967 to 2.8 percent in 1976. Comparison of the textile industry with
all manufacturing industries with respect to the share of sales and profits,
reveals that while the textile industry accounted for three percent of the
sales of all manufacturing industries, it accounted for only 1.9 percent
of the aggregate industries' profits in 1971, with the share decreasing to
only one percent in 1975.
2. Sales
According to data published in the FTC Quarterly Financial Reports, corporate
sales within the textile industry have been increasing at an average rate
of about 7 percent annually, rising from $18.7 billion in 1967 to over $37
billion in 1978 (Table IV-17). This annual increase is somewhat less than
that of the Census1 value of shipments which indicates a trend towards
greater integration within the industry. In 1970, noncorporate sales
represented about two percent of the total industry volume, including
those of proprietorships and partnerships. However, in recent years, the
sales of these noncorporate enterprises share represented less than one
percent, reflecting the continuing trend towards closures and incorporations
of the smaller operations.
The cyclical movements of the sales in the textile industry have generally
paralleled the total sales in all manufacturing industries with peaks and
troughs occassionally preceding trends in the overall economy. Although
not apparent from Table IV-17, significant fluctuations in quarterly sales
have occurred since 1970. In 1973, a peak occurred as a result of the
accelerated buying associated with the threatening shortage during the
Mideast oil embargo. This was quickly followed by a dramatic drop in sales
reflecting the economic recession in 1975. Since that time, sales have
recovered with a high in quarterly sales of over $9 billion during the
second quarter of 1977.
Sales of textile products occur predominately in three markets: apparel,
home furnishings, and industrial. The apparel market accounts for the
greatest portion of the total sales, receiving an estimated 42 percent of
the industry shipments. The second largest share of the industry sales
occurs in home furnishings which represents about 32 percent. An estimated
23 percent of the industries sales occur in the industrial market. Overseas
sales amount to about 4 percent of total sales.
IV-33
-------
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The long term outlook for sales can be expected to reflect very closely
the projected trends in personal income as well as expenditures for apparels
and home furnishings. The real growth rate is not anticipated to exceed
the 2.5 percent of the past 10 years. However, cyclical movements in
sales can be expected to occur and should parallel changes in general
economic activity. Industry sales will be significantly influenced by
imports of textile products into the United States. These imports, which
have been restricted to an annual increase of 6 percent under the MFA, have
been posing increasing problems to the domestic mills. This is apparent in
considering that about one-fourth of the garments now sold in the U.S. come
from abroad, principally from the Far East (Taiwan, Hong Kong, Japan, and
Korea).
In addition to the FTC Financial Reports discussed above, financial statis-
tics are also published by the Internal Revenue Service in its Source Book
of Income Statistics. These statistics cover a different survey sample and
are collected on a fiscal year basis beginning in July; consequently the
data varies somewhat from that published by the FTC. The Source Book con-
tains data not only for the total industry (major industry) but also for
the three principal segments (minor industries): (1) weaving mills and
textile finishing, (2) knitting mills, and (3) other textile mill products.
This third industry includes the carpet and rug industry as well as yarn
and thread mills. Table IV-18 depicts data for fiscal years 1967 to 1975
(1975 is the latest year for which statistics have been published). As
shown in the exhibit, sales for the major industry increased from $18.5
billion in 1967 to over $30 billion in 1975. These statistics illustrate
a drop in sales in 1971 reflecting that year's recession, which is not
readily apparent in the FTC data. Sales in the weaving industry represent
about 45 percent of total industry sales while those in the knitting mills
account for about 20 percent. The other textile mills account for the re-
maining 35 percent of the sales. Although the weaving mills make up the
largest portion of the industry sales volume, its sales have been increasing
only at an average of 4 percent annually as opposed to a 6 percent increase
for the remaining portion of the industry. The minor industry sales data
reveal that the impact of the 1971 recession occurred at different times
among the three industries with a low in sales occurring in 1970 (fiscal
year) for the other textile product mills and a low for the weaving and
knitting mills occurring in 1971.
3. Operating Costs
Financial data contained in the Standard and Poors Industry Surveys facil-
itate a comparison of operating costs between the textile industry and
total industrials. These operating costs are listed below and include
costs for labor, material, selling, and general and administrative expenses.
Costs as a percentage of sales have remained fairly stable over the last
ten years for the textile industry as well as all industrials. Total indus-
trials have experienced a slight rise in costs from a low of 84.2 percent
in 1967 to a high of 85.7 percent in 1976. The costs in the textile industry
IV-35
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have ranged from a low in 1968 of 87.9 percent to a high of 91.4 percent
in both 1971 and 1975. The operating costs of the textile industry have
remained about 3 to 5 percentage points higher than all industrials
throughout the time period.
Operating Cost
(as a percent of sales)
Year Textile Industry Total Industrials
1976 88.9 85.6
1975 91.4 85.6
1974 88.4 84.6
1973 89.0 84.2
1972 90.4 84.9
1971 91.4 85.4
1970 89.9 85.5
1969 88.7 84.7
1968 87.9 84.2
1967 89.4 84.5
Source: Standard and Poors Industry Surveys.
These operating costs are discussed in detail, below. Material and labor
costs were obtained from the Census of Manufactures while the remaining
costs were derived from the Source Book of Statistics of Income, (IRS).
a. Costs of materials and labor
Costs of material and labor expressed as a percent of shipments (sales and
interplant transfers) are shown in Table IV-19 for various SIC industry
groups (3-digit level) and industries (4-digit level) paralleling to some
extent the IRS Source Book minor industry break-out. Costs of material for
the entire industry amount to about 60 percent of shipments while labor
costs average about 20 percent. The weaving mills show the highest cost
of labor with a rate of 27 percent, due primarily to the labor intensive
narrow fabric and wool processing mills. The labor costs in the textile
finishing mills were 21 percent. The combination of weaving and finishing
mills, which constitutes the same coverage of mills as the Source Book in
its minor industry break-out, indicate labor costs of 25 percent. The
knitting mills had labor costs of 21 percent, slightly less than the com-
bination of weaving and finishing mills. Within the knitting mills, labor
costs vary widely among the subsegments. Mills manufacturing knit gloves
had labor costs of 32 percent (not shown in the Table) which were the highest
in the entire textile industry. On the other hand, mills producing knit
fabrics had one of the lowest costs. Carpet and rug mills had the lowest
labor costs of the entire industry with costs at 13 percent. This is due
principally to the relatively labor efficient mills.
IV-37
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Table IV-19. Material and labor costs (1972)
(as a percent of shipments)
SIC
SIC Industry
Grouo
Labor Costs Material Costs
221-224 Weaving mills
226 Textile finishing (weaving)
221-224, Combined weaving mills and
226 textile finishing
225
227
228
Knitting mills
Carpet and rug mills
Yarn and thread mills
Total Textile Mill Products
•percent-
27
21
25
21
13
20
20
52
58
54
59
67
62
60
Source: Census of Manufactures.
IV-38
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As may be expected, material costs., when expressed as percentages of ship-
ments, are essentially the opposite of labor costs. Those segments with
high labor costs had relatively low material costs; conversely, those with
low labor costs had high material cost (as a percent of shipments). The
weaving mills and textile finishers had the lowest material costs at 54
percent. Carpet mills had the highest material costs at 67 percent.
b. Depreciation
A recent study conducted by the Treasury Department on the textile industry
concludes depreciation levels are entirely inadequate,to permit the industry
to keep abreast of its capital requirements since new machinery costs from
two to four times that being replaced. Depreciation, as shown below,
remained between 2.8 and 2.9 percent of sales through 1975 and then dropped
to 2.5 percent in 1976 where it has remained for the past three years.
The Textile Industry
(depreciation as a percent of sales)
1970 1971 1972 1973 1974 1975 1976 1977 1978
2.9 2.9 2.8 2.9 2.8 2.9 2.5 2.5 2.5
Source: FTC Quarterly Financial Report
Depreciation among the minor industries varied significantly as illustrated
below. The weaving mills and textile finishing reported the highest depre-
ciation at levels of about 3.5 percent of sales. The knitting mills reported
fairly low depreciation of 2.8 percent in 1974. During the period 1972-1974,
depreciation in this segment increased substantially from a low in 1972 and
1973 of 2.4 percent. During the same period, the remaining mills (other
textile products) experienced a slight decline in levels going from 2.5
percent in 1972 to 2.1 percent in 1974. It should be pointed out that the
minor industry levels, to a great degree, reflect the depreciation taken
by the largest firms. For example, the depreciation for all of the weaving
and finishing mills was shown as 3.5 percent. However, in that segmentf
firms with assets of less than $5 million (80 percent of this minor industry)
had depreciation levels of less than 2.5 percent.
Depreciation as a Percent of Sales
1972 1973 1974 1975
Weaving mills and textile finishing 3.6 3.6 3.5 3.4
Knitting mills 2.4 2.4 2.8 2.5
Other textile products 2.5 2.3 2.1 2.3
Source: Troy's Almanac
IV-39
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4. Interest Expenses
Because of low levels of profit, the textile industry has had to rely
traditionally on internally generated funds for capital investment. The
scarcity of long-term credit is evident in the relatively low interest
expenses being paid by textile firms as illustrated below. During the
period 1970-1974, interest paid by the industry averaged l.,4 percent of
sales. This compares with a rate of 1.8 percent for all manufacturing
industries for the same period. The interest expenses of the minor indus-
tries have fluctuated slightly over the past few years but in general have
varied between 1.4 and 1.5 percent of sales. The relatively large increase
in the percentage for knitting mills in 1974 may be explained by the fact
that in 1974, the knitting boom peaked, thus it is probable many firms were
forced to borrow funds to continue in operation.
Interest Expenses (as a percent of sales)
The Textile Industry 1970 1971 1972 1973 1974 1975
Major industry 1.4 1.4 1.4 1.4 1.5 2.0
Minor industry
Weaving mills & finishings 1.7 1.7 1.5 1.3 1.5 1.8
Knitting 1.4 1.5 1.4 1.4 1.8 2.4
Other 1.8 1.6 1.3 1.4 1.4 2.0
Source: IRS Source Book of Income Statistics
5. Profitability
The relatively weak financial posture of the textile industry is reflected
in the number of firms reporting deficits. In 1971, according to the
Source Book, 1,776 firms out of a total of 6,221 _!/ reported losses which
amounted to 29 percent of the firms in the entire industry. By 1974,
the total number of firms had declined to 5,769; however, the number re-
porting losses increased to 2,182, representing a total of 38 percent.
The generally low levels of profits are apparent in comparing the profit-
ability ratios in the textile industry with those of all manufacturing as
was depicted in Table IV-17. As shown, the textile industry's profits have
historically been 40 to 50 percent less than the profits of all manufacturing
industries.
a. Returns on sales (industry)
Rates of return on sales, equity and assets have been traditionally low in
the industry. During the last 10 year period, the return on sales (after
tax) for the industry has fluctuated between 1.5 percent in 1975 and 3.1
I/ The number of firms reflect those categorized as textile operations
by the Internal Revenue Service. The IRS number of firms does not
compare equally to the number of firms reported by the Bureau of
the Census. IV_4Q
-------
percent in 1967 and 1978. During the same period, the returns for all manu-
facturing industries varied from 4.0 percent to 5.5 percent. Annual rates
of return for the textile industry have typically been about 40 to 50 percent
less than the composite rates of all manufacturing industries.
The return on sales for 1977 was 2.4 percent; the same as that of 1976
and essentially the same as the average since 1970 (2.3 percent) and the
average of the past 11 years (2.5 percent).
While a review of the return on sales of the total industry indicates its
condition relative to that of overall manufacturing, an examination of the
rates of firms by asset size reveals the position of the small mills. As
shown below, the return on sales before tax for firms having assets under
one million dollars had a loss of 0.3 percent. Approximately 80 percent
of the firms in the industry fell into this category. Firms with assets of
between one and ten million dollars had a composite rate of return of 2.6
percent; these firms made up about 17 percent of the industry. The remaining
large firms (amounting to less than 4 percent of the industry) had a rate
of return of about 3.1 percent.
Return on Sales by Size of Firms-Textile Industry (1975)
Number of Firms as a Per- Return on
Assets cent of the Total Industry Sales
Under $1,000,000 80% -0.3
$1,000,000 to $10,000,000 17% 2.6
$10,000,000 to $25,000,000 2% 3.0
Over $25,000,000 Less than 2% 3.2
Source: IRS, Source Book of Income Statistics
As also shown in Table IV-18, the return on sales of the weaving mills and
textile finishers have generally been the highest in the industry when
compared to the other minor industries. Between 1967 and 1975, these mills
averaged close to 5 percent as opposed to about 3.7 percent for the knitting
and other mills. However, when viewing the return of sales of firms with
assets under one million dollars, a different picture emerges. These smaller
sized firms in both the weaving and knitting segments had less than a one
percent rate of return. The same size firms in the other textile mill
products segment had a composite rate of almost 3 percent.
b. Returns on sales (wet processors)
The returns on sales for the wet processors within the industry have remained
significantly lower than the total industry. Based on survey data (discussed
in Chapter II), the return of sales (before tax) have averaged 3.1 percent
for the wet processors as opposed to 4.3 percent for the entire industry.
As shown in Table IV-20, the rate of return for wet processors during the
1975 recession for wet processors fell to 1.4 percent while the total industry
IV-41
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Table IV-20. The textile industry, wet processors--
return on sales (before tax)j7
(medians)
Subcategory
Wool scouring
Wool finishing
Woven fabric finishing
Knit fabric finishing
Hosiery finishing
Carpet finishing
Yarn finishing
Nonwoven
2 /
Wet processors (composite)—
Total industry*
1973
7.8
4.0
5.8
3.3
2.5
4.4
9.2
3.2
2.9
5.4
1974
-0.3
1.7
2.8
3.3
1.6
4.7
6.6
4.6
4.4
4.6
1975
-4.1
-3.4
2.2
2.3
1.7
1.6
0.8
0.0
1.4
2.8
1976
7.7
2.7
4.0
1.6
2.6
3.0
3.6
0.7
4.1
4.4
1977
-0.1
0.5
1.4
2.5
1.3
3.5
1.9
4.3
2.9
4.4
I/ Returns on sales of each of the subcategories consist of medians.
2_/ Returns on sales for wet processors (composite) consist of the
average of all surveys.
Sources: Development Planning and Research Associates, Inc. Industry
Survey results.
* Internal Revenue Service, Source Book of Income Statistics,
IV-42
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rate dropped to 2.8 percent. In 1977, the rate for the wet processors
was slightly less than 3 percent compared to 4.4 percent for the industry.
An examination of the median rates from the survey data reveals wide
fluctuations within and among subcategories. The lowest rates and the widest
fluctuations occurred within wool scouring with returns varying between 7.8
and -4.1 percent during the 1973-77 period. The lowest overall rates
occurred in wool finishing. The most stable returns have occurred in carpet
finishing with the median remaining above 3.0 percent during the period except
for 1975 when it dropped to 1.6 percent.
c. Return on assets
As was shown in Table IV-17, the difference between the return on assets
of the textile industry and of all manufacturing industries is somewhat
less than the difference between the corresponding return on sales. This
primarily reflects the labor intensity of the industry and the relative
obsolesence of plant and equipment.
In light of the low profitability levels discussed above, the industry
requires substantial increases in productivity in order to maintain its
viability. To gain this productivity, the industry has shown evidence of
significant modernization. Capital expenditures were expected to reach $1
billion in 1977 with over 80 percent of this funneled into modernization.
Less than 20 percent of the outlay will involve expansion in capacities.
Although the expenditures will increase dramatically, the expenditures as
a percent of sales are expected to remain between 2.5 percent and 3.0
percent. Even though the projected outlay is about the same as the current
level of depreciation for the entire industry, modernization is required
most extensively in the smaller mills where the capital requirements will
exceed the depreciation.
d. Return on equity
Return on equity within the textile industry has been significantly low
in relation to that of all manufacturing as shown in Table IV-17. Over
the past ten years, the rate of return on all manufacturing industries has
fluctuated from 9.3 to 14.9 percent while that of the textile industry has
ranged from a low of 4.4 percent in 1975 to 9.6 percent in 1974. According
to The Value Line Investment Survey, the return on equity has been con-
sistently rated low in comparison with 29 of the major manufacturing
industries as indicated below.
Return on Net Worth - Textile Industry Ranking
(Among 29 industries)
1974 1975 1976
25 22 24
Source: The Value Line
IV-43
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Among the 500 largest industrials surveyed by Fortune, the median rates
of return on stockholder's equity within the textile industry was among
owest major industrial rates of return in 1975 (23rd out of 24),
the
in 1976, 23 out of 25, and 24 out of 25 in 1977.
The returns on equity of mills within the minor industries has fluctuated
over the past years with the knitting mills generally having the higher
rates (except in 1975) as indicated below.
