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Members of various farmers organisations and political parties staged a demonstration in the Perambalur on Saturday demanding a ban on BT cotton and condemning the State government’s failure to provide compensation to families of farmers who were killed due to pesticide poisoning in Perambalur district and other parts of the State. They also demanded a ban on harmful pesticides. A committee should be formed to study the issue, the agitators said.
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The “collapse” of talks at last week’s trade ministerial may have raised questions about WTO’s future, but they did not go off too badly for India. Unlike the ministerials at Bali (2013) and Nairobi (2015), India did not concede any ground. At Bali, India agreed to trade facilitation rules in exchange for virtually nothing — a ‘peace clause’ till 2017 on its food procurement subsidies. At Nairobi, India unconditionally agreed to phase out export subsidies by 2023. Perhaps, India fielded a better prepared negotiation team this time.
The focus of the Buenos Aires meet was public stockholding and e-commerce. India, backed by China, managed to get the developing countries, including LDCs, to push for a permanent solution to public stockholding. To the credit of the Modi government, it managed to prolong the ‘peace clause’ soon after the Bali meet, till a permanent solution was arrived at — a view reiterated in Argentina. India’s joint paper with China on how the US and EU are chiefly responsible for trade-distorting farm subsidies has helped in pushing for a solution where the existing method of evaluating subsidies is dismantled. The WTO allows price subsidies to the extent of 10 per cent of the gross value added of the product concerned; the controversy over the years has been over which subsidies should come under scrutiny and manner of arriving at the market price, or fixed reference price, against which the amount of subsidy was calculated. With these wranglings not getting anywhere, and the rich countries managing to mask their subsidies while blaming the rest, there has now been a change of tack. That said, India should reconsider allowing exports out of its PDS pool (it is the world’s largest rice exporter) if it is to push towards a new regulatory order. A food security arrangement does not sit well with one that confers export advantage. By presenting a joint front with the LDCs on e-commerce and stalling efforts by the developed world to fast-track rules, India managed to buy time for its MSME-dominated brick and mortar trading sector. Efforts by the rich countries to introduce Singapore Round issues, such as investment rules did not gain traction. The Doha Round (2001) principles of according differential treatment to developing countries and not piling on issues extraneous to trade were implicitly underscored here.
But the question is what happens to WTO if there is no broad consensus on trade rules. It does not seem to matter much if the US plays spoiler in multilateral forums, as the progress on TPP and even climate talks seem to indicate. India cannot set store by FTAs, given its experience over the last decade. It needs to play a leadership role in working out a new multilateral trade paradigm, because that’s its best bet in an increasingly chaotic world. Inconsistencies between its positions at WTO and other forums such as RCEP need to be avoided.
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State agriculture minister Pandurang Phundkar said the report of the special investigation team (SIT), constituted for probing into pesticide inhalation deaths, will be tabled before the winter session ends.
“The report has been put up before chief minister Devendra Fadnavis for his scrutiny. In any case, it would be tabled before the house during the current session,” Phundkar told TOI during an informal conversation.
Poisoning due to accidental inhalation of pesticides has led to 44 deaths in Vidarbha. The highest toll has been in Yavatmal district, infamous for farmer suicides. The minister also blamed rampant use of plant growth regulators for the incidents. He said the chemicals have led to abnormal growth of cotton crop. One of the theories is that due to excessive height of the cotton crop, fumes of pesticides fell on workers’ face while spraying, leading to deaths. On the pink bollworm attack, Phundkar said pest infestation was not at the level of a crisis. “The crisis is only a creation of the opposition. In fact, cotton production was higher than the last year,” he said.
According to figures quoted by Phundkar, market arrivals of cotton from October to December this year have exceeded previous year’s count for the same period by over 4 lakh quintals. This year, the total arrivals till the first two weeks of December stand at 98.31 quintals, the minister said.
