Few sectors of the economy have so much bearing on people's lives as the textiles and apparel industry has. It touches as many lives as the food sector does – for no one stops eating, or for that matter wearing clothes; yet, it goes on up on food considering the sheer spread of the sector and its long-drawn supply chain that has an over-arching effect on innumerable other sectors of the economy.
The scale of the industry is so enormous and overlapping with other sectors, and its supply-chain so long and intricately-woven, that few can comprehend the effect it actually has on the lives of billions. Fewer still can understand how the fashion industry (it being the front-end, with textile-apparel being part of the back-end) can indeed change the face of this country – and quite literally at that.
It is important to understand one thing about the “fashion industry”: that it is an umbrella term to denote a number of industries and sectors. Just consider the four phases of the so-called industry: (i) production of raw materials, principally fibres and textiles, as also leather and fur; (ii) production of fashion goods by designers and manufacturers; (iii) retail and e-commerce sales; and (iv) various forms of advertising and promotion. The complex scenario is made easier by a Wikipedia entry which says, “These levels consist of many separate but interdependent sectors. These sectors are textile design and production, fashion design and manufacturing, fashion retailing, marketing and merchandising, fashion shows, and media and marketing. Each sector is devoted to the goal of satisfying consumer demand for apparel under conditions that enable participants in the industry to operate at a profit.”
At a time when considerable heated debates have been raging on the pitiable condition of farmers and the vexed subject of farmer suicides, it is pertinent to understand how one end affects the other. For those working in the fields of agriculture and farmers, it is extremely important to understand how fashion-textile-apparel trends inexorably decide the future of agriculture and farmers. It is a demand-driven scenario: it’s the fashion-textile-apparel trends that shape the way cotton farming is done.
So, let’s take a quick overview of what the industry looks like.
The Indian textiles and apparel industry is one of the 26 sectors of the economy that is being projected as a growth opportunity for the ‘Make in India’ initiative. For a moment leave aside the politics of the initiative, which we may or may not agree with, and instead analyse the compelling numbers.
India is the second largest producer of raw cotton in the world, the second largest producer of cotton yarn, the second largest producer of cellulosic fibre / yarn, the second largest producer of silk, the fourth largest producer of synthetic fibre / yarn, and the largest producer of jute. It is, therefore, not surprising that the country’s textiles and apparel sector accounts for 26 per cent of the manufacturing sector, 14 per cent of the total industrial production, 18 per cent of industrial employment; it results in direct employment to 45 million and indirect employment to another 60 million, earns 13.65 per cent of the export earnings, and contributes 6 per cent to the GDP. Yet, the scope lies in exports: its share of global exports is around 5 per cent, whereas the Chinese share stands at a relatively staggering 39 per cent.
The Indian textiles industry, estimated to be US $108 billion now, is expected to touch US $200 billion in another five years. It has the potential to grow five-fold over the next ten years to hover around the US$500 billion mark on the back of growing demand for polyester fabric, according to a study by Wazir Advisors and PCI Xylenes and Polyester. The figure would include domestic sales of US$315 billion and exports of US$185 billion. The current industry size comprises the domestic market of US$68 billion and exports of US$40 billion. Experts believe 2016-2020 will be the golden period for the Indian textiles and apparel industry. It would be unfortunate if cotton growers get left out, by design or by default.
Uncertainties on the home and foreign fronts
Whenever the talk is of textiles and apparel, any discussion on the subject invariably veers towards exports, probably because of the enormous scope that lies on that front. But it is not that the domestic textiles and apparel market is a laggard by any measure.
The demand for textiles and apparel in India comes from three major segments: the household sector, non-household sector (institutional, industrial and technical) and export sector. The household sector consumes the largest share of textiles and apparel in India (60 per cent), followed by the non-household sector (21 per cent), and then exports (19 per cent). India is home to the second largest population in the world. India’s population is 1.2 billion people living in over 330 million households, as per the 2011 census. Hence, the demand for textile products in India is immense and growing at an increasing rate in tandem with the increase in disposable income of the people. A very high proportion of young and working population is also a favorable factor influencing domestic demand for textiles and garments, the Strategic Plan 2012-2017 document of the Ministry of Textiles points out.
