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The Comprehensive and Progressive Agreement for Trans-Pacific Partnership (CPTPP) is unlikely to dent India’s export prospects meaningfully due to the absence of its key market, the US. Instead it will cut tariffs in nations that together make up for just over 13 per cent of the global economy. With the US, it would have represented 40 per cent of world GDP.
CPTPP is the mega Asia-Pacific trade pact signed by 11 nations, including Japan and Singapore. But the deal could see more pressure being put on India to help conclude the 16-nation Regional Comprehensive Economic Partnership (RCEP) agreement at the earliest without being too emphatic about its own demands in the services sector.
The absence of the US is a relief for India’s garment industry. The US was the original proponent of the TPP but decided to withdraw from it fearing it would be the death blow for American manufacturing. The CPTPP is not expected to impact India much as six of the 11 CPTPP countries are already part of the group negotiating the RCEP in which India is also a participant.
CPTPP comprises Australia, Brunei, Canada, Chile, Japan, Malaysia, Mexico, New Zealand, Peru, Singapore and Vietnam. Fears of key competitor Vietnam gaining duty-free access to the US, India’s single-largest market for such products, have abated.
Seed companies have threatened to halt supplies to cotton farmers in India in protest against a plan to cut prices. Seed companies would also stop producing for the next season beginning June 2019. Farmers start planting the crop in June and July. Lower supplies of seeds could delay plantings and hit output. India is the world’s top cotton producer and the second-biggest exporter of the fiber.
India is mulling lowering the price of genetically modified cotton seeds by 7.5 per cent to help farmers whose fields have been ravaged by pests. Cotton seed prices have dropped drastically in the past few years, but fuel, labor, chemical and supply chain costs have risen sharply, squeezing margins of most seed makers. Other than cutting the prices of GM cotton seeds, India is likely to impose another cut to Monsanto’s royalties paid by domestic companies for its GM cotton seeds.
The latest reduction risks another row with the US company, the world’s biggest seed maker, which threatened to leave India in 2016 when its royalties were cut by more than 70 per cent. India approved the first GM cotton seed trait in 2003 and an upgraded variety in 2006, helping to transform the country into the world’s top producer of the fiber.
Australia famously rode to prosperity on the sheep’s back during the 20th century, fine tuning Merino breeds to produce a soft, durable and natural fiber. Demand comes from Europe and has now extended to Asia, and China in particular. But high wool prices are having an impact on clothing makers. Australia provides about 90 per cent of the world’s exported fine wool used in clothing manufacturing.
Prices for very fine wool used for clothing have hit a record high, thanks in large part to ferocious demand from Chinese garment makers. That’s more than three times the price during the early 1990s. Those who can shift their wool are still making hay. Unlike most agricultural commodities, wool can hold its value for many years if properly stored.
Australia’s wool output is set to grow just 1.4 per cent over the next 12 months. Australia’s sheep count is at 70.4 million, representing the fourth lowest level on record. That is well under half the flock in the early 1990s. However, Australia’s modest growth is still expected to outpace global competitors. World-wide wool output is expected to increase 0.5 per cent this year amid unfavorable weather conditions in competitors Argentina and South Africa. New Zealand production is also forecast to be stagnant as farmers cull sheep and lambs to capitalise on high meat prices.
"Bangladesh has been setting examples with factory automation in textile and factories. The classic case is of Mohammadi Fashion Sweaters factory in Dhaka where a few dozen workers supervise 173 German-made machines which knit black sweaters for overseas buyers. Surely, this is a huge transformation compared to a few years ago, when hundreds of employees could be found standing over manual knitting stations for up to 10 hours a day. Mohammadi’s owners began phasing out such work in 2012, and by last year, the knitting process was fully automated."
