Sluggish global trade and other impacts hamper textile businesses

Sluggish global trade and other impacts hamper textile businesses

By Virginia F. Bodmer-Altura

To give a complete picture of short term textile perspectives is not an easy task, because the picture consists of many facets influencing the textile businesses. Only one thing is sure, because of a growing world population, textiles and clothing will still grow but many other factors seem to dampen the immediate future of the textile and textile machinery businesses

Sluggish trade in goods

Just today, the OECD Organisation of Economic Cooperation and Development published the newest figures on trade of goods in the second quarter of 2012 revealing that trade flows are slowing in most major economies with contractions in Europe, India, Russia and South Africa.

Going into details we note that imports and exports fell in France by 4.7 % respectively 2.5 %, German imports dropped by 3.5 % and exports by 2.5 %, Italy’s imports eased by 2.7 % and exports by 2.4 % and Great Britain’s imports had a drawback of 1.1 % and exports of 4.2 %.

An even more drastic drop of imports is reported for India, namely by 13.0 % and there were also 4.3 % less exports. Russia imported 4.6 % less and exported 8.3 % less whereas South African imports fell only by 0.7 % but exports by 8.3 %.

North America shows less imports but moderate gains in exports, namely Canada’s imports decreased by 0.3 % whereas exports grew by 0.6 % and the U.S.A. imported 0.5 % less and the export growth rate was 1.1 %.

The picture for China, its exports grew by 12.8 % at the highest rate since the first quarter of 2007, and following two consecutive quarters of contraction. On the other hand, China’s imports grew at a moderate rate of 2.5 %. Growing imports and exports shows also Japan, its imports went up 0.4 % and exports 1.6 %.

Another indicator is cotton

As we all remember, cotton has been a major hindrance for the completion of the WTO Doha Round and cotton is still playing an important role in the agriculture business. Cotton growing is lately also more and more threatened by the competition of other crop used for food and feeding or for fuel purposes. As it is always the case when the price level of cotton is lower than competing crop. We have reported on this situation. Cotton becomes more and more organic and the demand seems to be heightening because consumers become more sensible to buy sustainable clothing and more and more retailers are catering for these requirements. Cotton is also subject of development aid.

Sustainability means too that more and more companies commit themselves to help small farmers’ income in countries like India by providing a certain selling price as well as assistance to farming cotton itself. On August 28, 2012 the Business Call to Action (BCtA), a global initiative that encourages companies to develop innovative business models that combine commercial success and sustainable development, reports a successful commitment by two Japanese companies. BCtA is supported by several international organisations and institutions, including the United Nations Development Programme (UNDP).

The commitment of two Japanese companies

The two Japanes companies are the trading company Itochu Corporation (114 offices in 65 countries) and kurkku, a firm promoting environmentally conscious lifestyle through sales of sustainable sourced food and apparel. The two companies pledged to scale up their Pre Organic Cotton (POC) Programme, which encourages farmers in India to switch from conventional to organic cotton production by guaranteeing to buy this organic cotton at a price higher (usually around 30 % above the market price) than that of conventional cotton. It typically takes three years for farmers to obtain an organic certification (free of synthetic pesticides and chemical fertilisers). In the meantime those farmers, nearly 30’000 in India, are growing organic cotton, which costs more to produce, but are forced to sell it at cheaper, conventional cotton prices. During the three-year waiting period, the participating farmers will see a 20 to 30 percent increase in their income, with a projected additional 12 percent increase once their farms gain official international certification. The two newly participating companies break the ice for Japan since they represent the first Japanese participation in such a project. Cotton occupies a mere five percent of all farmland in India, yet it accounts for more than half of the country’s pesticide use, adding a financial burden to farmers and causing serious health concerns, including skin and respiratory diseases. For most of these farmers the conversion process to organic cotton remains financially unfeasible for most Indian farmers, despite the financial and health benefits because during this mentioned three-year waiting period, these farmers experience a 20 to 30 percent decrease in crop yields. Moreover, they are unable to sell the organically produced crops at organic prices due to the lack of certification and also the process of certification entails additional fees which are prohibitive for many farmers, especially from developing countries of Asia and Africa.

What ITOCHU will do

The Japanese ITOCHU Corporation will work with Indian companies to identify farmers who are interested in switching to organic cotton farming. ITOCHU will then supply farmers with the necessary training and providing certified organic cotton seed. The company guarantees the purchase of the pre-organic cotton at the already explained higher price than what farmers would receive for uncertified cotton. The Japanese firm also assists farmers funding their certifications fees and aiding them with administrative support during the conversion process.