Rising incomes, changing lifestyles and rapid urbanisation are definitely having an effect on the textiles and apparel industry – but not all that much. India still has the least per capita spend on apparel, among developed and BRICS countries. The per capita spend on apparel in 2013 was a mere $37 against China’s $122 and Brazil’s $287. Industry estimates suggest that this will rise to $129 in another 10 years.
There are drivers, nonetheless. According to leading consultancy firm Technopak, there are a number of trends that are changing consumption patterns in the country. First, the consumer wardrobe has changed from only ‘need-based clothing’ to ‘occasion specific dressing’ and is gradually becoming more ‘detail oriented’. Second, women shoppers are gaining more importance with their higher spending power and requirement of specific clothing for different purposes. And third, the growth of e-tailing is fueled by changing lifestyles of domestic consumers and increasing penetration of technology.
Right now, the major threat that the domestic sector faces is a decline in the purchasing power of people due to high inflation. Exports, however, are a different ballgame altogether.
The dynamics of the global textiles and apparel industry changed in 2001 when China joined the World Trade Organization (WTO). What was hitherto just a big market suddenly became the biggest player in the market and changed all the rules of the game. Then, the traditional quota system for textiles and apparel was phased out. It provided attractive opportunities to countries that were so far restricted by the quota system, and posed challenges to those countries that had been protected all this while.
The rise in cotton prices during the 2008-2011 recession was the result of low cotton supply. China, where the minimum cotton price was one-and-half times the international prices of $0.90, piled up stocks. The price volatility threw the industry out of gear. Global cotton yarn production fell and rose correspondingly. The latter was a fall-out of China's expansion of installed spinning capacities.
Pressure has been increasingly mounting on India at the WTO to cut down subsidies and incentives given to the textiles sector. This was reflected in the Foreign Trade Policy (FTP) 2015-2020, announced in April. It did not announce new subsidies and replaced old ones. India’s export subsidies existed under the Focus Market Scheme (FMS), Focus Product Scheme (FPS), market-linked FPS, Export Promotion Capital Goods (EPCG) Scheme, interest subvention on pre- and post-shipment export credit, besides tax breaks for special economic zones (SEZs). All would have been phased out sooner or later.
The FTP has been criticised. Cotton textile products, which face high tariff barriers and preferential treatment by importing countries, have been given a duty credit scrip of 2 per cent while handlooms, carpets, coir products have got higher rates of 2-5 per cent under the Merchandise Exports from India Scheme (MEIS). The cotton yarn sector is said to have been ignored at a time when exports have declined sharply, and there are high logistics costs when exporting to markets like Latin America. Despite growing opportunities for textiles products such as yarn, fabrics and made-ups to China, these items have not been included under market access negotiations with that country.
The FTP has come in at a time when major threats are looming large on the horizon, the biggest of them being the Trans-Pacific Partnership (TPP), a proposed regional regulatory and investment treaty that includes 12 countries. Together, the US-led bloc accounts for 38 per cent of global GDP and 25 per cent of global trade. It is a powerful trade group that wants to trade with itself. The TPP can be the biggest challenge for India since the US accounts for almost one-fourth of India’s apparel exports.
Exporters from India would be at a disadvantage with regard to tariffs, while those from Vietnam (part of TPP) would get preferential access to the US market. Moreover, since the yarn-forward rule makes it mandatory to source yarn, fabric and other inputs that are used in making clothes from TPP partners only in order to avail of duty preference, this would make apparel manufacturers in TPP countries source their input only from other TPP countries, even if suppliers in that region are not efficient. Both the TPP and Transatlantic Trade and Investment Partnership (TTIP) between the US and the European Union (EU) are said to be aimed at clipping the wings of China.
Unless India gets its foreign trade strategies right, exports might suffer. It is imperative for India to push through Regional Comprehensive Economic Partnership (RCEP, which includes China, 10 ASEAN countries, Japan, Korea, Australia and New Zealand). It also needs reopen the stalled negotiations with the EU. Indian apparel exporters have been seeking expeditious finalisation of the India-EU free trade agreement (FTA) to enable better market access for exporters. The EU markets account for 12 per cent share of India's apparel exports. Deliberations have not taken place since 2013 with both sides at loggerheads over issues like automobiles, and India's demand for a data-secure nation status.
