The financial crisis, which broke in the USA has impacted greatly on the world economy, especially on China's cotton supply chain. It is necessary to understand the welfare change of the cotton chain under this shock of financial crisis in order for relevant policy decisions to be made. The purpose of this paper is to measure the welfare change of all the consumers, producers, circulation and farmers in the cotton supply chain under the shock of financial crisis.
There is no existing mature method to calculate the welfare change of a special supply chain, such as the cotton supply chain. The method most used in such situations is the equilibrium displacement model, created by Muth, and developed by Gardner.
The financial crisis has had important impacts on China cotton industry. Farmers' losses are bigger than people estimate. Circulation link's loss is a little lower than cotton farmers'. Producers' loss is far lower than circulation and cotton farmers. Consumers' loss is the biggest loss in the whole cotton supply chain: however, some of these are foreign consumers – especially foreign wholesalers and retailers.
This paper is the first to study the quantitative welfare change of China's cotton supply chain under the shock of financial crisis, providing useful information for government and company decision making.
