Southeast Asia regional update - 1985/86-1991/92 cotton production, consumption, forecasts - U.S. Dept. of Agriculture, Economic Research Service report

Of the five Southeast Asian countries covered in this report (Burma, Indonesia, Malaysia, Philippines, and Thailand), none produce significant amounts of cotton relative to their consumption needs except for Burma which produces roughly 50 percent of its requirements. Therefore, Southeast Asia is becoming an extremely important market for U.S. cotton because most of its increasing consumption needs are met through imports. This group of countries, especially Thailand and Indonesia, are developing into large textile suppliers. By taking advantage of lower raw material and labor costs, Thailand and Indonesia are successfully competing with the top three Asian countries, (Korea, Hong Kong, and Taiwan) as the dominant textile and garment exporters. Moreover, the Southeast Asian countries continue to upgrade quality, improve machinery and production processes, and adopt better marketing strategies. Table 1 below shows that the total combined export value of textiles for Indonesia, Malaysia, Philippines, and Thailand more than doubled during the period CY 1987-1990. In Indonesia, textile exports are estimated to have reached $4.0 billion in 1991, and projected to double by 1995. Textile exports in both Malaysia and Thailand are estimated to have increased 15-20 percent in 1991. The Philippines is also experiencing a vigorously growing textile export market.

TABLE 1: SOUTHEAST ASIA'S TEXTILE EXPORTS DURING 1987-1990
                          (000 MILLION US$)
CALENDAR   INDONESIA   MALAYSIA   PHILIPPINES   THAILAND
YEAR
1987           1,028        915         1,018      2,090
1988           1,428      1,125         1,440      2,538
1989           2,032      1,445         1,850      3,185
1990           2,917      1,740         2,090      3,513
SOURCE: USDA/FAS
FEBRUARY 1992

Table 2 highlights the dominant and growing market share the United States has in Indonesia, Malaysia, Philippines, and Thailand. Based on U.S. export commitments to date, U.S. market share should increase about 54 percent between MY 1986/87-1991/92. For individual countries, U.S. market share in MY 1991/92 is forecast at 45 percent in Indonesia, 25 percent in Malaysia, 75 percent in the Philippines, and 26 percent in Thailand.

TABLE 2: SOUTHEAST ASIA'S COTTON CONSUMPTION AND IMPORTS IN MY 1986/87-1991/92
                                                    U.S. SHARE
MARKETING                  CONSUMPTION   IMPORTS    OF IMPORTS
YEAR (AUG-JUL)                  (480 LB. BALES)      (PERCENT)
      1986/87                  2421         2629         26
      1987/88                  2584         2104         33
      1988/89                  3012         2901         19
      1989/90                  3265         2974         36
      1990/91                  3532         3608         29
      1991/92 (FORECAST)       4025         3870         43
NOTE: INCLUDES BURMA, INDONESIA, MALAYSIA, PHILIPPINES, AND THAILAND
SOURCE: USDA/FAS
FEBRUARY 1992

Table 3 shows that total cotton consumption in Japan, South Korea, Hong Kong, and Taiwan has actually declined nearly 3 percent since MY 1985/86, while more than doubling for the Southeast Asian countries of Indonesia, Malaysia, Phillipines, and Thailand. Since MY 1985/86, cotton consumption has increased 143 percent in Indonesia, 94 percent in Malaysia, 110 percent in the Philippines, and 69 percent in Thailand. Finally, Table 4 intimates that the United States has kept pace with Southeast Asia's success, as indicated by the strong market presence the United State has maintained in these countries. [Tabular Data 3 & 4 Omitted] Since Southeast Asia is not an economic entity such as the European Economic Community, albeit sharing a reputation as a newly emerging textile producing area, the following will discuss the countries of Burma, Indonesia, Malaysia, the Phillipines, and Thailand separately.

