Cotton and Products Annual 2009 in Vietnam

An Expert's View about Knit Textiles in Vietnam

Posted on: 14 Apr 2010

Vietnam’s exports of garments and textiles soared to a record $9.1 billion in 2008; a 17 percent increase above the record level of 2007.

Required Report - public distribution Date: 4/14/2009 GAIN Report Number: VM9032 Vietnam COTTON AND PRODUCTS ANNUAL 2009 Approved By: Valerie Ralph Prepared By: Bui Huong / Truong Dao Report Highlights: Vietnam?s cotton lint production declined sharply as farmers opted for crops with much better returns. Demand for cotton lint remained strong in MY 2007/2008, but weakened demand in the garment and textile industry has begun to impact demand for cotton imports, which are estimated to decline by 8% to 230 thousand metric tons for MY 2008/09. Even so, Vietnam?s garment and textile exports for 2008 increased 17 percent to $9.1 billion, and first quarter earnings for 2009 were only slightly down from those of the same period in 2008. Vietnam has been actively seeking out new markets, which has helped to keep its exports strong. U.S. cotton exports to Vietnam in 2008 increased a record 86% to 123 thousand metric tons, for a 42% market share, thus making the United States the largest single supplier for the second year running. Executive Summary: Vietnam?s exports of garments and textiles soared to a record $9.1 billion in 2008; a 17 percent increase above the record level of 2007. Market expansion into territories in Eastern Europe, South America and Taiwan largely accounts for this growth, even in the face of the global economic downturn. The United States remains, however, the largest market for Vietnam?s garment and textile products and accounted for $5.1 billion or 55.9 percent of total exports in 2008. First quarter (January-March) earnings for 2009 are estimated at $1.9 billion, which is only slightly off from the same period in 2008. Vietnam has an earnings target of $10.5 billion for 2009 and has been actively pursuing new markets in the Middle East and Africa. Vietnam?s cotton lint production continues to decline as farmers opt for crops with better returns. Output for the 2008/09 crop is estimated at 2.57 thousand metric ton, 56% less than the previous crop year, and just 1% of Vietnam?s expected demand. Cotton imports for the first eight months of MY 2008/09 (August-March) was 151 tmt, which is 1.3% less than that of the same period the previous market year. A somewhat weakened demand for garment and textile products from the international market is beginning to affect Vietnam?s demand for cotton. Post therefore revises the estimate for MY 2008/09 cotton imports down to 230 tmt. Notwithstanding this, U.S. cotton lint exports to Vietnam increased a record 86% in calendar year 2008 and accounted for 42.6% of the market, thus safeguarding the United States? place as the leading cotton supplier to Vietnam for the second year. Commodities: Cotton Production: Cotton production in Vietnam is highly susceptible to weather conditions. More than 90% of the cotton production area for the 2008/09 cotton crop is rain-fed, with planting initiated in the rainy season, June - August, and harvesting in November - January. In areas with irrigation, cotton may be planted in the dry season (November/December) allowing for harvesting from April through June. Irrigated cotton areas continue to decline in the face of strong competition for this resource from the more lucrative corn, beans and vegetable crops. Table 4: Vietnam?s cotton production by region, 2006 ? 