The free trade agreement may help boost Cambodia’s apparel exports to South Korea.

The agreement also presents opportunities for value-added investments in Cambodia’s downstream processing industries through a plus one business model, in which South Korean companies could expand their supply chain network developed in not only China but also Vietnam or Thailand. South Korea has a great demand for high-value winter clothing and denim. Other potential products that have good demand in the country include non-leather footwear, home textiles, jute and jute products etc.

This year, Cambodia’s apparel exports to South Korea may touch pre-Covid levels despite the volatility in monthly shipments.The FTA will remove tariffs on 95 per cent of products imported from Cambodia, while Cambodia will eliminate duties on 93 per cent of imported goods.On a monthly basis, Cambodia’s outbound shipment of apparel to South Korea gained in July 2022 and further improved in August 2022. South Korea is a very minor market for Cambodia’s apparel exports and is currently positioned at 13th place in terms of apparel exports from Cambodia. South Korea accounted for a mere 1.51 per cent out of Cambodia’s total apparel exports in 2021. The biggest markets for Cambodian garments are, in order, the US, EU, Japan, Canada and the UK.

India is working toward getting zero duty access through free trade agreements in leather goods, sportswear and footwear.

About 7,000 small industries units are connected with the footwear sector which holds great significance to the economy and foreign exchange earnings of the country.Nearly 40 per cent employed in the sector are women and for every 1000 pairs that are produced or sold, 425 jobs are secured. India is the second largest producer of footwear and leather garments. The center has notified the Indian Footwear and Leather Development Program with an outlay of Rs1700 crores for implementation during 2021-26.

India has immense potential in the footwear sector and ethical and responsible practices like zero-waste discharge, salt-free tanning, and occupational health and safety interventionscan increase production and export ten times in the near future. Through a quality control order imports can be limited and good-quality exports can be achieved. Strong global branding through road shows, e-platforms and global joint ventures can help the sector make a mark globally.

Attention can be given to the non-leather footwear sector as well. A lot of emphasis is now being given to the production of manmade fiber. Since brands are dependent on India for raw materials, Indian brands with high-value projects can find their way into the global market.

Given the volatility and roller coaster ride cotton has been going through in recent times, in terms of pricing and demand- supply; is adding further to the existing uncertainty in fashion business as well as disrupting the supply and global value chains. A peep into the three of the cotton world leaders India, China and the USA, at their cotton production, consumption and participation in global trade may reflect on the immediate future outlook, as what lies in stock for the fashion business.

Last Friday, October 7, 2022 was celebrated internationally as the World Cotton Day. Initialised on October 7, 2019 by the World Trade Organisation (WTO) in collaboration with four sub-Saharan African cotton producers Benin, Burkina Faso, Chad, and Mali, collectively known as the Cotton Four, the day was earmarked by the United Nations General Assembly in 2021. Together with the secretariats of the United Nations Conference on Trade and Development, the International Cotton Advisory Committee, and the United Nations Food and Agriculture Organization (FAO), the WTO Secretariat organized the event (UNCTAD). This year the theme is “Weaving a better future for cotton”. The focus is on sustainable ways to grow cotton as well as improve living and working conditions of those engaged in cotton farming such as small farmers and labourers.

The World Cotton Day is significant as about 75 countries worldwide grow cotton and their economies are benefitted through exports, downstream production lines and job generation. History has it that the oldest record of cotton farming was from India which remains the world’s second largest producer of the most-environment friendly fibre.

India launches cotton council

The government launched the Cotton Council of India on May 18, 2022 under the able chairmanship of legend cotton-man of India, Suresh Kotak. The council has been assigned to research, analyse and prepare a comprehensive plan of action to significantly improve farming methods, fibre quality, greater yields and sustainable farming. In 2022, India has produced 6,162,000 tonnes compared to China’s 6,423,000 tonnes. The USA is a distant third with 3,181,000 tonnes. . Currently India supplies 18% of cotton’s global trade and its main destinations are China, the US, Bangladesh, Vietnam, Taiwan, Thailand and Indonesia. 74% of all garments exported from India are also cotton products. The Cotton Council of India has started addressing the current primary concern – the price of cotton is rising despite a large area being under cotton cultivation. This has been attributed to poor levels of productivity among Indian farmers. Low productivity is perhaps the biggest hurdle India has to overcome to continue retaining its lead and work towards greater sustainability.

