Over the years, India has been serving as one of the most important sources of cotton for Bangladesh. However, for the last couple of years, it has been proven to be one of the most unreliable and undependable source. In fact, several events that marked the 2010-11 cotton years have changed the landscape of the Bangladesh cotton industry. It is widely believed that these events will continue to have impact on the cotton industry for a foreseeable period of time. Series of Indian governmental ban on cotton export in 2010 and 2011 triggered a rally in the cotton market that was never experienced in the history of cotton. As a result, the New York ICE futures settled at an unprecedented level of 214 cents/lb in March 2011.
The Bangladeshi spinners took a considerable position in Indian cotton before the export ban in April 2010, only to find the Indian merchants default on contracts en masse, citing the governmental export ban. The defaults en masse by Indian merchants had battered Bangladeshi buyers. Bangladesh mills are now desperately seeking for more reliable and dependable sources elsewhere. The central Asian countries, including Uzbekistan, Turkmenistan and Tajikistan, have been the most reliable sources of cotton for decades.
With current apparel exports reaching US $ 20 billion a year, Bangladesh needs to import about 800,000 MT of cotton every year. A recent study conducted by McKinsey & Company, 2011, suggests that the growth in Apparel Industry is likely to double by 2015 and nearly triple by 2020. If Bangladesh continues to expand its Apparel Industry at this pace, the cotton consumption is also likely to double to 1.6m MT by 2015 and triple to 2.5m MT by 2020.
Volatility in raw cotton price, coupled with export ban from one of the bigger sourcing countries, such as India, has raised concerns among the apparel buyers from Europe and the USA, two of the major markets for Bangladesh. Bangladesh’s dependency on imports of raw cotton poses sourcing risks especially due to governmental bans in sourcing countries. To ensure sustainability in cotton trading, there is a need to emphasize on the “preventive measures” that could be taken by both the Government of Bangladesh and business organizations such as Bangladesh Textile Mills Association (BTMA) and Bangladesh Cotton Association (BCA), to prevent the failure of the “sanctity of contracts”.
Experts believe that three preventive measures may help ensure sustainability in cotton trading and preserve sanctity of contracts. First of all, the mill owners have to be encouraged to gain knowledge in international trading practices and risk management. Secondly, mill owners have to be encouraged to operate under the framework of International Cotton Association (ICA) rules and bylaws. Here, the Government of Bangladesh (GoB), in collaboration with textile and cotton associations (BTMA, BCA and ICA), can play a vital role in bringing them under a common legal and trading framework consistent with international trading rules, laws and obligations.
Lastly, the GoB, along with BTMA and BCA, should work closely with international organizations (WTO, ICA, ICAC) and the Indian Government, to persuade the Indian policy-makers not to put ban on cotton export in consistent with global trading rules and norms, as unfettered movement of cotton is essential to restore the balance of nature.