2008 2006 2007 2008 Growing regions Areas Yield Production Areas Yield Production Areas Yield Production 1000 ha mt/ha tmt 1000 ha mt/ha tmt 1000 ha mt/ha tmt Red River Delta 0.0 0.0 0.0 0.0 0.0 0.0 0.000 0.000 0.000 North East 0.3 0.8 0.2 0.3 0.7 0.2 0.264 1.200 0.317 North West 4.0 0.8 3.2 3.0 1.0 3.0 2.203 1.130 2.489 North Central Coasts 0.2 0.5 0.1 0.2 0.5 0.1 0.048 0.420 0.020 South Central Coast 2.0 2.0 4.0 2.4 1.7 4.1 0.899 2.290 2.059 Central Highland 8.3 1.6 13.1 3.6 1.4 4.9 0.778 1.280 0.996 South East 6.8 1.3 8.5 3.1 1.3 3.9 1.008 1.130 1.139 Mekong River Delta 0.0 0.0 0.0 0.0 0.0 0.0 0.010 0.060 0.001 Total Vietnam 21.6 1.3 29.2 12.5 1.3 16.1 5.210 1.348 7.021 Source: Ministry of Agriculture and Rural Development (MARD) and General Statistics Office (GSO) Vietnam?s 2008/09 Cotton Production Vietnam?s cotton production area for the 2008/09 crop was drastically reduced to 5.21 thousand hectare (tha), 56% less than the 2007/08 cotton crop. This is the second consecutive year of sharp reduction in the cotton production acreage, particularly in primary growing regions like the South Central Coast, the Tay Nguyen Central Highland and the South East. It is becoming increasingly more profitable to grow such crops as corn, sweet potatoes, soybeans and cassava than cotton. Post revises Vietnam?s cotton production area in 2008/09 down to 5.21 tha from the earlier projection of 13 tha (Table 1). The average yield for the 2008/09 cotton crop was 1.348 metric ton (mt)/ha of seed cotton, for an estimated production output of 7.033 tmt or 2.57 tmt of cotton lint at a ginning rate of 36.5 percent. (Table 5) Post revises Vietnam?s 2008 cotton lint production to 2.57 tmt or 11.308 thousand bales. Table 5: Vietnam?s cotton production (2006-2009) 2006/07 2007/08 2008/09 2009/10 (estimated) Crop area (THA) 21.60 12.400 5.210 6.000 Crop yield (MT/HA) 1.34 1.30 1.35 1.35 Seed cotton production (TMT) 28.94 16.120 7.033 8.100 GOR 36.5 36.5 36.5 36.5 Cotton fiber production (TMT) 10.56 5.88 2.57 2.96 Source: GSO, VCC and Post estimate Vietnam?s 2009/10 Cotton Production It is unlikely that Vietnam will see an expansion in cotton growing area in next cotton crop or even the foreseeable future, and the downward trend of the last two years seems likely to continue. Rising food prices will encourage farmers to switch to food crop production rather than growing cotton. Post therefore estimates Vietnam?s cotton area in 2009/10 will increase only slightly to 6.000 tha, and the crop yield should remain at 1.35 mt/ha. The cotton lint production in the 2009/10 crop is estimated at 2.96 tmt or 13 thousand bales (Table 1) Consumption: Vietnam?s cotton consumption for 2008/09 is estimated to be slightly reduced due to lower demand from the garment and textile industry owing to the global economic downturn. Post revises domestic consumption for 2008/09 down to 235 tmt or 1,034 thousand bales. Domestic cotton consumption for 2009/2010 should increase by about 2% to 240 tmt or 1,056 thousand bales as the market for garment and textile products is expected to improve by late 2009/early 2010. (see table 1) Trade: In MY 2007/08, Vietnam imported over 250 thousand metric tons (1,101 thousand bales) of cotton fiber, valued at almost $365 million, which suggests a rate of $1.46/kg or $0.64/lb. Cotton imports for the first 8 months (August?March) of MY 2008/09 were about 151 thousand metric tons or 660 thousand bales, a year-on-year decrease of 1.3% as a result of lower demand from the textile industry (Table 7). Cotton imports for 2008/09 will probably decrease by about 8 percent as demand weakens. Post estimates Vietnam?s 2008/2009 cotton imports at 230 thousand metric tons (1.012 million bales) due to lower demand from a cooling textile industry. Table 7: Vietnam?s cotton imports, MY2007/08 and 2008/09 '2007/08 '2008/09 8/1/2007 8/1/2008 Quantity (mt) Value ($1,000) Price Quantity Value ($1,000) Price ($/mt) (mt) ($/mt) August 13,500 16,190 1,199 25,000 41,000 1,640 