Risk management to protect cotton industry

A greater focus on risk management will prevent Viet Nam’s cotton industry from being damaged by volatile global prices, a US trade official has said.

 

Dr Gary Adams, vice-president of the National Cotton Council of America’s Economic and Policy Analysis, speaking at a seminar in HCM City on Wednesday, said ways to tackle price volatility were needed.

“Viet Nam will have to look at what types of ways, whether it is hedging some of their raw material costs, creating strategies within the future market, or hedging to try to minimise that risk,” he said, adding that some of the textile mills could work with merchandisers which supply cotton.

Some types of risk management and strategies in working with these merchandisers would help, but this might not be able to lower the price of cotton, he said.

“It may be able to mitigate some of the risks associated with the volatile level of prices,” Adams added.

World cotton prices have soared to 150 cents a pound (New York future) from 70-80 cents a year ago, a high level compared with previous years, according to industry insiders.

Nguyen Hong Giang, general secretary of the Viet Nam Cotton and Spinning Association, said that the country produced less than 3,500 tonnes of yarn from cotton last year, meeting around 1 per cent of the demand for local yarn production of 380,000 tonnes a year.

Viet Nam had had to rely on imported cotton, he said, adding that 40 per cent of cotton was imported from the US, 15-16 per cent from India, and the rest from West Africa, former Soviet Union countries and Australia.

To tackle this heavy reliance, the association has encouraged and offered incentives to farmers to grow cotton since the Government plans to increase the localisation rate in which cotton acts as the source in the yarn production.

He said that with cotton prices lower than those of maize, coffee and soybeans, few farmers would opt to grow cotton.

Local cotton production was inefficient because cotton was planted on a small scale of under one hectare per household.

This had made it difficult to mechanise cotton production, driving cotton prices higher, he said.

Currently, cotton was cultivated in the south-central provinces of Ninh Thuan and Binh Thuan, in the Tay Nguyen (Central Highlands) province of Dak Lak and in Son La, a northern upland province, Giang said.

Export potential

Adams said he saw continuing potential for Viet Nam to export cotton textile products, especially to the US.

“Viet Nam is a growing supplier of textile products to the US market and I think a lot hinges on US consumers extending their purchase of cotton textile products because clearly Viet Nam has been competitive with other countries in terms of getting market share in the US.”

Last year, Viet Nam ranked the fifth-largest cotton textile supplier to the US, after China, Pakistan, India and Bangladesh, accounting for 5 per cent of the total cotton imports to the US market.

Adams said he anticipated more potential for market share for Viet Nam.

“I don’t know how quickly they will move up the ladder, but I think we can anticipate that they will continue to increase their market share in the US because Viet Nam appears to have a growing textile industry.”

To increase market share in the US, Vietnamese cotton textile exporters should work with US retail brands and importers, set up sourcing, and establish a supply chain relationship between exporters and those that they are actually importing. — VNS

Tags: Vietnam cotton industry