On a rainy February afternoon in New Bond Street, spring has arrived early in Pringle’s flagship store: shelves of soft cashmere jumpers in new season colours — watermelon, pistachio, cornflower blue — and racks of delicate, one ply, shell tops and cardigans, fine as gossamer with tiny, round pearl buttons.

Meanwhile, nearly 5,000 miles east, among the rocks and sagebrush of the steppes at the edge of the Gobi desert, a Mongolian herdsman is slaughtering a goat — just one in a gradual cull which will reduce his herd of 200 to 150 animals. The meat will feed his family and the Government will pay him compensation, but it will be much less than the value of the clip — the fine underhair combed from the goat during the May moult.

The herdsman’s knife poised above a goat’s neck bodes ill for all of us who have recently developed a serious cashmere habit – once the preserve of the very rich. Whatever a cashmere jumper costs now — whether it’s £200 in Pringle or £25 in Tesco — we could be paying a lot more in a season or two when the effect of the herd reduction scheme in China begins to bite.

The total world clip of cashmere is 14,500 tonnes a year — 10,000 tonnes from China, which includes Inner Mongolia, and the rest from Iran, Afghanistan, India and Outer Mongolia. The hair is combed from the goats when they are moulting and the fine underhair is separated from the coarser guard hair; a single sweater uses the wool from between four and six goats. The fibre is graded and packed into big hessian bales for transport to factories for spinning, dying and milling. Traditionally all the top quality fibre and much of the rest has gone to Scotland and Italy for processing, but that is changing fast.

A rapidly growing manufacturing capacity in China has fed our appetite for affordable luxury. The US alone imported ten million cashmere sweaters from China last year and since EU import quotas were relaxed in January 2005 British high streets have been flooded with cheap cashmere. But, just as with smoked salmon and other must-have commodities, ballooning demand has had its effect on both product quality and the environment.

As goat numbers increased, so the delicate ecology of their semi-arid grazing lands suffered. The Chinese Government began a programme of tree planting to hold the top soil and prevent sandstorms blowing into Bejiing from the Mongolian desert. But as fast as they planted, goats ate the saplings. “Cashmere goats are expert foragers,” explains Henry Lu, managing director of South Trading, the Hong Kong cashmere brokers. “They eat everything: needle grass, thorns, the roots of trees.”

The Government now subsidises the fencing of land to protect tree plantations and rotate grazing areas, and has introduced a quota limiting each herd to between 100 and 200 head. “The programme is difficult to police in such remote areas,” Lu admits, “and the market has not yet seen the effect, but if the Government achieves its aim of getting production down by 20 per cent we may feel it then.” To compensate, herdsmen are trying to increase productivity by breeding higher yielding goats. But, says Lu, the danger is that quality suffers: “Fibres have been getting thicker; even in the top-quality Alashan goats from Inner West Mongolia which produce the super super white cashmere, the strongest, longest and finest; the fibre has been increasing by between 0.1 and 0.2 of a micron each year.”

Pure cashmere yarn is expensive, selling for 10 or 12 times the price of lamb’s wool. James Sugden is the managing director of the Scottish manufacturer and retailer Johnstons, which currently buys a little under half the total annual Alashan production of de-haired fibre: “Cashmere is a commodity, inelastic and very volatile,” he says. “The clip is finite but price can go up or down depending on fashion and the demand on 5th Avenue and Ripongi ’s fashionable shopping district. The US market has the biggest single influence on price, which, in the past few years, has fluctuated between $60 and $120 a kilogram but has now stabilised at a median of $90. To some extent the Chinese Government will control the price to ensure demand for their mills; a big rise is not in their interest.”

Inevitably, the traditional Scottish, Italian and German brands have felt the pinch from the surge of Chinese manufactured imports. After all, if you can buy a nice soft cashmere cardigan from Gap or Zara for £59, why spend £149 at Brora or £250 at Ballantyne? “You get what you pay for,” says Simon Dyson, who sources raw cashmere for a big Scottish manufacturer. “If you just want a fashion piece for one winter season then you can pay a great deal less than for something which will last. Like whisky, cashmere is cut and blended, cut and blended: a sweater might contain yak hair, rabbit fur, hair from a dead goat, silicone . . . Certainly it will be made from shorter, thicker fibre and may contain guard hair. All these things enable manufacturers to hit a particular price point; there’s a price point for everyone these days.”

Confusingly, a cheap jumper can feel much softer, plumper and more luxurious than a top-quality one. “That’s because it is over-milled,” says Victoria Stapleton, owner of Brora, whose cashmere is all made in Scotland. “That cheap jumper will pill and bobble like billy-oh and look like a dishcloth after a few washes. Scottish cashmere, by contrast, actually develops and fills out after purchase.” Stapleton founded Brora in 1993, aiming at a younger, more fashion-conscious customer than the traditional brands, and admits that she enjoyed a free run until two years ago when retailers with huge pricing power such as Tesco and Gap entered the fray: “The market now is more combative than I’ve ever known it,” she says.