September 19,000 24,450 1,287 25,000 41,000 1,640 October 17,000 24,000 1,412 24,000 40,000 1,667 November 14,000 18,350 1,311 20,000 32,800 1,640 December 14,300 19,200 1,343 25,000 40,000 1,600 January 28,000 40,000 1,429 13,000 18,000 1,385 February 22,500 33,600 1,493 8,813 11,770 1,336 March 24,500 36,800 1,502 10,000 12,000 1,200 April 25,350 39,700 1,566 May 30,000 47,000 1,567 June 22,000 33,700 1,532 July 20,000 32,000 1,600 Total (Aug-March) 152,800 212,590 1,391 150,813 236,570 1,569 Total 250,150 364,990 1,459 230,000* Source: Customs Office and FAS estimates * estimated data Vietnam?s Primary Cotton Suppliers Table 8 provides estimates of Vietnam?s cotton imports for calendar years 2005 to 2008. In 2008, Vietnam imported just over 291 thousand metric tons (tmt) of cotton, 37% more than the year prior. The United States remains the major cotton supplier to Vietnam with over 123 tmt, or 42% of Vietnam?s total cotton imports. India ranked second, accounting for more than 51 tmt or 17% of the market share. Africa was the third largest supplier with a total of 47 tmt and a market share of 16%. Table 8: Sources for Vietnam?s Cotton Imports, 2005-2008 Countries 2005 2006 2007 2008 African 66,000 62,500 54,454 47,670 USA 39,000 37,771 66,713 123,970 Taiwan n/a n/a 15,278 7,000 India 8,500 34,720 26,790 51,780 Mexico 6,000 8,500 2,751 1,060 Indonesia n/a n/a 2,037 5,030 CIS 6,000 6,500 5,509 2,000 Brazil n/a n/a 5,202 17,400 Australia 2,500 2,800 1,962 900 South Korea n/a n/a 1,828 1,500 Pakistan n/a 2,200 1,595 3,530 Iran n/a 1,800 1,396 250 Syria 894 n/a n/a n/a China 1,432 500 3,109 510 Turkey n/a n/a 983 112 Canada n/a n/a 502 32 Unknown 22,000 32,709 21,002 28,606 TOTAL 150,000 190,000 211,111 291,350 Source: Vietnam Customs, trade sources Table 9: U.S. cotton exports to Vietnam 2005 2006 2007 2008 2009 (Jan.-Jan.) Quantity (mt) 37,967 36,701 66,713 125,013 3,034 Value ($1,000) 46,647 45,864 88,216 192,603 3,675 Source: BICO, US Department of Commerce, U.S. Census Bureau, and Foreign Trade Statistics PRICES exchange rate $1 = VND17,786 as of April 9, 2009 Domestic prices The Vietnam Cotton Company (VCC) has been buying seed cotton at an average price of VND 9,000/kg ($0.51/kg or $0.23/lb). VCC is selling cotton to mills at $1.20 - $1.30/kg. Import prices Vietnam?s Customs Department reports the average import price of cotton fiber for the first three months of 2009 was $1.30/kg equivalent to 0.594 cents/lb, for a year-on-year decline of 14% as reflected in Table 6 below. Table 6: Vietnam?s average cotton import prices Co Jan-June Jan-June Jan-June Jan-April Jan-March tton fiber Prices 2005 2006 2007 2008 2009 $/kg 1.1 1.18 1.21 1.49 1.30 cents/lb 0.499 0.535 0.562 0.676 0.594 Source: trade sources Current indicative offer prices (US cent/lb - CIF Ho Chi Minh City Port) for cotton (quality equivalent to Strict Middling 1.1/8?) from various sources are as follows: from West Africa: 0.566-0.585; from USA: 0.575-0.586 and from CIS countries: 0.588-0.598 per pound. Policy: Tariff on Cotton Cotton has zero tariff, but there is a 10% value added tax. The Ministry of Trade and Industry (MOIT) has approved plans for garment & textile development to 2015 and orientation to 2020 On November 19, 2008, the MOIT issued Decision No.42/2008/QD-BCT to approve plans for the development of the garment and textile industry to 2015 and orientation to 2020. The plan has export targets for the garment and textile industry of $12 billion by 2010, $18 billion by 2015 and $25 billion by 2020. There are also targets to increase jobs in the garment and textile sector with goals of 2.5 million added by 2010 and a further 3 million by 2020. Cotton lint production is expected to increase to 20 tmt by 2010, to 40 tmt by 2015 and up to 60 tmt by 