Minor Industry
Weaving and finishing
Knitting
Other
1972
5.4%
10.4%
9.5%
Return on Equity
1973
4.6%
7.8%
3.8%
JJZl
13.7%
19.7%
20.2%
Source: Troy's Almanac
6. Financial Structure
a. Liquidity
The liquidity of the textile industry is somewhat more favorable than that
of total manufacturing as reflected in the current ratios listed below.
For the past ten years, the current assets to current liabilities ratio
of the textile industry has ranged between 2.2 and 2.4, somewhat higher
than that of all manufacturing. Although this is favorable to the textile
industry from the point of view of liquidity, it actually is brought about
by the requirement for the textile mills to finance a greater portion of
their investments from internally generated funds than from external
investors.
Current Ratio - Liquidity
(ratios of current assets to current liabilities)
1967 1968 1969 1970 1971 1972 1973 1974 1975 1976 1977^ 1978
Z -(percent)
All manufacturing 2.2 2.2 2.1 2.0 2.0 2.1 2.0 2.0 2.0
Textile industry 2.4 2.4 2.4 2.4 2.3 2.3 2.2 2.2 2.3
2.0 2.0
2.2 2.2
1.9
2.3
Source: FTC, Quarterly Financial Reports
Within the textile industry, liquidity has been slightly more favorable
in the weaving mills and textile finishing than in the other segments, with
ratios ranging from 2.0 to 2.1 between 1972 and 1974 according to Troy's
Almanac. The knitting mills have shown somewhat less liquidity with ratios
ranging between 1.7 to 1.8 during the same period.
IV-44
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b. Debt to equity
The financial structures of the firms in the manufacturing industries have
shown significant changes over the past years with a trend towards a greater
debt load. The debt to debt plus equity ratios of the textile industry
have generally moved in consonance with the composite ratios of all manu-
facturing. In 1967, the ratio of all manufactures was slightly over 41
percent and increased to 48 percent in 1973. Since 1973, the ratios have
decreased with the lack of availability of financing resulting from the
recessionary period. The ratios within the textile industry have moved
from 40.9 percent in 1967 to nearly 49 percent in 1973. The decline since
1973 has not been as abrupt for the textile industry as for all manufacturing
which tends to illustrate the difficulty of firms in the industry to obtain
equity funding as well as debt funding.
Debt to Debt Plus Equity
1967 1968 1969 1970 1971 1972 1973 1974 1975 1976 1977 1978
-(percent)
All manufacturing 41.4 43.8 45.4 46.3 46.6 46.8 48.0 46.5 46.4 46.2 46.6 47.8
Textile industry 40.9 42.3 44.1 44.0 43.9 47.1 48.7 43.7 47.3 47.9 48.4 48.6
Source: FTC, Quarterly Financial Reports
Within the textile industry, the financial structure of the mills varies
significantly between minor industries as shown below. The debt load jn the
knitting mills has been close to 60 percent. This indicates that the recent
expansion in knitting equipment was facilitated by debt financing as opposed
to equity financing. This again reflects the problems within the industry
in obtaining support from the equity markets.
Debt to Debt Plus Equity
Weaving and finishing
Knitting
Others
1972 1973 1974
—(percent)-—
41 41
57 55
47 55
1975
41
58
50
44
66
54
Source: IRS, Source Book of Income Statistics
c. Debt structure
The current debt as a percentage of total liabilities within the textile
industry has been slightly higher than for all manufacturing. As shown
below, this percentage for the textile industry decreased from about 60
percent in 1967 to a low of almost 52 percent in 1971. Since 1971, it had
IV-45
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increased to 57.4 percent by 1976. The increase indicated that current
needs were being financed increasingly with short-term money during the
period. This is contrary to what seems to be occurring in all manufacturing.
The overall trend for most industries is typically toward increased financing
through long-term debt.
Debt Structure
(Current debt to total debt)
1967 1968 1969 1970 L971 1972 1973 1974 1975 1976 1977
------------------------------- -(percent)
1978
All manufacturing 55.6 54.7 55.0 53.3 52.1 52.6 55.1 53.8 50.4 50.8 51.0 52.3
Textile Industry 59.6 59.9 56.4 53.6 51.9 53.3 53.3 55.8 54.1 57.4 56.9 55.8
Source: FTC, Quarterly Financial Reports
d. Capital structure
During the period 1967-1978, the textile industry's long-term debt as
a percent of long-term debt plus equity increased, from 2.2 percent to 29
percent as shown below. This again reflects the increasing difficulty
of obtaining external financing through the equity markets within the
industry.
Capital Structure
(Long-term debt to long-term debt plus equity)
1967 1968 1969 1970 1971 1972 1973 1974 1975 1976 1977. 1978
" -{percent)
All manufacturing 24.1 26.1 27.2 28.7 29.5 29.4 29.3 29.5 29.2 28.1 28.8 31.3
Textile industry 21.8 22.7 25.6 27.0 27.4 29.3 30.8 28.7 30.0 29.7 28.8 29.5
Source: FTC, Quarterly Financial Reports
Among the minor industries, the capital structure varied significantly
during the period. The weaving mills carried the lowest debt with a 21
percent load in 1969 and 21 percent in 1975. The knitting mills carried
the highest load with its long-term debt increasing from 25 percent in
1969 to just under 40 percent in 1975. This reflects the volatility
experienced within the knitting mills during the early 1970's associated
with the rapid growth in the acquisition of new machines.
IV-46
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Capital Structure
(Long-term debt to long-term debt plus equity)
1969 1970
1971 1972 1973
•(percent)
1974 1975
Textile industry (composite) 22 24 24
Weaving and finishing 19 20 20
Knitting 25 27 34
Others 25 29 25
25
22
34
26
28
21
34
35
28
23
41
30
26
21
38
28
Source: IRS, Source Book of Income Statistics
7. Cost of Capital - After Tax
The current cost of capital was determined for purposes of this analysis by
estimating various performance measures of the industry. The weights for the
two respective types of capital for the textile industry were estimated
utilizing the FTC data previously discussed, with the equity weight being
71 percent and the debt weight being 29 percent. The actual cost of debt
was more difficult to estimate as the industry is comprised of a large
number of diversified public firms and relatively specialized privately
held firms. Accordingly, various equity cost-related measures were viewed
including the averages of numerous published sources estimations of P/E
and D/P ratios for the textile industry. From these sources, the cost of
equity capital was determined to be approximately 9.5 percent.
To determine the weighted average current cost of capital, the before tax
costs are adjusted to after-tax costs (debt capital only in this case).
This is accomplished by multiplying the capital costs by one minus the tax
rate (assumed to be 48 percent). These computations are shown below and
result in the estimated current after-tax cost of capital being 8.3 percent.
Item
Debt
Equity
Cost of capital
Weight
.29
.71
Before
tax cost
10.0
0.48
After
tax cost
5.2
9.5
Weighted
cost
1.5
6.8
8.3
It should be noted that this cost of capital estimate is not reflective of
the industry's present capital costs but rather it is reflective of a long
term capital cost including both highs and lows experienced by the industry.
8. Assessment of Ability to Finance New Investment
a. Financing new investment
The ability of a firm to finance new investment for pollution abatement is
a function of several critical financial and economic factors. In general
terms, new capital must come from one or more of the following sources:
IV-47
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(1) funds borrowed from outside sources; (2) equity capital through the
sale of common or preferred stock; (3) internally generated funds—retained
earnings and the stream of funds attributed to the depreciation of fixed
assets.
For each of the three major sources of new investment, the most critical
set of factors is the financial condition of the individual firm. For
debt financing, the firm's credit rating, earnings record over a period
of years, stability of earnings, existing debt-equity ratio, and the
lenders' confidence in management will be major considerations. New equity
funds through the sale of securities will depend upon the firm's future
earnings as anticipated by investors, which in turn, will reflect past
earnings records. The firm's record, compared to others in its own industry
and to firms in other similar industries, will be a major determinant of
the ease with which new equity capital can be acquired. In the comparisons,
the investor will probably look at the trend of earnings for the past five
or so years.
Internally generated funds depend upon the margin of profitability and the
cash flow from operations. Also, in publicly-held corporations, stockholders
must be willing to forego dividends in order to make earnings available for
reinvestment.
The firm's industry and general economic conditions are also major considera-
tions in attracting new capital. The industry will be compared to other
similar industries in terms of net profits on sales and on net worth, supply-
demand relationships, trends in production and consumption, the state of
technology, impact of government regulations, foreign trade, and other sig-
nificant variables. Declining or depressed industries are not good prospects
for attracting new capital. At the same time, the overall condition of the
domestic and international economy can influence capital markets. A firm
is more likely to attract new capital during a boom period than during a
recession. On the other hand, the cost of new capital will usually be higher
during an expansionary period. Furthermore, the money markets play a deter-
mining role in new financing.
These general guidelines can be applied to the textile industry by looking
at general economic data and industry performance over the recent past.
b. General industry situation
The textile industry experienced declining profitability during the 1973
to 1975 time period with profits as a percentage of sales declining from
2.9 percent in 1973 to 1.5 percent in 1976 (Table IV-21). However, in
1976, profits rose coinciding with general improvements in the overall
domestic economy and in 1976 and 1977 the industry earned a 2.4 percent
return on sales. This increased to 3.1 percent in 1978. As was shown in
Table IV-16, the textile industry's profits have consistently been less
than those experienced by the aggregated group of all industrial firms.
IV-48
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Table IV-21. The textile industry, general financial summary
Return on sales (%}
Return on assets (%)
Debt to equity ratio
Current assets to
current liabilities ratio
1972
2.6
4.0
0.9
2.3
1973
2.9
4.7
0.9
2.2
1974
2.5
3.8
0.9
2.2
1975
1.5
2.2
0.9
2.3
1976
2.4
4.2
0.9
2.2
1977
2.4
4.5
0.9
2.2
1978
3.1
5.9
0.9
2.3
Source: Federal Trade Commission, Quarterly Financial Reports
IV-49
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Returns on assets for the textile industry are also shown on Table IV-21.
The annual industry returns generally follow the same pattern as the in-
dustry's returns on sales. The industry's return on assets was 4.5 percent
in 1977 and 5.9 percent in 1978.
Another factor relative to the industry's capability to finance new invest-
ments is the proportion of debt to equity the industry maintains. As shown
in Table IV-21, the debt to equity ratio has remained constant since 1972
with debt representing 45 percent of the total of debt and equity.
Often, depending on the size of the investment, firms will choose short-
term financing in lieu of long term debt financing. Relevant to such a
situation is the industry's current ratio, that is, the ratio of the indus-
try's current assets to its current liabilities. As depicted in Table IV-21,
this ratio has been relatively constant since 1972 with current assets
representing 2.2 to 2.3 times the current liabilities. The historical
ratios indicate the industry has not experienced any industry-wide liquidity
problems.
With regards to the future financial situation within the industry, Value
Line projects gains in earnings for the next five years, particularly for
the larger firms. With the exception of denim, most textile fabrics have
strong future demand expectations, including polyester doubleknits. While
knits have caused numerous problems in the recent past, the problems have
been caused by overcapcity and not necessarily weak demand. During the
past year or so, several large textile manufacturers have eliminated knit
operations. Accordingly, with the supply/demand situation in better
balance, the expectations for firms involved in knits are much brighter.
c. Expenditures for plants and equipment
Capital expenditures, as reported by the U.S. Department of Commerce, were
relatively stable in the early 1960's, increasing slowly from approximately
$326 million in 1960 to $382 million in 1963 (Table IV-22). Beginning in
1964 and continuing through 1966, capital expenditures increased, more than
doubling in 1966 at $887 million. In 1967 and 1968, expenditures for capital
improvements declined, and beginning in 1969, and continuing through 1974,
capital expenditures increased every year over the previous years except
in 1973. In 1974, the textile industry spent approximately $1.2 billion
on capital improvements. In 1975, these expenditures declined to $997
million while in 1976 they increased to approximately $1.1 billion. In 1978,
these expenditures amounted to about. $1.4 billion.
Capital expenditures for the period 1970-1976 (expressed as a percent of
sales) are compared below with depreciation. During the period, reinvest-
ment has averaged about 92 percent of depreciation. This contrasts to the
1960's when reinvestment averaged about 120 percent of depreciation.
IV-50
-------
Table IV-22. The textile industry, total capital
expenditures, 1960-76
Capital
Year Expenditures
(Million $)
1960 326
1961 322
1962 376
1963 382
1964 504
1965 618
1966 887
1967 733
1968 691
1969 849
1970 811
1971 873
1972 1,127
1973 1,121
1974 1,169
1975
1976
1977
1978
997
1,087
1,235
1,371
Source: U.S. Department of Commerce
IV-51
-------
Comparison of Capital Expenditures
and Depreciation
1970 1971 1972 1973 1974 1975 1976 1977 1978
Capital expenditures 2.6 2.7 3.0 2.7 2.7 2.3 2.4 3.2 3.4
Depreciation 2.9 2.9 2.8 2.9 2.8 2.9 2.5 2.5 2.5
Source: FTC Quarterly Financial Report and U.S. Department of Commerce.
As shown in Table IV-23, for 1975 and 1976, most of the industry's capital
expenditures have been for new machinery and equipment. In 1976, for the
total industry, new machinery and equipment expenditures represented 85
percent of the total industry expenditures with the remaining 15 percent
representing expenditures predominantly for new structures and additions
to existing facilities. The total capital expenditures and the various
components for each of the major industry segments are also depicted in
Table IV-23 for the years 1975 and 1976.
d. Capital availability
Recently, the textile industry has experienced a period of moderate growth
coupled with relatively low profit levels. These factors have a consider-
able influence on the industry's ability to generate new capital for capital
improvements and are expected to influence the industry's ability to finance
investments for pollution controls as well as investments for other
regulatory requirements.
The industry has a large number of family-owned (or controlled) facilities,
especially in the small and medium size categories. Most of the larger
mills are a part of larger multi-plant corporations. The family-owned
mills are largely financed with internal capital and maintain relatively
low levels of long-term debt. While new capital expenditures have increased
during the past 15 years, expenditures during the past 5 years have somewhat
stabilized.
The extent to which investment requirements will impose capital problems
on the mills will depend on the individual mills' financial situations as
well as the size of the investment requirements. Some problems are antic-
ipated for some plants in the industry in their attempts to obtain capital.
Others, particularly the more profitable and, perhaps, the larger mills,
are not expected to encounter much difficulty. Potential sources of
financing available to the industry include internal financing, banks and
fiduciaries, stock or bond issues, or small business loans obtainable
through the U.S. Environmental Protection Agency.
IV-52
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V. PRICES AND PRICE DETERMINATION
Textile product prices have increased during the past decade, however
the rates of price increases have lagged behind those of most other
manufactured products. The major reasons for the restraint in textile
price increases are generally a result of stiff competition between
fiber types and competition from less expensive textile imports. Im-
provements in the industry's production efficiency, especially in the
man-made fiber mills, also has helped to minimize required price in-
creases. Prices in the textile industry are determined through the
interaction of numerous factors which effect both its supply and demand
characteristics. Demand has been strong in recent years due to increases
in the general population as well as increases in the per capita textile
purchases, this has caused the industry to operate at its highest histor-
ical production level. Prices are also influenced by occurences such
as strikes, oil shortages, and by government price supports and
regulations.
In this chapter the major pricing processes are discussed including reviews
of supply and demand relationships, the price determination processes, and
trends in prices of raw materials and finished textile goods.
A. Supply and Demand Relationships
The supply and demand for textile fibers and goods are based on a number
of price and non-price factors which have changed over time. For example,
the uncertain supply and price fluctuations associated with cotton were
withstood for many years until man-made fibers offered mills a relatively
steady source of raw materials. As man-made fiber prices declined and
their quality improved, their use was even more attractive and their
demand by textile mills and consumers increased. Today, if cotton prices
were to decline to levels below those of man-made fibers, textile mills
would in all probability continue to predominately utilize man-made fibers
because of their long run price and supply stability as well as consumer
acceptance of man-made fibers.
While man-made fibers have moved rapidly into many major markets; most are
utilized in the manufacture of apparel and home furnishings. Likewise,
the major use of natural fibers such as cotton and wool is for the manu-
facture of apparel. Cotton was the major textile input in 1965, supplying
51 percent of the fiber used, but its use fell to 26 percent by 1977. In
that same time period, the use of man-made fibers grew from 23 to 73 percent
of all fibers used for textile goods.
V-l
-------
1. Supply
The raw materials for textile fibers are predominately derived from four
resources: animal hair, cotton, plant cellulose, and petroleum chemicals.
Wool and cotton originate at farms and their production is dominated by
natural factors. Man-made fibers are less vulnerable; the only major
condition to production being the availability of plant cellulose and
oil. The supply of finished goods depends upon the price and availability
of fibers, the technology available, and the financial condition of the
mi 11s.
