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Economic Integration

US, WACIP Participants Meet To Solidify Grounds For Cooperation

Cotton Supply & Demand

As a follow-on to the December 2011 announcement from the US Trade Representative’s Office that the West African Cotton Improvement Program (WACIP) would be funded for an additional four years, the National Cotton Council of America (NCC) last week hosted a meeting of US cotton industry officials and government officials from Chad, Benin and Burkina Faso.

The Council described the Washington DC meeting with West and Central African countries as an effort to build a foundation for better communication and establish the necessary groundwork for cooperation on issues of mutual interest.

NCC Chairman Chuck Coley mentioned recent changes in US farm law and asked the delegation to focus on areas of common interest, instead of a cotton policy that many in Africa believe puts the continent’s farmers at a disadvantage.

"I think we agree that promoting the increased consumption of cotton by the world's consumers is our top priority," said Mr. Coley. He said that US cotton farmers have contributed substantial financial support to promotion programs designed "to ensure that cotton is competitive in all end use markets and is the first choice of consumers." 

He noted cotton’s research and promotion program, which has been supported by US cotton producers with a per bale assessment since 1960.  Moreover, producer check-off dollars have been used to conduct highly successful generic cotton promotion programs throughout the world, he said.

The NCC chairman said the industry is proud of the outreach program initiated by the US industry that served as the predecessor and basis for the West African Cotton Improvement Program.  After initially funding the program at $27 million for seven years that ended in April 2012, the US Trade Representative's Office has added another $16 million to take the program into 2016.

"Now we want to work with you and your farmers to identify ways to improve the program to ensure it yields the maximum possible benefits for your farmers and industries,” said Mr. Coley. “We need feedback to know which activities have generated the best results and what programs should be initiated in the future."

Coley said the NCC supports the extension of duty-free, quota-free access to US markets for raw upland cotton produced in the countries designated as least developed by the United Nations.

"We support the commitment made by US officials last year at the WTO ministerial," he said.  

Coley told the group that the NCC has conveyed its support for prompt enactment of legislation to extend the eligibility of products containing third-party fabrics before it expires later this year, recognizing its importance to employment in Africa. He also said the NCC shares concerns that extending duty-free, quota-free access to textile products from Vietnam and Bangladesh could seriously erode the benefits of African Growth and Opportunity Act (AGOA) for the African countries.

The National Cotton Council is addressing three core issues -- market access, export subsidies and domestic support – about which the West Africans are concerned, Mr. Coley told the delegation.

"We eliminated an export subsidy and our export credit programs are being substantially modified," he noted. "We have supported enhanced market access by supporting duty-free, quota-free access for your fiber and by the extension of the important textile market access provisions in AGOA. We also have addressed your concern about our domestic supports by proposing significant reforms to the US cotton program for inclusion in the new farm law."

In closing, Mr. Coley stressed the issues that US and West African growers have in common.

"We look forward to engaging in a dialogue with your industry representatives and we will look forward to your responses about how WACIP can be improved," he said. "Your producers will benefit when yields are enhanced, when they receive a larger share of the world price and when there is true competition for their business. We believe enhanced communications, as well as programs like WACIP and others, can advance those objectives."

 

Questions:  Which issues (US and African) are most critical and should be addressed most immediately?

Are most recent changes in US cotton policy pertaining to producer supports, export subsidies and credit programs enough to allay the concerns of African growers?

What sort of investment (time, money, education, etc) should be expected from African countries participating in the West African Cotton Improvement Program to ensure its success?

 


ICE To Drop Spec/Hedge Report

The IntercontinentalExchange (ICE) has announced its intention to stop issuing its weekly report of the speculative and hedge positions of traders in the No. 2 cotton futures contract and for fresh concentrated orange juice after July 2.

Originated by the New York Cotton Exchange (NYCE), ICE carried on with the report for cotton and orange juice futures when it purchased the Board of Trade of New York, a successor to the NYCE.  No other commodity exchanges make a weekly spec/hedge report.