China flooding Indian market with cheaper rates

Over the last few years, the growth rate of China's cotton spinning industry is declining and labour costs, land rent and the prices of other production factors are on an upward spiral, thereby increasing the costs of cotton planting and decreasing the profits and area of cotton planting. The Chinese government is transferring cotton production capacity to Xinjiang which enjoys lower production cost compared to other parts of China. In 2020, the cotton planting area in China was about 3.168 million hectares, down 5.10% YOY.

Due to the pandemic, domestic consumption of cotton products has experienced a slow-down, leaving China with excess to export. The US ban on textiles originating from the Xinjiang province of China has further added to the crisis and China has found an opportunity to flood the domestic Indian market with cotton yarn that is cheaper than the domestic one, compounding to price issues India faces. Further, the US ban has hit India's cotton yarn spinning industry, with half of the mills becoming idle in the past four to five months.

USA’s 2022 crop forecast lowest in 13 years

According to USDA’s August forecast of the 2022 cotton crop, U.S. production is projected at 12.6 million bales, considerably below last season’s final estimate of 17.5 million bales and the lowest crop estimate in 13 years. Compared with 2021, cotton harvested area is also forecast significantly (31%) lower, but a higher national yield limits a further production decline. However, The US is projected to continue being the world’s largest cotton exporter and its share of global trade in 2022-23 at an estimated 27%.

As the world concluded its second World Cotton Day, stakeholders are hopeful for an outcome that irons out the current crises and establishes profitability through sustainability and support the fashion industry as a stable and sustainable raw material.

The global cotton market is projected to experience tight supply in 2021/22, with supply estimated to say no 1.2 percent, including a 4.9 percent contraction in stockpiles.

Global cotton demand is projected to rise 2 percent in 2022, driven by a revival in consumption from downstream industries like textiles and apparel; however, shipping container shortages, shipment delays, and high ocean freight rates are expected to dampen imports. A strong recovery in global demand amid lower production in key producing regions such as India, the U.S., Pakistan, Brazil, and Turkey during the previous season has tightened carry-over stocks for 2021/22, which is predicted to keep prices elevated, whereas the recent yield concerns within the U.S. and India has raised concerns of tighter global availability.

Lower-than-anticipated U.S. cotton supply is probably going to reduce export volumes, thus restricting global availability, with shipments already facing disruptions thanks to logistical issues. This is able to force mills in key consuming regions to utilize their domestic stockpiles.

Russo-Ukrainuan conflict has negative impact

Recent escalations within the Russia–Ukraine conflict is seen to negatively impact the cotton market. Meanwhile, a cutback on consumer spending and mill demand for cotton is predicted to exacerbate the adverse impact of prevailing deterrents to demand such as high inflation, rising interest rates, and withdrawal of stimulus packages. Further, mills are expected to adopt a cautious approach and are likely to carry back on orders for cotton amid the global uncertainty in demand, which can raise stocks.

Decline in Chinese, Indian and American production

China’s cotton production is estimated to drop by 8.5 percent in 2021/22 on account of a lower acreage and yield of 4.6 and 4 percent, respectively, for the present crop of domestic cotton. Further, a contraction in imports thanks to the prevailing tightness in U.S. export volumes is probably going to result in domestic stockpile depletion in China – where cotton stocks are projected to fall 7.8 percent. Indian cotton supply for 2021/22 is projected to decrease by 6.9 percent thanks to tighter domestic production on account of lower acreage coupled with erratic monsoons during 2021 and pest infestations in key cotton growing regions, which is probably going to lower yields. The U.S. cotton supply is estimated to contract by 4.9 percent for 2021/22 on account of a big fall in opening stock balance by 56.6 percent and a lower recovery seen in domestic cotton output. U.S. cotton production is predicted to recover by 20.6 percent in 2021/22 amid higher acreage for the crop. However, following a 26.6 percent fall in output within the previous year, the expected current-season output volume remains well below the 5-year average for U.S. cotton. Further, dry weather and extreme heat conditions within the key cotton producing region of Texas is expected to lower yields for the current season, further restricting output.

