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Cotton is a wonderfully versatile, all-natural fabric and is present in everything from bath towels and bed sheets to underwear, T-shirts, and socks. But cotton production is a mess. Fairtrade International argues that there’s such thing as better cotton, and shoppers should know the difference.
Fairtrade aims at reducing the social and environmental costs of cotton production. At a social level, genetic modification of cotton seeds has wreaked havoc in traditionally agrarian communities. In India, the second biggest cotton producer in the world after China, there has been a surge in farmer suicides. These tragic deaths are linked to genetically modified cotton and the ugly cycle of dependence on special seeds and chemicals. It’s estimated that, every 30 minutes, one farmer in India commits suicide, deep in debt and unable to provide for his family.
Environmentally, cotton growing is a disaster. Cotton accounts for 24 per cent of global sales of agricultural insecticides and uses a huge amount of water – approximately 20,000 liters of water are needed to produce one kilogram of cotton. Cotton production is linked to the destruction of the Aral Sea, the Indus River in Pakistan, the Murray-Darling Basin in Australia, and the Rio Grande in the US and Mexico.
Set by the garment industry of Bangladesh in 2014, the slogan to reach ‘Fifty by Twenty One’ has gained momentum. In December 2016, at a seminar organised by BGMEA titled ‘Taking Bangladesh Apparel Sector Forward’, the state minister for foreign affairs Shahriar Alam had shared this statement. Last fiscal, from July 2015 to June 2016, the country’s garments exports touched $28.09 billion whereas in the calendar year ending in December 2016, exports were $28.67 billion. To reach the target of $50 billion in 2021, the export rate needs to grow at a 12.25 per cent cumulative rate. Past growth rates have been in double digits, but given the current global economic and trade environment, whether it is possible for Bangladesh to continue notching up double-digit growth rates is doubtful.
Growth impediments
A ESCAP report say, price growth of export goods of Bangladesh will decline in 2017 compared to the current year but volume will increase significantly. While this report, Asia-Pacific Trade and Investment Report 2016, considered all exports, the prospect for RMG falls into the general mould of declining prices. At a recent conference at Harvard organised by ISDI, all stakeholders including representatives from buyers and labour unions agreed the price of clothing has been declining in recent years. And, the downward pressure on price, from the demand side, has been two-fold: consumers are now buying more high-end products and apparel and footwear sellers are losing consumer dollars to healthcare, rent, home-related products, electronics and cars. Another reason for the lower price is with greater prosperity, it basic needs such as food and clothing have low income and price elasticity.
Measures to boost exports
There are many aspects, which include marketing, engineering, management, and economic tools, to raise the price of RMG and are well-known, the ultimate goal is not easy to accomplish. In line with this, commerce minister Tofail Ahmed last month urged labour bodies to press buyers to raise RMG prices. Ahmed urged union leaders to connect with their counterparts in importing countries to use their influence on buyers and consumers. He said labour organisations of the RMG sector should tell buyers to raise product prices, which would help increase labour wages in the sector. There are four economic ways to boost exports: quantity, price, changing product mix and exchange rate manipulation.
The industry can also boost of profitability, without increasing prices, by increasing productivity and efficiency. Ironically, readymade garments exporters have recently demanded higher cash incentives and devaluation of taka against the US dollar. The association also demanded apparel factories should be exempted from 1as price hike that the government planned to implement from January 2017. A lower cost of borrowing will also help exporters improve profit margins.
In the years to come, to retain market share in the low-cost-and-high-efficient region, the path to profitability and export growth is increased efficiency, higher productivity, and quality management. The global apparel market is valued at $3 trillion, and between 2007 and 2013, the market increased with average annual growth of 5.1 per cent. Year 2017 is expectd to be a stable year for apparel retail. A report released by Moody's in mid-December said, the sector can expect sales growth of 6 to 8 per cent, led primarily by direct-to-consumer channels and international growth. However, the same report anticipates apparel and footwear sellers will lose consumer dollars to healthcare, rent, home-related products, electronics and cars. In addition, traffic is expected to be weak throughout the year, with department stores and larger retailers such as Walmart bearing the brunt of that decline.