An exchange official reports that there are two reasons for the discontinuation:

  • The data in the report is similar to the Commodity Futures Trading Commission's (CFTC) weekly Commitment of Traders reports, which are published in three different formats on a weekly basis, and which contain additional information beyond what's in the spec/hedge report.
  • The amount of work required by each clearing member firm to make timely and accurate reports to the ICE each week solely for the rather limited information provided for only two futures contracts.

The sense on the part of the exchange was that the value added by the spec/hedge report, considering the CFTC already publishes the Commitments of Traders report,  was outweighed by the costs to the clearing members in time and effort, the ICE official explained.

According to the CFTC, the Commitments of Traders report provides a breakdown of each Tuesday’s open interest for markets in which 20 or more traders hold positions equal to or above the minimum reporting levels established by the CFTC.

Reports are available in both a short and long format. The short report shows open interest separately by reportable and non-reportable (small speculative) positions. For reportable positions, additional data is provided for commercial and non-commercial (speculative) holdings, spreading, changes from the previous report, percents of open interest by category, and numbers of traders.

The long report, in addition to the information in the short report, groups the data by crop year, where appropriate, and shows the concentration of positions held by the largest four and eight traders.

Questions:  Is the ICE decision justified?

What reason or reasons can be given to continue the spec/hedge report?

 


Poor Chinese Economy Continues To Pressure Cotton Sector

Supply Chain

A slowing general economy, coupled with downturns in manufacturing and retail sales, has prompted China’s central government to lower interest rates and introduce a somewhat greater degree of flexibility for the nation’s bankers.

In it’s latest edition of Cotton Outlook, Liverpool-based Cotlook, Ltd. reports the benchmark, one-year lending rate has been reduced to 6.31 percent from 6.56 percent, and the one-year deposit rate from 3.5 to 3.25 percent. In addition, banks have been given the freedom to set the rates they pay on deposits and charge for loans.

Latest reports indicate economic growth (measured by Gross Domestic Product) in the January-March period fell to 8.1 percent and had declined further to 7.7 percent by the end of the first five months.  Some private financial estimates place 2012 GDP growth in a range of 7.7 percent to 7.9 percent, compared with 9.2 percent last year.

In the cotton sector, Cotlook paints a discouraging picture, in which spinners are unable to replace their raw cotton needs at manageable prices, and the government has been forced to import significantly more cotton than desired yet still support producers at the farm level.  China’s imports this season have already reached almost to 4.5 million tons, suggesting the season’s total may reach 5.2 million (more than twice normal), given the size of the outstanding commitment from the United States, together with that from Australia, said Cotlook.

Weak prices during the past month for raw materials (domestic and imported cotton, polyester and viscose staple fibers) have been accompanied by falling prices for yarn and fabric, which has contributed to a pessimistic view of the market outlook by most spinners, according to a report from Beijing Cotton Outlook, an eight-year-old joint venture between Cotlook, Ltd., the China National Cotton Exchange and the China Cotton Association.

In its report, Cotlook said “that since early June, cotton yarn prices have been on a downward trend in Henan, Shandong and Zhejiang; a number of small cotton spinning, weaving and garment factories have advanced their summer vacations, and small to medium-sized textile enterprises have recorded a substantial decline in the amount of cotton consumed, and some 60 percent of that used is said to have been imported. Other references have been directed toward a decline in the quality of output. Enterprises are struggling to maintain meagre profit levels.”

Meantime, Cotlook reported that Madame Zhu Beina, president of the China Cotton Textile Association, said at a May cotton trade summit in Chengdu that yarn output in 2011 was well below official figures, at around 20,500,000 tons, and noted that the association’s data showed a three percent decline in output during the first four months of 2012. Moreover, without a strong recovery during the final six months, this year’s annual total likely will fall to less than 20 million tons.

Other factors contributing to the industry’s pessimism include:

  • A significant decline in the competitiveness of Chinese-spun lower count yarns,
  • A below-normal fabric trade prompting some companies to reduce capacity on fear of further losses, and
  • Orders at dyeing factories placed at no more than a couple of weeks out.

 

 Questions:  What signs suggest that China’s economic downturn may be nearing a bottom?