The best way out would be multiple FTAs: there’s no need to put all the eggs in one basket.
China and the impending cotton crisis
In June, China announced it will start selling off its massive cotton stockpile. It is planning to sell 1 million tonnes of cotton until the end of August through daily auctions, as it tries to eliminate stockpiles which the International Cotton Advisory Council (ICAC) estimates at 11.3 million tonnes.
The Chinese government, as part of a policy designed to support the country’s textile industry after the 2008 slowdown, buys and stockpiles domestic cotton after prices fall below a target level. Since 2011, it has stockpiled much, so much so that in 2013 it was forced to do a rethink: it set a 3:1 domestic-to-imported cotton quota for textile factories. But that obviously hasn’t helped. And it is also not that farmers have reaped the benefits from the scheme. That’s because the government buys processed, and not raw, cotton for its stockpiles. In other words, the ones who benefit are refiners. That’s also one of the reasons why domestic cotton production has fallen 6.4 per cent since stockpiling began.
And now, expectations of a stockpile selldown have resulted in a sluggish demand for cotton in China as mills are keeping inventory to a minimum. How China will reduce inventory without having an adverse effect on prices remains to be seen. It will either backtrack, or bring prices crashing down. As it is, global cotton prices have been hovering around five-year lows for the past 10 months, under pressure from weak demand and large stocks. But subsidies mean that Chinese cotton farmers keep growing – resulting in continued over-production w.r.t the global demand. There’s a political compulsion too – most cotton farmers are from the Xinjiang province which has been seeing considerable political unrest.
While China has been under tremendous pressure to release the stocks to recover part of its stockpiling costs, big discounts could risk pushing down market prices, and lead to increased costs for the government under its subsidy scheme to farmers. That's because the Chinese government currently pays farmers the difference between the target price and the average market price. The subsidy scheme had replaced the earlier stockpiling scheme. Yet, China’s stockpiling has actually protected the world market in the past four years because supply has exceeded demand.
China is also in a bind over how to find new ways of supporting farmers, with farmer groups in the United States and other countries complaining that China has gone beyond what was allowed under World Trade Organization (WTO) rules. China contends that it needs time to perfect the new subsidy policy currently covering cotton and soybeans before extending it to other crops. Cotton output in China is expected to drop after the overhaul of support policies.
According to ICAC, stocks held outside of China are expected to decrease by 3 per cent, to just under 9 million tonnes by the end of 2015-16. However, much of this will depend on how the Chinese government handles its reserves. However, no further details have been announced so far, and it’s uncertain how successfully China will be able to sell its excess stock without destabilising the market.
But when auctions began early July, the sales weren't much, with only high quality fibre seeing a keen interest from buyers. China has in the past supported demand for low grade fibre from its inventories by allowing mills to import quotas of high grade fibre to blend with domestic product.
Over all, it isn't looking too good for cotton itself. According to ICAC, world cotton area in 2015-16 will go down 6 per cent to 31.3 million hectares. China’s cotton area will decrease by 12 per cent to 3.8 million hectares, and production down by 16 per cent to 5.4 million tonnes in 2015-16. Imports in China are expected to fall to the lowest level in 13 years due to continuing import restrictions accompanying efforts to reduce government-held stocks. Lower Chinese imports also mean lower Indian exports, since China had been the largest importer of Indian cotton over the last three years.
In India, the low cotton prices of 2014-15 are expected to cause cotton area to decrease by 5 per cent to 11.6 million hectares in 2015-16. Falling prices for competing crops and a modest increase in the minimum support price may stall a greater decline. With the monsoons being marginally better this year, yields may improve 3 per cent, the ICAC predicts. The Cotton Association of India (CAI) has already reduced its production estimate of cotton for 2014-15 to 38.27 million bales (of 170 kg each) from the previous estimate of 39 million bales announced in March this year. As of now, India is looking towards increasing cotton exports to both Bangladesh and Thailand, given that it will now have a surplus. Over all, most expert predictions agree on one trend: that cotton prices are going to fall. And that’s bad news for farmers, even though the minimum support price (MSP) of cotton has been raised by Rs 50 to Rs 4,100 per quintal for long staple and Rs 3,800 per quintal for medium staple cotton for 2015-16.
