Cotton bolls or high fashion – where should Vietnam place its bets?

An economic magazine, Thoi Bao Kinh Te, thinks that to increase ‘local content’ in textiles and apparel exports, Vietnam ought to invest in upgrading its design skills rather than plow money into a big increase in domestic cotton production.

In January, the Prime Minister approved a ten year programme to develop cotton plantations. It aims to expand the area under cotton nationwide from 8000 hectares this year to 30,000 hectares by 2015, producing 20,000 tonnes of cotton fibre, and 60,000 tonnes by 2020.

This is a difficult goal. Now that Vietnam’s economy has globalized, its cotton crop must compete with cotton imports and prices are determined by a world market. It is hard to imagine a great expansion of land under cotton if farmers’ income from the crop remains substantially lower than the income from alternative crops: cereals, soybean, sugar cane or rubber. In fact, that’s the main reason that Vietnam’s cotton hectarage has shrunk from its 2002 high of 37,000 hectares.

Productivity must be raised

There is, to be sure, a very big demand for cotton. Current domestic cotton production now can supply only one or two percent of what Vietnam’s textile mills need. The Vietnam Textile and Garment Group (Vinatex) reports that in 2009, Vietnam imported $385 million worth of cotton fibre. In the first four months of 2010, the demand for cotton surged to 100,000 tonnes, worth nearly $200 million. Vinatex forecasts that the total demand for cotton fibre in 2010 will be some 300,000 tonnes, but domestic sources can provide only 3000-4000 tonnes.

The Ministry of Agriculture and Rural Development judges that cotton can be produced more efficiently in Vietnam. Now, due to the unsuitable ground conditions and low-yield cotton varieties, production per hectare is very low — just 1.3 tonnes per hectare in the south and less than one ton per hectare in the north. Growing cotton efficiently requires high technology and high expenses on fertilizer and pesticide, which means higher production costs.

Some nine trillion dong ($500 million) in funds from the State budget will be invested in infrastructure, irrigation and water supply to help cotton farmers improve productivity. The State will also set up a cotton seed price stabilization fund and give financial support to textile mills that buy domestically grown cotton.

Still, it’s unclear that under the best of circumstances whether Vietnam’s cotton farmers will be able to to compete with cotton farmers from China, the US and some other countries in Asia.

Better to bet on growing design capability?

The objective of MARD’s cotton development programme is to increase the ‘local content’ of Vietnam’s booming textile and garment industry.

TBKT Saigon questions whether the program will be cost-effective.

Suppose, it says, that the programme runs well and Vietnam produces 60,000 tonnes of cotton fibre by 2020. The total value of the cotton fibre will be some $120 million at the current price of about $2000 per tonne. By that time, according to the Textile and Apparel Association (Vinatas), by 2020, Vietnam’s export revenues from textiles and apparel may exceed 25 billion dollars annually. As such, the localization value that the cotton plantation project could contribute would be less than 0.5 percent.

Some garment experts believe that Vietnam ought not insist on developing cotton production because it does not have good conditions of land, climate and technique. The experts point to other ways to increase ‘local content.’

A solution that many favor is to development of the fashion design capability. The director of a garment company gives an example: the export price of a shirt now is about $6. If the shirt could be designed in Vietnam, it could sell for $10. This, he says, would be more profitable than investing in growing cotton plants.

Of course, it will be not easy to find a place the world’s fashion market, but this does not mean that it is impossible for Vietnamese companies.

Thoi bao Kinh te Saigon

Tags: Vietnam cotton imports