The BCtA commitment entails a four-year partnership with Indian farmers, enabling an additional 6000 families to transition to organic cotton production by 2015. The initiative will also rid 30 acres of land from harmful agricultural chemicals while improving the farmers’ health.

Since BCtA started in 2008, ITOCHU’s annual sales of pre-organic cotton have more than tripled and kurkku’s sales increased by 30 % since 2007. Both companies currently sell organic cotton to 60 Japanese apparel brands and this number is expected to grow to 250 brands by 2015 with 5000 tonnes of pre-organic cotton produced by farmers awaiting certification.

The sub-Saharan African cotton initiative

Cotton made in Africa (CmiA) is a multi-stakeholder initiative driven by the Aid by Trade Foundation (AbTF), aiming at improving the socioeconomic and environmental living conditions of small cotton farmers in sub-Saharan African cotton production.

Also CmiA promotes higher income through increasing productivity and improved cotton quality and better market acces, better working conditions through decent work on farms and in ginneries, as well as better environmental performance through optimum application of pesticides, reduction of greenhouse gases and sound water management. CmiA entails close to half a million farmers and eight cotton companies in three West African and four Southern African countries. The support offers also training and access to finance farmers via partnering cotton companies. From 2009 up to 2012 about 250000 cotton farmers were trained in basic agricultural technologies by the Competitive African Cotton Initiative (Compaci) another 250000 farmers were trained in integrated pest management, good agricultural practices, conservation farming or harvesting technologies, and further 200000 in the proper use and storage of pesticides.

The reverse side of the medal

Of course today, almost all companies are declaring their aim to produce sustainable products, might it be in the chemical industry or in the cotton seed industry. There is also a lot of research work going on not only to produce sustainable cotton seed but to make plants also more resistant to draught or rain and to protect the soil, we just recently published (August 28, 2012) a news item on a cooperation by BASF with Australian research organisations to achieve a new kind of polymer protecting the soil. But most of the new products forthcoming do have a price tag that usually is unaffordable to farmers in developing countries. Therefore the end customer of fabrics and clothing will have to pay more for sustainable products. Under the global economic slowdown there will be more customers not being able to pay this additional money for a sustainable piece of clothing.

Higher price levels

It is obvious that sustainable products must have a higher price tag because of the R&D invested but on the other hand the potential for such products is considerable in the foreseeable future. TextileFuture voices the opinion that a sound balance has to be found for the cotton case that farmers and the entire value chain may profit, and that at the end of the day, the consumer will not have to reach too deep into his pocketbook.

Protectionist moves

The difficult economic and trade situation of today is leading to a new wave of protectionist moves. The arbitration section of the WTO World Trade Organisation is swamped with claims against China, Argentina and other countries. America’s farm subsidies are criticised and the American National Council of Textile Organisations (NCTO)is triumphing because a new Wear American Act has been initiated by U.S. Senator Sherrod Brown and would require all government agencies to source 100 % Made in the USA when procuring textiles, textile components, and apparel items. With this Wear American Act of 2012, the Democrat Senator responded to a discussion about the Olympic Game designer Ralph Lauren who produced the uniforms of the U.S. Olympic team in China. The Senator’s reasoning: He is of the opinion that it is of great relevance of the manufacturing in USA, “but for too long”, he adds,” we have seen American manufacturing jobs – including textile and apparel jobs – shipped overseas due to unfair trade that has stacked the deck against American Workers”. The American textile sector employs more than half a million workers and this is why government should be obliged to purchase, whenever possible, apparel that is domestically produced. NCTO President Cass Johnson voiced the opinion that increased U.S. government procurement of U.S. made textile and apparel products helps the American economy to grow. The Senator underlines “with the widening trade deficit, we should be doing everything we can to support American manufacturing and job creation”. And Johnson adds: “Every textile job created in this country supports three other U.S. jobs, so the payoff to the overall economy is significant”. But of course the government agencies’ funding has been curtailed in the last few years due to the financial and debt crisis. When they purchase strictly American textile products this will rub off to their available funds, because obviously American products are considerably dearer than imported ones. But it is certainly a given fact: each country tries to protect its own economic interests. Therefore it is to be expected that the protectionist policies will continue to have a foothold in more and more industrialised countries and this would be unfavourable to the developing and poor countries.

Conclusions

Textile and the textile value chain will be always somehow in the focus of politicians, trade policies and protectionist actions. This proves also that textiles will remain a very important factor of each economy and the demand is given, but the solutions for a sustainable textile value chain and sustainable consumer behaviour, combined with initiatives for the benefit of farmers in poor and developing countries are colliding with economic and trade interests of advanced economies. And these facts led to the end of the WTO Doha round. It is not possible to cover economic interests and to have a coherent overall policy of sustainability at large!


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