Imports of raw materials have little effect on domestic, supplies with
wool being the only fiber imported in significant quantities. However,
imports of foreign semi-manufactured and manufactured products are com-
manding an increasing share of the U.S. market, which reduces the demand
for U.S. fiber in turn.
a. Raw materials
Raw material supplies have changed in character over the past decade as
the gap left by wool, cotton, and rayon and acetate has been filled by
non-cellulosic fibers. Sheep raised and consequently, the wool supply
has declined to about half its level from 1965. The amount of cotton
planted, harvested, and produced has remained steady. Among the man-
made materials, the rayon and acetate group has declined, while non-
cellulosic fibers have increased dramatically.
Wool. The supply of wool has declined steadily since 1965 (Table V-l).
Among the reasons for the drop are a decreasing demand for wool fabrics
and the rising value of sheep meat. Some ranchers are raising sheep
for meat rather than wool while others are completely switching from
raising sheep to cattle. In 1965, ranchers raised 25,127,000 sheep and
lambs and of these 23,756,000 were shorn. By 1977 this number had fallen
to 12,766,000 sheep and lambs raised with 13,191,000sshorn. Reported
wool produced dropped from 224,763,000 pounds to 108,627,000 pounds
between 1965 and 1977.
Domestically raised sheep have a tendency to produce less wool than sheep
in most other wool producing countries. This has been due, in part, to
an increased emphasis on meat carcass quality at the expense of wool
quality and yields.JV To offset this, the U.S. government has encouraged
increased wool production by enacting and updating its price support
programs. The original goal of the first program, the National Wool Act
of 1954, was to guarantee wool growers a minimum price at which their
wool could be sold, which in turn, encourages an increase in annual produc-
tion. This price support program has been extended several times with the
most recent extension to continue thorugh 1981. In this program the dif-
ference between the actual average selling price and the guaranteed price
level paid to the growers is derived from customs duties collected on im-
ported wool and wool products.
II Ward, Lionel E., "Interfiber Competition With Emphasis on Cotton", Ann
Arbor: University Microfilms International, 1969.
V-2
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V-3
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Wool produced in the U.S. is typically apparel quality wool, therefore,
in order to protect domestic production, imported apparel wools are sub-
ject to a duty of 25.5 cents per pound. Carpet class wools are not pro-
duced in this country so fibers imported for carpet use are not dutiable
In 1965, 33 percent of the total U.S. wool supply was imported for apparel
(Table V-2). Imports declined annually until 1974, when a low of 11,800,000
pounds, or 7 percent of the total supply was reached. Since 1974, wool
imports, which are mainly from Australia and New Zealand, rose and today
imported wool for apparel represents over 21 percent of the total U.S. wool
supply. This is due, as previously mentioned, to the curtailment of wool
production by domestic producers. The quantity of carpet wool imported to
the United States for rugs and carpeting however, has declined with the
expansion of man-made fibers into these markets. Also shown in Table V-2,
between 1965 and 1977, carpet wool supplies fell from 108,943,000 pounds
to 18,780,000 pounds. The total U.S. wool supply has declined from
496,343,000 pounds in 1965 to 161,582,000 pounds in 1977, a reduction of
67 percent.
Cotton. As depicted in Table V-3, the supply of cotton has vacillated
within the past decade. In 1965, 14,152,000 acres of cotton were planted,
compared with 13,369,000 acres in 1978. During that time, plantings have
fluctuated decreasing to about 9 million acres in 1967 and 1975 then in-
creasing to around 14 million acres in 1972 and 1978. Until the late 1960's
the market situation was usually one of oversupply with prices varying
only a few cents from year to year. United States' price controls, supports,
and subsidies, created in the 1930's, left the government with large sur-
pluses of raw cotton which it would dispose of randomly, depressing the
domestic and world cotton markets. In the late 1960's, the government
altered its policy and held smaller surplus stocks, making cotton produc-
tion and pricing more sensitive to real changes in supply and demand.
Increased demand and higher prices encouraged oversupply, followed by
declines in price, plantings, and supply shortages.
Acres of cotton planted is at the discrimination of the crop producers, with
weather and insects affecting the level of production. Cotton production
is also influenced by various government programs designed to control
supply and support prices. Several control methods have been employed since
government programs began in 1933. Among the programs initiated were
acreage allotments, payments for acreage diversion or soil conservation,
direct payments, and Commodity Credit Corporation non-recourse loans.
One program in particular, the Food and Agriculture Act of 1977, has pro-
visions covering cotton for the next four years. Average loan rates and
a target price of 52 cents per pound for upland cotton have been estab-
lished. Total deficiency payments to producers will be limited to $40,000
in 1978. All program benefits will be based on planted acres rather than
an allotment system.
The total supply of cotton in the United States decreased by nearly one-
third from 1965 to 1967. Since 1967, however, the supply has remained
relatively stable, varying between 15 and 17 million bales available
annually. Table V-4 depicts the annual supply of cotton in the United
States as well as showing the relatively importance of beginning stocks
V-4
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(predominately government-owned surplus cotton) and imports. As shown,
in 1965, surplus cotton represented nearly 50 percent of the total cotton
available that year. By 1977, surplus cotton represented only 16.8 percent
of the total supply.
Imports of raw cotton to the United States have historically remained of
relatively little significance, accounting for less than 1.0 percent of
the total annual supply.
Man-made fibers. Unlike the natural fibers, the supply of man-made fibers
has increased dramatically, from 2.4 million pounds in 1965 to 8,927
million pounds in 1978. These gains have not been shared by all types
of man-made fibers, with the supply of textile glass and non-cellulosic
fibers rising, while the supply of rayon and acetate has feillen (Table
V-5). Production of man-made fibers is cheaper, less risky, and more
adaptable to new technologies than the natural fibers. The quality of
these fibers is constantly improving, often imitating or combining with
natural fibers thereby discovering new uses and creating greater demand.
If companies over-anticipate projected demands in one period, future pro-
duction must be reduced in the next period to prevent huge inventories
and potential losses. In 1966, 332 million pounds of non-cellulosic fiber
were produced while there was a capacity for 471 million pounds (Table V-5),
In 1977, manufacturers had the capacity to produce 1,051 million pounds
but actually only produced 787 million pounds of non-cellulosic fiber.
Consequently these plants are capable of increasing the supply of fibers
if the demand necessitates it. The major limiting factor in the supply
of man-made raw fibers is the shortage or extreme price increase of
petroleum chemicals.
Only a small portion of the U.S. man-made fiber supply is imported. In
1965, 160 million pounds of these fibers were imported, increasing to
only 202 million pounds in 1978 (Table V-5). Before 1971, the amount of
textile glass fiber imported was insignificant, but it is presently be-
coming increasingly more important. Rayon and acetate fiber quantities
have wavered over the years while non-cellulosic fiber imports grew until
1972 and then began declining. In 1965, imports supplied 5.4 percent of
the man-made fiber available in the U.S. In 1978, that amount dropped
to 2.3 percent. From this data it can be seen the main import competi-
tion for man-made fibers has been in the form of finished apparel and
goods, not as fibers.
b. Finished goods
The available supply of finished textile goods has increased from 9,050
million pounds of goods in 1965 to 13,516 million pounds in 1977. As
shown in Table V-6, while the overall supply of textile goods has in-
creased since 1965, the composition of the goods have changed signifi-
cantly, including the increasing importance of imported textile goods.
The following depicts the major fiber types of finished goods.
V-8
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Wool goods. The current supply of wool goods has decreased to about
one-half the amount available in 1965. The decline in availability of
wool has occurred both for wool imported into the United States and
domestically produced wool products. Also the proportion of the total
available textile goods supply represented by wool has declined; from
6.0 percent in 1965 to 1.8 percent in 1977. In 1965, the total domes-
tic supply consisted of 543 million pounds of wool (Table V-6). Of
this 1965 supply, 387 million pounds or 71 percent of the total, were
provided by domestic mills with the remainder being accounted for by
imported woolen products. In 1977, the total wool supply available
declined to 245 million pounds with domestic mills accounting for 44
percent of the total and imports accounting for 56 percent.
Table V-7 indicates that of the total 129.4 million pounds of raw wool
equivalent imported into the United States in 1978, nearly 75 percent
(96.9 million pounds) was in the form of manufactured woolen products
with the remainder being in raw wool or semi-manufactured form. As
illustrated in the table, the percentage of manufactured wool imports
has increased, from 65 to 70 percent in the late 1960's to around 80
percent in 1975-1978.
Table V-8 depicts U.S. mill consumption of raw wool on a scoured basis
from 1965 to 1978. As shown, in 1978, 89 percent of all wool consumed
was for apparel fabrics with the remainder being consumed by wool carpet
mills. Historically, carpet mills utilized considerably more wool; now,
however, their consumption of wool has declined from 112 million pounds
in 1965 to approximately 13 million pounds in 1978.
Wool is predominately manufactured into broad woven fabrics and carpets
and rugs. The majority of woolen and worsted fabrics are used in the
manufacture of women's and children's apparel, followed by apparel for
men and boys. As shown in Table V-9, production of woolen and worsted
fabrics have declined from 267.3 million linear yards in 1965 to a low
of 78.9 million yards in 1975. Since 1975 the production of these
woolen fabrics has increased such that in 1978, 116.6 million linear
yards were produced. This recent increase has been attributed to the
economic recovery of the nation's general economic state coupled with the
increased consumer demand for natural fibers.
Cotton goods. The total supply of cotton available in the U.S. has
declined in recent years from 4,814 million pounds in 1965 to 3,839
million pounds in 1977 (Table V-6). While most cotton goods are domes-
tically manufactured, the proportion of the U.S. total cotton products'
supply accounted for by imported cotton goods has increased, rising from
7.5 percent of the total cotton goods supply available in 1965 to 17.4
percent in 1977. This rise in the proportion of cotton imports repre-
sents the near doubling of the quantity of cotton imported between 1965
and 1977, and the decline of domestic cotton supplied by over 25 percent.
In 1965, domestic cotton accounted for 4,453 million pounds and imports,
361 million pounds. By 1977, domestic cotton had declined to 3,170 million
pounds while cotton imports increased to 669 million pounds.
V-ll
-------
Table V-7. Raw wool equivalent of wool imports, 1965-1978.
Semi -manufactured
Year
1965
1966
1967
1968
1969
1970
1971
1972
1973
1974
1975
1976
1977
1978
Source:
1,000
pounds
45,047
48,167
39,798
50,168
42,295
36,441
22,137
15,502
17,729
15,166
12,819
17,988
25,295
32,465
Percent
28.9
33.7
32.2
34.4
32.6
31.3
24.7
16.3
19.7
20.4
18.7
18.2
21.7
25.1
U.S. Department of
Manufactured
1,000
pounds
111,069
94,691
83,636
95,799
87,375
80,119
67,568
79,875
72,233
59,059
55,603
80,591
91,311
96,904
Agriculture,
Percent
71.7
66.3
67.8
65.6
67.4
68.7
75.3
83.7
80.3
79.6
81.3
81.8
78.3
74.9
Cotton and
Total wool imoorts
1,000
pounds
156,116
142,858
123,434
145,967
129,670
116,560
89,705
95,377
89,962
74,225
68,422
98,579
116,606
129,369
Percent
100.0
100.0
100.0
100.0
100.0
100.0
100.0
100.0
100.0
100.0
100.0
100.0
100.0
100.0
Wool Situation
Table V-8. United States' mill consumption of raw wool, scoured
basis, 1965-1978.
Year
Apparel
Mi 1 1 i on
pounds
wool
Percent
Carpet
Mi 1 1 i on
pounds
wool
Percent
Total
consumption
Mi 1 1 i on
pounds Percent
1965
1966
1967
1968
1969
1970
1971
T972
O73
1974
1975
1976
1977
1978
275
266
229
238
219
164
116
142
110
75
94
107
95
102
71.1
71.9
73.2
72.1
70.0
68.0
60.7
65.1
72.8
80.6
85.5
87.7
88.0
88.7
112
104
84
92
94
77
75
76
41
18
16
15
13
13
28.9
28.1
26.8
27.9
30.0
32.0
39.3
34.9
27.2
19.4
14.5
12.3
12.0
12.3
387
370
313
330
313
241
191
218
151
93
110
122
108
115
100.0
100.0
100.0
100.0
100.0
100.0
100.0
100.0
100.0
100.0
100.0
100.0
100.0
100.0
Source: U.S. Department of Agriculture, Cotton and Wool Situation
V-12
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Of the 799 million pounds of cotton goods imported into the United States
in 1978, Table V-10 depicts that 520.8 million pounds (65.2 percent) were
in the form of manufactured cotton products (primarily apparel) with the
remainder being predominately woven cotton cloth (30.9 percent). Since
1965, the proportion of imported cotton in manufactured form has increased
(from about 40 percent in 1965); the proportion represented by woven
cotton cloth has decreased (from about 50 percent in 1965); and the pro-
portion of cotton yarn has decreased (from about 6.8 percent in 1965 and
20.0 percent in 1966). Imported cotton thread, which has consistently
represented approximately 0.1 percent of the total cotton imported, has
varied, in quantity, from year to year but usually ranged between 300,000
and 450,000 pounds annually.
As shown in Table V-ll, the majority of domestically fabricated cotton
is manufactured into cotton broad woven fabrics. In 1978, domestic
mills consumed an estimated 6.3 million bales of cotton. Of this amount,
almost 4.0 million bales (58.0 percent) were for cotton broad woven
fabrics with 1.2 million bales (19.7 percent) being utilized for polyester/
cotton blended fabrics while 1.4 million bales (22.3 percent) were utilized
for other cotton textile products. When compared to data for 1978, the
total estimated mill consumption was 32 percent higher in 1967 at 8.9
million bales with over 82 percent (7.3 million bales) of that amount
being utilized in cotton broad woven fabrics, 4.8 percent (0.4 million
bales) in blends, and 13.1 percent (1.2 million bales) being utilized in
other cotton textile products. These changes in respective proportions
reflect the decline in the number of bales of cotton utilized for broad
woven fabrics since 1967 and the increase in the use of cotton in polyester/
cotton blended fabrics.
The decline in the quantities of cotton broad woven fabrics was also illus-
trated in Table V-9. As shown in the table, in 1965, cotton fabrics accounted
for 9.2 billion linear yards or 69 percent of the total 13.4 billion yards
of broad woven fabrics produced. However, by 1978, cotton fabrics accounted
for only 4.0 billion yards or 37 percent of the totaK10.7 billion yards of
broad woven fabrics produced. This decline in the use of cotton was fairly
steady from 1965 to 1975 when cotton broad woven fabrics reached its all
time production low since 1965. Since 1975 however, the quantity of cotton
used increased slightly and appears to have somewhat leveled off in 1978.
Man-made goods. The total supply of man-made fiber goods has experienced
tremendous growth in recent years with the quantity of man-made goods
available increasing by nearly three times, from 3.7 billion pounds in
1965 to 9.4 billion pounds of goods in 1977 (Table V-6),. In terms of the
market share, man-made goods represented 40.8 percent of the total textile
goods supply in 1965 which increased 69.8 percent by 1977.
As also shown in Table V-6, of the total man-made goods available in 1965,
rayon and acetate goods represented 43.1 percent, non-cellulosic goods
represented 54.7 percent, and imports represented 2.2 percent. By 1977,
the proportion of rayon and acetate goods had declined to only 9.2 percent
and non-cellulosic goods increased their share to 85.2 percent. During the
same period imports also increased their respective share, from 2.2 percent
in 1965 to 5.6 percent in 1977.
V-14
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As stated previously, in 1978 imported man-made yarn goods represented
7.8 percent of the total man-made goods available which represent total
man-made imports of 640.0 million pounds. Of these imports, 77.4 percent
were in the form of primary manufactured products (predominately apparel),
13.7 percent were woven cloth and fabric, 7.8 percent were man-made fiber
yarns, and 1.2 percent were sliver, tops, and rovings (Table V-12). Since
1965, the annual quantities of man-made imports have increased signifi-
cantly, from 79 million pounds in 1965 to 640 million pounds imported in
1978. In 1965, primary manufactured products were still the main imported
form accounting for 64.7 percent of all man-made imports in that year.
Imports of woven cloth and fabric accounted for 33.7 percent of all man-
made imports in 1965, and man-made yarns accounted for 1.5 percent.
Viewing the respective quantities of man-made imports over time, all
have increased significantly. However, man-made goods in manufactured
form have experienced the greatest growth, increasing by nearly 750
percent from 51 million pounds in 1965 to 421 million pounds in 1977.
Man-made fibers are predominately manufactured into broad woven fabrics.
However, tire cords and fabrics, carpets, and hosiery are also predom-
inately manufactured from man-made fibers. Broad woven fabrics manufac-
tured from man-made fibers have increased in recent years from 3.9 billion
linear yards in 1965 to over 6.6 billion yards in 1977 (Table V-9).