Is cotton farming a lucrative prospect?

The Indian government agency Cotton Corporation of India has predicted that 2022-23 will see a 15% rise in the domestic production of cotton – 36,000,000 bales of 170 kgs each. However, the cotton production year starting October 2022 and ending September 2023 is vulnerable to inclement weather which could adversely affect crops. With higher price realization per candy since May 2022, many farmers are opting to cultivate cotton instead of food grains, which has shot cotton cultivation up in India by 8% already.

October 7 is World Cotton Day, a celebration of the world’s most important natural fiber.

The fluffy fiber is found in many different products as an ideal and much-appreciated raw material. Cotton can be precisely described with 14 quality characteristics – focusing on length, strength, fineness, color, maturity, trash and moisture content of the fiber. The value of cotton as a raw material depends on its quality. Key factors are long and uniform fiber length, optimal fineness for each application and high strength for precious fibers.For spinning mills, cotton purchasing accounts for more than 50 per cent of costs. Some of the costliest mistakes in yarn manufacturing arise from poor control of the raw material at bale mix before spinning preparation. But fiber testing is also essential during the spinning preparation stages, to minimize any negative financial impact of excess waste, unnecessary cuts, reworking, and customer claims.Today, cotton fiber is found in clothing and cosmetics items. Applications span the invention of toilet paper to the recycling of denim pants into vehicle construction components.

The first evidence of cotton use was found in India and Pakistan, and dates back to around 6000 B.C. That means cotton’s been keeping people dressed for over 8000 years.

The PLI 2.0 scheme for apparel and home textiles is open for all products including cotton. This will create opportunities for companies to choose their preferred products.

The scheme brings around Rs 4,300 crores of incentives to the eco system and may generate Rs 1 lakh crore worth new manufacturing. All kinds of textile manufacturing companies can apply.Companies working with the PLI scheme can get good mileage with domestic and international buyers due to their visibility. Notably those companies that take up projects with the PLI scheme can also avail of state government incentives.The incremental sales condition for five years can help small and medium enterprises build the much needed scale and competitiveness.

There are three different schemes for companies with investments of Rs 15 crores, Rs 30 crores and Rs 45 crores. If 20 plus companies are executing projects together as a group, companies can get benefits in terms of project costs due to joint purchases.The aim is to enable the textile and apparel sector to use this opportunity and invest in PLI 2.0 to build scale and competitiveness.

In the meantime some changes have been suggested to the scheme. These relate to the number of machines, differentiation between apparel and home textile, the incentive percentage, the inclusion of tech intervention etc.

With cotton prices on a decline, textile mills in India are waiting for prices to stabilise to revive production.

Several textile mills that use cotton as raw material are operating at less than 50 per cent capacity at present because cotton prices went up to nearly Rs1 lakh a candy and are at nearly Rs70,000 a candy now. There are several uncertainties that mills are facing. Yarn movement is still slow and some mills have stocks too.

The mills are not sure of the price trend for yarn and the export demand. The hope is that things improve in November with better demand, especially international demand. Cotton prices are expected to stabilise atRs65,000 a candy. Cotton consumption is low now as prices are yet to stabilise and the mills do not want to buy the raw material at this juncture. Mills have started calibrating operations and many have started going in for blended yarn. Demand for cotton has, thus, reduced. Demand is expected to remain low for another month and when cotton prices stabilise mills will revive production.

The market has revived and festive season sales are expected to be good this year. This will result in higher demand for raw materials across the textile supply chain.

Bangladesh’s apparel exports fell seven per cent in September 2022. However during the first quarter apparel shipments were 13 per cent higher compared to the corresponding period of the previous year.

Apparel exporters of Bangladesh expect a turnaround in demand for their products in western markets by mid-2023 and till then they want to book every order – even if it offers a break-even price – in order to survive amid the present slowdown in business. The industry is experiencing a slowdown as retailers are stuck with too much inventory at their stores as demand has fallen due to a mild recession in the USA, Europe and the UK. Most factories are getting fewer work orders, which is being reflected in export earnings. This untoward trend is expected to continue till April or May 2023.