BURMA

In 1988, Burma opened the country to private sector trade and foreign investment. However, these policy changes have not induced significant economic progress. Gross domestic product remains low and falling export prices have prevented any substantial improvement in export earnings for many of its major commodity exports. Burma is heavily dependent on the agricultural sector which accounts for 51 percent of gross domestic product and provides employment for 66 percent of the workforce. Burma's principal crops are rice, corn, oilseeds, sugarcane pulses, and hardwood; all of which account for 55 percent of export revenues. Cotton is a relatively small but important segment of the Burmese economy receiving government support. In 1990/91, Burma produced 96,000 bales, valued at about $79.5 million at world prices, and comprised nearly 5 percent of GDP. Government support is focused largely on long staple cotton production of which the Government provides seeds, pesticides, and fertilizer. Prior to 1988, cotton growers were required to sell most of their produce to state industries at fixed prices, which were much lower than open market prices. Since 1988, cotton producers have been allowed to sell freely on the open market. However, farmers who receive government support are obligated to sell about 10-15 percent of their crop to State industries at prices 34-40 percent lower than open market prices. Cotton consumption in Burma exceeds domestic production by over 50 percent. However, State-run mills produce far below capacity because foreign currency limitations inhibit cotton purchases. Meanwhile, private mills depend on unofficial sources of cotton to keep running. Consumption in MY 1991/92 is currently forecast at 155,000 bales, more than double domestic cotton production. The Government of Burma officially imported 69,000 bales in MY 1990/91. According to the U.S. export sales report, during MY 1990/91, the United States exported nearly 11,000 bales of upland cotton having a staple length of 1-1/16 and over. Reportedly, Burma's mills prefer U.S. long staple cotton and would purchase it rather than upland if more foreign exchange were available. Imports are forecast at 70,000 bales for MY 1991/92. To date, Burma has not contracted for U.S. cotton in the current 1991/92 marketing year. Before MY 1990/91, Burma exported only negligible amounts of cotton. However, cotton exports reached a record 23,000 bales and contributed about $19.0 million to Burma's export revenues in MY 1990/91. The cotton (mainly long staple cotton) was reportedly exported to China and India. Exports are forecast to reach 10,000 bales in MY 1991/92.

Outlook Political unrest and the Government's lack of successful economic reforms will continue to weigh heavily on Burma's economy. Concurrently, the Government's tight grip on foreign exchange for non-military imports will continue to limit badly needed imports, such as cotton. However, the Government of Burma seems willing to support cotton production, which has fallen by one-third since mid-1980's levels. In the meantime, Burma will need to import cotton. And, if foreign exchange is freed up, Burma's preference for U.S. long-staple cottons could mean an increased market potential for U.S. cotton.

INDONESIA

Since the mid-1980's, the Government of Indonesia has pursued economic deregulation policies aimed at employment creation and reduction of dependence on oil and gas as foreign exchange earners. Trade has been progressively liberalized through a series of deregulation packages: tariffs have been reduced (there is no duty on cotton); import licensing requirements have been reduced or eliminated; and a system of customs drawbacks or exemptions has been instituted exempting exporters from payment of duty and value-added tax on imported products produced for re-export. These measures have been particularly beneficial for textile mill and apparel products using cotton fibers. As a consequence, Indonesia's textile industry has been one of the fastest growing export sectors and the second largest non-oil and gas industrial export after processed wood. In 1989, total exports were valued at $23.5 billion. Petroleum and natural gas accounted for 40 percent, while timber and textiles totaled 15 and 7 percent, respectively. Indonesia's textile industry has taken off in recent years. To illustrate, at the beginning of 1989 there were 3.0 million spindles in operation in Indonesia. In the course of that year, a total of 192 textile and textile product factories were built, consisting of 20 spinning mills, 48 weaving mills, 29 knitting mills, 75 garment factories, 16 embroidery factories and 4 fiber making factories. By 1990 and 1991, there were around 3.9 and 4.0-4.3 million spindles, respectively, in operation. The dramatic growth in the textile industry spurred increased cotton consumption which jumped 7 percent from MY 1990/91 to an estimated 1.6 million bales in MY 1991/92. In 1990 domestic and foreign investment in the textile industry increased 150 percent over the previous year. Additionally, a booming economy which raised incomes, increased demand for cotton and cotton-blended textiles. It is estimated that about 40-45 percent of the cotton and cotton-blend textiles produced in Indonesia are used domestically. The value of Indonesia's textile exports grew by 44 percent in 1990 to $2.9 billion. These impressive figures are reflective of an industry which has been producing higher quality textiles and garments for the export markets. It is projected that Indonesian textile exports will reach $4.0 billion in 1991, a 38-percent increase from the previous year. Indonesia's Department of Industry also forecasts that textile exports will reach over $5.0 billion by 1993, a realistic goal considering past performance. Over the past 5 years, U.S. market share in Indonesia has averaged 31 percent. Indonesian cotton imports from the United States were valued at $179.2 million in 1990, a 15-percent increase from the previous marketing year. The U.S. share of the Indonesian cotton market reached almost 40 percent during MY 1990/91, slightly higher than the year earlier. Trade sources speculate the U.S. share could reach between 43-45 percent in the current season. Indonesia's import requirements for MY 1991/92 are forecast at 1.7 million bales. U.S. export commitments as of the end of January, total 715,000 bales, or 42 percent of Indonesia's forecasted import needs. Australia, Pakistan, and Brazil are the major competitors in Indonesia. Australian cotton is most preferred by local textile mills (after the United States), as the quality is reportedly comparable to San Joaquin Valley cotton which is grown in the United States. In MY 1990/91, Australia's cotton market share rose 5 percent to 19 percent. Cotton imports from the cotton producing republics of the former Soviet Union are likely to increase in the near term based on reports that barter arrangements have been negotiated with an Indonesian trading house.

