Current cotton fiber market in Russia By Mr. Sechko M.S., President of «Russian Cotton Association» NP One of the priorities of economic growth and national safety of the country in developing market model of XXI century is an efficient development of textile industry, which is always budget-forming and produces strategically important goods being used practically in all branches and spheres of the economy. Textile industry is one of the most profitable and productive industries in the world. In the structure of its productions, along with manufacturing of fabric, clothes, the weight of goods of production and technical, and of special application is significant. Social importance and high economic efficiency of textile industry goods put it on the first place in highly developed countries. The priority pyramid is overturned in Russia. Russian textile industry is a large national economic complex, with total number of employment of 300 thousand workers, mainly women. Textile industry products being manufactured in Russia is competitive on CIS markets and in a number of other economies. Russian market of goods of raw and material resources, technological equipment, accessories and control tools for textile industry is closely bound with the world market and depends on it greatly. Worldwide trends define problems of domestic industry on foreign markets. Russian market capacity of textile industry production, having been calculated on the basis of elaborated supply and demand balances, including productions of all its sub-branches and shadow economy, amounts to almost 7 10 billion USD. More than 75 % of Russian market of textile commodities is occupied now by manufacturers from foreign countries, mainly from Turkey and China. The share of import is growing and import supplies include strategically important products of textile industry being applied practically in all branches and spheres of the economy. As a result, the state is loosing profits of enterprises, tax payments to budgets on all levels and earnings to off-budget funds in the amount of about 1,5 billion USD annually. While additionally considering losses caused by shrinkage of production of domestic raw materials and goods, technological and common industrial equipment, total amount of losses will be at least doubled. Under existing capacities of domestic production the mobilization needs of Russia for textile commodities can be satisfied for 17 36 per cent only, e.g. we are incapable to clothe, to provide shoes for our own Army and to supply it with all necessary goods. Undoubtedly, achievement of cotton producers and assortment policy of textile industry allows cotton to meet competitiveness with other fibers in the production of textile through imparting to cotton goods of properties, which increase their comfortness in exploitation. In highly developed countries the use of textile exceeds 25 kg per head annually, including 48 % of cotton goods, 32 % of synthetic fibers, about 10 % of cellulose fibers and 8 % of wool. 29
Currently textile market of Russian consumes about 300 330 thousand tons of cotton fiber annually. Production of cotton yarn in 2004 amounted to 257 583 t, which is 94,3 % of figures for corresponding period in 2003. In the first quarter of 2005 59 003 tons of cotton yarn have been produced, or 87 % of the first quarter level of 2004. Production of cotton fabric amounted to 2 251 672 thousand m², which is 95,4 % of 2003 level. In the first quarter of 2005 it comes to 526 832 thousand m², which is 90 % of the first quarter level of 2004. Basic goals to be achieved by producers of cotton industry in Russia are to maintain and to increase capacities of cotton fabrics output, the main goal for traders is to maintain cotton fiber market. These are two interrelated problems, solving of which pursue the same goals both for cotton industry producers and for traders: Technical modernization of production; Development of market infrastructure; Raising the level of skills and incomes of factory workers; Stable supply with raw materials and resources; Extension of production assortment, commodities output; To perform works and to provide services according to up-to-date quality standards; To interact efficiently with state institutions on all authority levels and with profile public organizations on development of legislation basis and on law compliance; Civilized regulation of dispute situations on the market. To solve these problems efficiently active participants of cotton and textile market of Russia have established in 2000 «Russian Cotton Association» non-profit partnership (NP). «Russian Cotton Association» NP unites leading traders of Russia in the field of importation and realization of cotton fiber and cotton industry producers. Cotton companies are now simultaneously the owners and the investors to cotton industry development in Russia. In the structure of Russian market of fabrics the share of cotton fabrics being manufactured by domestic producers in 2003 amounted to 87 %, in 2004 it was 88 %, in the first quarter of 2005 it was 88 %. Therefore, cotton industry does not give up its positions. At the same time, the share of cotton fabrics manufactured by production enterprises owned or controlled by the members of «Russian Cotton Association» NP amounted to almost 60 % in 2004. Such enterprises being members of «Russian Cotton Association» NP as «Tverskaya Manufactura Association», «Teikovskiy Cotton Industrial Complex», «Kohloma», «Roskontrakt-Kamyshyn», «Bysokovskaya Manufaktura», «Yegorievskiy Cotton Industrial Complex», «Tezinka», «Kamyshinskiy Cotton Industrial Complex», «Muromskiy Cotton Industrial Complex», «Krasniy Luch» and others are the leaders of cotton industry, and public corporation «Russian Textile Alliance» has representations in 40 regions of Russian Federation. One of the goals of «RCA» NP is to provide members of RCA with the information about cotton market conditions, without which complicated business in textile industry is impossible. Considering that Russia is not a producer of cotton fiber, but has sizable basic funds for production of cotton yarn and fabric, a number of cotton enterprises is re-orienting the part of their production for manufacturing of blending yarns and fabrics of cotton, modified 30
