Successful Gins Emphasize Technology and Training
November 27, 2012 
As price pressure and the need minimize costs mount throughout the cotton supply chain, ginners increasingly are focusing on minimizing their market risk and maintaining fiber quality. A solid risk management strategy is crucial for ginners who buy and sell cotton, and a willingness to invest in technology and equipment is the key to keeping costs down. Four industry leaders have offered their insights into these and other trends in the ginning world:
• Fabricio Seribelli, Sales Manager for Cotton Business, Busa ICMA
• M.K. Sharma, President, Bajaj Steel Industries Ltd.
• Dr. Jasoo Mal Leemani, Chairman, Sindh Agro Industries
• Vinod Kumar Agarwal, Managing Director, Amit Cottons Pvt. Ltd.
1 How has the volatility of cotton prices affected ginners in the last few years?
Dr. Leemani: Prices have moved like a pendulum swing over the past three years, heavily affecting the livelihood of every person associated with the ginning industry. High volatility has changed business dynamics, and ethics seem to be vanishing from the market. There has also been deterioration of fiber at gins, affecting quality parameters. Ginners without risk management capabilities and sufficient handling capacity are already out of business. Overall, from a ginner’s point of view, however, the industry is now learning how to manage price volatility and protect fiber at the gins.
Seribelli: Particularly in Brazil, producers and ginners have been able to excel in, and adapt to, changing market conditions. They believe they can make a difference for their industry and continue to invest heavily in technology. They are always seeking to increase their production capacity, with the kind of margins that are necessary to absorb variable costs at levels sustainable for their businesses. In other words, they have learned to weather the storms of volatile markets by being better prepared.
Sharma: There are two types of ginners in the world. Job- worker ginners only gin cotton that’s owned by other people, and thus are less affected by price volatility. Trader ginners, however, buy seed cotton at a fixed or negotiated price, and then sell the lint at market price, thus exposing them to price volatility. The uncertainty can lead to panic selling, which results in lower profits and slower growth in the ginning industry. Ginners have gone into consolidation mode.
Agarwal: The recent volatility in cotton prices and the effect they’ve had on ginners is very subjective, depending on their approach and priorities. Ginners who worked with back-to-back margins on a daily basis, without speculating much into cotton prices – thereby ensuring they recovered their processing costs with a certain level of profit – were mostly on the safe side, while those who engaged in speculation by resorting to hoarding stocks for that extra buck struggled. If a ginner focuses too much on speculation, the main priority of running a gin takes a back seat, which means he shouldn’t own a gin at all. If speculation is the primary objective, all he needs is a park bench and a computer!
2 How do gins weigh the decision between less ginning to preserve fiber characteristics (but higher trash content), and more ginning to produce lint with less trash (but more damage to fibers)?
Dr. Leemani: Ginning is handled differently in different parts of the world. In places like the United States, the cotton remains the property of the farmer unless is purchased by a merchant, with ginners usually playing the role of service provider. However, in countries like India and Pakistan, ginning is an operational industry known for its production and employment role in the agro-sector of the country’s economy. In Pakistan, where gins are often owned by traditional families, fiber preservation is viewed like a royalty, so many ginners prefer to focus on better quality rather than higher quantities. However, some prefer to produce higher quantities each day at the expense of quality to maximize daily earnings. Generally, profit maximization leads to less concern about quality, depending on market behavior.
Seribelli: The producer has to have a good gin structure that is able to provide the right product based on the market. It has to be able to adjust processes based on the amount of cleanliness desired, and it also must be equipped with excellent moisture content control to maintain the intrinsic characteristics of the fiber during processing. In principle, ginners should always focus on producing what the market demands and will pay more for. It’s necessary to determine where the break-even point is and then take the path that provides the highest payback. So ginners need to ensure their facility gives them the option of adjusting from one strategy to the other, depending on market needs.