To channelise efforts in the right direction, BGMEA and Danish Fashion and Textile Industry Associations recently launched the ‘Step Up Project’ to improve productivity and address social and environmental challenges in the country's RMG sector. A similar initiative is needed to move up the value chain by using business processes and resources to export higher-margin products. There is a need to explore new markets in Latin America, Africa and the Commonwealth countries.
When it comes to Islamic fashion apparel, Pakistan is one of the top 10 consumer markets. The rise in Pakistan’s fashion retail industry in recent years has been huge, creating space for local as well as global brands which feed the lifestyle needs of the affluent and the rising middle class.
This is especially the case in the women’s apparel category with long shirts, colorful hijabs and the like. Small and medium enterprises have the required potential to streamline operations and offer products to local as well as global markets. However, with Pakistan being a Muslim country, there is scope for modest fashion.
Rabia Z is a global pioneer in the modest fashion category and has chosen Pakistan’s lucrative market as its next destination after dominating markets in the Middle East, Europe and the United States. In Pakistan, the formal launch will be held this summer. The brand plans to establish a proper retail set-up and is interested in starting production in Pakistan and then sourcing all the natural fabrics from Pakistan. It might delve into the franchise model in collaboration with some of the leading textile groups of the country. The brand already has a presence in Pakistan with the company selling its products via e-commerce.
In general, Muslim countries already spend billions of dollars on apparels and global Islamic fashion clothing is among the top three segments after halal food and Islamic finance.
Turkish textile company Birlesik Tekstil is planning to open a factory in Belgrade, Serbia by the end of this year. This was announced by Belgrade Mayor Sinisa Mali. The proposed factory will come up in the city’s Lazarevac municipality. Birlesik Tekstil has acquired a factory of insolvent local textile company Beko and is looking to appoint 600 employees by the end of 2017 and another 600 at a later stage to do business.
Serbia imports $180 million worth of textile from Turkey annually which is the reason why Serbia should attract Turkish investors here says Ljajic. Serbia plans to promote a model that involves the reconstruction of old and abandoned halls where interested investors could install machinery and immediately start production. The country’s exports to Turkey rose by 10.8 per cent to 30 billion dinars in 2016, while imports from Turkey increased 18.1 per cent to 74.3 billion dinars, according to data from Serbia’s statistical office.
Turkey’s exports to Russia declined to $1.4 billion in the first three months of 2014 from $1.7 billion in the same period of the previous year. They fell to $912 million in the first quarter of 2015 and to $353 million in the first quarter of 2016. Exports reached $498.1 million in the first quarter of this year, soaring by 40.9 per cent compared to the same period last year.
Imports from Russia to Turkey neared $6.2 billion in the first quarter of 2013 and rose to $6.7 billion in the same period of 2014. They dropped to $3.9 billion in the first quarter last year from nearly $6 billion in the same period of 2015. Imports from Russia neared $4.4 billion in the first quarter of this year with an 11.5 per cent increase compared to the same period last year.
There was also a significant increase in the amount of Turkey’s exports to Russia in apparel, boilers and machines, electric machines and motor land vehicles.
During the last financial year, sales of khadi products went up 33 per cent. Sales of village industries produce grew 24 per cent. There has been a huge demand for products such as honey, soaps, cosmetics, furniture and organic foods, which are produced by village industries and many of which are run by women. Domestic and international fashion designers prefer to work with sustainable and natural fabrics like khadi. Millennial shoppers are concerned about the clothes they wear or whether the products they use create jobs. Since khadi cloth is handspun, and its products are mainly created by artisans in rural areas, the brand invokes good vibes in consumers. The target is to double khadi sales by 2018-19.
A survey in 21 overseas markets revealed, khadi was the most recalled Indian brand, along with yoga. So the Khadi & Village Industries Commission (KVIC) is now looking at exports and aiming to make khadi an international brand. KVIC has an unique model, selling through government-owned stores as well as other retail outlets. In fact, KVIC is one of the most underrated companies in India and has IPO potential. While low production growth was a drag on sales in recent years, during the last fiscal khadi output grew by 31 per cent.