Since China no longer appears to be immune to the cyclical nature of global economic health, are there implications for the country’s intermediate and long term prospects for cotton and textiles along the supply chain?

 

 


ICE Launches New Platform To Smooth Trading

In an effort to provide traders with the most comprehensive tools available in futures and over-the-counter markets, the IntercontinentalExchange (ICE) recently released an improved trading platform to enhance trading flexibility and confidence in the execution of orders.

Among the improvements incorporated into the newest platform, Mr. Benjamin Jackson, ICE Futures U.S., Inc. President and Chief Operating Officer, briefly explained the Interim Price Limits (IPL) regime to those attending the annual meeting of the American Cotton Shippers Association last week in Denver, Colorado.

He described how IPL uses customizable parameters to create a temporary circuit breaker in ICE’s electronic trading platforms, in order to diminish the likelihood and extent of short-term price spikes in either direction.  The regime was first applied to ICE financial contracts when the new platform was rolled out in March, and agricultural products, including cotton, were added on April 2.

Exchange officials have drawn specific attention to the fact that for those products that have a daily trading limit, like cotton, the IPL system operates within that limit.  It does not affect the daily limit or allow the market to trade outside of the daily limit range. 

The IPL is designed to prevent large price moves within a given period of time, protecting the market from price spikes caused not only by cascading stops but also by multiple limit or market orders moving the market in one direction. It will prevent bids higher than the upper IPL and offers below the lower IPL. 

When IPL limits are hit, the market will go into a hold. The IPL hold will allow the market to continue to function and trade while preventing further price movements beyond the IPL bands for a set period of time, called Recalculation Time.

Therefore the values that can be configured for IPL are the Amount, Recalculation time and Hold Duration. 

The ICE has published an IPL ‘White Paper’, which provides a more detailed explanation, as well as examples of trading when the IPL has been triggered.

 

Questions:  Does this ICE effort to guarantee some stability to the market instill trading confidence?

Are there other features that could be incorporated into the electronic trading platform to ensure the safety of trades?

 


Textile Interests Insist On Strong Rules In TPP Agreement

Trade Agreements

The United States and eight other Pacific Rim members of the Trans-Pacific Partnership (TPP) concluded a 12th round of trade negotiations in Dallas, Texas, last week.  Progress was made on a number of fronts, according to the US Trade Representative’s office, but few details have been made available.

A news release from Washington reported that discussions on a US proposal regarding State-owned enterprises (SOEs), and how to ensure that they compete fairly with private companies, was among the focus areas.  Negotiating teams also discussed new issues related to trade and the environment, the digital economy, and the development of supply chains in the region, as well as tariff packages that would provide access to member’s industrial goods, agricultural, and textiles markets.

Meantime, the Textile and Apparel Alliance for TPP (TAAT), a global coalition of US textile and apparel trading partners from Africa, North, Central and South America, as well as US congressional allies, are pressing the US Trade Representative to ensure that the textile and apparel section of the final pact provides a “positive environment for job creation among TPP members” and prevent non-members, namely China, from reaping a business windfall without being obligated to abide by the rules of the trade agreement.

In a statement issued earlier this month, the TAAT commended 76 members of Congress who have formally written to urge the US Trade Representative to see that textile rules in the TPP agreement support US jobs, develop new export markets, increase opportunities for private investment and entrepreneurship, and reinforce strong trade ties with existing Free Trade Agreement (FTA) partners.

Background information in the statement explained that “the TAAT coalition was formed in February after Vietnam, a TPP participant, proposed country-of-origin rules for textiles and apparel that are far weaker than those in current US free trade agreements (FTAs) and preference programs.” 

TAAT contends that if adopted, the weaker rules would allow Vietnam's state-owned enterprises to export textiles and apparel made from subsidized inputs produced by China's “massive” textile SOEs duty free to other TPP countries. The competitive advantage gained by Vietnam's SOEs would therefore shift business to them at the expense of privately-owned and financed textile and apparel producers in the United States and elsewhere in the African and North and Central American trade blocs, “thereby harming potential for new textile and apparel export markets for US producers and those of FTA partners.” 