Bangladesh has been setting examples with factory automation in textile and factories. The classic case is of Mohammadi Fashion Sweaters factory in Dhaka where a few dozen workers supervise 173 German-made machines which knit black sweaters for overseas buyers. Surely, this is a huge transformation compared to a few years ago, when hundreds of employees could be found standing over manual knitting stations for up to 10 hours a day. Mohammadi’s owners began phasing out such work in 2012, and by last year, the knitting process was fully automated. Rubana Huq, MD, Mohammadi Group, says it doesn’t make sense to slowdown and not automate. The company makes sweaters for H&M, Zara and other Western brands. The factories replaced about 500 workers with machines and may buy more.
A 2016 International Labor Organization study predicted that some Asian nations could lose more than 80 per cent of their garment, textile and apparel manufacturing jobs as automation spreads. While plenty of labour is available in countries like Bangladesh, Cambodia and China, increasing labour costs have been pushing companies to move towards automation. At the same time, technology is becoming so advanced that machines can increasingly handle difficult tasks such as manipulating pliable fabrics, stitching pockets and attaching belt loops to pants.
Erik Brynjolfsson, Director, MIT Initiative on Digital Economy, feels developing countries are in the bull’s eye of this automation revolution as robots master repetitive tasks once dominated by poor nations. Most jobs of the future require significant skills training—and that is where more-developed nations thrive.
Analysts estimate Bangladesh needs roughly two million new jobs a year to keep pace with its expanding labour force, with garments offering many of the best opportunities. Yet the number of new jobs added by the garment and textile trades has fallen to 60,000 a year, from over 300,000 annually between 2003 and 2010, according to World Bank data. Bangladesh’s apparel production has been fueling growth with help of automation. From 2013 to mid-2016, annual Bangladeshi garment exports increased by 19.5 per cent and the garment sector jobs increased by 4.5 per cent over the same period. On the demand-supply imbalance, Zahid Hussain, the World Bank’s lead Bangladesh economist, stated that if companies cannot absorb young people in productive activities, they will do something. And the something they will do may not be socially pleasant. It’s a social time bomb.
Advantages of technology
Automation has many advantages, especially in richer countries. By boosting efficiency, new technologies help keep consumer prices for jeans and other fast fashion products low. Automation could also help bring some apparel production back to places with more-expensive labour, including the US. In Bangladesh, Nazma Akter, a union leader, says savings from automation has emboldened factory owners to resist worker demands. In a recent labour dispute, factory owners threw up their hands and said if workers wouldn’t agree to management’s plans, they would simply automate jobs. Factories that earlier had 300 workers now have 100 workers only, says Akter, President, Sommilito Garments Sramik Federation. In such a situation, some of the biggest clothing producers feel they have little choice but to automate as cost pressures intensify.
Consumers, accustomed to a widening array of inexpensive fashions, have resisted price increases that could help pay for them. The emergence of new competitors, including East African nations, has added further pressure. Mostafiz Uddin, Chief Executive, Denim Expert, sums up well, if companies don’t change themselves, they will lose out on the entire business.
Brandix India Apparel City, which owns and operates one of India’s largest special economic zone for apparel, will be launching a Domestic Tariff Area (DTA) to enable some of its marquee clients like Victoria’s Secret, Calvin Klein and others to market their products in India, says Dora Swamy, the India Partner of the Sri Lankan apparel major.
BIAC, established in 2007, employs 18,000 people and almost 88 per cent of the current workforce comprises women, who produce an intimate garment like a brassiere every six minutes.
As per Indian trade laws, the units set up under SEZ, EPZ or EOU schemes are permitted to carry out their activities only within a custom bonded area, while DTA is outside of it. The government’s nod to the DTA will allow the industrial park’s client partners to market up to 25 per cent of their production in the Indian market.
As per Dora Swamy, almost one lakh bra pieces are churned out daily for Victoria’s Secret alone. In fact, roughly 60 per cent of the brand’s products retailed in the United States are manufactured by BIAC, which also is the leading manufacturers of panties, producing 5 lakh pieces a day. The apparel produced at BIAC from different buyers is delivered to the client’s overseas locations by air as well as sea route, he further explained.
