Cotton price hikes are hitting garment trade

Cotton price hikes are hitting garment trade

With the aim of moderating domestic prices of cotton yarn, last week the Indian government said it would suspend a 7.5% duty concession for exporters – essentially raising the price of Indian cotton by 3.5% on world markets.

This could have a major impact on already-rising international yarn prices, as India is the second largest producer of cotton in the world - exporting 5m bales (170 kg each) of cotton last year alone, mainly to Hong Kong, China, Pakistan and Bangladesh.

But in India, the move has been regarded as positive.

“We welcome this move as the 30% rise in the last three months in its domestic prices has really affected us,” said A Sakthivel, president of the Tirupur Exporters’ Association, whose clothing manufacturer members even recently fasted for a day to protest against these cost increases.

He said profits had been further depressed because clothing orders were generally placed four to six months in advance, ahead of recent cotton price increases.

As per the new suspension, Shakthivel told just-style he wanted the government to encourage the export of ready-to-wear clothes rather than raw materials such as cotton yarn: “From the export of yarn we get only US$3 per kg, but if you export the garment we get US$17.”

Across the border in Bangladesh, the situation is much worse, as its garment industry is dependent on imported cotton. Between July 2009 and January 2010, its exports of knitwear declined 13% and woven garments by 16%.

“We have enough spinning mills in Bangladesh to supply the yarn but the concern is the price of raw cotton,” said Fazlul Hoque, president of Bangladesh Knitwear Manufacturers and Exporters Association.

“Somehow we have managed to survive as some exporters have managed to renegotiate prices with the buyers, but most of them are very strict.”

The Bangladeshi government has now promised a second stimulus package to all export industries, following an initial cash injection in 2009. 

As the cotton price continues to rise, garment manufacturers in neighbouring Pakistan have also been worried about declining exports.

Due to the shortage of yarn, increases in energy costs and power shortages, its clothing export target for April 2009 - March 2010 of $3bn is now likely to be missed by $800m, say government officials.

In another significant development, Pakistan’s textile ministry has reduced its restrictive export quota on yarn from 50,000 to 35,000 tonnes per month on yarn.

This was bitterly opposed by the All Pakistan Textile Mills Association, claiming its members could not fulfill contracts: clothing manufacturers however supported the move.

The trade body organised huge protests and threatened to close down their spinning units.

The result was the government promised quota curbs on yarn exports would be lifted and exporters of value-added textile products would be compensated to make yarn affordable.

By Raghavendra Verma.