Vietnam, a non-market economy, exported US$7.2 billion in textiles and apparel to the United States in 2011, making it the second largest supplier of those products behind China, the TAAT noted. The Vietnamese government both owns and subsidizes textile and apparel production. Vinatex, Vietnam's state-owned textile and apparel conglomerate, is one of the largest garment producers in the world. In addition, Vietnam depends on China for much of its yarns and fabrics, importing US$4.4 billion of textile components from that country in 2010.

Therefore China, “the largest textile and apparel exporter in the world and a country not participating in the TPP, would gain substantial new access to the US market without having to make trade concessions in return,” said the statement.

Consequently, the TAAT coalition said it is supporting rules proposed by the US government which build on the free trade agreements that have been negotiated over the past 25 years. 

These include the "yarn forward" rule of origin, responsible market access provisions, and strong customs rules and enforcement. A yarn-forward rule of origin means that all yarn, fabric, and assembly production stages must be done in a TPP country for a textile or apparel product to be eligible for duty-free treatment, unless an exception applies. 

TAAP said Washington has also insisted that the TPP agreement ensure "that state-owned enterprises compete fairly with private companies and do not distort competition in ways that put US companies and workers at a disadvantage."

The TAAT coalition includes textile and apparel associations from the United States and more than two dozen other free trade and trade preference countries. Coalition members represent nearly two million workers in the textile, apparel, and fiber production sectors, thousands of privately owned factories, and nearly US$25 billion in two-way textile and apparel trade.

The six-year-old Trans-Pacific Partnership, which has evolved from an original membership of Brunei, Chili, New Zealand and Singapore, now includes New Zealand, Peru, Singapore, the United States, and Vietnam.  The next round of negotiations will be in San Diego, California, from July 2-10. 

 

Questions:  Considering complaints that TPP talks have been less than transparent to the public, what reasons can be given to open the deliberations or keep them private?

The Dallas round featured the opportunity for those who will be affected by the final agreement to be on the sidelines and meet with chief negotiators.  Does this provide a satisfactory means for stakeholders in the talks to ensure their positions on specific issues are put forward?


 


On-line Giant Turns Attention To High Fashion

Supply Chain

Amazon.com, Inc., the largest internet retailer in the world, seems constantly to be adding to its list of goods and services offered on-line, and it has now focused on high fashion merchandizing.  An article in the New York Times detailed the latest effort in the company’s quest to broaden its product line.  

Amazon introduced clothing to its websites in the mid-2000s and has now turned its attention to higher-end fashions because of more attractive profit margins.  Starting with its own website as a base, Amazon has purchased fashion websites and started others.  The most recent is MyHabit, developed in 2011 using the latest in internet-based video technology, to allow consumers get a more realistic idea of what the item will look like before the purchase.

Moreover, the company is taking advantage of its capacity to collect and evaluate a wide range of consumer buying characteristics and shopping habits, in order to offer fashion items that are more likely to appeal to the individual shopper.

Meantime, the very advantage Amazon holds in the realm of internet merchandizing is viewed as cause for concern among manufacturers of some high-end fashion brands.  Foremost among those concerns is that with its huge customer base and turnover volume, there is the threat that Amazon will dictate prices, which will result in lower returns for the producer.

The company has acknowledged that it has taken that route in other industries, but insists it intends to abide by a historical schedule of price markdowns established by the fashion industry.

The entire article can be read here.

Questions:  Are consumers of ‘high-end’ fashion likely to be viable on-line purchasers of typically expensive products?

Can this latest effort by Amazon be viewed as simply the next step in the evolution of an internet merchandizer, or does its massive size pose a threat to competition?

Does the advantage of a large customer base engaging in fast and easy shopping, offset the potential for high fashion producers accustomed wide profit margins to see those margins squeezed?


 


Russia’s WTO Accession A Double-Edged Sword

Trade Agreements

As the World Trade Organization (WTO) awaits the Russian government’s approval of an accession package to make the country the group’s 155th member, an article published by the World Textile Information Network examines the pros and cons of an effort that was started in 1993.