BIAC is part of the Brandix Lanka, which is owned by the family of Ashroff Omar in Colombo, Sri Lanka. The company posted revenues of Rs. 1800 crores in 2017, and expects to grow at a CAGR of 25 per cent.
Archroma, a global leader in color and specialty chemicals, has appointed Marcos Furrer, of President, Brand & Performance Textile Specialties, and Innovation, based at Archroma's headquarters in Reinach, Switzerland.
Marcos Furrer will takeover from Thomas Winkler who will retire at the end of March 2018 after more than 30 years in the textile industry, among which 12 years at the helm of the business. Alexander Wessels, CEO of Archroma says, Furrer was an obvious choice and is the right combination of strong textile expertise and leadership skills needed to drive the business in line with Archroma’s ambitious growth strategy.
Furrer has earned a strong reputation as a well-rounded business manager with excellent leadership skills and a taste for delivering on targets. He started his career with Clariant in Switzerland as Product Manager Sulphur Dyes, Textile Business, in 1997, his latest role as Head of Regional Business Line Europe, BU Pigments, Strategic Plastics, brought him back to Switzerland in January 2015, with the mission to implement the new BU Pigments regional structure in Europe.
Cairo Fashion and Tex is on from March 8 to 10, 2018. Around 23 of Indian textile companies are showcasing a wide range of Indian yarn and fabric products. Six of them are repeat companies. The products on display include a cross section of Indian yarn and fabric products, including denim.
Indian companies are using this exhibition as a platform to meet textile entrepreneurs and understand the recent development in the Egyptian textile sector. Entrepreneurs will benefit from first-hand knowledge of the evolving market conditions and domestic textile industry enabling them to identify areas of mutual cooperation.
Textile products have played an important role in the growth of Indo-Egyptian bilateral trade. Egypt is a significant market in North Africa for Indian exports. India is the world’s second largest producer of synthetic fiber and yarn, cotton, cellulosic fiber and silk. India exported textile and clothing products worth around 342 million dollars to Egypt in 2017. Cotton yarn was the dominant product in the export basket, followed by manmade yarn fabrics and cotton fabrics.
Indian cotton yarn is increasingly being recognised in Egypt but there are also opportunities for some other fabrics Indian producers offer. The Indian textile industry is modern, vibrant and many manufacturers have set up state of the art processing houses to roll out large volumes of high quality products.
Since fiscal ’09 growth in production of both cotton cloth and cotton yarn in Pakistan has been negligible. Over the last three years, cotton yarn production has moved with an annual average increase of one per cent. Cotton cloth production has followed a similarly pattern with an average growth rate of 0.23 per cent.
The production of cotton cloth in fiscal ’18 is estimated to be 3.42 million tons while cotton yarn output might stand at 1.05 billion square meters. This would translate into zero increase in production of what are undeniably key inputs in the textile value chain.
Textile players in the spinning and weaving segments expect little to no growth in full year production numbers of cotton cloth and cotton yarn. The rising cost of production has been a bane for spinning and weaving mills. This has been particularly true for smaller players in these sectors. Almost 35 per cent of the total conversion cost in the textile value chain is energy but the electricity and gas tariffs being charged from the domestic industry are the highest in the region. More than 100 textile companies have shut down completely because of the challenging business environment in the country.
Bangladesh’s exports were up 13.53 per cent year-on-year, helped by steady shipments of garment products. The amount, which beat the monthly target by 1.65 per cent, is lesser than the previous month’s by 6.94 per cent. Export earnings in the first eight months of the year increased by 7.39 per cent.
Garment receipts, which typically account to more than 80 per cent of export receipts, were up 16.59 per cent year-on-year but down 3.7 per cent month-on-month. Buyers have started placing higher volumes of work orders. The country’s apparel exports are rebounding because of western retailers’ regaining confidence in the Made in Bangladesh brand.
Nearly 90 per cent of the remediation works for ensuring structural, fire and electrical safety in the factories are done. As a result, the image of the sector has brightened. Besides, Bangladesh has the highest concentration of green factories in the world. Currently, 67 such factories are in operation and 280 are under construction. Such green initiatives have helped in winning back buyers’ confidence.