“The arrivals in the month of November 2017 are double as compared to November 2016 at 40.95 lakh quintals. During December 2016, 70 lakh quintals of cotton reached the markets. This year, the figures collected till December 11 show arrivals at 53 lakh quintals. Over a fortnight remains for the month to end,” said Phundkar.
“Figures show that cotton output is higher than the last year. I came across a farmer in Akola district who has harvested 600 quintals in his 80-acre farm. He is expecting another 800 quintals of yield through further picking. In my own constituency of Buldhana, the impact of bollworm is not in more than 5% of the area. The opposition’s claims are hyped,” he said. So far, 5 lakh farmers have filed complaints about Bt seeds failing against bollworm, said Phundkar. Kishore Tiwari, a former farmers’ activist and now the chairman of the state government think-tank Vasantrao Naik Shetkari Swavalamban Mission (VNSSM), has countered Phundkar’s claims.
He said the figures are misleading as the cotton crop has almost exhausted. “Not much is expected to reach the markets after this. Last year, the total arrivals in the state stood at 388 lakh quintals. A year before, it was 297 lakh quintals. This year, the total arrivals are expected to be around 200 lakh quintals,” Tiwari said. “If we consider the incremental area of 10 lakh hectares which came under cotton this year, then the yields have been halved in 2017,” said Tiwari. He said the government’s plan to get compensation from seed companies for the bollworm attack is impractical. The companies can also challenge the move in the courts, he added.
Raising their demand for early resolution of the 5 per cent GST under the Reverse Charge Mechanism (RCM), ginners across the country observed a day’s strike on Friday. As many as 4,300 ginning units from Maharashtra, Gujarat, Odisha, Telangana, Karnataka and Andhra Pradesh stalled their cotton processing activities opposing the Centre’s move of introducing RCM for the fibre under GST. Earlier, the Cotton Association of India (CAI), following its meeting on November 27, had decided to support the strike.
More action later
“If the RCM issue is not resolved by the GST Council in its upcoming meeting on December 21, the ginners may go on an indefinite strike from the next day,” said Atul Ganatra, CAI’s President. Under the Reverse Charge Mechanism, a recipient of goods and/or services is liable to pay GST, instead of the supplier. In this case, ginners — the buyers of raw cotton — are required to pay the tax instead of the cotton farmers.
Mixed response in Gujarat
Out of over 4,300 ginning units in the country, about 1,300 are spread in Gujarat, with major concentration in Saurashtra and North Gujarat. Even as most ginning units in most other States observed complete closure, the units in Gujarat gave a mixed response to the strike.
Ginners stated that even as the RCM on GST is refundable, “our experience is that it is not refunded timely. Our working capital gets stuck up due to the delay in refund. If ginners are not lifting cotton from the yards, farmers will suffer, which is not good,” said Rajnibhai Gandhi, a ginner from Bodeli in Chhota Udepur district, Gujarat.
The country’s largest man-made fabric (MMF) hub in Surat is still awaiting central government’s notification on increase in basic customs duty (BCD) on imported fabrics.
After the government’s announcement on increasing BCD on MMF fabrics from 10 per cent to 25 per cent in October, the industry is still awaiting the official notification in this connection. Industry leaders said import of fabrics, especially from China, has seen a sharp increase post-GST at almost 30 per cent.
Confederation of Indian Textile Industry (CITI) chairman Sanjay Jain said, “MMF yarn, cotton fabric and MMF fabric are largely affected by cheaper imports from China, Indonesia, Thailand and North Korea where fabric industry is subsidized substantially to increase their share of fabric in world textile trade. Moreover, Indian fabric manufacturers have no protection from FTA countries that have been importing fabrics from China, Indonesia and Pakistan and selling garments made from such fabrics to India.”
Industry sources said over Rs 5,000 crore worth of undervalued fabrics are imported from China and other countries to India per annum. With fixing of floor price by the government, the importers will have to show the real value of fabrics and undervaluation is impossible.