The hope is that the global geopolitical situation will improve by the second quarter of the next year, which will lead to a robust recovery in consumer spending in the key export destinations due to pent-up demand. Rising political tensions between the US and China may help Bangladesh grab more orders shifting from China, Vietnam, and Myanmar. Already a number of South Korean brands and retailers are coming to Bangladesh to open sourcing offices.

Bangladesh’s share in the global market for manmade fibers is five per cent. The aim is to make that 12 per cent by 2030.

About 72 per cent of Bangladesh’s garment exports are cotton-based and just 24 per cent are manmade fibers. As China, the largest cotton apparel supplier now, has been losing its market share, Bangladesh, which now accounts for 16 per cent of all cotton apparel shipments worldwide, is poised to become the largest cotton-based garments exporter. During 2010 to 2021 the share of manmade fiber garment exports from Bangladesh increased to 24 per cent from 18 per cent of the country's apparel exports.

Global manmade fiber apparel exports grew by four per cent while that of cotton-based items shrank by 0.5 per cent annually between 2011 and 2019. Cotton apparel exports then fell by some 15 per cent in 2020, while manmade fiber garment shipments saw robust growth of eight per cent in 2021.Due to uncertainty in cotton production and supply, price comparability and advantages offered by these products like higher durability, water- and wrinkle-resistance, and colour retention, the global demand for manmade fiber-based apparel items has been growing though there are environmental concerns as well.

In the post-pandemic times, the luxury resale market which comprises of the buying and selling of second-hand luxury brands , has taken off like never before. Pre-loved and pre-owned luxury goods are the buzzwords now in the secondary market of the high-end luxury world. Bags, watches, and jewelry from expensive brands such as Balenciaga, Valentino, Jean Paul Gaultier, Oscar de la Renta, and under the Kering umbrella are just some who are getting a new lease of life and love, especially in global online markets.

Secondary pre-loved market dents fashion brands

Buying pre-owned clothes and accessories is a kind of luxurious experience for the middle class that is cheaper, convenient, and sustainable in these uncertain economic times. The sale of pre-owned luxury apparel has gone up to 65 percent last year relative to 2017 as compared with a 12 percent rise in new luxury sales, according to the Wall Street Journal.

However not all high-end luxury brands see eye to eye on this. Many fear that resale could cannibalize the sales of their full-price products and dent their image of exclusivity and coveted position built up over the years in the apparel, fashion, and luxury group. Other brands are worried about the complexity of implementing circular models in the apparel resale online markets and fear that most luxury brands will remain on the side-line fence of fashion if they refuse to jump onto this bandwagon.

According to resale market experts, the revenue of the global second-hand luxury goods market was estimated to be worth 4.9 billion U.S. dollars in 2021. But after Covid times, according to Statista estimates, this market is set to see a steep increase, reaching over 14.6 billion U.S. dollars by 2027. Some of the bigwigs of the high-end luxury market such as Louis Vuitton, Chanel, and Hermès have refused to stoop down to the burgeoning resale market, as they feel their quality and exclusivity should not be affected by the affordability factor and become a run=of-the-mill product. Rushing to put their stamp of approval on pre-owned products coveted by the Gen-Z and the middle class is not their thing and they prefer to sell quality over quantity to their discerning customers at their chosen price point.

Global trends affect Indian second-hand luxury goods market

Speaking on these lines, Antoine Arnault head of image and environment of LVMH, the French-holding multinational corporation specializing in luxury goods, has said that the group “will stay away from that second-hand market” for the time being. Bruno Pavlovsky, president of fashion and president of Chanel SAS, also has highlighted his brand’s own aversion to resale, saying “We want to retain control of our distribution.”

The second-hand luxury goods market in India is also strongly driven by the growing influence of western fashion trends coupled with improving living standards and rising disposable incomes of the consumers. Online auctions and various international e-commerce platforms that offer overseas delivery options have increased the sales of pre-owned luxury goods. India is expected to have a CAGR of 12.18% during 2022-2027, as the indirect influence of the pandemic continues to affect spending power.

While the high-end fashion market focuses on addressing sustainability issues, the global luxury resale speeds up its online as well as offline platforms for the commercialization of second-hand goods from the world’s most beloved luxury brands to make hay while the sun shines.