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USDA GAIN: Oilseeds, Cotton, Sugar, Grain and Feed


08 October 2012

USDA GAIN: Viet Nam Cotton and Products Annual 2012USDA GAIN: Viet Nam Cotton and Products Annual 2012

The Vietnam Marketing Year (MY) 2012/13 cotton supply and demand estimates include smaller production and ending stocks compared with last year. Production is down 6 percent while cotton imports are up by 5 percent. Domestic mill use is increasing slightly due to the expanding cotton yarn spinning sector. While Vietnam requires about 350,000 metric tons (mt) of cotton yearly to serve its growing textile and garment sector, the country's 10,000 hectares (ha) of cotton farms produce only 4,500 tons, which only meets 1.4 percent of the total demand. Despite recent contract defaults, U.S. cotton will likely continue to be the largest source of imported cotton in MY 2012/13.
USDA GAIN Report - Oilseeds, Cotton, Sugar, Grain and Feed

Cotton

Textile Industry

Vietnam is now ranked among the world’s top seven textile, garment, and apparel-exporting countries. Despite the global economic downturn, Vietnam’s 2011 textile, garment, and apparel exports were well over the government’s target reaching a value of $15.8 billion, an increase of 26 percent over 2010 (Source: Vietnam General Statistics Office). This growth is mainly due to the sector maintaining its traditional export markets (USA, EU, Japan), while also expanding to new export markets (Korea, Taiwan, the Middle East, Singapore, China, Turkey, etc.). Vietnam has set ambitious targets for the textile industry, with exports projected by Vietnam Textile and Apparel Association (VITAS) to reach $20 billion by 2020. The Trans-Pacific Partnership Agreement (TPP), if finalized, would help Vietnam achieve this target.

Vietnam is one of a very few countries in Asia that has expanded its yarn spinning sector in recent years. Not only foreign investors like Texthong Group (Hong Kong), Kyung Bang Vietnam (Korea); Itochu (Japan) etc., but also local businesses (Vinatex, Dai Cuong, Phu Bai, Thien Nam etc.) have increased investments in yarn spinning in Vietnam. Currently, Vietnam is home to 100 spinning factories belonging to over 80 enterprises. From only 2 million spindles in 2000, Vietnam spindle capacity reached over 5 million spindles (equivalent) in 2011 creating the potential for voracious demand for imported cotton.

Textile, garment, and apparel exports to the United States, the largest market for Vietnam, accounted for nearly 50 percent of total sector exports in 2011. This represented a year- to-year increase of 7.6 percent.

Cotton Market

Post forecasts MY 2012/13 cotton lint production at 21 thousand bales, almost a 13 percent decline compared to MY 2011/12 as strong competition from other agricultural crops (i.e. corn, cassava, and soybeans) will reduce planted area slightly. Vietnam’s plan of having a domestic cotton growing area of 76,000 ha by 2020 is extremely ambitious (Vietnam planted 10,000 ha in 2012). Vietnam will continue to rely heavily on cotton imports to fulfill its cotton needs.

MY 2012/13 cotton imports are forecast at 1.7 million bales, an increase of almost 5 percent over MY 2011/12. This growth is attributed to the expanding cotton spinning sector and continuing strong exports of Vietnamese cotton yarn to overseas makers, especially China and Turkey. In 2011, for the fifth consecutive year, the United States remains the largest supplier of cotton to Vietnam. Vietnam sourced 133,200 tons (about 41 percent) of its total cotton imports in 2011 from the United States making Vietnam the seventh largest market for U.S. cotton at a value of $369 million.

Vietnam exports over 70 percent of the yarn (including cotton yarn) that it produces. Main export markets for Vietnamese cotton yarn are China, Turkey, USA, Korea, Indonesia, Thailand.

Note for unit measures:

  • Planted area/Harvest area: 1,000 ha
  • Stocks/Production/Imports/ MY imports from U.S/ Total Supply/Exports/Use/Total Domestic Consumption/Ending Stocks/Total distribution: 1,000 bales (480-lb bale equivalent to 218-kg bale)

Production

  • Vietnam’s 2011/12 Cotton Production

According to statistical data from the Ministry of Agricultural and Rural Development (MARD), Vietnam’s cotton production in 2011/12 is estimated at 14,200 mt of cotton seed (equivalent to 5,180 mt of cotton lint, 24 thousand bales, at a ginning rate of 36.5 percent), an increase of 10.4 percent compared to 2010/11; this is mainly due to higher cotton yield and increased cotton harvested area. Although harvested area increased it still only reached 11,000 ha in 2011/12. Higher cotton purchase prices led to better economic returns from cotton farming. The increase in cotton acreage occurred in the primary growing regions including the Northwest, the South Central Coast, and the Tay Nguyen Central Highlands, especially in the Tay Nguyen Central Highlands, where the major ginning mills are located. The MARD’s statistical data estimates the average cotton yield of 2011/12 crop at 1.34 mt of cottonseed per hectare.