Cotton’s immediate rival: Manmade fibre
The real threat to cotton producers will come from manmade fibres. The trend in the textiles industry already shows a proclivity towards manmade fibres. Those concerned about the state of cotton production in the country need to understand this: the demand for fibres depends upon the demand for yarns and fabrics, which in turn depends on consumption of finished textiles viz. apparel and made-ups.
World fibre consumption has been steadily trending up over several decades. Per capita consumption was about 3.7kg in 1950 and climbed to 10.4kg in 2008. Final products of fibres can be grouped into three major categories: apparel, home textiles and industrial textiles. These respond differently to changes in income and prices, depending on whether they are consumed as necessary goods, luxury goods, or durable goods. Therefore, world total fibre consumption is exposed to the influence of global economic developments.
According to the World Apparel Fibre consumption Survey 2013, produced by the Food and Agricultural Organization of the United Nations (FAO) and the International Cotton Advisory Committee (ICAC), the changes are stark. Mirroring global economic developments, after peaking in 2007 at 67.7 million tons, textile fibre consumption declined 4.3% to 64.9 million tons in 2008. Demand destruction of textile fibres amounted to 2.9 million tons. In 2009, total textile fibre demand increased by 0.4% to 65.1 million tons. In 2010, total textile fibre demand increased by 4.6 million tons to 69.7 million tons. The main driver of the recovery in textile demand was the synthetic (non-cellulosic) fibre group, which in 2008 experienced demand destruction of 938,000 tons but rapidly recovered all the volume lost and expanded by 314,000 tons in 2009, and expanded further by 4 million tons in 2010. At 41.9 million tons, demand for synthetic fibres in 2010 exceeded its level in 2007 by 4.3 million tons.
So far, the Indian textiles industry has been cotton-focused, with cotton accounting for about 55 per cent of the total fibre consumption in 2012. However, consumption of polyester fibre is gainting momentum due to a number of factors: fluctuaiton of cotton prices, increased presence and sourcing by global brands where polyester fibre dominates, growth of the womenswear segment, and growth of value retail. The trends in India are there to see: cotton fibre, which constituted 60 per cent of the market in 2000, dipped to 55 per cent in 2012; while polyester fibre consumption grew from 34 per cent to 38 per cent during the same period. Even globally, the fibre consumption till 2000 was led by cotton.
Trends have changed dramatically after the system of import quotas that dominated international trade in textiles was phased out in 2005. The share of polyester went up from 36 per cent in 2000 to 43 per cent in 2007, and still up to 50 per cent in 2012. During the same period, the share of cotton saw a steady decline: from 37 per cent in 2000 to 31 per cent in 2012. The gap between polyester and cotton, which has been widening by the year, is expected to close up in another 10 years.
India's overall share in the textile and apparel trade was about 5 per cent in 2013, but out of a total of 864 textile and apparel commodities there were 317 in which India's share was less than 1 per cent. Though the collecive trade in these commodities was roughky USD 208 billion, India's trade in them was only around USD 385 million (0.19 per cent). It is this virtually untapped segment (which is MMF-based) that India will be looking at if exports have to grow.
But MMF demand will be just be export-oriented, the domestic consumption of MMFs is going to rise phenomenally. There are a number of segment trends to watch out for. Only of the fastest-growing segments in the apparel industry today is activewear. With India's large and young population showing an increased affinity for fitness and major global sports brands growing in India, this fashion trend will boost MMF consumption. The workwear and uniform segment too will opt more for MMFs. The domestic market for branded lingerie too is another such segment.
If MMF consumption had not stolen a march over cotton till date, there are reasons. The value chain in the manmade fibres textile industry is weak as of now, with smaller units still being unable to take advantage of the situation (i.e. demand). Moreover, most units work with old or obsolete technology. This has a negative effect on high-quality products. The result is that despite India being a leading MMF manufacturer, a lot of MMF-based processed fabric is still being imported into the country.
There are other reasons why the manmade fibres sector hasn't grown by leaps and bounds. The cellulosic fibre/ yarn industry falls under the administrative control of the Ministry of Textiles while non-cellulosic industry is under the Ministry of Chemicals and Fertilisers (Department of Chemicals and Petrochemicals). It is only a matter of time before this is sorted out.