The import of cheap and undervalued fabrics in the country has resulted in the closure of 40 per cent of powerlooms in the textile hubs of Surat, Itchalkaranji, Malegaon, Bhiwandi, Burhanpur, Varanasi, Salem and Erode. The situation of Banarasi weavers is very tough as imported silk fabric is quite cheap than what is manufactured by Banarasi weavers.
Surat’s power loom weavers manufacture 4 crore metre of fabrics per day, which have been reduced to 1.5 crore metre per day post-GST. Around 95,000 power loom machines have been sold in scrap and more than 50,000 textile workers rendered jobless.
Federation of Indian Art Silk Weaving Industry (FIASWI) chairman Bharat Gandhi said, “There was an announcement from central government on the increase of import duty from 10 per cent to 25 per cent in imported fabrics, but the same is yet to be implemented. Still, imported fabrics is being dumped into the country. Last month, the imports have seen an increase of more than 30 per cent.”
Gandhi added, “The situation of fabric manufacturers in the textile hubs across the country, including Surat, is very bad. Many units have shut shops. Now, the government has to act fast or else the textile sector will be on the death bed soon.”
Yarn is basic raw material for power loom sector and the increasing nylon and polyester yarn prices has destabilized the sector further which is reeling under the after-effects of implementation of Goods and Services Tax (GST), despite the fact that GST Council had reduced GST on yarn from 18 percent to 12 percent. The rally of yarn prices is going on since Septtember., said Pandesara Weavers Cooperative Society president Ashish Gujarati.
Gujarati added that the production of grey fabrics has decreased from 4 crore metre per day to less than 1.5 crore metre per day. With yarn price hike, weavers are incurring loss of Rs 2 per metre. The loss in nylon fabric is very huge. According to the Industry sources, front and second-line spinners had increased nylon yarn prices by almost Rs 50 per kilogram since September, while polyester yarn prices increased up to Rs 8 per kilogram. This has dealt a major blow to the production of grey fabrics and weavers incurring loss of Rs 2 per metre.
Sources said that demand for polyester fabric, including saris and dress material, is at an all-time low. Business turnover in the textile markets has reduced by almost 60 percent in the last few months. Despite this, yarn spinners have been increasing yarn prices. Sachin Weavers Association president Mahendra Ramoliya said that a majority of power loom weavers are operating their units only thrice a day in Pandesara GIDC. The production of grey fabrics has gone down by almost 80 percent. The GST has broken the spine of power loom sector. The vibrant business environment in the Diamond city Surat has gone for a toss. In the last couple of months, many powerloom weavers have shut their units, rendering thousands of textile workers jobless. Also around more than 95,000 power loom machines have been sold in scrap. Still on an average around 150 power loom machines are being sold in scrap everyday.
In the first six months of this financial year, cotton yarn exports declined 10 %, mainly due to policy lapses, according to Confederation of Indian Textile Industry. Sanjay Kumar Jain, chairman of the confederation, has said in a press release that cotton yarn exports between April and September in 2016 was 517 million kg and it was 464 million kg during the same period this year. In 2013-14, spinning mills took advantage of the 2 % incremental export incentive, 2% interest subvention, and 3 % focus market incentive. In 2014, these incentives were withdrawn and cotton yarn exports in 2016-17 registered 26 % decline in value terms.
Mr. Jain said that the country exports almost 20 % of its cotton produced. During the current cotton season, the prices might touch minimum support price level as the production is expected to be high. According to the Financial Stability Report of the Reserve Bank of India, textiles has one of the highest levels of non-performing assets. When exports benefits such as MEIS and IES were introduced, all segments of the textile value chain were covered except cotton yarn. Thus, cotton yarn exports to China dropped. “Withdrawal of export incentives for cotton yarn has reduced our competitive edge by increasing our prices to the tune of 5 % to 6 %.”