  • Vietnam’s 2012/13 Cotton Production

Since the end of 2011 / early 2012, cotton prices have dropped sharply. At the same time, prices of corn and soybean have been increasing gradually (see the “Prices Section” including the tables 7 and 8 for more details). As such, Post expects farmers to switch from cotton to more profitable crops like corn and soybeans. Post estimates Vietnam’s cotton area in 2012/13 will fall 9.4 percent over the previous year to just 9,600 hectares. MY 2012/13 cotton yield is projected to decrease 2 percent from the previous crop, to about 1.31 mt of cottonseed per hectare. Therefore, Vietnam 2012/13 cotton production is estimated at 12,580 mt of cotton seed or 4,590 mt of cotton fiber (21 thousand bales), a year-on-year reduction of 11.4 percent.

Note:

  • Prod.: Production
  • THA: Thousand Hectares
  • MT/HA: Metric Ton per Hectare
  • TMT: Thousand Metric Tons n/a: not available
  • (*): estimates

Cotton production in Vietnam is highly susceptible to weather conditions and can fluctuate widely year-to-year. More than 90 percent of the cotton production area in Vietnam is rain-fed, with planting initiated in the rainy season (May/June – August) and harvesting taking place from October - December. In areas where irrigation is possible, cotton may be planted in the dry season (November/December), thereby allowing for harvesting from March through May.

Trade

Calendar year 2011 saw almost an 8 percent decline in the quantity of cotton imports as high prices and the global economic situation resulted in the demand for textiles slowing. U.S. exports in 2009-2011 remained relatively stable, between 132,900 and 141,300 mt. However, Post forecasts the volume of exports in calendar year 2012 to drop below 130,000 mt.

In MY 2010/11, Vietnam imported 343,000 tons (or 1.57 million bales) of cotton fiber, valued at over $1 billion. Cotton imports for MY 2011/12 were about 354,000 tons (or 1.623 million bales) for $871 million, a slight increase of 3 percent in quantity but a sharp decrease of 18 percent in value over the previous year due to plummeting world cotton prices.

Due to the expanding cotton spinning sector, strong exports of yarn to China, and lower prices relative to the last 18 months, Post estimates Vietnam’s cotton imports in 2012/13 to increase by 5 percent to 372,000 tons (1.705 million bales).

  • Vietnam’s Primary Cotton Suppliers

According to Table 4, in 2011, Vietnam imported about 327,000 tons of cotton, a year-on-year decrease of approximately 8 percent. The United States remained the number one cotton supplier to Vietnam, with over 41 percent share of Vietnam’s total cotton imports (note: this marked the fifth consecutive year that the U.S. was the leading supplier of cotton to Vietnam). African countries ranked second and India was the third largest supplier.

Vietnam Imports of Cotton by Countries in 2011

U.S. Cotton Exports to Vietnam

In 2011, U.S. cotton exports reached 133,200 tons for a value of $362 million, a year-on-year increase of 0.4 percent in quantity and 45.6 percent in value due to spiking international prices.

During Jan-July 2012, U.S. cotton exports were 76,338 mt valued at $161.9 million, a significant reduction of 20 percent in quantity and 41 percent in value (see table 6 below). Several factors in the international cotton market have caused volatility in world prices. Unfortunately, this volatility led some mills and other purchasers in Vietnam to default on contracts with US cotton suppliers. The contract default situation made most U.S. cotton suppliers hesitate to sell cotton to the Vietnam market. This is the main reason for the big drop in U.S. cotton exports to Vietnam in the first seven months of 2012, and the results of that situation will likely restrict exports into 2013.

US Exports of Cotton to Vietnam by Quantity and Value

Consumption

Vietnam’s domestic cotton consumption continues to increase in order to meet strong demand from its expanding textile industry. Demand for textiles is strong, for both export and domestic markets. Vietnam is currently home to 100 spinning mills with 5 million spindles (equivalent) for a total capacity of 400,000 tons of fiber. Domestic cotton consumption has been increasing at an average rate of 7-8 percent, per year, for the last five years. Post revises estimated domestic cotton consumption for 2010/11 at 360,400 tons (or 1,650 thousand bales), and for 2011/12 at 366,000 tons (or 1.68 million bales) (see PS&D Table 1). This revision reflects the stronger exports of cotton yarn to overseas markets, especially China and Turkey.

Due to strong demand from China and Turkey for Vietnamese cotton yarn, Vietnam cotton yarn exports will continue to increase in 2012/13. This will result in stronger cotton lint demand in 2012/13. Post estimates cotton consumption in 2012/13 at 365,800 tons (or 1.75 million bales), an increase of 4.2 percent over the previous year.