The share of manmade fibres in India’s fibre consumption has stagnated on account of rising cotton production and increased demand for cotton by textile manufacturers to cater to export demands. The demand for cotton has risen both from textile manufacturers in India as well as other competing countries like China which wanted to maximise advantage of quota abolition in import markets like the US and the EU. Due to rising global consumption of cotton, international cotton prices lowered, leading to decline in domestic cotton prices as well. This further contributed to increasing the demand for cotton in the domestic market, higher than the demand for manmade fibres.
But with the post-quota era stabilising and the demand for cotton going down, the focus of the Indian textiles industry might soon see an affinity for manmade fibres. That’s when cotton will take a big hit.
The case for sustainable fashion
The term "sustainable fashion", when it first started doing the rounds a decade back, was dismissed by many as a fad. Many thought it would fade away as style often does. Of course, it didn’t. Sustainable fashion is something that embodies both eco-fashion and ethical fashion. The concerns are clear: environmental sourcing and manufacture of materials, reduction of carbon footprint, and safety of consumers and workers. The two keywords are ‘people’ and ‘planet’: the same words that came into the limelight with the release of the Brundtland Commission’s report in 1987 and the Rio Summit of 1992.
The terms of the sustainable fashion debate were first in the 1990s, when Vogue wrote about environmental trends in fashion. In 2001, British fashion designer Stella McCartney, daughter of former Beatles member Paul McCartney and American photographer and animal rights activist Linda McCartney, who does not use leather or fur in her designs, launched her own fashion house under her name in a joint venture with Gucci Group (now Kering) and showed her first collection in Paris. Three years later one saw the first Ethical Fashion Show in Paris. In 2007, Vogue again brought up the issue insisting that sustainable fashion appeared not to be a short-term trend but one that could last multiple seasons. Earlier, the fashion world would support environmental causes through charity. But now, designers were introducing eco-conscious methods at the source itself through the use of environment-friendly materials and socially responsible methods of production.
Since then, the trend has been forceful and rising. The high-profile New York Fashion Week launched its first Eco Fashion Week in 2009, and the first official sustainable-fashion show at London Fashion Week (LFW) was held in 2010. High-street fashion label H&M too launched its Conscious Collection. The fad had become a movement by LFW 2013. In 2005, less than 5 per cent of the designers were sustainable fashion brands, but at the 2013 show, almost a third of designers were decidedly eco-focused.
In May 2012, the world’s largest summit on fashion sustainability was organised in Copenhagen, where more than 1,000 key stakeholders from the industry discussed the necessity of making the fashion industry sustainable. The Copenhagen Fashion Summit (CFS) has since then become one of the most important events for the fashion industry. The same year, in July, the Sustainable Apparel Coalition launched the Higg Index, a self-assessment standard designed to measure and promote sustainable supply chains in the apparel and footwear sectors of the fashion industry.
There’s, of course, no point in making a fashion statement if it doesn’t sell. It is just as important to look at the cash flow. The growth of sustainable fashion, in fact, is also reflected through revenues. According to the Ethical Consumer Markets Report 2012, the sustainable fashion industry was worth £150 million ($237.5 million) in 2011 – a minuscule fraction of the £21 billion value of the entire British fashion industry, but a huge jump from its £5 million value in 2000. So far it is a niche, but growing fast.
The turning point, however, came with the Rana Plaza tragedy of 2013. The fashion industry was shaken up, and the global outcry ensured that brands could no longer live in denial. These are early days yet, but the move if afoot within the fashion industry to clean up the supply chain.
One needs to remember that it’s an image-conscious industry. Brands in the fashion industry more than anywhere else want to come across as clean, and with rising consumer awareness many are cleaning up their act. And then there are the designers – a vast majority of them being a conscionable lot.
Indian cotton farmers will, however, have to bide their time a bit more. Sustainable fashion does not rule the industry as yet, but it soon might. And just as Western consumers threw a fit over the Rana Plaza incident, it’s only a matter of time before the #whomademyclothes campaign extends to farmers as well. The fashion industry wouldn’t want to have blood on its hands.