The textile industry wants an uniform levy of five per cent on all textile and clothing products under GST (Goods and Services Tax). The assumption is such a levy would ensure smooth migration of the entire textile value chain to the GST tax structure with full compliance, create a win-win strategy for all stakeholders and bring substantial revenue to the exchequer when compared to existing revenues.
The Indian textile industry feels net revenue will double if the GST rate is fixed at the lowest slab of five per cent without any exemption across the value chain. The industry wants existing export benefits, including duty drawback rates, to be continued for some time after the implementation of GST as the industry has just begun taking advantage of these schemes and grabbing global export opportunities.
Sectors like handlooms could be given benefits from tax refunds under the direct benefit transfer system. Free trade agreements with potential importing countries, especially the European Union and Britain, would help as the strong rupee and high import tariffs of up to 20 per cent on various textile products in almost all major importing countries have made the Indian textile and clothing industry uncompetitive.
Indonesia wants a bilateral trade deal with the US. Trade between the countries was around $25 billion in 2016, the lowest since 2010. The US deficit in trade stood at more than $13 billion. The US wants Indonesia to further open up its $900 billion economy to businesses. The US is seeking to cut trade and investment barriers to create a truly level playing field. This forms the background to the collapse of the Trans-Pacific Partnership, a sweeping, 12-nation trade-and-investment pact. Indonesia wasn’t one of the dozen nations but had expressed interest in joining the partnership at a future date.
Indonesia has been seeking to draw new foreign investment to help build railways and ports. US investors are among the biggest investors in Indonesia but face problems with rule of law and cumbersome policies such as local-content requirements. Indonesia’s priority is to boost economic growth. The rate has been hovering around five per cent due to global weakness and a mixed-investment climate. The target is to deliver seven per cent growth by the end of 2019. Indonesia is Southeast Asia’s largest economy. In dollar terms, foreign direct investment slipped in 2016. But Chinese investors have evinced interest.
India’s cotton area is forecast to increase by seven per cent in 2017-18. Assuming yield is similar to the five-year average, production could increase by three per cent. Similarly, China’s cotton area may expand by three per cent due to the stable cotton policy and high cotton prices. Production in China is expected to rise by one per cent. Harvested cotton area in the US is expected to grow by 12 per cent and production could grow by eight per cent.
Unlike other top cotton producers, area in Uzbekistan is expected to dip four per cent in accordance with plans to reduce areas where yields are low and use them for other agricultural products. However, plentiful soil moisture may improve the average yield by one per cent, which will limit the loss in output. Uzbekistan’s cotton production is projected to decline by two per cent.
Cotton area in Brazil and Australia is forecast to increase by two per cent and three per cent. World cotton trade is projected to rise five per cent. Imports by Bangladesh are forecast to rise by three per cent, while imports by Vietnam may increase by 16 per cent. Imports by China are expected to increase by three per cent. Exports from the United States are projected to increase by 53 per cent. India’s exports are projected to decrease by 30 per cent.
Jaipur-based India Today Fashions is an apparel exporter. The quarter century old company manufactures women’s wear and children’s wear. It works with buying houses in the US, Sweden, Dubai, Australia and Japan. The exporter is also upgrading its CAD system and foraying into the domestic market.
Though Jaipur is a cost-effective garment manufacturing hub, especially when compared to Delhi-NCR, labor shortage is an issue which has forced India Today Fashions to start a new unit in Haryana. Since already some of its job work is being done in Haryana, the company thought of setting up its own factory there. Skilled labor is easily available in Haryana. The new factory will be operational very soon.
Despite initiatives for skill development and training in apparel manufacturing, and the presence of Apparel Training Development Centers, Jaipur has been facing a labor shortage for many years. A big chunk of migratory workers who belong to Uttar Pradesh or Bihar prefer to work in Delhi-NCR rather than Jaipur. Rajasthan has been associated with the production of color fabrics in the Maru-Gurjar tradition since ancient times. A sense of color-aesthetics has led to the use of colors and motifs intended for different occasions.