Broadly speaking, the multi-lateral agreement shared by member states ensures trade on equal ground, which is a substantial benefit to developing economies.  However, as new members have  realized, accession to the ranks of the WTO often means giving up tariffs higher than allowed between members and the dismantling of trade barriers that have been erected to help less efficient industries survive in the global marketplace.

Russia’s textile industry is among those that will likely face a difficult period of adjustment once the country joins the WTO.  The duty on textiles, apparel and footwear imported from the United States, for instance, will have to be lowered to a range of 5 percent to 7 percent, compared the 10 percent to 20 percent duty that currently prevails.

Moreover, Russian manufactures will witness strong competition from other outside markets.  Relatively low-cost goods from Asia and the Indian sub-continent will be the stiffest challenge, forcing a realignment of prices for domestically-produced goods.

The entire article may be found here.

Questions:  It may be difficult to judge whether the benefits of WTO membership outweigh the initial detriments, but how long should it take Russia to begin realizing more benefits than detriments?

Considering membership in the trade organization affects Russia’s entire economy and may threaten the livelihood of many of the country’s textile and apparel manufactures, how long should it take learn which will survive global competition on an even playing field?  

In 10 to 20 years, what stands to be the size of Russia’s textile and apparel industry?  Will it have shrunken, expanded, or be about the same after only the most efficient have survived?

 


Foreign Competition Continues To Pressure China

A respected international cotton trade publication is once again drawing attention to difficulties throughout the Chinese textile and apparel industry that threaten the underpinnings of the complex.

At the conclusion of 2011, Liverpool-based Cotlook Ltd. commented on how rising labor costs and an appreciating currency had taken their toll on the country’s competitiveness in export markets.  Latest business data out of China suggests outside pressure continues unabated, and the future may rest with domestic demand from a growing middle class.

The following report is found in the latest issue of the weekly Cotton Outlook:

“In China itself, however, cotton spinning, and the textile and apparel complex as a whole, are clearly experiencing difficult trading conditions, and may be approaching a period of quite significant structural change. Financial results for last year announced this week by the country’s largest spinning and weaving concern, Weiqiao, may be considered a bellwether for the fortunes of the industry as a whole. The group’s output of cotton yarn and grey cloth fell by over 14 and nearly 11 percent, respectively, last year. Although the much steeper fall in profits can be ascribed principally to the recent, damaging volatility in raw cotton and cotton yarn values, the company also refers to “the shifting of export orders to its neighbouring countries gradually due to production cost considerations”, amongst which finance and labour are specifically mentioned.

“China’s retail market for textile and clothing market is reckoned already to account for more than half of China’s cotton textile output, and commentators point increasingly to a future shift in the model that has seen China’s textile exports expand exponentially since the country’s accession to the World Trade Organisation in 2001. That model, based on low labour costs, a surge of both domestic and foreign investment in the sector and (at least until fairly recently) an undervalued currency, also gained impetus from the more liberal global market conditions that followed the final elimination of quotas in 2005. China’s dominant position as an exporter of clothing and textiles will not, of course, collapse overnight, but slowing global demand and rising domestic cost pressures would seem to signal the approaching end of an era.”


Questions:  If the future for China’s textile and apparel industry is in the domestic populace, is it bright or threatened with a slow decline?

What are the prospects for continued foreign and domestic investment into the industry?


 


Report Aims To Improve Future Business Decisions

With the value of the global textile market projected to jump by 32.5 percent between 2010 and 2015 to a total of $1,557.1 billion US dollars, Just-style.com is offering a report aimed at providing corporate decision-makers with a wide range of information and analysis for the industry.

It is intended to help recognize trends and future development, save time with “entry-level” research and help with more informed business decisions, says just-style.com.

The report, entitled “Textiles: Global Industry Guide”, contains extensive data on market size and segmentation (i.e. yarn, fabric, apparel, etc), as well as an analysis of important trends and top competition within the industry on a global, regional and country basis.

A more detailed description of the report reveals that it provides an executive summary and data on value, volume and segmentation, in addition to an analysis of industry prospects, competive landscape and details of leading companies.