Outlook Cotton consumption and textile exports likely will continue to increase for various reasons: sustained economic growth and low inflation, which has increased per capita demand for cotton; labor costs in Indonesia, which are 10-15 percent lower than in other Asian countries; liberal economic and business regulations, which encourage foreign and domestic textile industry investments; and favorable textile export terms. Most cotton imported by Indonesia is upland cotton, but extra-long staple cotton is gaining in popularity as Indonesia strives to meet export demand for higher quality textiles and garments. U.S. cotton will continue to dominate the Indonesian import market, followed by Australia. U.S. cotton is preferred because of its consistent quality, dependable supply, and reliable grading system. Additionally, U.S. Pima sales are likely to gain momentum. Reportedly, the largest textile manufacturer in Indonesia currently imports between 25,000-30,000 bales of Pima cotton per month, and almost 90 percent of total U.S. Pima cotton imported by Indonesia.

MALAYSIA

Malaysia has a small but growing textile industry. The textile and clothing industry ranks second to the electrical and electronic industry in terms of foreign exchange earnings and employment generation. As of June 1991, there were 15 spinning mills, 20 weaving mills, 115 knitting mills, and seven fabric processing plants. The yarn-spinning sector has about 403,000 ring spindles and 4,200 open-ended rotors producing about 60,000 tons of yarn per year. The fabric-making sector has approximately 8,000 looms producing about 285 million square meters per year. There are about 3,000 knitting machines, and knitting capacity is about 30,000 tons per year. Since Malaysia produces no cotton, it must rely on imports for domestic mill consumption. In MY 1990/91, Malaysia imported 200,000 bales of cotton. U.S. Export Sales reported accumulated exports of 38,500 bales, giving the United States a 19-percent share in MY 1990/91. Malaysian imports for MY 1991/92 are forecast at 220,000 bales, and U.S. export sales commitments are currently estimated at 45,000 bales, resulting in a 20-percent market share for the United States. Cotton consumption continues to increase with the growth in the textile and garment industries. A strong economy (real output grew by about 10 percent in 1990) and greater consumer demand for textiles and garments has prompted a growth rate in domestic sales of about 6 percent in 1990. Cotton consumption in MY 1991/92 is forecast at 210,000 bales, up 5 percent from MY 1990/91. Malaysian exports of testiles and clothing, valued at $1.7 billion, grew 20 percent in 1990. Wearing apparel is the largest component of the Malaysian textile industry. In 1990, apparel exports accounted for 67.3 percent of total exports of the industry as a whole. Exporters also predict that export earnings will increase 15-20 percent in 1991. By 1995, Malaysia's textile-export target is $3.7 billion. The United States is the largest single market for Malaysian textiles and clothing, followed by the EC, Singapore, and Canada. In 1990, Malaysia's textile and clothing exports to the United States were valued at $596.0 million, which was 34 percent of Malaysia's export earnings from textiles and clothing.