Many well-known names, including Harrods, N Peal, Belinda Robertson and Eric Bompard in Paris, now sell cashmere lines made in China; if things are so hard, shouldn’t Stapleton do the same? “No,” she says stoutly. “I’m a stickler for Buy British; you have to meet the challenge with good marketing, uphold your brand and your customer base.”

But Simon Collins, former director of Johnstons and now managing director of Kinross Cashmere, claims that European brands are fighting a doomed rearguard action if they believe that China cannot compete at the high end of the market. “Anything they can do, the Chinese can do better,” he says, “and at landed duty paid prices, on average 30 per cent cheaper than the Scottish product.” Kinross is a subsidiary of Dawsons, a Scottish-based textile company that also owns Dawson Forté and the Dawson Cashmere Company, all of which have ranges wholly manufactured offshore.

“China intends to control the cashmere market,” says Collins. “This herd reduction scheme is a warning shot across the bows — demonstrating that they hold the cards. They are already employing top European designers and they have the technical expertise; the writing is on the wall.”

The cashmere trader Henry Lu disagrees: “There is so much expertise and tradition in Europe,” he says. “It’s a cashmere culture. The Chinese quality improves all the time but China is still at copying level and the high-end cashmere product is difficult to copy — it requires a combination of sensitivity, design and colour which is not yet available from Chinese manufacturers. Specialist cashmere manufacturing will remain in Europe for now.”

In the narrow streets and greystone buildings of Hawick, centre of the Borders knitwear industry, they are not so optimistic. Two more knitwear firms have closed since December with more than 100 job losses, and the future for the remaining 4,000 industry employees looks uncertain. “Five years ago all the mills were working to capacity,” said one insider, a cashmere knitter for 45 years. “Now they’re not even taking on apprentices.” The Chinese competition had been fiercer and faster than anyone expected: “I think the local industry will be all but gone within five years; there will just be a very small niche at the upper end.”

But the flow is not all one way: five years ago the 200-year-old firm of Pringle was sold to the Hong Kong-based Fang Brothers, who transformed the once fusty and failing brand into an international fashion label worn by Michael Douglas, Ewan McGregor and Jodie Kidd. More interestingly, the Fangs regard Pringle as having the cachet to appeal to the top end of the increasingly sophisticated Chinese market which values the “Made in Scotland” label. Ironically it may be the emerging Chinese middle class that saves Scottish cashmere.

Are gluttonous goats a threat to the grasslands?

The grasslands of Inner Mongolia are dotted with stocky little goats barely two feet tall. The Kashmir goat’s luxuriant wool trails almost to the ground and ripples as the herd bounces across the steppe at the goatherd’s call. Combed from the belly of the hardy animal comes the finest of fibres to be made into the cashmere jerseys that will end up in the collections of Pringle or Prada.

However, debate has swirled in China over whether the hearty appetite of these gambolling goats poses a threat to the rolling steppe of northern China. About two years ago, environmental officials introduced new policies intended to protect the grasslands from gluttonous goats. Fears were voiced that the goats, multiplying to meet demand from shoppers from Manhattan to Tokyo, could destroy the grass, expose the precious topsoil to Siberian gales and transform the steppe into a desert.

Farmers were ordered to bring their goats in from the steppe and into pens. They were to divide their land into three parts, moving goats from one to the next in successive years and leaving the grass time to recover. One Chinese trader explained that many farmers have been happy to comply. The goats gain protection from bitter winter storms that can decimate their numbers and farmers can keep a careful eye on the little animals producing “soft gold” for the luxury market.

But opinion is now divided as to the dangers posed by the Kashmir goat. At a meeting last year, officials agreed that the steppe had been home to the goats for centuries without suffering undue damage and grazing by the animals was entirely natural.

Li Wancai, a cashmere trader in Hohhot in Inner Mongolia, said: “The saying that goats destroy the steppe is quite groundless. In fact, the climate is the biggest enemy of the environment.” The grassland suffers enormously from drought but barely at all from goats.

However, Luo Yonghong, an official of the Development and Reform Committee of the Inner Mongolia Farming Department, said that good animal husbandry was sufficient to preserve the grassland. “Returning farming land to forests and steppe benefits the land, but there is no clear verdict yet on this.”

Mr Luo said that the number of goats in Inner Mongolia, which produces most of the world’s cashmere, had been increasing at a stable and sustainable rate for several years and he did not expect any sudden change. The goats numbered 18 million in 2000, had increased by about two million a year and were expected to reach 26 million this year. “Goats don’t damage the steppe as much as people think,” he said. “In the past when the grass was insufficient to support the goats they started to eat grass roots but now many are fed in pens, so this problem has disappeared.”

Another trader said Chinese producers were not eager to see a sudden increase in the price of the raw material. When prices tripled in 1999, demand halved. He said: “China doesn’t want that to happen again. It wants prices to be as stable as possible.”

JANE MACARTNEY