In addition to the world as a whole, European and Asia-Pacific markets are covered (the latter accounts for almost 60 percent of international textile trade by value), and there are individual chapters on five major countries: the United States, Japan, Germany, France and the United Kingdom.

Just-style.com says the textiles market includes yarns, fabrics, apparel, and non-apparel finished products. The value of each segment is for consumption, defined as domestic production plus imports minus exports, all valued at manufacturer prices. The yarns segment covers yarns for sewing, weaving, knitting, etc, made of cotton, wool, artificial, synthetic, or other fibers, but does not include the production of the fibers before spinning. Fabrics cover woven, non-woven, and knitted fabrics (including knitted products such as sweaters). Apparel covers all other clothing except leather and footwear. Non-apparel products include technical, household, and other made-up non-clothing products.

  

Questions:  Which aspect of the report could prove the most beneficial to decision-makers?

Are there other areas that should be covered?


 


Fashion Industry Initial Target Of UN Global Compact

Supply Chain

The first sector-specific initiative under the auspices of the United Nations Global Compact has been announced with the UN and the Nordic Initiative Clean and Ethical (NICE) joining in an effort to focus on environmental, social and ethical challenges worldwide.

In a report from the World Textile Information Network, technical textiles and nonwoven analyst Ms. Tara Hounslea, suggests that it is “no surprise that the fashion industry is the first sector under the spotlight, with issues such as low wages, migrant workers, corporate accountability and working conditions making the headlines on a daily basis. The textile and fashion industry’s impact on the environment no longer goes unnoticed either, as organizations such as Greenpeace raise awareness of big name brands and their more shadowy supply chains.” 

Ms. Hounslea said the solution is a supply chain that works harmony. She cautioned, however, that such a solution is not straightforward since the textile and fashion industry is characterized by a complex production network which spans countless businesses and crosses numerous international boundaries.

The following is taken from the WTiN report:

While speaking at the inaugural World Textile Summit held in Barcelona last year, Mr. (Kofi) Annan (former secretary general of the UN) urged textile and fashion companies to work with their local communities to help bring about a better quality of life for workers and ultimately help the industry.

To facilitate this, the new initiative will develop a platform to unite the small and medium-sized fashion companies across borders to help tackle the global challenges the industry faces. It will comprise a set of guidelines, based on those of the UN Global Compact, but with a specific focus for the textile and fashion industry, such as waste, water, chemicals and welfare.

The launchpad for this new code will be the Copenhagen Fashion Summit on May 3, described as the largest and most important conference on sustainability and CSR in the fashion industry.

“Fashion has historically had the capacity to affect the society as a whole, and therefore fashion is a great place to start building a new creative future aligned with the ecosystem we are all part of,” said Eva Kruse, chairman of the Nordic Fashion Association and CEO of the Danish Fashion Institute. “We look forward to engaging experts and leaders of international fashion companies in the work of creating a meaningful and ambitious tool for the global fashion industry.”

Launched by former UN secretary general Kofi Annan some ten years ago, the Global Compact is a strategic policy initiative for businesses that are committed to aligning their operations and strategies with ten universally-accepted principles in the areas of human rights, labour, environment and anti-corruption.

Mr Annan asserted last summer that: “sustainable, healthy communities and good environmental stewardship lead to a healthy environment that is beneficial to all the companies involved.” Those who concur, or at least those who have already signed up to the UN Global Compact include Nike, Puma, H&M, the Pentland Group, Mango, Gap, Inditex, Levi Strauss and Timberland.

The fashion industry clearly stands to benefit from a universal set of guidelines for environmental, social and ethical practices, but what remains to be seen is whether the extended and complex supply chain will recognize what Mr Annan claims, that “doing good is good for business.”

Comprehensive information about the UN’s Global Compact may be found here.

Questions:  Is the fashion industry a satisfactory starting point for the UN’s Global Compact implementation of fair practices throughout the supply chain?

What other issues might be logical areas upon which to focus in the effort to establish economically sound, yet fair, business practices?


 


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