Outlook The Malaysian textile industry is the second most important industry in the manufacturing sector after electronics. Over the past 5 years, its textile sector has increased about 28 percent. The Government of Malaysia is supportive of the industry's efforts to expand and modernize given the importance of the textile industry to the Malaysian economy. More than 80 percent of Malaysia's textile sales are exported. Foreign investment remains strong, with companies from Japan, Canada, Singapore, and Taiwan putting up modern facilities. Existing plants are expanding production capacities and upgrading machinery. Moreover, export-oriented plants can receive low-cost credit for exports of textiles and clothing. Accordingly, domestic cotton consumption should continue to show steady growth. Cotton imports should continue to increase due to the continued expansion in the Malaysian textile and garment industry. In 1983, the Government of Malaysia removed all import duties and surtaxes on raw cotton imports. Export oriented companies favor U.S. cotton, but cheaper competitor prices during the last several years have cut into U.S. market share. Malaysian cotton importers continue to cite higher U.S. prices as the major reason for strong competition from nearby exporters like Australia, China, and Pakistan. However, demand for cotton continues to expand, and current U.S. farm policy should help to keep U.S. cotton favorably priced with foreign growths. Furthermore, in recent years, Malaysia's testile industry has begun to shift in favor of higher-value products requiring higher quality cottons. This switch should create improved opportunities for imports of U.S. extra-long staple cotton.

PHILIPPINES

The Philippine economy in recent years has been plagued by numerous setbacks. There was an attempted coup in 1989, an earthquake in 1990, military base closures, and oil price increases after the invasion of Kuwait all of which exacerbated an already difficult economic situation. Despite some economic recovery from the political turmoil, inflation centered around 13 percent and GDP slowed from its average of 5.5 percent from 1987-1989 to about 2.5 percent growth in 1990. The bulk of the Philippines' foreign exchange earnings in 1990 came from exports of electronic devices and garments. The Philippines' top three trading partners are the United States, Japan, and the EC, which together accounted for roughly 59 percent of the country's total trade in 1990. The Philippines enjoyed a $50.0 million agricultural trade surplus with the United States during 1990. The United States purchased nearly 38 percent of total exports (of mainly electronic devices and garments) and supplied 19 percent of total imports during 1990. The main Philippine agricultural imports from the United States were primarily wheat, soybean meal, cotton, and tobacco. Domestic cotton consumption continues to grow to record levels each year as the textile and garment industries expand. However, expansion of the domestic textile industry continues to lag behind the growth of domestic and export demand for Philippine garments. A large proportion of garment exports are manufactured using imported textiles. Industry sources estimate that domestic textile production is sufficient to supply only about one-third of total need. This is mostly attributed to a dramatic increase in lower-priced yarn imports (particularly from Pakistan) which have displaced domestic spinning capacity. Domestic consumption for MY 1991/92 is forecast at 260,000 bales, up 4 percent from last year. The new Bilateral Textile Agreement with the United States could add a half-billion dollars to the Philippines' export earnings next year. The Philippine textile industry has approximately 1.1 million spindles and employs about 90,000 workers. The problem is the lack of a modern textile industry which can satisfy all of the demands of the export market. Consequently, the Philippine Government is pushing heavily for a mill modernization plan which will make the industry more competitive with that of other Asian countries. The Government is encouraging modernization of existing mills by providing financing and tax incentives and freer opportunities for foreign investors. Imports of cotton have been declining in recent years. This was chiefly due to the relatively high price of cotton imports compared with the price of imported yarn and textiles. This trend is expected to continue if raw cotton imports are priced uncompetitively with imported yarn and textiles. However, the United States has commanded a sharply higher percent share of raw cotton imports; 67 percent in MY 1989/90, 60 percent in MY 1990/91, and possibly as high as 75 percent in MY 1991/92. Imports for MY 1991/92 are forecast at 230,000 bales, 2 percent above last year.