Compared to other broad woven fabrics, man-made fabrics represented 29
percent of the total broad woven fabric production in 1965 and increased
their share to 62 percent in 1978. Within man-made broad woven fabrics
the trend has been toward less rayon and acetate fibers and more non- ,/
cellulosic fibers. According to information available in Textile Qrganon—
during the past seven years, the supply of broad woven rayon and acetate,
100% filament, fibers decreased by about 100 million linear yards as did
100% spun rayon and acetate with blends of other fibers. Non-cellulosic
broad woven goods production increased between 1971 and 1977. Of the
100% filament non-cellulosic fibers, the polyester supply increased the
most, from 233 to 521 million linear yards. Polyester and cotton blends
also increased during the seven year period, from 1,998.6 to 2,663.9
million linear yards.
Another major use of man-made fibers is for the manufacture of tire cords
and fabrics. As was also shown in Table V-9, production of these items
has varied from year to year with an overall increasing trend over time.
In 1965, 495.8 million pounds of tire cords and fabrics were produced.
By 1978, production of such items amounted to 627.0 million pounds.
The production of carpet experienced a period of growth from 1965 to 1973;
however since 1973 production has somewhat stabilized. In 1965, total
shipments of broad!oom carpets amounted to 301.9 million square yards and
by 1973, shipments reached 842.2 million square yards (Table V-13). Since
1973, the annual shipments have stabilized varying between 700 and 800
million square yards annually.
I/ Textile Economic Bureau, Inc., Textile Organon, various issues.
V-17
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Table V-13. Shipments of broadloom carpets, 1965-1977.
Year
Woven
Tufted
Total
(million
sq yds) (percent)
1965
1966
1967
1968
1969
1970
1971
1972
1973
1974
1975
1976
1977
41.3
42.6
40.0
39.9
39.3
34.1
31.3
34.1
32.8
32.6
26.7
27.7
25.0
13.7
12.9
10.9
9.2
7.9
6.4
5.3
4.4
3.9
4.1
3.8
3.5
2.9
(million
sq yds) (percent)
260.6
288.7
328.6
394.7
455.3
502.3
558.5
734.3
809.4
756.4
676.7
762.2
834.8
86.3
87.1
89.1
90.8
92.1
93.6
94.7
95.6
96.1
95.9
96.2
96.5
97.7
(million
sq yds) (percent)
301.9
331.3
368.6
434.6
494.6
536.4
589.8
768.4
842.2
789.0
703.4
789.9
859.8
100.0
100.0
100.0
100.0
100.0
100.0
100.0
100.0
100.0
100.0
100.0
100.0
100.0
Source: Carpet and Rug Institute, Directory and Annual Report,
V-19
-------
As shown in Table V-14, the majority of carpets manufactured in recent
years have been composed of man-made fibers. The only natural fiber
which has been significantly used in carpets in the past was wool; but
recently its use has declined. In 1972, wool fibers represented approxi-
mately 5.0 percent of the fibers used in carpets. By 1977, this percen-
tage had dropped to less than 1.0 percent.
The supply of hosiery has increased slightly between 1967 and 1978 with
230.3 million dozen pairs produced in 1967 and 263.8 million dozen pairs
produced in 1978 (Table V-15). While the number of pairs of men's,
children's, and infant's hosiery produced annually have increased since
1967, the number of women's pairs has decreased slightly.
There has also been a shift in women's hosiery away from stockings, toward
pantyhose, sheer knee-hi's and anklets. The majority of hosiery is com-
posed of man-made fibers. In a period covering January through April
1977, for example, 56 percent of total hosiery was nylon, 29 percent was
acrylic, 12 percent was cotton, one percent was polyester, and two percent
was other fibers.]./
2. Demand
Demand, for purposes of this analysis, reflects demand by the mills for
raw materials as well as demand by consumers for finished textile products.
Raw material demand is associated with the availability of fibers and the
market forecasts for consumer desires. The major end-uses of textiles,
which depict consumer demand, are apparel, home furnishings, and industrial
uses. These are typically sold to households, businesses and industries,
and the government. A small quantity of textile products are exported.
a. Raw Materials
In response to changing technologies and consumer demands, the types of
fibers processed in textile mills have shifted away from wool, cotton,
and'silkto man-made. As shown in Table V-16, in 1965, 57.6 percent of
the fibers consumed by U.S. mills was cotton, wool, or silk with the
remaining 42.4 percent of the total fibers being man-made. By 1978,
man-made fibers had increased their respective share of all fibers
consumed to 74.9 percent with significant declines experienced for all
the natural fibers. A discussion of the demand for each of the major
fiber types is presented below.
Natural Fibers. The annual quantities of wool, cotton, and silk fibers
consumed by U.S. mills are depicted in Table V-16. As shown, the quantity
of wool consumed has declined from 457 million pounds in 1965 to 142
million pounds in 1978. As was shown in Tables V-l and 2, this decrease
in mill demand for wool fiber has closely corresponded to declines in
reported raw wool production and the associated total supply of wool fibers.
I/ Textile Organon. Textile Economics Bureau, Inc., July 1977, 117.
V-20
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The demand by textile mills for cotton fiber has also declined. As shown
in Table V-16, in 1965 mills consumed 4.5 billion pounds of cotton while
in 1978, only 3.0 billion pounds were consumed; a reduction of 33 percent.
However, it should be noted the decline in cotton consumption by the mills
actually tended to level-off in 1974 and has remained consistently between
3.0 and 3.4 billion pounds since. Some manufacturers are now indicating a
belief the worst of the cotton decline is over and that cotton consumption
may start moderately increasing. This belief may be, in part, due to the
fact that consumers are returning to "natural goods" and that cotton and
man-made fibers are becoming more competitively priced.
Silk, a predominately imported fiber, also has declined in use by U.S.
textile mills. In 1965, mills consumed 6.3 million pounds of silk. By
1978 this quantity had declined to 2.0 million pounds (Taisle V-16). The
reasons for these declines in the use of silk include the increasing costs
associated with its production and the ability of man-made fibers to imi-
tate qualities associated with silk.
In addition to demand for natural fibers by U.S. mills, natural U.S. fibers
are also consumed by textile producers in other countries. Table V-17
depicts the exports of U.S. raw fibers from 1965 to 1977. As shown, exports
of wool have fluctuated from year to year with quantities ranging from lows
of about 7.8 million pounds in 1969 and 1977 to a high of 55.3 million pounds
in 1972. The main importers of U.S. wool fibers have been the United Kingdom
and Japan. Total U.S. wool exports typically represent one percent or less
of the total U.S. raw fiber exports.
With respect to exports of cotton fibers the U.S. has usually held the
position of the world's largest exporter. In 1965, 3,035,000 bales (1,456
million pounds) were exported with 5,517,000 bales (2,648 million pounds)
exported in 1977 (Table V-17). The USDA is predicting a good year for
cotton exports in 1978. A combination of a large supply of cotton and
competitive prices caused by the dollar's decline in the world markets
has benefited the export market. Also, the major competitor in cotton
exports, the USSR, has held off from offering quantities of cotton at the
prevailing market price. The major recipients of U.S. cotton are Korea,
Japan and the People's Republic of China. Much of this fiber returns to
the U.S. in the form of imported goods.
Man-made fibers. The consumption of man-made fibers has increased with the
production of textile glass and non-eellulosic fibers out-weighing the decline
in use of rayon and acetate fibers. While the consumption of rayon and ace-
tate declined by 45 percent between 1965 and 1978, the demand for textile
glass and non-cellulosic fibers increased from 2,027 million pounds to 8,356
million pounds (Table V-16). These man-made fibers have adapted to a variety
of end uses and have gradually developed into different markets.
V-24
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An increasing quantity of man-made fibers is exported each year. In 1965,
a total of 173.6 million pounds of fibers was exported. By 1977, the total
had grown to 591.4 million pounds (Table V-17). Rayon and acetate fiber
exports rose steadily from 1965 to 1972 and then declined to below 1965
levels. In 1977, exports of rayon and acetate fibers climbed again to above
1965 levels. Non-eellulosic fiber exports have risen between 1965 and
1977, from 122.7 million pounds to 533.7 million pounds, respectively.
Foreign countries typically are not as dependent on U.S. man-made fiber
as they are for cotton fiber. Farm-produced cotton demands the often
unavailable conditions of land and proper climate; conditions which are
often lacking in foreign countries. However, factory produced synthetic
fibers can be manufactured almost anywhere.
b. Finished Goods - By Fibers
Demand for finished textile goods can be approached from two perspectives.
First, textile goods' demand can be viewed from the trends in the consumers'
buying habits with respect to the finished goods fiber contents and second,
the demand can be viewed from the consumers' buying habits with respect to
product categories. In this section the demand for finished goods with
emphasis on fiber content is discussed. In the subsequent section finished
good demand trends with emphasis on end-use markets are discussed.
The competitive position of fibers is determined predominately by price,
consumer demands and fabric characteristics. Prices are determined by
raw material production costs and by the additional costs required to
process the product. Availability of raw materials and supplies also
influence cost. Technological advances have reduced production costs,
although these price decreases may be outweighed by other cost increases.
Fabric characteristics also give fibers advantages. Wool has heat re-
taining qualities which make it more popular in the north than in the
south. Cotton was once considered the ideal material to be used in
linens, however, cotton and man-made fiber blending has developed to the
point where the advantages of cotton are retained while the favorable
characteristics of man-made fibers are added.
Table V-18 depicts the quantities and respective proportions of the major
fibers utilized in textile goods from 1965 to 1976. As shown, and as dis-
cussed in previous sections, the use of wool, cotton, arid rayon and acetate
in textile goods has declined in recent years with their combined proportion
of all textile goods declining from 76.4 percent in 1965 to 38.7 percent in
1976. The fiber replacing these "traditional fibers" has been non-cellulosic
man-made fiber which has increased its position from 23.6 percent of all
textile goods in 1965 to 61.3 percent in 1976.
Demand trends and characteristics of each major fiber type are discussed
below.
Wool fibers. Wool has assumed little of the textile market since 1965,
when it retained six percent of the total textiles consumed. This fiber now
represents 1.4 percent of the fabric used (Table V-18). Apparel dominates
V-26
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the end product usage of wool, averaging about 65 percent of the wool
used annually. Home furnishings are second in wool consumption (about
20 to 25 percent), and industrial and other consumer goods and exports
share the remaining end-use markets (Table V-19).
Cotton Fibers. Cotton dominated the textile market in 1965, supplying 51
percent of the textile fibers consumed. By 1976, however,, cotton consump-
tion declined to 30 percent (Table V-18). Apparel has always demanded the
largest share of cotton usage, averaging about 51 percent of all cotton
consumed (Table V-20). Home furnishings utilized the second largest amount
of cotton (25 to 30 percent), while industrial and other consumer goods were
third in demand (15 to 20 percent). e Although cotton exports have risen in
their market share over the last few years from three percent in 1965 to
6.5 percent in 1977, exportation demands the smallest quantities of cotton.
Man-made Fibers. Utilization of all man-made fibers has increased since
1965 with the increase attributable to non-cellulosic fibers, since utili-
zation of rayon and acetate fibers decreased. As was shown in Table V-18,
consumption of non-cellulosic fibers increased from 23.6 percent of total
textile goods in 1965 to 61.3 percent in 1976. During the same time period
utilization of rayon and acetate fibers decreased from 18.6 to 7.3 percent.
The end-use of rayon and acetate fibers has remained fairly consistent
since 1965 with a slight increase in the proportion being utilized by
apparel and slight decreases in the proportions being utilized by home
furnishings and industrial and other textile goods manufacturers. As
shown in Table V-21, in 1977 apparel accounted for 34.2 percent of all
rayon and acetate utilized; home furnishings, 24.5 percent; industrial
and other goods; 33.8 percent; and exports 7.5 percent.
End-use utilization of non-cellulosic fibers also has remained relatively
consistent since 1965. As shown in Table V-22, apparel, home furnishings,
and exports have increased slightly their proportions of textile goods
utilizing non-cellulosic fibers, with the industrial and other goods share
decreasing. In 1977, apparel accounted for 38.0 percent of the end-use of
non-cellulosic fibers; home furnishings, 34.8 percent; industrial and other
goods, 25.1; and exports, 2.1 percent.
c. Finished Goods - by end-use markets
The textile fibers discussed in the preceeding section are distributed into
four major end-use markets: apparel, home furnishings, industrial and other
consumer products, and exports. As shown in Table V-23, in 1977, 41.7 per-
cent of all textiles were shipped as apparel; 31.8 percent were shipped as
home furnishings; 22.8 percent were shipped as industrial and other consumer
goods; and 3.7 percent were shipped as exports. In an effort to determine
the major factors affecting consumption, DPRA has generated four functions
relating income, age, employment, and housing starts to the final demand
for textile end-use products. Equations 1 and 4 as shown in Table V-24,
relate 1965-1977 per capita personal consumption expenditures for clothing
and shoes to, first, disposal per capita income, and second, the proportion
of 18-44 year-olds in the U.S. population. Each equation accounts for about
99 percent of the variation in clothing and shoe expenditures over this
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Table V-24. Functional relationships in the end-use demand for textile goods
Equation 1. Per capita expenditures for clothing and shoes (in current dollars) as a function of disposable income oer capita
(in current dollars)
dependent variable : clothing/shoes. Observed mean:259.92307
independent variable : income. Observed mean: 3,361.00000
Equation 1. clothing/shoes income
R2-.996 259.92307 » 36.09652 + .05797 (3,361.00000)
t for Ho: parameter * 0 : 57.11
probability of a greater t isy chance : .0001
F for ind. var. SS : 3,261.21
probaoility of a greater F by chance : .0001
Equation 2. Title: Per capita consumption of carpets (in pounas) as a function of total employment (in 1,000 persons) and of
private housing starts (in 1,000 units)
dependent variable
independent variable
independent variable
carpets. Observed mean: 5.34615
employment. Observed mean: 80,511.92307
housing. Observed mean: 1,601.00000
Equation 2. carpets employment housing
R^.957 6.84615 * -16.13253 + .00025 (80,511.92307) * .00166 (1,601.00000)
t for Ho: parameter * 0 : 11.61 5.01
probability of a greater t by chance : .0001 .0005
F for ind. var. SS : 197.61 25.10
probability of a greater F by chance : .0001 .0005
Equation 3. Title: Per capita consumption of home furnishings (in pounds) as a function of total employment (in 1,000 persons)
and of private housing starts (in 1,000 units)
cependent variable : furnishings. Observed mean: 15.51538
independent variable : employment. Observed mean: 80,511.92307
independent variable : housing. Observed mean: 1,601.00000
Equation 3. furnishings employment housing
R2-.947 15.51538 ' -5.24387 + .00020 (30,511.92307) + .00267 (1,601.00000)
t for Ho: parameter =0 : 3.34 7.12
probability of a greater t by chance : .0001 .0001
F for ind. var. SS : 127.86 50.65
probability of a greater F by chance : .0001 .0001
Equation 4. Title: Per capita expenditures for clothing and shoes (in current dollars) as a function of the proportion of
18-44 year-old persons in the U.S. population
dependent variable : clothing/shoes. Observed mean: 259.92307
independent variable : age structure. Observed mean: .36392
Equation 4. clothing/shoes age structure
R2".989 259.92307 =• -1,316.64939 + 4,332.15856 (.36392)
t for Ho: parameter - 0 : 32.60
probability of a greater t by chance : .0001
F for ind. var. SS : 1,062.51
probability of a greater F by chance : .0001
Source: Development Planning and Research Associates, Inc.
V-34
-------
period. Expenditure elasticities If associated with these independent
variables are 0.86 for income and 6.07 for age structure. Equation 2
relates the per capita consumption of carpets to total employment and to
private housing starts. The two independent variables, acting jointly,
account for about 96 percent of the annual variation in carpet consumption
over the 1965-1977 period. Consumption elasticities are approximately
2.94 for total employment and 0.39 for private housing starts. Equation 3
relates the per capita consumption of all home furnishings to employment
and housing starts. The two independent variables, acting jointly,
account for about 95 percent of the annual variation in the consumption
of home furnishings over the 1965-1977 period. Consumption elasticities
are approximately 1.04 for total employment and 0.28 for private housing
starts. Standard errors associated with regression parameters ranged
between 2 and 20 percent of these parameters where only one standard error
was greater than 14 percent of its parameter. The statistical results
require interpretative care, but they support the findings of earlier
researchers.
In addition to a quantitative analysis relating consumption to specific
consumer characteristics, trends within end-use markets also depict demand
for individual textile subsegments. These trends are discussed below.
Apparel. The quantity of textile fabric utilized for apparel increased
from3,408 million pounds in 1965 to 5,064 mill ion pounds in 1977. The
composition of apparel fabric has changed considerably since 1965, when
cotton accounted for 55.5 percent of all apparel fabrics; wool, 10.9 per-
cent; and man-made fabrics, 33.6 percent (Table V-25). The trend has been
away from wool, cotton, and rayon and acetate use to non-cellulosic fabrics.
In 1977, non-cellulosic fabrics represented 58.3 percent of total apparel
fabrics compared to 20.3 percent in 1965. Other fibers' proportions in
1977 included cotton with 33.7 percent, wool with 2.3 percent, and rayon
and acetate with 5.8 percent.