Sharma: Trader ginners normally prefer to produce less and preserve fiber characteristics because they can get a better price for their lint. Spinners often purchase higher-quality lint despite higher trash content because they can remove trash at the mill. Job-worker ginners normally prefer more ginning to produce lint with less trash, even though the fibers might get damaged to some extent in the process, because they will get higher job-work charges. In some cases, even the higher trash content will be allowed by job-workers to reduce their processing costs and operate at the highest possible speed. Ideally, gins would aim for less ginning with better fiber characteristics and minimal trash.
Agarwal: Prioritizing between productivity and maintaining quality of the fiber is like a two-edged sword – or rather, two sides of a coin. A ginner has to strike the right balance between the fiber quality and optimum productivity to ensure the best quality to his buyer on one hand, and to maintain his targeted production on the other. Any loss in productivity should be offset by making sure that the gin supplies superior quality, thereby attracting a premium for his cotton and making up for the loss in productivity. However, external factors like manpower shortages or power outages are beyond the control of the ginner and will always hamper productivity. The quality of the fiber is sometimes knowingly compromised when a buyer wants “A” grade quality at a “Z” grade price, leaving the ginner no choice but to take some shortcuts.
3 What capabilities and services do ginners need to have to remain competitive in the next 2-3 years?
Dr. Leemani: Ginners need to be more vigilant of market forces and understand global markets. In today’s world, what happens on Wall Street affects the ginning practice in Pakistani towns. Pakistan’s ginning industry is still outdated technologically. They need to find ways to improve their production efficiency by acquiring the latest available machinery to produce and preserve fiber, giving them maximum returns in the shortest possible time. The ginning industry in Pakistan needs to be revived by the introduction of all ginning practices standardized by the USDA, and there will be rampant need for modernization in this process. Ginners will need to cooperate and communicate with people from the farm all the way up to the person who wears the end product. We need a global, standardized mechanism to protect our natural fiber, similar to Supima. In general, ginners must adopt best practices to preserve fiber quality, mitigate risk through better information sharing, remain vigilant and prepared for any disruptions from Mother Nature, and cooperate with everyone involved in the supply chain.
Seribelli: To maintain and increase their competitiveness, cotton ginners should seek to modernize their plants, trying to implement high-performance designs that can increase their production capacity with lower power consumption per bale produced, which provides savings in energy and in labor costs. At the same time, they must invest in training their employees and emphasize customer loyalty.
Sharma: Ginners need to install the latest and most modern machinery to achieve higher processing capacities. The result will be that they can produce the highest quantity at lowest cost per unit of production, without damaging fiber characteristics. Upgrading their equipment for faster processing also will enable them to process higher volumes in the shortest possible time, which will make them as competitive as they can be.
Agarwal: In the textile industry, ginning is the first stage of processing cotton – yet it has been treated as a cottage industry or a low-segment industry. Ginning should be treated on par with any other process of the textile industry because it is the only bridge between the farmer and the spinner.
A supply chain system that starts with the ginner will be more effective to both the producer and the consumer in the long term. Ginners will be motivated to improve the quality of the fiber only when they get feedback from their end consumer: the spinner. Litigation about the quality of cotton being exported to other countries has arisen because of ginners who do not maintain quality of the fiber at the initial level, thereby pulling down the reputation of Indian cotton as a whole. All the multinational companies selling cotton in various markets should specify the source of cotton – including the name of the gin, where it’s located and the quality it provides – so ginners are recognized for their services. Then the consumer can decide who offers the higher-quality fiber. Transparency in recognizing the quality of fiber from a specific gin will lead to the next level of quality – contamination-free cotton with proper packing according to international specifications – just for starters.
Finally, it is the flip-flopping of government policies that needs to be stopped, so a gin can focus on the long-term objective of improving the quality of the fiber on a daily basis, rather than being subject to government whims. Gins should be given the top priority for exporting to the international market, rather than allocating those rights to a few big players. It is the ginner who knows his quality best, and the primary reason for operating a gin will only be justified when he gets his recognition.
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