Outlook The potential in the Philippines for increased cotton consumption is there if the textile industry can upgrade its processing facilities and displace some of the imported yarn and textiles. The Government hopes that a more liberal foreign investment act will also encourage the expansion of new textile mills. The existing import duty on raw cotton imports is 10 percent which will be in effect throughout 1992. However, in 1993, the import duty will be reduced by one half to 5 percent. Also, any new export projects will be exempt from import duties and other related taxes. The Philippines prefer cotton products and like U.S. cotton but are influenced mainly by price. Australia and Pakistan are the major competitors in the Philippines and they have a transportation advantage. Therefore, the continuation of a strong U.S. market promotion program is needed to ensure that U.S. cotton exports continue to have access to this market.

THAILAND

The Thai economy is booming and one of the fastest growing in the world. Its export-oriented, free-market philosophy has led to strong economic growth which averaged over 11 percent from 1987 to 1990. Estimated real growth reached 10.3 percent in 1990. Barring unforeseen circumstances in Thailand's principal export markets, Thailand's real economic growth should continue to be above 7 percent annually over the next few years. Textiles and apparel are Thailand's single most important export commodity, accounting for 14.4 percent of all exports in 1990. The industry employs about 100,000 workers, about 75 percent of whom are in the apparel sector. In 1989, the Ministry of Industry reported that there were 3,067 textile industries with a total of 2.74 million spindles, 107,305 weaving looms and 80,383 knitting machines. The United States remained the single most important market for Thai textile products, accounting for 17.3 percent of total textile exports in 1990. Last year sales to the U.S. market increased 13.2 percent. Thailand is one of the top 15 consumers of cotton in the world. Cotton use continues to increase yearly due to a vigorous textile export market and increased local demand for textile products. In MY 1991/92, cotton consumption is forecast to rise 24 percent over last year to 1.8 million bales. The yarn spinning sector, which grew by 20 percent in 1990, is directly linked to the increase in cotton consumption. Thailand produces little cotton and must rely on imports to supply 90 percent of total cotton use. The Bank of Thailand reports that in 1990 Thailand imported $565.5 million in natural fibers, of which almost $155 million was cotton fiber from the United States. Pakistan, Brazil, Sudan, and Australia are the major competitors for cotton in Thailand. The majority of U.S. cotton imported into Thailand is SLM 1-1/32 to 1-1/16 inch. Short staple cotton is normally purchased from Pakistan and Brazil, while medium staples are purchased from Australia and Sudan. Market share has varied yearly depending on price. In MY 1990/91, U.S. market share dropped from 33 percent to 20 percent because of more attractive cotton prices from competitors. U.S. market share is forecast to rebound somewhat this year to around 26 percent.

Outlook In line with the Government of Thailand's favorable climate for direct foreign investment, the Government deregulated the textile industry in June of 1991, and removed all restraints for building or expanding textile plants. In late 1990, tariffs on machinery imports were lowered from 30 percent to 5 percent. The industry feels the lower tariffs will encourage large scale modernization of the plants and increased textile exports. The import duty on raw cotton is 5 percent. Commerce Ministry officials believe that textile export performance in 1991 and 1992 will be good. Final figures for 1991 are not available, but garment exports are estimated up about 15 percent, fabric exports up 2 percent, and synthetic yarn exports up about 7 percent. The new bilateral textile agreement between Thailand and the United States significantly increases the specific limits for Thai exports to the United States in several fabric and apparel categories. Thailand's textile industry specializes in production of coarse to medium count yarns and polyester/cotton blends. However, the cotton yarn and polyester/cotton yarn market has been stagnant due to oversupply, resulting in lower priced competition from China and Indonesia. Recently, more attention has been focused on the man-made fiber market and the production of higher quality textiles. Thai producers prefer to buy U.S. cotton because of reliability of supply and dependable quality, but price continues to be the deciding factor. Efforts to promote U.S. cotton in Thailand, by focusing on non-price factors, could be beneficial. [Tabular Data 3 Omitted]

Priscilla Andrew, Tobacco, Cotton, and Seeds Division, FAS/USDA.

COPYRIGHT 1992 U.S. Department of Agriculture
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