Home furnishings. As was shown in Table V-23, the home furnishing market
for textiles has grown from 2.5 billion pounds of textile fibers in 1965
to over 3.8 billion pounds in 1977. With regards to the composition of the
textile fabrics in this end-use market, the home furnishings market has
experienced trends very similar to those of apparel fabrics. As shown in
Table V-26, in 1965 over 51 percent of all home furnishings fabrics were
_!/ These and subsequent elasticities have been estimated using a procedure
suggested by Pindyck and Rubinfeld (p. 72). The results must be inter-
preted with some care. First, the elasticities as derived are point
elasticities, valid at the mean points of the independent variables.
For linear regression equations of the type derived, mean point elas-
ticities do not accurately depict the situation away from the means
and toward the extremities of the observed data. Second, where numerous
independent variables are acting jointly and interdependently on the
dependent variable, as is the case in textile goods, the effect of one
variable should not be considered without also considering the jointly-
acting effects of other variables.
V-35
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V-37
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cotton; however, by 1977, cotton's share had declined to less than 26
percent. Usage of wool and rayon and acetate also declined in the home
furnishings market as was also the case for the apparel market. In 1965,
wool fabrics represented 5.0 percent of all fabrics used in home furnish-
ings; by 1977 this percentage had declined to 0.9 percent. Usage of rayon
and acetate declined from 20.2 percent of all home furnishings fabrics in
1965 to 5.7 percent in 1977. Similar to the trends in apparel fabric
composition, man-made non-cellulosic fabrics have become the major fabric
utilized in the home furnishings market, accounting for 73.7 percent of
all home furnishings fabrics in 1977, up from 23.3 percent in 1965.
Industrial and other consumer goods. The quantity of demand for industrial
and other consumer textile products, such as linings, shoes and slippers,
luggage and handbags, toys, and medical surgical and sanitary supplies, has
changed very little between 1965 and 1976, with total fabric utilized
varying between 2.5 and 3.0 billion pounds annually (Table V-23). As in
the case of both the apparel market and the home furnishings market, the
composition of fabrics utilized in the industrial and other consumer goods
markets has shifted from a heavy use of cotton (45.0 percent in 1965) to a
high proportion of non-cellulosic fabric (70.3 percent in 1977). The
historical data for cotton, wool and man-made fabrics utilized in industrial
and other consumer textile goods are presented in Table V-27.
Exports. Exports of textiles have increased steadily since 1965, with
total textile exports increasing from 207 million pounds in 1965 to 453
million pounds in 1977. As shown in Table V-28, the majority of the 1977
textile exports were cotton (48.0 percent of total textile exports),
followed by non-cellulosic material (36.2 percent), rayon and acetate
materials (14.1 percent), and wool (0.9 percent). Since 1965, cotton has
consistently accounted for 50 percent or more of the total textile exports
(except in 1974 when cotton goods accounted for 49.1 percent of the total).
Wool exports have fluctuated from year to year but usually have represented
2 to 3 percent of the total annual textile exports. Past exports of man-
made materials have varied over time depending on the fiber type. Basically,
exports of rayon and acetate decreased while exports of non-cellulosic
materials increased.
The raw fiber equivalents of exports of wool, cotton, and man-made textile
materials are depicted in Table V-29, illustrating the major form of each
respective fibers' exports. As shown in the table, for wool, most wool
exported in recent years has been'in the form of tops and yarns and manu-
factured products. Combined, these forms of wool exports accounted for
almost 80 percent of all wool exports in 1978.
For exports of cotton, most are either in the form of cotton cloth (61.8
percent of 1978 exports) or manufactured cotton products (38.2 percent).
V-38
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The various forms of man-made fiber textile materials' exports are also
shown in Table V-29. As shown, most man-made textile exports are either
cloth and fabric or man-made fiber manufactured products. In 1978, these
two forms represented 52.0 and 39.5 percent, respectively, of all man-made
textile material exports.
B. Price Determination
Segments within the textile industry are highly competitive with prices of
its output determined through the direct and indirect interaction of many
variables. Although textile demand has been strong during recent years,
certain segments have operated with excess supply capacity resulting in
lower capacity utilization rates generally ranging from 60 to 80 percent.
Furthermore, increasing levels of imports have added to the available
supplies of certain textile goods. These factors plus consumer attitudes
and spending habits influence prices received for textile goods.
In this section, the textile price determination process is described.
Included in the discussion are descriptions of the major price influencing
factors and historical trends in textile prices.
1. The Price Determination Process and Influencing Factors
The textile industry's pricing process, at one time, could be depicted as
the closest model of pure competition existing in the major manufacturing
industries in the U.S. However, during the past two to three decades, the
competitive environment has changed and accordingly the applicability of
pure competitive situations have been reduced I/.
While the available supply and market demand for specific textile goods are
major determinants of the price of the goods, numerous other factors have
considerable influence in the actual price received by the textile manu-
facturers. These are described below.
(1) Characteristics of the product: its seasonal, cyclical, and
secular demand; breadth of market, i.e., degree to which it is
multipurpose; nature of styling and operation where styled.
(2) Elasticity of supply: extent to which machinery can be trans-
ferred into and out of the market; policy of shift operation;
industry practice concerning goods in process and finished
inventories: are goods made to stock, on order only, or are
goods made and sold at the market almost regardless of price?
(3) Extent of producer specialization by produce and by market
level. Degree of inertia among producers and respect to
changes in product construction.
I/ Georgia Institute of Technology, Economic Analysis of Pretreatment
Standards for the Textile Industry, for the U.S. Environmental Pro-
tection Agency, July, 1977.
V-41
-------
Table V-29
Raw wool equivalent of U.S. exports of wool products,
1965-1973
Manufactured
rear
1965
1966
1967
1963
1969
1970
19/1
1972
1973
1974
1975
1976
1977
1973
TODS and
1 ,000
pounds
513
730
353
828
1,132
1,101
5,414
25,111
23,163
14,225
11,323
5,723
3,176
2,563
Yarns
percent
4.0
5.3
9.9
3.9
12.7
16.1
44.9
78.3
70.3
54.0
55.3
37.3
24.4
20.4
Fabrics
1 ,000
Products
1 ,000
pounds percent pounds
304 3.1
536 4.5
550 5.4
496 5.3
395 4.4
403 5.9
469 3.9
599 1.3
1,069 3.2
922 3.5
1,293 5.0
955 5.3
378 6.7
1,094 3.7
4,740
4,338
3,431
3,562
2,576
1,982
2,342
2,304
4,241
5,702
4,203
4,929
5,407
7,246
Raw cotton equivalent of
percent
30.3
34.5
39.7
33.1
30.1
28.?
19.4
3.4
12.7
21.7
19.7
32.5
41.5
57.7
J Wastes Caroets J Ruas
1 ,000
1,000
oounds percent pound
3,376
5,399
3,293
3,535
3,536
2,484
2,516
2,753
2,501
2,978
2.185
1,277
1,591
929
U.S. cotton exports
56.7 514
50.4 538
38.1 509
38.9 313
41.4 1 ,C04
36.3 331
21.7 1,205
3.3 1,065
7.3 1,984
11.3 2,504
10.2 1,380
3.4 2,261
12.2 1,986
7.4 733
, 1965-1978
s percent
3.
4.
5.
3.
11.
12.
10.
3.
5.
9.
8.
14.
15.
5.
9
5
9
3
3
9
0
2
9
3
8
9
2
3
"otal
1 ,000
pounds
15,552
12,591
3,o41
3,039
3,393
5,351
12,046
33,332
33,363
25,332
21 ,385
15,150
13,033
12,567
percent
100.0
100.0
100.0
100.0
100.0
100.0
100.0
iOO.O
100. 0
100.0
100.0
100.0
100.0
100.0
Manufactured
Yam
Year
1965
1966
1967
1968
1969
1970
1971
1972
1973
1974
1975
1976
1977
1978
Year
1965
1966
1967
1363
1969
1970
1971
1972
1973
1974
1975
1976
1977
1978
1,000
pounds
7,104
6,518
5,737
4,442
37,432
15,180
16,245
17,375
15,372
17,926
11,953
12,150
10,150
20,340
Sliver
and
1,000
pounds
4,309
6,384
4,500
5,042
5,002
5,644
4,541
5,142
10,553
13,381
5,777
12,254
12,i:4
10,147
Thread and Twine
1,000
percent pounds
4.1
3.4
3.0
2.4
16.1
7.6
7.2
6.2
4.3
4.6
3.4
2.9
2.3
5.7
Man-made
, tops,
rovinn
3,069
3,352
3,148
3,218
3,014
2,562
2,964
4,043
5,293
5,087
5,038
5,313
6,733
11,527
percent
1.3
1.3
1.7
1.7
1.3
1.3
1.3
1.4
1.6
1.5
1.4
1.5
1.3
3.3
fiber equivalent of U.S.
Cloth
1,000
pounds
110,301
122,343
119,797
115,202
113,171
113,932
130,341
174,482
199,325
228,024
217,388
248,391
203,981
219.757
exports
percent
53.5
54.3
53.5
61.2
50.9
57.2
57.3
50.0
51.4
58.5
61.5
60.2
55.2
51.3
Cotton Products
1,000
pounds
53,258
56,313
59,717
65,338
73,446
57,512
76,251
94,044
104,707
137,381
119,270
146,235
148,598
135.980
percent
30.5
30.0
31.7
34.7
31.6
33.9
33.7
32.4
32.2
35.3
33.7
35.4
40.2
38.2
of man-made textile products,
"oral
1,000
pounds
173,732
189,526
188,399
188,200
232,063
199,186
226,311
290,444
325,197
389,418
353,554
413,154
369,462
355,7*5
percent
100.0
100.0
100.0
100.0
10C.O
100.0
100.0
100.0
100.0
100.0
100. 0
100.0
100.0
100.0
1S65-1978
Man-Made Fiber Man-
Yarn
1,000
percent pounds
3.7
4.5
3.4
3.9
4.1
3.3
3.1
2.9
3.7
3.4
2.1
3.5
3.3
2.3
2,315
2.009
2,606
3,412
5,969
6,171
5,349
7,479
23,459
34,222
20,934
24,666
27,39fi
27,559
percent
2.2
1.4
2.0
2.6
4.0
4.2
4.0
4.2
3.2
3.3
6.5
7.0
7.5
6.2
Cloth J
1,000
pounds
87,721
93,121
34,218
75,166
79,345
76,404
70,186
33,581
128,623
176,505
160,627
154,007
166,819
229,569
Fabric
percent
68.0
66.5
63.3
58.3
54.3
52.0
47.9
47.1
44.6
45.2
49.3
46.8
45.4
52.0
ufactured Products
1.000
pounds percent
33,711
38,462
41,654
45,374
54,914
53,333
66.101
81 ,232
125,587
166,526
134,050
150,249
160,737
174,423
26.1
27.5
31.3
35.2
37.6
40.0
45.0
45.3
43.5
42.5
41.5
42.7
43.3
39,5
Total
1,000
pounds
129,056
139,976
132,978
128,994
146,230
147,052
146,677
177,584
288,227
390,734
322,388
352,176
367,076
44j,7qg
percent
100.0
100.0
100.0
100.0
100.0
100.0
100.0
100.0
100.0
100.0
100.0
100.0
100.0
100.0
Source: U.S. Department of Agriculture, Cotton and Wool Situation. February, 1979.
V-42
-------
(4) Degree of uniformity in the offerings of different producers.
(This is not so much a question of knowing what mills produce
the best or poorest qualities as the extent of variation vs.
homogeneity of products).
(5) Number and relative size of sellers in the market; extent and
character of price leadership.
(6) Procedures by which sellers claim to arrive at selling prices;
attention given to market information, probable action of
competitors, statistical appraisal of market prospects, own
costs, etc.
(7) Number and relative size of buyers in the market; extent and
character of their domination of the market; procedures by
which they claim to arrive at prices they will pay.
For most textile facilities, the initial basis for determining prices of
their products is the same as for most products; the manufacturer attempts
to recover his raw material and production costs plus a margin of profit.
With this information plus consideration of the market environment and
other influencing factors, the manufacturers usually either chooses a
simple formula in setting prices such as costs + overhead + fair profit =
price, or charges what the market will bear. In setting prices, manu-
facturers sometimes attempt to penetrate a market through low prices,
possibly sacrificing profits and selling at or below costs to attract a
following, or they may want to set prices extremely high in order to
establish it as a high quality, expensive item. For example, DuPont
charged the maximum amount possible for Qiana, a silk-like fabric, when
the product was initially introduced, in the hope that consumers would
associate the fabric with high fashion. To accomplish this, DuPont charged
high prices—SB.95 to $8.95 per pound compared with a market price of $8
to $10 per pound for silk. The appetite of lower-priced fashion markets
has now been whetted and the company plans to broaden its coverage by
dropping to the next lowest price category as promotion and production
costs continue to drop _!/. When analyzing the consumer, manufacturers must
determine whether the customer is willing to pay more to maintain or in-
crease quality or if he will sacrifice quality for quantity.
As will be presented in the next section, prices of textile goods have varied
during recent years with most, if not all, increasing when expressed in cur-
rent dollars (not adjusted for inflation). These price changes are a result
of various factors, the most common being changes in the prices or costs of
the various components comprising the finished product. As was shown in
Exhibit IV-1 (page IV-19), textile manufacturing represents just one of
many manufacturing steps involved in converting chemical or agricultural
I/ "Pricing Strategy in an Inflation Economy", Business Week. Reprinted
by Vernon, Ivan R. and Charles W. Lamb, Jr., ed. The Pricing Function,
Lexington, Mass.: Lexington Books, 1976, 43.
V-43
-------
products (fibers) into consumer textile goods available at retail stores.
To gain a perspective of the respective shares of the retail dollar of
textile goods, Edward H. Glade, Jr., estimated the distribution of the
consumers' retail dollar spent for cotton denim dungarees. In this estimate,
the costs of producing, ginning, marketing and processing raw cotton and
manufacturing and distributing cotton products were included in the dollar
spent, as were retail displaying and merchandising. This distribution is
presented in Table V-30. As shown, of the $8 retail value of a pair of
cotton denim dungarees in 1974, 6.4 percent of this price was associated
with the farm production of cotton, 2.0 percent was associated with ginning
and marketing to the textile mills, 19.6 percent was associated with the
textile mill processing and finishing, 30.0 percent was associated with
apparel manufacturing, and 42.0 percent was associated with wholesaling
and retailing.
2. Prices and Marketing Patterns
As a means of illustrating price trends and relationships, textile products
were grouped according to marketing patterns, as listed below. Fibers are
comprised of both plant fiber and animal hair produced on the farm, and
synthetic fibers produced primarily in the chemical industry.
(a) Fibers
(b) Yarn
(c) Fabrics
(d) Carpets
(e) Apparel
(f) Home furnishings
Yarn, fabrics and carpets are manufactured almost entirely within the
textile industry. Yarn is produced exclusively in the industry and con-
stitutes an intermediate product, while fabrics and carpets may be either
intermediate or final products. Apparel and home furnishings are final
products which may be produced within the industry or within other indus-
tries. In Table V-31, additional groupings are shown for each of the major
classifications. These major groupings include specific products to be
discussed below for which commodity prices can be identified.
In Chapter IV, the broad relationships between the major markets involved
were illustrated in Exhibit IV-1. More specific relationships are shown
in Exhibit V-l in this chapter in order to indicate at what point in the
production flow products may appear in each of the markets. These markets
show the relationships between mills falling within the classification
system of the industry as covered subsequently in the study.
As pointed out above, the fiber markets provide the raw material input to
the textile industry. This input includes not only cotton, wool and
synthetic staple and tow but also unprocessed filament yarns. In the pro-
duction flow, fiber may appear as processed yarn produced in the yarn mills
V-44
-------
Table V-30.
Cotton denim dungarees: estimated distribution of the retail
dollar by operation or service, 1974 I/
Operation or Service
Farm production
Ginning
Marketing to textile mills ....
Warehousing service*. .
Transportation
All other "
(Accumulated value at mill door) . .
Textile mill processing and
finishing •;
(Accumulated value after
textile mill)
Apparel manufacturing . ..
(Accumulated value alter
Wholesaling-retailing
Total value at retail
Cost per pound
of cotton1
Dollar*
366
061
052
( Ol 01
( 008)
( 014)
( 020)
(.479)
1.115
(1 594)
1 715
f3 3O91
2 390
5 599
Cost per pair
produced1
Dalian
.316
086
073
(0 14)
(Oil)
(.020)
(.028)
(.675)
1.572
12 2471
2 A 1 ft
/4 cc«%
3 370
3 035
Proportion of
retail dollar
noltart
G.4
1 i
0.9
/ n 2\
(0 1)
(0 3)
10 3)
(8.4)
19.6
(28 0)
30 0
[*o Ol
42 0
100 0
Estimate! were deveiooed from both puollsn-fl and
unpublished sources. Farm prooucdon, ginning, and marketing
cost! are U.S. Department of Agriculture data; textile mill
processing and apparel manufacturing estimates were adapted
fiom data from the Bureau of Laoor Statistics; and
Wholesaling-retailing margins estimated from private trade
sources. Complete methodology and data sources are available
on request. 'These data represent the estimated cost or value
added to 1-pouna of cotton at eacn stage from production
through retailing for cotton used in the manufacture of men's
cotton denim dungarees. "Costs per pair produced refects the
estimated cost or value added to a typical pair of denim
dungarees containing 1.41 pounas of cotton (2.256 sg. yds. x
.625 pounds per so., yd.) at each stage from production through
retailing. 'includes buying and selling expenses, cotton
Insurance, financing, and overhead expenses of marketing firms.