IES benefit
The 3 % IES benefit is essential to maintain six to nine months cotton inventory and to ensure consistency in quality of yarn supplied. He appealed to the government to restore the MEIS and IES benefits for cotton yarn.
Textiles is among the sectors identified by Technology Information Forecasting and Assessment Council (TIFAC) to bring down emission levels by using better technology.
Gautam Goswami, who heads the TIFAC Technology Vision 2035, told The Hinduthat a meeting was held in Coimbatore recently in this regard. “We met about 50 people and 40 % of them were from the industry. SITRA is an active participant in this project. Tirupur cluster is another important area. We are looking at how to go for textile processing with lesser water and more automation,” he said.
Mr. Goswami explained that as part of the Paris agreement on climate change, India has to reduce emissions by 30 % to 35 %. TIFAC is preparing a report on the technologies required, indigenous technologies available, what needs to be borrowed, and ways to use the green climate fund. The report is expected to be finalised in a year.
Sectors identified
“We have identified 10 sectors, including industrial processing, transport, agriculture, water, waste, and renewable energy. In industrial processing, major manufacturing industries such as steel, cement, textiles, leather and fabrication are covered,” he said. In textiles, we have identified about 30 areas and have asked the industry to prioritise (technology prioritisation techniques) these. The meeting held here was part of this effort.
G. Thilagavathi, professor and head of textile technology at PSG College of Technology, said the Centres of Excellence of the department will organise more meetings with textile industry here to get their views on the technologies available and needed in different segments of the textile value chain and submit a report to TIFAC.
The World Trade Organization (WTO) and the International Trade Centre (ITC) have launched an on-line platform for market intelligence for cotton products, which will enable cotton producers, traders and policymakers to better harness market opportunities in the sector. The Cotton Portal, revealed at the WTO’s 11th Ministerial Conference in Buenos Aires, will contribute to a more efficient cotton trading system by providing improved transparency and accessibility of trade- related information for cotton products and other relevant information for the daily activities of cotton producers, traders and policy makers.
The launch of the Cotton Portal delivers on a key commitment of Nairobi’s decision to identify and examine market access barriers, including tariff and non- tariff barriers for cotton products, particularly those exported by least-developed countries. ITC Executive Director Arancha Gonzalez says that Cotton Portal will enable cotton producers and traders to harvest greater benefits from increased participation in global trade, particularly for least developed countries. By making the sector more transparent, businesses will have easier access to trade and market intelligence, allowing them to add additional value to their exports.
The Cotton Portal is designed for exporters, importers, investors and trade support institutions to search business opportunities and market requirements for cotton products. It provides a single entry point for all cotton-specific information available in WTO and ITC databases on market access, trade statistics, country-specific business contacts and development assistance-related information as well as links to relevant documents, webpages and to other organizations active in the cotton sector.
The 2015 Nairobi ministerial decision on cotton contains provisions on improving market access for least-developed countries, eliminating export subsidies, and the efforts to be made to reform domestic support. It also underlines the importance of effective assistance to support the cotton sector in developing countries.
Bangladesh plans to double its apparel export to reach a high ambition mark of USD 50-billion by 2021 which currently stands at USD 28 billion by expanding its global markets. It is going to be a difficult task but the only way to increase the export amount is by adding value to the apparel.
The set target to increase apparel exports is in line with the government’s Vision 2021, which is centred around a goal for the country to attain the middle-income country status by that year when the nation celebrates the golden jubilee of its independence.
The current competitive advantage of Bangladesh is already being challenged by countries that depend on low-cost production—like Ethiopia. Many European and US retailers and brands will follow these countries if better margins are offered.
Moreover, if Bangladesh is to graduate into a middle-income country, then the wages for its four million workers involved with the garment industry will have to rise at the expense of the margins of the apparel producers, resulting in lower profitability and losing that competitive edge.