2020. The main cotton growing areas will be in the North West, North East and the Tay Nguyen Central Highlands. Key targets of the plan are outlined in Table 10. Table 10: Vietnam?s Projections for the garment and textile industry to 2020 Description Unit 2010 2015 2020 1. Export value $ million 12,000 18,000 25,000 2. Number of employees Thousand 2,500 2,750 3,000 person 3. Key products - cotton lint 1000 mt 20 40 60 - Fiber, polyester yarn 1000 mt 120 210 300 - all kind of yarn 1000 mt 350 500 650 - all kind of fabrics million m2 1.000 1.500 2.000 - Garment products million piece 1.800 2.850 4.000 4. for domestic market % 50 60 70 Vietnam approves strategy for garment and textile development through 2020 On March 14, 2008, Prime Minister Nguyen Tan Dung signed Decree 36/2008/QD-TTg to promulgate Vietnam?s strategy for the development of the garment and textile industry to 2015 and 2020. Included are ambitious targets to grow the industry at increased production rates of 16-18% from 2008 to 2010 and 12-14% from 2011 to 2020. There is also provision in this scheme to increase local cotton production through capital investments in irrigation and other inputs so as to produce about 20 tmt of cotton lint in 2010; 40 tmt in 2015 and 60 tmt in 2020. With regard to exports, Vietnam expects an annual growth of 20% between 2008 and 2010, and continued growth at 15% annually between 2011 and 2020. Biotech Cotton in Vietnam It is still not legal to trade Bt cotton seeds in Vietnam as regulations to allow this have not yet been approved. Although the Ministry of Agriculture and Rural Development (MARD) has completed and reported draft regulations for field trials and biosafety management of biotech crops to WTO in January 2008 (VM8005), these regulations have still not been approved. Reportedly, however, as much as 80 percent of the cotton produced in Vietnam is Bt cotton. It is uncertain how farmers acquired the seeds as there is currently no legal trade of GM seeds. Production, Supply and Demand Data Statistics: STATISTICAL TABLES Table 1: Vietnam?s Cotton Production, Supply and Demand 2007 2008 2009 2007/2008 2008/2009 2009/2010 Cotton Market Year Begin: Aug 2007 Market Year Begin: Jun 2008 Market Year Begin: Aug 2009 Vietnam A nnual Data Annual Data D New Annual Data Post ost isplayed D New Pisplayed D Jan isplayed Data Data Data Area Planted 0 0 0 5 6 Area Harvested 13 13 13 5 6 Beginning Stocks 212 212 238 289 278 Production 26 26 28 11 13 Imports 950 1,101 1,050 1,012 1,050 MY Imports from U.S. 0 0 0 0 0 Total Supply 1,188 1,339 1,316 1,312 1,341 Exports 0 0 0 0 0 Use 950 1,050 1,050 1,034 1,056 Loss 0 0 0 0 0 Total Dom. Cons. 950 1,050 1,050 1,034 1,056 Ending Stocks 238 289 266 278 285 Total Distribution 1,188 1,339 1,316 1,312 1,341 Stock to Use % 25 28 25 27 27 Yield 435. 435. 469. 479. 472. TS=TD 0 0 0 Source: FAS, Official USDA Estimates, post estimates Table 2: Import Trade Matrix Import Trade Matrix Country Vietnam Commodity Cotton Time Period Jan-Dec Units: mt Imports for: 2007 2008 U.S. 66713 U.S. 123970 Others Others Africa 54454 India 51780 India 26790 Africa 47670 Mexico 15278 Brazil 17400 CIS 5509 Taiwan 7000 Brazil 5202 Indonesia 5030 Australia 1962 Pakistan 3530 Pakistan 1595 CIS 2000 China 3109 Korea 1500 Mexico 2751 Mexico 1060 Iran 1396 Australia 900 Total for Others 118046 137870 Others not Listed 26352 29510 Grand Total 211111 291350 Source: Vietnam Customs office, Traders & Post estimate Table 3: Cotton Import Price Table Prices Table Country Vietnam Commodity Cotton Prices in $US per uom mt Year 2008 2009 % Change Jan 1429 1385 -3% Feb 1493 1336 -11% Mar 1502 1200 -20% Apr May Jun Jul Aug Sep Oct Nov Dec Exchange Rate 17786 Date of Quote 4/9/2009 Source: Vietnam Customs Office
Posted: 14 April 2010