Source: Glade, Edward H., Jr. "Who Gets the Cotton Denim Dollar?"
wool Situation. USDA, March 1976, 30-32.
Cotton and
V-45
-------
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or it may be consumed in weaving, knitting or carpet mills and appear as
an intermediate or final product at any stage along the product flow.
For example, fiber is consumed in some cases by large integrated carpet
mills, however, carpets produced from the fiber will not appear in any
market prior to the floor covering market.
Within the fabric system, yarn from the processed yarn markets may be con-
sumed either by greige mills or integrated mills. If consumed by greige
mills, it may appear along the product flow in the greige fabric markets
where it will be an intermediate product to be consumed by the finishing
mills. However, it may also next appear on the finished fabric markets if
the fabric is processed through a commission mill. Another flow for the
yarn is through integrated mills in which it is milled into greige fabric
and then finished prior to entering the finished fabric market. A third
flow for the yarn is through a full integrated mill which not only mills
and finishes fabric but also fabricates final products, e.g. mills which
produce sheets. In this case, products from the yarn would not enter a
market prior to the textile home furnishing market. Fabric appearing on
the finished fabric market is a final product to the textile industry
exiting to the apparel or home furnishing industry.
The flow of yarn through the knit apparel and hosiery mills can be as
diverse as the flow involving woven fabric. The significant difference
is that the finished product appears as a final product on the apparel
market.
3. Raw Material Prices
Sources for price information vary considerably by type of product pro-
duced. USDA publishes detailed data on fiber prices including cotton, wool,
and man-made. BLS publishes monthly spot prices on textile mill products,
apparel, home furnishings and carpets in its Producer Price and Price Indexes.
However, these prices are obtained as a means of developing the price indexes
and are not intended to be used in developing specific price series. Hence,
from this data, only a few significant price seri.es can be developed. The
Daily News Records reports spot prices on yarn, cotton, cotton group goods,
and man-made group goods. A discussion of the prices provided from these
sources is contained below.
Wool (from USDA source). Prices for fine U.S. graded wool paralleled
Australian wool closely through 1972 with 3/8 blood fleece wool at a slight
quality differential. A 50 cent price gap opened between U.S. and Australian
fine wools in 1973 and has been maintained since that time. Wool prices
hit a low in 1971 resulting from heavy supplies but then cycled to all time
highs in 1973 resulting from shortages induced in 1971. Since that erratic
swing in the 1972-1973 cycle, however, prices have tended to be more stable
over the past few years, as shown in Table V-32.
V-48
-------
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V-49
-------
Cotton (from USDA sources). Cotton prices paid to farmers and cotton
prices on the market have fluctuated dramatically over the past decade.
Cotton suffered its greatest loss in its share of the market in 1968 when
a short supply in 1967 caused high prices, spurring many mills to shift
over to man-made fibers. This fluctuation was minor, though, when compared
to the period between 1972 and 1978 (Table V-32 and Exhibit V-2). Market
prices jumped from 35.6 cents in 1972 to 67.1 cents per pound in 1973 and
then fell to 41.2 cents in 1974. Prices began climbing again and reached
73.4 cents in 1976 and then fell to 50.8 cents in 1977, rising slightly to
52.7 percent in 1978. The differences in market prices and prices paid to
farmers were also erratic during the 1972 to 1973 period. Prior to 1970,
the difference between the two prices varied by only a couple of cents; in
1972 they widened to almost 5 cents. The gap continued widening until
1973, when the market price was almost 23 cents higher per pound than farmers
received. The market price fell in 1974, however, declining below the price
received by farmers. The market price fell below that received by farmers,
again, in 1978.
Man-made fibers (from USDA sources). Consumption of man-made fibers has
risen dramatically over the past decade. This growth corresponds with the
long-run trend of downward prices of man-made fibers. The man-made fiber
prices have fallen primarily due to greater efficiency within the industry.
Although prices for all synthetic fibers have declined since the Korean War,
the non-cellulosic fibers have fallen the most and cellulosic fibers the
least. Another characteristic of man-made fibers is the consistency of
prices throughout time and among producing companies, for all types of
material. The price is typically steady for long periods of time, usually,
when one company raises or lowers a price, the others follow. A third
characteristic of man-made fiber pricing is discounting. Although list
prices are known, market sales are often contracted at lower levels and
man-made fiber buyers receive trade discounts of five to 15 percent I/.
The main types of discounts offered include offering a percentage off for
volume purchases and arranging promotion sharing and other inducements.
Polyester fibers have declined dramatically in price, dropping from 86 cents
per pound in 1965 to 35 cents in 1972. Since that time, prices have in-
creased to 54 cents per pound in 1978 (Table V-33).
Rayon staple, which was priced lower than polyester in 1965, maintained
a constant price through 1971 while polyester declined dramatically. Since
1971, rayon has increased in price to slightly over that of polyester.
I/ Ward, Lionel E. Interfiber Competition with Emphasis on Cotton, un-
published Ph.D. dissertation, University of CalifornTa, Davis. Avail-
able through University Microfilm International 1962, p. 37 and Economic
Research Service, U.S. Textile Fiber Demand, USDA Bulletin Mo. 1500,
Washington D.C., September 1974, p. 22.
V-50
-------
Exhibit V-2. Selected Market Prices, January 23, 1978
COTTON GRAY GOODS
Spot
lxt. 2nd 3rd
(<>n.lru 96x68 taffeta ' . ... - 34
-\
FINISHED TRICOT
Nylon
108" 40 den. 6.00 sq. yd. dull ....." 39-40
108" 40-den. 6.00 sq. yd. semi-dull
- 41-42
108" 40 den. 6.00 sq. yd. multilobal . 49-50
54" 40 den. 6.00 lin. yd. dull PFP ... 59-60
54" 40 den 6 00 lin yd branded
multilobal PFP „...<.-. 64-66
Acetate -
KMT brushed HO/20 acetate/nylon.90-92Vi
54" brushed Iriacetate/nvlon HO/2O 1 65
60" acetate/nylon 65/35, 32-guage t~
unsueded, bright ( for printing 47"j
Triacetate
54" 60-den 3 00 yd. lin . for jjrmting . 60
The about price tablet art bated on mill salt* of average quality fabrics or
yam*. In the event of inactive numbers, price* are for the last reported sale*. The '-
symbol "X" befort a price indicate* tecond- hand tale*.
Source: Fairchild Publications, Daily News Record, January 23, 1978.
V-51
-------
Table V-33. Landed group B mill points: man-made staple fiber
prices at f.o.b. producing plants current dollars.
Year
1965
1966
1967
1968
1969
1970
1971
1972
1973
1974
1975
1976
1977
1978
Rayon-/
27
26
24
25
26
25
27
31
33
51
51
54
58
58
2/
Polyester—
85
80
62
56
45
41
37
35
37
46
48
53
56
54
I/ 1.5 and 3.0 denier, regular rayon staple.
2/ Reported average market price for 1.5 denier polyester staple
for cotton blending.
Source: Cotton Situation, November 1974 and Cotton and Wool Situation,
May 1978 and September 1974.
V-52
-------
Fiber price comparison. While individual fiber price movements are important,
these price changes become even more significant when one fiber is compared
with a substitute fiber. These price relationships are a key factor in
determining the type of fiber and type of blends that will be used in the
manufacturing process. Two basic price ratios are shown in Table V-34:
wool/polyester and cotton/polyester.
The wool/polyester price ratio has changed dramatically over the past with
wool becoming increasingly disadvantageous with respect to polyester. In
1965 the ratio was 1.4 to 1 but it increased steadily to 1971 with sharp
increases in 1972 to 3.4 to 1 and reached a peak of 6.8 to I in 1973. Since
that time the ratio has become somewhat more favorable to wool with a ratio
of 3.2 to 1 in 1972.
The cotton to polyester price ratio followed a similar pattern but not as
dramatic. Cotton had a distinct advantage in 1965 with a price ratio of 0.4
to 1. By 1971 the ratio changed to a 0.9 to 1 relationship as cotton prices
increased. In 1973, the rate hit a peak of 1.8 to 1 and has declined to 0.9
to 1 since that time.
The determinants of the demand for fibers, factors affecting fiber substitu-
tion, and interfiber competition have been studied by a variety of authors
(Blakeley, 1962; Ward, 1969; Barlowe and Donald, 1971; Evans, April and
September, 1977). In general, fiber demand is determined by price effects,
trend effects, and the relative stability of fiber supply. Both own-price
and cross-price I/ effects are important. Most writers have found signif-
icantly larger cross-price effects than own-price effects, especially for
cotton (Evans, September, 1977; Ward, 1969). Long term trends in relative
prices have been very significant, but fiber markets have not quickly
responded to short term changes in relative prices (Ward, 1969). While
quantitative analysis has usually demonstrated these price effects, virtually
all writers have maintained that trend variables are at least as important
as prices in the determination of fiber market shares (Ward, 1979; Barlowe
and Donald, 1971; Evans, April 1977; Ga. Tech, 1977). The term "trend"
groups effects from technological change, market inerta, tastes and
preferences, market promotion, and research. Technological developments,
most of which have favored non-cellulosic synthetics, include the discovery
of new uses, new products, and new materials; developments in blending,
weaving, and dyeing; technical and quality fabric characteristics; and
machinery capacities and speeds. Market inerta includes factors related to
the momentum of buying habits, the level of fiber consumption in previous
periods, types and capacities of installed machinery, the reluctance to
change fibers in current use, and the finality of a change in fiber mix once
that change is effected. Fashion, style, comfort, fabric performance char-
acteristics, advertising and market promotion, and research on new materials
and uses are also important. Finally, supply stability is a positive factor
II Cross-price effects refer to the effects on a product induced by changes
in the prices of that product's substitutes (competitors).
V-53
-------
Table 'V-34.
Price ratios of wool to polyester and cotton to
polyester, 1965-1977
Year
1965
1966
1967
1968
1969
1970
1971
1972
1973
1974
1975
1976
1977
Wool
1.20
1.30
1.20
1.20
1.20
1.10
.70
1.20
2.50
1.80
1.50
1.80
1.80
Polyester
.85
.80
.62
.56
.45
.41
.37
.35
.37
.46
.48
.53
.56
Ratio
1.4:1
1.6:1
1.9:1
2.1:1
2.7:1
2.7:1
1.9:1
3.4:1
6.8:1
4.0:1
3.1:1
3.4:1
3.2:1
Cotton
.30
.23
.29
.24
.23
.24
.33
.36
.67
.41
.58
.73
.51
Polyester
.85
.80
.62
.56
.45
.41
.37
.35
.37
.46
.48
.53
.56
Ratio
.4:1
.3:1
.5:1
.4:1
.5:1
.6:1
.9:1
.1:1
1.8:1
.9:1
1.2:1
1.4:1
.9:1
Source: U.S. Department of Agriculture, Cotton and Wool Situation.
V-54
-------
for synthetics and against cotton (Ward, 1969; Ga. Tech, 1977). On several
occasions in recent years, the quantity of available cotton has fluctuated
sharply (for example, during 1966-67 and 1973-74), while man-made fibers
have remained available. This has produced price instability in cotton,
thereby curtailing some cotton fiber shipments. The instability of cotton
supplies has added impetus to the switch to man-made fibers I/.
In support of these contentions, Blakeley (1962) was able to show signif-
icant effects on the domestic consumption of cotton from both the domestic
production of man-made fibers and the lagged domestic mill consumption of
cotton 2/. These variables outweighed cotton fiber price in their respec-
tive effects on mill cotton consumption. Blakley estimated the own-price
elasticity of cotton fiber demand at -0.86, an estimate which he notes as
higher than that obtained by other researchers. Evans (September 1977)
found that the domestic mill consumption of cotton was significantly
associated with total domestic fiber consumption, cotton fiber prices,
and polyester staple fiber prices. The prices' terms carried the heaviest
weights in Evans1 equations, and polyester fiber prices had slightly
greater explanatory power than cotton fiber prices. Own (cotton fiber)
price elasticity was estimated at -0.25 to -0.35, and cross (cotton-
polyester fiber) price elasticity was estimated at 0.35 to 0.40. Using
price ratios, Evans was also able to show that a change in relative
prices favorable to polyester had a highly significant impact on the
domestic mill consumption of cotton fiber.
Ward (1969) generated numerous equations relating the consumption of
individual fibers to own and competing fiber prices, and to total domestic
fiber consumption. In general, Ward found that own and cross price effects
were highly significant in fiber market share determination through time.
In cotton, own-price was of less importance than competing man-made fiber
prices, especially non-cellulosics. In non-cellulosics, own-price effects
were relatively more important than cross price effects.
Ward generated numerous estimates of own and cross price elasticities of
fiber consumption. These were summarized in the table below (Ward, 1969,
p. 142).
V For a discussion of these considerations, see Barlowe and Donald
(1971); and Barlowe, Russell G., Analysis of Cotton and Man-made Fiber
Substitution in End-use Item Consumption in the United States, Un-
published Masters Thesis, 1967, University of Maryland.
2/ The influence of previous period consumption on present period consump-
tion is actually a measure of the structural momentum in the system.
V-55
-------
Approximate Direct and Cross-Elasticities Between
Raw Fiber Consumption and Fiber Prices
Fiber
Consumption
Cotton
Wool
Cellulosic
Non-cell ulosic
Raw Riber Prices
Cotton
0 to -0.1
0 to 0.2
0.2 to 0.4
0
Wool
0
-0.3 to -0.5
0
0
Cellulosic
0.4 to 0.6
0.4 to 0.7
-0.1 to -0.3
0
Non-cellulosic
0.2 to 0.4
0.6 to 1.0
0.3 to 0.6
-1.0 to -1.5
For cotton, all elasticities were relatively low, but cross-price effects
were more important than own-price effects _!/. For man-made non-eellulosics,
elasticities were moderate to greater-than-unity, with own-price effects
more important than cross-price effects.
Ward notes the great influence of the supply reliability, technology, and
inerta factors in the determination of fiber market shares, and partially
attributes the explanatory power of his total fiber consumption variables
to such considerations. Ward and the other authors also note that short
term responses to changes in relative prices are apparently small, but that
such changes have major significance in the longer term.
This analysis generated four functions relating to the competition for market
share between cotton and non-cellulosic fibers. Findings, shown on Table
V-35, generally support the discussion of findings by earlier writers.
Equations 5 and 6 relate the 1965-1977 total textile market shares of cotton
fiber and non-cellulosic fibers to the prices of the two fibers during those
years. The two equations account for 94 to 96 percent of the variation in
market shares during the years observed. Fiber share elasticities 2/ for
cotton (Equation 5) are estimated as follows: own-price, -0.29 and cross-
price (cotton share non-cellulosic price) 0.37. For non-cellulosics
(Equation 6) the elasticities are estimated as: own-price, -0.46 and cross-
price (non-cellulosic share-cotton price) 0.46.
Equations 7 and 8 relate the 1965-1977 market shares of cotton and non-
cellulosic fibers in home furnishing end-uses to the prices of the two
fibers during those years. The two equations account for about 94 percent
of the variation in home furnishing end-use fiber market shares during the
years observed. Market share elasticities for the two fibers in their home
I/ Many post-war researchers have estimated the own-price elasticity of
cotton fiber in a range between -0.1 and -0.4.
2_/ See footnote, p. V-35.