It is a catch-22 situation given our current low-cost production strategy. And it’s doom to failure because of the law of nature about a developing country that must offer the benefits of a higher living standard in its journey to becoming a nearly industrialised one.
Therefore, for the growth vision for 2021 to deliver, it is high time the apparel industry leadership fostered change as regards its customer base. The first option is to keep the customers in the apparel sector, not with low cost, but with innovation, collaboration and proliferation, thereby increasing the production volume and margin. Simultaneously, growing the number of customers in the value creation process will be an added bonus.
For decades, international buyers for large international apparel chains and brands have worked under the assumption that labour cost must be kept as low as possible in order for garments to be produced at competitive prices. This widely-held belief has made the industry move from country to country, as the increase in labour cost erode each local market’s temporary advantage. One day, possibly soon, this journey will come to an end.
Cheap labour is becoming a rare commodity while the number of low-cost countries is also dwindling. Demonstrated thought leadership by the international retailers and brands need to get ahead of this trend by assessing what they can influence with their existing production partners to generate sustainable efficiency gains, improve their production speed, and ultimately take pressure off labour cost management, thus ensuring that margins are offered as a part of efficiency—not through cheaper labour.
Consequently, the challenge for the apparel buyers is to collaborate with their production partners to advance the ideas of innovation, collaboration and proliferation. By inspiring, generating and adopting production innovations that improve speed and efficiency, they can increase their responsiveness to fashion cycles.
By collaborating on adopting a standard unit of measure, both parties can, through this act of co-creation, help bring cost transparency to the supply chain and boost productivity. And by managing sub-suppliers and improving coordination with tier one, two and three for fabric, trim and sundries, they can proactively manage the raw material suppliers, consequently delivering positive proliferation.
Next to streamlining the internal processes to gain value growth, the other obvious concept to support the growth of Bangladesh apparel export is the external shift from volume to value customers.
According to the Boston Consulting Group, there has been a rebound in consumer confidence since the last financial crisis. As confidence rises, consumers become more willing to splurge on expensive products.
Therefore, there are many opportunities for the Bangladesh apparel industry to grow margins by adding value and attracting premium brands and retailers. A blouse or pair of jeans cost more or less the same to produce, and it is mainly the raw materials that are adding cost to production.
Managing the raw materials will be crucial but the margin gains will be many times more as the medium to premium brands and retailers sell at a much higher retail price and can buy the product in Bangladesh at a higher price.
The biggest trend in EU and the US for capturing margin building and value adding growth is Experience Economy, which is estimated at USD 1.3 trillion in annual consumer spending in the US alone. The shift from personal goods to experiences will benefit some fashion companies, provided they are positioned correctly. For example, the rise of health and wellness experiences benefits companies that make activewear, athletic footwear, and other apparel for exercising, hiking, and spending time outdoors. The rise in leisure travel will mean higher sales of layering clothes, luggage, and travel accessories.
To respond to this, companies will need to reposition themselves—at the levels of the portfolio and individual brands—by orienting products around specific experiences.
This is where the other opportunity lies for supporting the growth vision for Bangladesh by 2021: shortcutting the traditional entry price brands by adding new medium to premium brands and retailers that are targeting the experience economy.
Quick gains could come by addressing these brands in the medium to premium segment with the already established production and supply chains in Bangladesh and harvesting the margins as the retail prices are higher than the entry price brands. In this, Bangladesh faces a few challenges. Medium to premium brands and retailers are looking for value adding design perspectives that will enhance the consumer experience and set the products apart from competition.
The second challenge is the perception of Bangladesh as a production hub that ignores social and ethical issues leading up to the collapse of factory buildings due to lack of health and safety. Many US and EU boards of directors see Bangladesh as a liability that can get a bad press and damage their image.
The value creation performance of the Bangladesh apparel industry has, for over 40 years, delivered continued growth but if the apparel industry is to continue to support the growth, change management and repositioning from volume to value are the key.