Stocks

During 2011, and the first 7 months of 2012, Vietnamese businesses suffered high interest rates on bank loans. The average interest rate in 2011 was 20 percent, while in 2012 it has been about 15-16 percent, which is among the highest in Asia. As a result, cotton users and traders have tried to minimize costs by reducing carry-over stocks of cotton. Ending stocks in 2010/11; 2011/12; and 2012/13 are estimated at 315 thousand bales, 282 thousand bales, and 258 thousand bales, respectively. Stocks-to-use is forecast to fall to 15 percent in 2012/13 as users and traders shed excess inventory.

Prices

Fluctuations in cotton prices over the last 18 months have had two effects on the Vietnamese cotton market. Firstly, high prices in 2011 resulted in an expansion in planted area and increased production in MY 2011/12. Secondly, the rapid decline in prices in 2012 -- following their record run up in 2011 -- resulted in a number of contract defaults which affected U.S. cotton exports to Vietnam. Table 6 illustrates the sharp increase in cotton import prices during Jan-Nov 2011 (in comparison to monthly prices in 2010). Import prices reached a staggering $4.17 / kg in May 2011, well over double the price in January 2010.

However, beginning in May 2011 prices began to fall and by June 2012 reached $2.14 /kg, the price level in November 2010. Table 7 shows the decline in average cotton import prices during Jan-July 2012. Prices decreased by 35 percent in comparison with prices in Jan-July 2011.

This wide fluctuation in prices over the last 18 months has caused great upheaval in the world cotton trade. Worldwide contract defaults grew exponentially as prices reached record highs and then dropped precipitously in 2012. Vietnam is one of a number of countries that had a significant number of cotton contract defaults listed on either the International Cotton Association (ICA) or American Cotton Exporters Association Default lists.

Domestic Prices:

Presently, the Vietnam Cotton Company (VCC) is buying seed cotton at an average price of VND 12,000/kg, equivalent to $0.576/kg (or 26.2 U.S. cents/lb), a decrease of 29.4 percent in comparison with the previous crop (note: in the previous crop, VCC bought seed cotton at VND 17,000-18,000/kg). VCC is currently selling ginned cotton to mills at $1.97-1.99/kg (89.4-90.3 US cents/lb). However, it is quite difficult for mills to accept these price levels due to the current slump in cotton international prices.

Current Offer Prices (based on CNF Ho Chi Minh City, prompt shipment, quoted on Sep 10): Current indicative offer prices ($/kg or US cents/lb) for cotton (quality equivalent to Strict Middling 1.1/8”) from various sources are as follows: West Africa – $1.94/kg (87.9 US cents/lb); USA – $1.95/kg (88.5 US cents/lb); and India-$1.97/kg (89.4 US cents/lb). Table 9 below shows that the U.S. remains competitive in the Vietnamese import market.

Marketing/Policy

  • Tariff on Cotton

Cotton has a zero tariff on [cotton lint], but a 10 percent value added tax is assessed.

Biotech Policy and Cotton Production

Vietnam has identified and approved three crops (cotton, soybeans, and corn) for biotech development in Vietnam. Currently, however, commercial production of those genetically engineered (GE) crops, and trade in GE seeds, is still not yet allowed as the commercialization of GE crops is not yet approved. However, despite the lack of a biosafety certification process, MARD issued the first permission for conducting confined and multi-location field trials of Bt corn to three companies in 2010 and 2011. To date, these trials have not yet resulted in certification of any GE varieties. Although cotton is one of the three crops identified for GE production in Vietnam, to date, no confined or multi-location field trials for cotton have been undertaken.

Vietnam Cotton Development Plan for 2015-2020

On January 8, 2010, the Prime Minister signed the Prime Minister’s Decision No. 29/QD-TTg, approving the Vietnam Cotton Development Master Plan for 2015-2020. Table 10 below shows the main targets of this plan.

Under the program, the Government of Vietnam (GOV) will encourage larger-scale cotton farms and intensive cotton farming in order to increase cotton output and cotton quality. The planned key areas for cotton cultivation to include Dak Lak, Dak Nong, and Gia Lai provinces in the Central Highlands; Ninh Thuan, Binh Thuan, Binh Phuoc, Dong Nai, and Ba Ria-Vung Tau in the south-east and central coastal regions; and Dien Bien, Son La, and Bac Giang in the northern region.

The GOV plans to establish a fund to help farmers with extension work and cotton price stabilization. Low-interest loans will be made available to cotton farmers. The GOV also plans to invest in building infrastructure and irrigation in cotton growing areas. The Ministry of Trade and Industry (MOIT) has also approved plans for garment & textile development for 2015 and its plan for 2020.

Post believes both these plans are ambitious. Previous efforts to promote cotton development have been unsuccessful, due to limited land resources and competition from other crops.

October 2012

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