V-56
-------
Table V-35. Functional relationships in interfiber competition
Equation 5. Title: Cotton fiber snare of U.S. textile products as a function of cotton fiber price and lagged non-cellulosic
fiber price
dependent variable : cotton fiber share. Observed mean: 376.53846
independent variable : cotton price. Observed mean: 47.15384
independent variable : lagged non cellulosic price. Observed mean: 57.92307
lagged
Equation 5. cotton fiber share cotton price non-cellulosic price
R2=.959 376.53846 = 347.33157 - 2.30466 (47.15384) + 2.38041 (57.92307)
t for Ho: parameter = 0 : 6.55 -6.41
probability of a greater t by chance : .0001 .0001
F for ind. var. SS : 118.73 41.08
probability of a greater F by chance : .0001 .0001
Equation 6. Title: Non-cellulosic fiber share of U.S. textile products as a function of cotton fiber price and lagged non-
cellulosic fiber price
dependent variable
independent variable
independent variable
non-cellulosic sfrare. Observed mean: 458.84615
cotton price. Observed mean: 47.15384
lagged non-cellulosic price. Observed mean: 57.92307
lagged
Equation 6. non-cellulosic share cotton price non-cellulosic price
R2*.941 458.84615 = 462.27596 + 4.43801 (47.15384) -3.67209 (57.92307)
t for Ho: parameter » 0 : 6.55 -6.41
probability of a greater t by chance : .0001 .0001
F for ind. var. SS : 118.73 41.08
probability of a greater F by chance : .0001 .0001
Equation 7. Title: Cotton fiber share of total fiber use in home furnishings as a function of cotton fiber price and
lagged non-cellulosic fiber price
dependent variable
independent variable
independent variable
cotton fiber/home furnishings. Observed mean: 36.83846
cotton price. Observed mean: 47.15384
lagged non-cellulosic price. Observed mean: 57.92307
cotton fiber/ lagged
Equation 7. home furnishings cotton price non-cellulosic price
R2=.946 36.83846 « 38.47239 -.32647 (47.15384) + .23757 (57.92307)
t for Ho: parameter = 0 : -7.32 6.29
probability of a greater t by chance : .0001 .0001
F for ind. .var. SS : 136.92 39.60
probability of a greater F by chance : .0001 .0001
Equation 8. Title: Non-cellulosic fiber share of total fiber use in home furnishings as a function of cotton fiber price and
lagged non-cellulosic fiber price
dependent variable : non-cellulosic/home furnishing. Observed mean: 48.71538
independent variable : cotton price. Observed mean: 47.15384
independent variable : lagged non-cellulosic price. Observed mean: 57.92307
non-cellulosic/ , lagged
Eguation 8. home furnishings cotton price non-cellulosic price
R^=.937 48.71538= 48.26342 + .52468 (47.15384) -.41933 (57.92307)
t for Ho: parameter = 0 : 6.44 -6.08
probability of a greater t by chance : .0001 .0001
F for ind. var. SS : 112.12 36.98
probability of a greater F by chance : .0001 .0001
Source: Development Planning and Research Associates, Inc.
V-57
-------
furnishing end-uses are estimated as follows: for cotton (Equation 7), own-
price, -0.42 and cross-price (cotton share non-cellulosic price), 0.37. For
non-cellulosics, the elasticity estimates are: own-price, -0.50 and cross-
price (non-cellulosic share-cotton price) 0.51. Standard errors associated
with the regression parameter in all four equations ranged between 12 and
16 percent of those parameters. Again, the statistical results require
interpretative care and comparison with the results of other researchers.
The results generally support those of the other works cited.
4. Price Indexes
BLS publishes two types of indexes, industry and producer price (formerly
wholesale price index), which are applicable to a study of prices within
the textile industry. The industry indexes provide indexes on the output
of SIC industries at the 4 digit level and product classes at the 5 digit
level. While these indexes cover information which could be very valuable
in an analysis of the industry, the series are relatively new and provide
very little data prior to 1975. Consequently, these indexes are excluded
from further consideration in this study.
The Producer Price Indexes (PPI) provide a measure of price movements at
several levels. First it provides an index of prices at the aggregate in-
dustry level - Textile Products and Apparel, then it provides indexes of
the major classifications and groupings discussed previously. Finally, it
gives price indexes for a number of specific commodities.
Textile products underwent a significant reclassificaticm in 1976 in order
to reflect the decline in importance of wool products to the textile indus-
try and the increase in importance of synthetic and knit products. Prior
to the reclassification, textile products had been grouped according to type
of fiber. For example, the synthetic wholesale price index components
included unprocessed and processed yarn, fibers, and fabrics. With the
reclassification, textile products are now grouped largely according to
current marketing patterns. This reclassification should facilitate analysis
of prices in terms of production flows. A comparison of the groupings under
the two systems is shown below.
WPI, Textile Products and Apparel
Prior to 1976 1976
Cotton products Synthetic fibers
Wool products Processed yarns and thread
Synthetic Grey fabrics
Apparel Finished fabrics
Apparel
V-58
-------
The Textile Products and Apparel PPI reflect changes in both textile products
and apparel. Changes in the index are weighted such that about 46 percent
of the change is attributable to changes in textile products while 54 per-
cent is attributable to apparel. Within textile products weight of each
component are listed below:
Synthetic fiber 14%
Processed yarn and thread 21
Grey fabric 23
Finished fabric 44
The price movements between all commodities, and textile products and
apparel are compared in Table V-36. During the past 10 years (except for
1975), textiles have lagged behind all commodities. Prior to 1972, the
lag was minor with textiles increasing at an average rate of 2.6 percent
per year while all commodities increased 3.6 percent. Since 1972, textiles
have increased appreciably less with annual increases averaging 6.4 percent
against 10.4 percent for all commodities. Partial explanation of this
difference lies in the changes in the weighting system applied to textiles.
Prior to 1975, a large part of the increase in the producer's index was
due to acceleration of prices in cotton textiles. However, with the re-
classification in 1976, a greater weight to movements in prices of synthetics
and knit fabric tended to depress the overall index.
Price indexes of the products of the major textile markets are also shown
in Table V-36. Apparel products, which includes clothing and hosiery, in-
creased at a rate slightly higher than the composite textile and apparel
index through 1972. Since then it has lagged, in 1976 it was about 10
points less. This difference points out that the prices of fabrics have
actually increased faster than apparel.
Textile home furnishing prices have increased significantly higher than
both the composite index and the apparel index over tHe past few years.
This is due primarily to a large increase in 1974 when prices in home
furnishings increased over 25 percent contrasted to an increase of less
than 10 percent in the apparel prices. The price indexes of carpets has
substantially lagged the other products over the past 10 years. Except for
1973, price increases for carpet have been considerably less than 10 per-
cent. Hosiery, which is a component of the apparel index, has actually
decreased over the past ten years. Hosiery is shown separately here because
it is delineated from the other fabrics in a subsequent part of this study.
Inputs to the textile market system include wool, cotton, and synthetic
fibers. Synthetic fibers consist of unprocessed filament yarn as well as
staple and tow. A comparison of the fiber indexes is also shown in Table
V-36. The index for natural fibers climbed to over 200 (twice that of 1967)
in 1976. Among cotton and wool, the indexes have fluctuated considerably
throughout the period. All of the fibers reach indexes of about 200 in
1973 and dropped off drastically in 1975 rising in 1976. Domestic wool
V-59
-------
Table V-36. Producer orica indexes - fabrics
(cotton, wool, synthetics)
Grey Woven Fabrics
Broad woven
Cotton (Old)
(New)
Synthetic
Jute 4 burlao
Grey Knits
Knits
Synthetics
Finished Fabrics
Broad woven
Cotton (Old)
(New)
Synthetic (Old)
(New)
Knits
Cotton
Synthetics
Nylon tricot
Acetate tricot
Code
0337
031202
033701
033703
033704
0338
033803
0342
034201
034203
0343
034301
034503
03430341
03430351
1967
100.0
100.0
100.0
100.0
100.0
100.0
1968
102.3
97.3
104.0
111.1
92.1
107.2
1959 1970 1971
103.7 104.4 110.5
106.5 107.6 124.3
104.0 107.6 110. S
115.1 104.3 101.5
39.3 81.2 38.0
102.9 96.4 100.6
1972
124.1
142.0
120.5
116.9
90.7
87.7
1973
145.
133.
143.
1,145.
94.
90.
7
0
5
5
2
9
1974
*
173.5
*
*
181.3
A
*
it
173.1
*
161.7
it
it
it
ir
128.3
126.7
1975
100.0
177.9
100.0
100.0
137.7
100.0
100.0
100.0
173.2
100.0
140.6
100.0
100.0
100.0
100.0
112.3
131.7
1976
106.2
NA
103.3
106.0
110.1
104.1
75.0
105.4
NA
109.0
NA
101.3
96.2
110.7
95.1
110.0
127.3
1977
104.6
NA
112.6
101.1
112.5
107.4
79.7
110.3
NA
120.3
NA
99.7
95.5
118.4
93.8
119.4
130.3
Plant and Animal Fiber
Fiber
Raw Cotton
Domestic aoparel
wool
Foreign wool
Synthetic Fibers
Unorocassed fil-
ament yarn
Cellulosic
Non-cell ulosic
Staple
Tow
Textile Markets
015
0151
0152
0153
031
0315
031501
031502
0316
0317
Textile product and apparel
Apparel
Home furnishings
(sheets and pillows)
Carpets
Hosiery
100.0
100.0
100.0
100.0
100.0
100.0
100.0
100.0
100.0
100.0
100.0
100.0
104.6
107.2
102.9
105. 5
101.3
100.0
103.7
103.6
104.2
100.7
98.7
93.1 90.2 92.3
97.6
59.2
84.3
102.3 102.5 105.2
100.0 100.0 100.0
106.0 107.1 109.0
107.4 110.3 113.6
100.3 103.5 104.9
99.0 96.5 96.1
NA NA 97 . 7
117.5
107.7
100.0
113.6
114.8
109.2
101.0
97.7
197,
193.
194.
237.
109.
99.
123.
119.
113.
110.
98.
8
1
9
0
9
9
3
0
3
9
0
193.9
199.3
139.3
191.8
*
*
119.4
102.3
*
it
139.1
129.5
143.3
114.6
100.0
153.1
155.2
109.4
165.1
100.0
100.0
130.5
103.2
100.0
100.0
137.9
133.4
151.9
117.9
91.2
223.9
234.1
139.9
202.6
102.4
103.1
139.7
105.9
101.5
98.3
148.2
139.9
159.3
NA
107.5
107.3
108.9
139.6
113.5
104.5
106.2
154.0
147.3
171.3
NA
NA
* Astericks indicate those series begun in 1976.
Source: Bureau of Labor Statistics, Wholesale Price Indexes.
V-60
-------
reflects the lowest index at less than 140 in 1976. While the natural
fibers nearly doubled since 1967, the synthetic fibers have remained
relatively stable. A composite index of synthetics was not developed until
the 1976 reclassification; consequently synthetic price movements cannot
be compared directly with the natural fibers. However, the two unprocessed
filament yarn indexes (cellulosic and non-cellulosic) reveal the relative
stability of the synthetic prices. The cellulosic yarn rose to about 140
by 1976 while the non-cellulosic has remained stable, rising to less than 120.
The indexes of fabric prices are shown in Table 36. Again, the indexes for
the major groupings were not developed until the reclassification in 1976.
Consequently movement of prices for gray and finished fabrics cannot be
effectively analyzed.
Indexes are available for grey and finished cotton broad woven fabrics
and finished wool. The grey cotton broad woven fabric index increased to
about 180 by 1975 and leveled off for the next 2 years (actually decreasing
slightly in 1977). Finished cotton fabric moved with the grey fabrics until
1976. In 1976, the index increased to 120.3 (1975 base) contrasted to an
index of 105.6 for grey cotton fabrics. Wool finished fabrics is the only
fabric with a complete series (other than burlap and jute). Its index had
advanced to 140.7 by 1977, dropping slightly during the 1975 recession.
V-61
-------
Exhibit V-2. Selected Market Prices, October 18, 1979
COTTON GRAY GOODS
Spot,- .
4th. let. 2nd
Construction Qtr. Qtr. Qtr.
- WIDE PRINT CLOTHS
v
60 60x48 3.93 — 56V, —
51 64x56 4.20 5.'t53'/«-53 ..—
48 78x76 3.50 166 67 ,—
48 78x54 3.95 x52» — 52
4H B4xft« 4.45 50 50 —
48 60x48 5.35 43% 43 —
45 60x48 5JS5 41 41 41
BLENDED PRINT CLOTHS
Polyeater-Cotton
OSNABURGS
57 32x26 3.10 — — —
40 40x26 2.11 70 70. _—
Broken Twil^a . • :
58 72x56 1.06 "— =- —
' " .-_' '
-~* .. ' . \
S.F. APPAREL DUCK
47 * 84x28 1.87 —
-
DRAPERY SAILCbOTH
52 96x36 1.58 J1.06 $1.05 $1.05
48 IOUx.'16 1.88 93 86 85
' ~" '
DRILLS -
64 78x54 2.99 70 70 — 59 68x40 1.85 — 88 —
48 78x54 4.00 x46 46 —'59 68x40 2.25' "=— 80 - —
48 96x56 3.50 54 54 — 45 ' 72x48 1.95 — '. — —
Polvester-Rnvona
48 78x56 3.90 x45V» 46 —
65-35 Blends
Voile
47 .60x56 42 42 —
Batiste ~'
47 96x72 - 57 57 —
_, Broadcloth
47 128*72 82 80 80
.
, SHEETINGS
50 ' 44x40 4.40 ' 42 ' 42 " —
58 48x44 1.40 ~ »1.12 J1.12
COTTON
* , COTTON
N.Y. FUTURES MARKET
OCTOBER 18 M7»
Open Clove Prev.
December 65.8Ot 65.101 65.701
March 66.20t 65.70t 66.15t
May 67.201 66.851 67.101.
July 68.30b 67.801 68.25t
October 68.75b 68.75b 69.006
December 69.60t 69.50b 69.50b
March 70.50b 70.65b "O.SOb
t-tradsd b-bid o-offered
48 72x60 1.64 — — —
t • .
Industrial Duck
Army tl.38 on 37 in.. 13-ot. -
First column represent* the uiidth of
cloth, second column the count per
square inert, third column is the weight
in yards per pound. The fourth column
IM the spot price (immediate delivery}
fifth column and sixth column* usually
give the succeeding quarters for which_
delivery is quoted.
' • > • ^v '
MAN-MADE
FIBERS
Cellulosic Fibers
Rayon Staple < *— 70
High modulus staple . .. . ... 75
IJiO-dnn. irrljlLt. _,. -.„„„ ,„-„,'„ 101
55 den. acetate 1.15-1.20
Non-Cellulosic Fiber*
Poly blend staple _.„_ ___. 64-66
150-den. polyester feeder... 72-75
40-den, nylon, dull/beams... 1.85-1.90
.i den. acrylic staple , _ . , 62-64
COTTON YARNS
NEW YORK PRICES
Count
COMBED YARNS
Singles Plied
16s
18s
20s._ _.
24s _.
JOs
1.56-1.58
1.58-1.60
1.60-1.62
1.65-1.68
1.70-1.73
1.94-1.96
1.66-1.68
1.6U-I.70
1.70-1.72
1.77-1 JO
1.8S-I.88
2.09-2.12
POLYESTER/COMBED
COTTON 50/50*
18 singles r. 1.42-1.45
30 singles T.ofM.60
36 singles ; 1.80-1.82
Count
10s „ „„
14s _
18s „
20s
24s..:
.JOs
JOs poly-blend...
CARDED YARNS
Single*
1.24-1.26
1.26-1.28
1.32-1.34
1.37-1.39
1.43-1.45-
1.53-1.55
1.47-1.50
Plied
l'Jo-1.38
1.38-1.40
1.44-1.46
1.50-1.52
1.56-1.58
1.66-1.68
OPEN-END YARNS
All-cotton 10s 1 1.10-1.12
All-cotton. 18s 1.20-1.24
Poly-cotton 18^. 1.22-1.24
MAN MADE GRAY GOODS
October 18, 1979
Fl LAMENT FABRICS .
(Acetate Taffeta)
45W 92x56 • - , -i. 54
tt 92x62 .... 57V4
Acetate Lining . • " .
4.V; l2UxliM - x70 -66W /'•
Rayon Lining ,
• SPUN YARN GOODS
83;84
Rayon Challis
48 68x56 3.20yd.
48 68x56 3.20yd. HWM 62-64
Mohair-EfTecta ^
Acetate- Rayon
45*- 104x40 . • ' .. .,,.58-57
Polyeater-rayon "
46 84x34 - ' -'-• - i : JB-54
NYLON GRAY GOODS
• x70-72 60
49V, 96x68tafreta i62 56
FINISHED TRICOT - "
Nylon
108" 40 den. 6.00 sq. yd. full ........... -. 51-54
108" 40 den. 6.00 sq. yd. semi-dull..... 52-55
IOH" 4O den. (i.ml «i( yd, brJKhl,
unhrandvd .......... -......:. ________ '. __ .' __ S4-57
IOH". 4O-«lcn.. (H»>s<|. yil. liri|>hl. hrxiuliil
....... __ ......... _..; ..... _____ L ...... ____________ lift-la).
1IIH" 4II/JK tin', vil. lin».hr-l.'^5
54" trm.-elatf/nylon HD/2IX velour. Raugr.
while ________ ^ ..... !.„.-.: _______ .:._•„„ 1.75- I.WI
54" acetate/nylon 80/20 vefour... I.2S-I..W
SO." triaceUtc/nylon 65/35 boucle 1.85-
1.95 <• -. -.--.-.—
6O" aceUte/nylnn 65/35 terry — 1.65-1.70
60" acetate/nylon 65/35. 32 gauge urn
. lirixhl. for print in* ._ ....... --------- M
The above price tables are based on mill sales of average quality fabrics of yarns.
