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


09 December 2013

USDA GAIN: Indonesia Cotton Update November 2013USDA GAIN: Indonesia Cotton Update November 2013

Post estimates that in marketing years (MY) 2012/13 and 2013/14, Indonesia’s cotton production will remain stable at 30,000 bales . MY 2013/14 Indonesian cotton consumption and imports are expected to increase to 2.7 million bales, as compared to 2.5 million bales in MY 2012/13. Increased consumption and imports are due to rising local and global demand for textiles, and declining international prices. The Indonesian National Statistics Agency estimates that textile products made up almost 1.5 percent of total Indonesian national gross domestic product in 2012. The Indonesian textile and textile products sectors employ about 1.5 million workers, slightly more than 10 percent of Indonesia’s total manufacturing workforce in 2012.
USDA GAIN Report - Oilseeds, Cotton, Sugar, Grain and Feed

Production:

Indonesia produces only 0.3 percent of its total domestic demand for cotton. Indonesian cotton producers receive little support from the Government of Indonesia (GOI) and cotton farmers generally find greater economic incentives to grow other crops. Increased land conversion to nonagricultural uses has also reduced the area dedicated to cotton. However, favorable weather during 2012 provided opportunities for a slight expansion of cotton area. Most Indonesian cotton is grown on marginal land on South Sulawesi, East Java, West Nusa Tenggara, and Central Java. Farmers have a very limited access to high yielding varieties and proper cultivation practices due to financial constraints. Therefore, Post estimates that in MY 2012/13 and MY 2013/14, Indonesia’s cotton production will remain stable at 30,000 bales as in MY 2011/12.

The Indonesian textile industry plays a significant role in the Indonesian macro economy. The number of textile and textile companies increased to 2,930 in CY2012 with a total investment of IDR 164.8 billion, compared to 2,880 in CY2011. According to Indonesian industry sources, the Indonesian textile and textile products sectors employ about 1.5 million workers, slightly more than 10 percent of Indonesia’s total manufacturing workforce in 2012. They are divided amongst the fabric industry (37 percent), garment workers (35 percent), yarn production (8 percent), fiber production (1 percent), and others (19 percent).

In CY 2012, Indonesian textile mills ran at about 70 - 80 percent capacity, with a total of 7.85 million spindles and 110,000 rotors. Industry sources note that the majority of the machines used in Indonesia are at least 20 years old. The GOI has launched an industry revitalization program to address this in 2007. In 2012 a total of 149 textile companies registered to join the program and a total of IDR 147.52 billion in funding has been distributed.

As a labor intensive industry, recent labor union demands for wage increases are influencing Indonesian textile production. Significant wage increases implemented in early 2013 have forced some textile manufactures to relocate from Jakarta to parts of Java with lower minimum wage increases. Some textile manufacturers are concerned that higher wages will lead to lower productivity and consumption of raw materials despite higher textile demand from the United States and other importing countries. As of November 1, 2013, nine provinces (out of 33 provinces with proposed increases) have implemented wage increases for CY 2014. Those provinces are Central Kalimantan, West Kalimantan, Jambi, Southeast Sulawesi, West Sumatera, Bangka Belitung, Papua, Bengkulu, and West Nusa Tenggara.

Stocks:

Ending stock estimates are virtually unchanged, with slight increases in MY 2012/13 to 506,000 bales, and 531,000 bales in 2013/14. This reflects unchanging production and consumption growth matching import growth.

Marketing:

GOI and Industry sources state that Indonesian imports are likely to increase slightly in 2013/14 due to strong local demand for Indonesian textile products and declining international yarn prices (relative to viscose and rayon yarn). They also note that improving global demand for textile products, particularly in the United States and Japan, is offsetting stagnant European demand. Industry reports that many smaller firms continue to suffer from cotton price volatility in 2011, and that a slow recovery is underway. As a result, Post estimates that Indonesian imports and consumption of cotton in MY 2013/14 will increase to 2.7 million bales compared to 2.5 million bales realized in MY 2012/13.

Brazil led the world in cotton exports to Indonesia in MY2012/13 with 29 percent market share, followed by the United States with 22 percent, and Australia with 21 percent. Cotton from India, Brazil, and African countries are considered adequate by Indonesian industry standards and are readily used. During the period of January – July 2013, Indonesia exported most of its yarn to China (54 percent), Japan (19 percent), South Korea (5 percent), and Turkey (4 percent).

The Indonesian National Statistics Agency (Badan Pusat Statistik, BPS) estimates that textile products made up almost 1.5 percent of total Indonesian national gross domestic product (GDP) in 2012. BPS data further indicated that Indonesian textile and related product exports amounted to 6.6 percent of total Indonesian national exports in calendar year 2012 and 7.4 percent during the January – July 2013 period. In CY 2012, Indonesia exported about 33 percent of its textile and textile products to the United States, 17 percent to the European Union, 6.6 percent to other ASEAN countries, and 8.6 percent to Japan. Industry sources state that the volume of Indonesia’s textile and related product exports in CY 2013 increased by 0.6 over CY2011 percent to 1.95 million tons, (although the actual value declined by 6.0 percent to $12.46 billion).

In CY 2012, Indonesia imported approximately 1.89 million tons of textile products, valued at $8.14 billion. China (31.7 percent) and the Republic of Korea (18.4 percent) account for the largest suppliers of textiles to Indonesia in CY2012. Chinese products are generally cheaper than domestically produced textiles and are considered comparable in terms of quality. The spinners association reported that although cotton and man-made yarn prices are declining, cotton yarn prices are relatively higher than viscose and rayon yarn in world markets. The declining rupiah, combined with higher cotton yarn prices provides higher margins for cotton yarn exports.

December 2013

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