Moreover, Bangladeshi manufacturers have started to manufacture high-value garment items. Machinery upgrade is another reason for higher production and export of goods. Shipments to new destinations like Japan and South America have also increased.
“GST is a great initiative. A single tax has subsumed other taxes,’ says H K L Magu, Chairman, AEPC, praising the government’s efforts and adds, “But there were problems in implementation. Exporters suffered since their funds were blocked and they were unable to pay suppliers on time. Suppliers don’t give advance, since they can’t carry them forward for an indefinite period.”
“GST is a great initiative. A single tax has subsumed other taxes,’ says H K L Magu, Chairman, AEPC, praising the government’s efforts and adds, “But there were problems in implementation. Exporters suffered since their funds were blocked and they were unable to pay suppliers on time. Suppliers don’t give advance, since they can’t carry them forward for an indefinite period.”
Exports in September 2017 rose almost 40 per cent because of the special package. “GST Council assured us refunds within seven days. Exporters were told they would get 90 per cent of the refund within seven days. However, for July, August, and September, there were no refunds. Given this scenario, buyers had no choice but to look for other options like Bangladesh, Vietnam and Cambodia,” he explains. Since competitors like Bangladesh and Cambodia already have an FTA with the EU, buyers chose them over India. He points out, “When China vacated the space due to higher cost of production orders were diverted from China to India. But we could not seize the opportunity.”
Dipping exports, a cause of concern
Talking about India’s dipping apparel exports, Magu observes, “Exports started falling in October by 41 per cent. In November, the decline was 14 per cent while December recorded 13 per cent decline and January saw a 14 per cent dip. There has been a month to month decline in apparel productivity.” From a plus 1.3 per cent in April, 2017, May saw a fall of five per cent; June the decline was 3.2 per cent while in July, it was 5.1 per cent. August, September, October, November and December recorded 6.4 per cent, 7.2 per cent, 11 per cent, 13.1 per cent, 13.5 per cent dip respectively. “Overall the dip in production from May to December has been 10.4 per cent. Owing to this, we can’t meet our export target of $20 billion. We will be lucky to do what we did last year. Last year, we clocked in almost $17 billion. However, once refunds start flowing, things will improve. Moreover, free trade agreements will help boost our exports,” he feels.
A challenging scenario
Magu points out clothing will always be in demand much like food and housing. But there are times when main buyers reduce their inventories because once the season ends they have to sell the stock at discounted prices. “Indeed, business is there but buyers want fast track suppliers. Fast fashion dictates trends. Indian exporters don’t have a great infrastructure and most can’t supply in a short span of time. But China has great production abilities and huge capacities. They can cater to any order, however big, within a specified time while we depend on fabric availability.” He emphasizes while India is good in value addition, embroidery, lace work we are not very competitive in basic items. That’s why India’s exports to the world are not growing.
Speaking about the challenges the industry is facing today, Magu says, no company in the country is showing a profit of more than five per cent as interest costs are high. “The interest subvention that they get are not good enough. There is a need for cut in interest rates.” Moreover, ports in India are not very efficient. In Bangladesh and Sri Lanka, the cargo is taken a day before the ship leaves while in India the cargo is taken seven days earlier. A cargo from Delhi to Mumbai takes three days to move. In Germany, one can do 1,200 km in 15 hours. “We have to wait 40 days for fabrics to come from China. So, we can’t meet the 45 days delivery window. That’s the reason factories lie idle from May to September. For five months, there is no business. Indeed, there are markets like South America and South Africa but their imports are not so high. AEPC sends delegations to these markets and business is gradually improving,” he adds.
Textile 4.0 to boost production
He feels, there is still some time for Textile 4.0 to spread out in India but when it does happen the industry will adapt. “We can take up the challenge. Productivity will increase. We can grow only if we have the technology with us. 4.0 will enhance quality standards and we can do fast deliveries and small orders,” he sums up.