•'Ill the event of inactive numbers, prices are for the last reported tales. The
•ymooj "X" before a price indicalet second-hand salts.
Source: Fairchild Publications, Daily News Record, October 18, 1979.
V-62
-------
VI. REPRESENTATIVE MODEL PLANTS
Over 1,100 individual textile mills are engaged in manufacturing processes
which, in one form or another, generate wastewaters and thus fall within the
scope of this analysis and would be subject to effluent control guidelines.
Approximately 80 percent of these existing mills are discharging wastewater
into publicly owned treatment works (POTW's) and are classified as indirect
dischargers; the remaining 20 percent are discharging directly into receiving
waters (rivers and lakes) and are classified as direct dischargers. Model
plants representing both type dischargers were developed from a synthesis
of data obtained from surveys of the industry as well as published sources.
The model plants were based on the economic conditions in the industry during
1977 which were considered "baseline" in the analysis. The treatment systems
in-place in the industry during 1977 varied considerably.
In the model plant development, it was assumed that the direct dischargers
(except as noted below) have met BPT requirements while the indirect dis-
chargers have not had any treatment systems installed. In addition to model
plants representing existing mills or sources, models were developed to repre-
sent new sources (mills to be constructed in the future). As in the case of
the existing mills, new source models were developed both for direct and in-
direct dischargers. In order to facilitate the analysis in this chapter, model
plant data are organized under four classifications.
(1) existing direct dischargers,
(2) existing indirect dischargers,
(3) new source direct dischargers,
(4) new source indirect dischargers.
A. Model Plant Development
Model plants were developed primarily from data accumulated from two sur-
veys of the industry. The initial survey was technical in nature and was
conducted during preparation of the Development Document. The survey was
designed to develop a descriptive and representative data base covering:
(1) number and location of facilities,
(2) production levels,
3) wastewater discharge quantities,
4) methods of discharge,
5) general treatment status.
From this data base, the industry was divided into subcategories (and sub-
divisions) discussed in Chapter III. A range of mill sizes both in terms
of production levels and flow rates was identified. Eight flow rates were
VI-1
-------
selected as a means of establishing production levels for representative
model plants. These flow rates varied from a low of 0.05 mgd to a high of
5.0 mgd as shown in Table VI-1 and were established as the capacity levels.
These levels were then converted to specific production rates (kkg per day)
for each of the models within the subcategories. These rates provided the
basis for preparing the required control costs and for constructing the
model plants.
As a part of this study, a second survey was conducted involvino a random
sample of about a quarter of the wet processors in the industry and covered
questions on production, finance and wastewater discharge. The survey
responses revealed that additional segmentation within the industry was
required in order to reflect the economic characteristics; of different type
mills in terms of product ownership and degree of integration. Consequently,
in addition to categorization by type processing, mills were further categorized
by type of mills to include (1) integrated, (2) commission, and (3) own fabric
finishers.
Responses to the survey provided the data base from which the financial pro-
files of the individual model plants were constructed. Model plants were
developed for the capacities shown in Table VI-1. One or more models were
developed for most of the size categories (i.e., commission, integrated)
in order to represent the various type mills. Some of the capacity levels
established in the Development Document were not utilized as indicated by
"X" in the table since it was found that the subcategories; could be adequately
covered with a fewer number. For example, the survey indicated that the
number of simple processors in woven fabric finishing (4A) was not signi-
ficant in the larger categories. Consequently, model plants were developed
for the smallest capacities, only. Similarly, no mills were identified in
the larger sizes in knit fabric (5); model plants were not developed for
these capacities.
As indicated above, each subcategory was represented by one or more type
mills. This representation became a problem in the woven and knit fabric sub-
categories (5) in which mills were categorized by both type processing and
type mills as well as by sizes. Over 50 combinations were possible in the
woven fabric subcategory (4). Consequently, to reduce the number of model
plants to a manageable level, the structure shown in Table VI-2 was selected
for these two subcategories. This structure is believed to be descriptive
of the more common combinations in each subcategory. Simple processing
was generally limited to the small size categories while desizing was
restricted to the integrated mills (woven fabric (4)). With the estab-
lishment of the structures of each subcategory, model plants were then
developed which consisted of pro forma income statements and investment
characteristics. The models were developed to represent actual mills in
the industry by estimating a number of key parameters to include annual
production, sales, profit, capital investment (book value) and liquidation
value (salvage value).
VI-2
-------
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VI-4
-------
The production level of each model was computed as the product of the annual
capacity (in pounds of product) and the utilization rate. The utilization
rates were based on the surveys and varied between subcategories and type
mills.
After the production level was established, the sales volume was then deter-
mined by multiplying the dollars per pound of production by its annual pro-
duction. The dollars per pound were estimated based on an average of the
"typical" values of the surveys corresponding to the model category. Values
which were extremely high or low relative to the majority of the values were
generally excluded from the averaging. The values used represent a composite
of a variety of product mixes and consequently can not be identified with any
specific textile product. For example, the woven fabric subcategory (4)
reflects mills of which 48 percent were producing woven fabric only, 13
percent producing narrow fabrics, and the remainder processing a variety of
mixes such as fabric and yarn, and fabric and sheeting. In the knit fabric
subcategory (5), 28 percent of the mills surveyed were producing circular
fabric only, 17 percent were producing warp and the remainder were producing
mixes of fabric and apparel (underwear).
Levels of profits were determined for each model plant by averaging the returns
on sales from the survey data appropriate to its size and type category. As
was discussed above, the "typical" value was sought by excluding exceptionally
high or low values from the computation. These averages were then compared
with data contained in other published sources in order to establish their
reasonableness. If the project levels differed widely from the data reported
in the published sources, an investigation was made to determine the reason
for the difference. When it was considered appropriate, returns on sales
were modified to fall within the framework of these sources. The most valuable
published data source proved to be Robert Morris Associates, Annual Statement
Studies which reports data for mills organized within a structure similar to the
one utilized in this study. With sales level and profit level established for
each model plant, an appropriate cost structure was developed including depre-
ciation and interest. The sales level, cost structure and profits comprised
the pro forma income statement.
The capital investment for each model plant was derived by calculating the
difference between the total assets and current liabilities (this equals net
working capital plus fixed assets) for each surveyed mill. These values,
expressed as percentages of sales, were then analyzed to arrive at a typical
value for the model plant as discussed above. The asset structures of the
surveyed mills were analyzed and a breakout of net working capital and
current and fixed assets was determined for each of the model plants.
The final parameter to be derived was the salvage or liquidation value of
the model plant which is the sum of the net working capital (computed
previously) and the salvage value of the fixed assets. The salvage value
was established by an analysis of the estimates provided in the survey.
This was a key parameter used in the model plant NPV analysis. An over
estimation of the value would tend to overstate the impacts in the analysis
VI-5
-------
while an underestimation of the salvage value would understate the magnitude
of the impacts. A detailed discussion of the characteristics of the indi-
vidual models is contained below.
B. Model Plant Characteristics
The textile mills vary by operational and financial characteristics; thus,
the models will not accurately depict the characteristics of any existing
mill. However, since the subcategories discussed above group the mills into
segments having similar processes, discharge methods, and economic character-
istics, it was possible to develop models which are descriptive of the common
operational and financial characteristics.
The various models utilized in this report are shown in Table VI-3 for the
existing direct dischargers, Table VI-4 for the existing indirect dischargers,
and Table VI-5 for both direct and indirect discharge new source models. These
models incorporate the capacities shown in Table VI-1 for the subcategories and
subdivisions. As indicated above, model plants were developed for three types
of mills to include commission, own fabric (yarn, hosiery), and integrated.
These mill types represent mills within the industry with respect to product
ownership and extent of integration of milling processes. The "commission"
models represent those mills which are engaged in finishing only, but do the
finishing on a commission basis; they do not own the products which they pro-
cess. The "own fabric" models represent those mills which are also engaged in
finishing only; however, these mills actually purchase the textile materials
processed. The integrated models represent those mills engaged in both greige
milling and finishing operations. Models were developed for each of the above
type mills because of the significant differences in the financial profile of
these mills in the industry.
Tables VI-3 to VI-5 show the types of models used in each of the subcategories,.
Although the economic characteristics of these type models differ significantly
within subcategories, the waste characteristics and control technologies are
assumed to be identical for those models having the same production capacities.
Consequently, the type of model should be disregarded when relating the
models in this report with those in the Development Document. Within a
given subcategory and for a specific capacity level, the control technology
and costs contained in the Development Document are applicable to each of the
type models (commission,own fabric, and integrated). The subdivisions
(simple processing, complex processing and complex processing plus desizing)
are not identified in Tables VI-3 to VI-5. These are identified as appropriate
in subsequent tables. The hosiery products subdivision of knit fabric finishing
is shown separate from the simple and complex processing subdivisions since
the hosiery mills constitute a distinct and separate industry from an econ-
omic perspective. To facilitate the correlation of model plants developed in
this report with the subcategorization discussed in the Development Document
(Table VI-1), the subcategory numbers and subdivision letters will be placed
in parenthesis after each model plant discussed in the text.
VI-6
-------
Table VI-3. Textile industry, representative existing direct
model plants' capacities
Subcategory
1.
2.
4.
5.
5c
6.
7.
8.
9.
Wool scouring
Wool finishing
Woven fabric
finishing
Knit fabric
finishing
. Hosiery ,
products-^/
Carpet finishing
Stock & yarn
finishing
Nonwoven manu-
facturing
Felted fabric
processing
Type
mill
Commission
Commission
Integrated
Commission
Own fabric
Integrated
Commission
Integrated
Own hosiery
Integrated
Integrated
Commission
Own yarn
Integrated
Capaci ty
Small
16
.2
Medi urn
35
kg per
.6
Large X-Large
day-
80.
9
8.0
8
5
5
5
—
2
2
20
9
9
9
.0
.3
.3
.3
.7
.7
.0
.4
.4
.4
20
26
26
20
7
7
6
6
49
23
23
-
.0
.0
.0
.0
7 '
.7 I/
.0
.0
.0
.0
.0
40.
130.
130.
50.
18.
18.
™
120.
57.
38.
38.
0
0
0
0 220.0
6
6
0
0
0 57.0
0
10.4
-
2.0
-
]_/ Two model plants were developed in the medium category for both the
commission and integrated mills to cover simple and complex process-
ing.
- Subdivision of the knit fabric finishing subcategory.
Source: DPRA estimates based on survey and published data.
VI-7
-------
Table VI-4. Textile industry, representative existing indirect discharg-
ing model plants' capacities.
1.
2:
4.
5.
5c
6.
7.
8.
9.
Subcategory
Wool scouring
Wool finishing
Woven fabric
finishing
Knit fabric
finishing
.Hosiery ,,
products — '
Carpet finishing
Stock & yarn
finishing
Nonwoven
manufacturing
Felted fabric
processing
Capacity
Type Mill
Commission
Commission
Integrated
Commission
Own fabric
Integrated
Commission
Integrated
Own hosiery
Integrated
Integrated
Commission
Own yarn
Integrated
Smal
16.
3.
3.
2.
2.
2.
1.
2.
2.
8.
4.
4.
1
0
3
3
4
4
4
—
5
7
7
9
2
2
-
24.0
0.9
Medium
20.
26.
26.
20.
7.
7.
49.
9.
9.
9.
57.
-kkg
0
0
0
0
7
7
-
-
0
4
4
4
,0
4.4
Large X-Large
per da;
81.
40.
130.
130.
50.
18.
18.
13.
13.
122.
23.
23.
23.
-
0
0
0
0
0 170.0
6
6 31.0
6
6
0
0
0
0
10.7
Subdivision in the knit fabric finishing subcategory.,
Source: DPRA estimates based on survey and published data.
VI-8
-------
Table VI-5. Textile industry, new source
model plants' capacities
2.
4.
5.
5c
6.
7.
8.
9.
Subcategory
Wool finishing
Woven fabric
finishing
Knit fabric
finishing
. Hosiery
products 2J
Carpet finishing
Stock & yarn
finishing
Nonwoven
manufacturing
Felted fabric
processing
Type
mill
Integrated
Own fabric
Integrated
Integrated
Integrated
Integrated
Own yarn
Sizel/
Medium
Medi urn
Large
Large
Large
Medium
Large
Small
Medium
Medium
Medium
Medium
Direct
Dischargers
\t\.
20.0
NA
130.0
50.0
18.6
6.0
NA
20.0
NA
23.0
10-. 4
2.0
Indirect
Dischargers
9
20.0
26.0
NA
50.0
18.6
NA
13.6
NA
49.0
9.4
57.0
4.4
- Size designations correspond with the designations for existing model
plants.
2i
— Subdivision in- the knit fabric finishing subcategory.
Source: DPRA estimates based on survey and published data.
VI-9
-------
For the existing models, both direct and indirect dischargers, four size
designations were used to reflect the size structure within the subcate-
gories: small, medium, large, and x-large. Model plant capacities were
expressed in kilograms of textile materials processed per day. The models
with the largest capacities are the x-large integrated woven fabric models
with capacities of 170,000 and 200,000 kg per day for indirect (4c) and
direct dischargers (4b), respectively. The capacities of the medium and
large models of both the direct and indirect dischargers are generally the
same within each subcategory. However, the capacities of the small models
are significantly different, with the small indirect dischargers about half
the size of the small direct dischargers.
For the new source mills, only a limited number of models were developed
to reflect the most likely sizes and types to be constructed. The size
capacities of these models correspond with those of specific existing mills;
consequently, the same size designations were used.
No new source wool scouring (1) models were developed since it was not con-
sidered likely that any of these mills would be constructed in the foresee-
able future. In most cases, new source models were considered to be inte-
grated since this type of mill was considered to be the most likely to be
developed in the future. No new source commission models were developed
for any of the subcategories.
C. Operational Characteristics
The operational characteristics for the existing direct arid indirect dis-
chargers are summarized in Tables VI-6 and VI-7. These characteristics
were determined from the industry surveys as well as discussions with in-
dustry members and include data on daily capacity, utilization, annual pro-
duction and number of employees. The production and utilization rates for
the new source models were assumed to correspond to the same type and size
models of the existing mills. The new source models' numbers of employees
were assumed to be 15 percent fewer than the existing models. This slightly
reduced employment requirement reflects the utilization of labor saving
equipment and the requirement for a reduced maintenance force in the new
source mills. The operational characteristics for the new source models are
summarized in Table VI-8 for the direct dischargers and Table VI-9 for the
indirect dischargers.
Utilization rates were based on a 250 to 300 day work year and varied con-
siderably between type dischargers, subcategories, and size categories.
Two models reflected utilization rates of 100 percent—the large integrated
wool finishing (2) and felt (9) models; both direct dischargers. Among the
direct discharger models, the lowest utilization rate occurred in the small
wool scouring (1) mill (55 percent). Among the indirect dischargers, the
model with the lowest utilization rate was the small woven fabric model
(4a) with a rate of 57 percent. The rates of the remaining models in both
categories (direct and indirect dischargers) varied generally between 70
and 85 percent.
VI-10
-------
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Annual production quantities for the model plants were based on the daily
capacities and utilization rates shown in the tables and are expressed in
thousands of pounds of textile materials processed. The outputs of the wool
scouring models (1) reflected the quantity of clean wool produced. The outputs
of the remaining models represented a composite of the products produced within
each of the subcategories and do not represent any specific sizes or weights
of material. For example, the outputs of the woven fabric mills (4) repre-
sented a combination of manmade and cotton woven fabric piece goods, sheets,
towels, blankets, and other broadwoven fabrics and the outputs of the knit
fabric mills represented a combination of warp and circular knit fabric,
and outerwear and underwear apparel.
The estimated number of production and nonproduction workers employed in
each of the model plants is also shown in the tables. The numbers of em-
ployees varied significantly not only between models in the subcategories
but also between the types of mills. The most labor intensive models fell
in the hosiery products subdivision (5c) although the total number of em-
ployees in this subdivision is relatively small. For all models, the inte-
grated models were more labor intensive than the finishers (both commission
and own fabric) due to the added requirement for workers in the greige mill
operations. The number of employees in the new source models was assumed to
be 15 percent fewer than in the existing models as a result of increased
efficiencies.
D. Investment Characteristics
The investment characteristics for the existing direct discharging, existing
indirect, and new source direct, and new source indirect models are depicted
in Tables VI-10, 11, 12 and 13, respectively. Included in these tables are
estimates for the models' assets (both fixed and current), current liabilities,
net working capital, total invested capital, and salvage values for non-
conforming uses. These are discussed below.
1. Fixed Assets
The fixed assets depicted in the tables are considered reflective of net or
book values of the buildings, equipment, and land. As would be expected in
an industry with a substantial number of older plants and equipment, the book
values of the models' assets reflect significant levels of depreciation. The
models' fixed assets were estimated from information provided in the industry
surveys.
2. Net Working Capital
The models' net working capital or operating capital is defined as that
capital necessary to maintain the day to day operations of the mills.
Included in the computation of this capital are a firm's current assets
VI-15
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