Booming Textiles Make Vietnam Hungry For Imports
March 27, 2009 Vietnam is quickly becoming a world leader in textile and garment exports. Now ranking among the top 10 garment and textile exporters with 2006 exports valued at $5.8 billion (USD), Vietnam has set lofty goals for continued expansion. Its exports are projected to reach $7 billion this year, and between $10 and $12 billion by 2010.
That expansion would continue the trend of the past few years. In just the last year, investment strategies in the country helped lead to the opening of five new textile companies, each with capacities of 100,000 spindles or more.
However, cotton production in Vietnam has little chance of keeping up with the vibrant textile industry. Farmland is limited, and while some yield improvements could take place, Vietnam will still rely on cotton imports to keep its textile and garment sector on its growth path.
Local Source Not Enough
Domestic production of cotton in Vietnam in 2006/07 was around 48,500 480-pound bales, a far cry from the country’s consumption of 918,000 bales, according to the U.S. Dept. of Agriculture’s Foreign Agriculture Service (USDA-FAS). Consumption has consistently grown at 10% to 15% per year, and is expected to reach 1.03 million bales this year. Production of cotton lags far behind those figures, and has little hope of ever catching them.
Commercial cotton production is mostly located in the Central Tay Nguyen Highlands and the Southeast. The major areas of production include Dak Lak, Dak Nong and Gia Lai provinces in the Central Highlands, which together represent 40% to 50% of Vietnam’s main cotton production area. The next largest growing region, in southeast Vietnam, is made up of the provinces Dong Nai, Binh Thuan, Binh Phuoc, Ba Ria and Vung Tau. Cotton is not grown in the Mekong or Red River deltas because those areas are occupied by rice, Vietnam’s major commodity.
Most (80%) of Vietnam’s cotton is rain-fed, with planting occurring during the wet season of July through August and harvested between November and January. The small irrigated cotton areas can be planted in November or December for April through June harvesting, but the area under irrigation is falling due to competition from beans, corn, and vegetables – these crops, along with rice, often have margins 20% to 30% better than cotton.
The crop area is shrinking little by little, as farmers switch to other crops and investments are slow. The Vietnamese Cotton Co. (VCC), the largest cotton company in the country, tried to promote cotton expansion by providing advances to farmers for cotton inputs (including seed, fertilizer and crop protection products), and then buying those farmers’ entire harvests. However, the returns were not great, as cotton farmers still opted to grow higher value crops.
The loss in cotton area from these crop switches is likely to be offset by yield improvements in 2007/08, and some area is expected to be reclaimed as the international price for cotton improves.
For any significant improvement, the industry will need more research activities focused on high-yield and pest-resistant seed (see sidebar, “Biotech Bogged Down”).
Bringing In The Goods
As a result of the quickly expanding textile sector and limitations on the prospects of local cotton production, the country figures to be a major importer for many years.
According to the Vietnam Customs Office, for the first nine months of the marketing year (August-April), the country imported 160,400 metric tons (736,000 bales) of cotton – already nearly 5% more than the entire 2005/06 marketing year. This growth is expected to climb higher, with 210,000 metric tons (964,000 bales) forecast to be imported in total in 2006/07. For 2007/08, a 5% to 7% increase in imports is expected, bringing the total to 220,000 metric tons, or just over 1 million bales.
The largest provider of this cotton is West Africa. In 2006, 32.9% of Vietnam’s imports came from West African countries, with the U.S. and India rounding out the top three, with 19.9% and 18.3% shares of the market, respectively.
Supply Shift
These numbers demonstrate a definite tilt over the past three years. While West Africa has always been a primary trade partner, the region’s market share has slipped from around 52% (70.6 million tons) in 2004 to 44% (66 million tons) in 2005 to 33% in 2006. Likewise, the U.S. – Vietnam’s second-largest importer during this time – has watched its share shrink from around 32% (43.6 million tons) in 2004 to 26% in 2005 to 20% in 2006. During this three-year span, Vietnam’s total imports went the other direction, increasing from 135.9 million tons in 2004 to 150 million tons in 2005 to 190 million tons in 2006.
Not surprisingly, the big chunks of market share lost by the U.S. and West Africa have been taken over by Indian cotton. India held just over 2% market share (3 million tons) in 2004, but nearly tripled its share to almost 6% in 2005. By 2006, India controlled almost 18.3% of the Vietnamese market.
Structural Changes
As part of Vietnam’s commitments to the World Trade Organization (WTO) to reduce support programs, the VCC has transitioned from state-owned company to joint-stock company, along with several other major mills, including Viet Thang, Thanh Cong and Thang Loi. Once shares of these companies were sold to the public, the government’s hand in their operations lessened considerably.
Now VCC and the other formerly state-controlled companies sell cotton at market prices, in competition with cotton from other countries.
The most recent pricing information gathered from VCC showed the company purchasing seed cotton at an average of around price of around $0.404 (USD) per kilogram (kg), an increase of $0.031/kg over the previous price. VCC is selling cotton fiber to textile mills at between $1.24/kg to $1.27/kg.
Overall, according to Vietnam’s Custom Office, the average import price of cotton in the first quarter of 2007 $1.21/kg, a small increase over the first quarter of 2006, but well below the prices claimed in 2005.
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