flax fiber (cotonyne) and various kinds of chemical fibers. All over the world the share of blinding fabric is increasing, and in Russia in 2003 their share did not exceed 3 % and amounted to 90 % by 2002, in 2004 the share of blending fabrics was 7 %. Cotton industry in Russia for 100 % depends on imported raw product cotton fiber, the main share of which is produced by CIS countries. Currently cotton market in Russia has become more civilized from the point of view of market opportunities assessment. Development of cotton market in Russia depends in a large extent on timely supply of cotton fiber being competitive by prices and by quality. Historically established practice to use Central Asian cotton fiber in Russian cotton industry enterprises is now a drag on the way of making of competitive products. It bounds with the fact that Central-Asian cotton does not meet current requirements by prices and by quality comparing with cotton from remote foreign countries (Greece, African countries, Syria, Egypt and others). Figure 1. Dynamics of cotton fiber import in 1996 2004. Analysis of dynamics of cotton fiber import from the moment of cotton market establishing shows that the market is complicated and it bounds not only with seasonality of raw cotton gathering and with consumption of end products, fabrics. Russian textile enterprises prefer to deal with large trader companies buying cotton from them, having the following advantages: deferment of payment; efficient fulfillment of obligations of shipment and supply; effective solving of problems regarding claims on quality and weight of cotton. As it was mentioned above, major share of cotton fiber comes from CIS countries, and not always directly, but through third countries, in particular through Latvia. 31
Figure 2. Shares of main cotton fiber supplying countries in 2004. Figure 3. Shares of main cotton fiber producing countries in 2004. 32
The reasons of such situation forming are as follows: loans provided by western banks are much cheaper than loans provided by Russian banks and by banks of producer countries of cotton fiber; cotton yarn being purchased by traders is brought to Baltic for storage, then it is sold to Russian Federation in small lots, which is convenient for textile enterprises, trader price due to fixation on the commodity exchange can be lower than in direct purchasing; the procedure of paper work and payment is easier (the less of bureaucracy barriers). However, the situation is changing towards increase of supplies from producing countries directly. Thus, in January, 2005 4 % of cotton fiber, and in February 16 % has been supplied through Latvia. Internal prices of supply on cotton fiber market correspond in a whole to Index A, subject to costs of delivery, storage, customs clearance and VAT. Figure 4. Dynamics of Index «A» and RCI in January 2004 - March 2005 It is necessary to emphasize the growth of cotton fiber import to Russia, mainly from Uzbekistan. Thus, 27,8 thousand tons of cotton fiber has come to Russian market in 2004, including 11 thousand tons from Uzbekistan. Russian cotton fabrics market was always characterized by the fact that its main share was occupied by fabrics of domestic production. Export share of cotton fabrics before 2002 was 25 %, in 2003 it was 17 % of total produced capacity (in 2002 it was 19,6 %), in 2004 the decrease of export share to 13 % was observed. 33
Figure 5. Structure of Russian cotton yarn market in 2004. Figure 6 Structure of Russian cotton fabrics market in 2004. 34
Import of cotton fabrics to Russian market is growing, however, its share is still small. This factor can be explained by that with the reduction of export the fabrics of Russian producers come to domestic market and replace therefore imported goods. Stable development of textile production including cotton industry is constrained by factors, which are the talk of the town and everybody repeats them like «Our Father.», but the Government and the state do nothing: 1. On Russian textile enterprises physically and technically obsolete equipment is mainly used, which does not allow to apply modern technologies and to manufacture competitive products. 2. Despite the fact that Russia has all conditions required for development of production basis, for efficient realization of that potential as well as for increase of fabric and clothes of high quality it is impeded by technological backwardness of related sectors agro-industrial complex, chemical industry, machine-building industry. 3. Practically all the enterprises of textile industry have a lack of turnover means. Loan proceeds are inaccessible for many of them. There are facts of withdrawal of profits to associated companies, which is equivalent to reduction of turnover and investment means of the enterprises. 4. Factors impeding the development of textile industry are unaccounted imports and productions. Unaccounted textile production is 20 % of accounted one, unaccounted import is one and a half as much as domestic production. 5. While purchasing raw cotton abroad lots of time is spent to return VAT, thereby significant means are withdrawn from textile enterprises turnover. 6. While importing textile end products their value, as a rule, is understated significantly. It results in the goods are sold on the market at dumping prices and displace domestic producers. 7. Weak science and technological basis, as practically all applied-research institutes are destroyed, though just now they could help to support the branch. 8. There are about 300 medium and large organization in cotton industry, in them only a few have turned to organizational schemes being efficient in market economic conditions, and they are the main participants of the market. 9. Textile enterprises have the lack of workers with higher and specialized secondary education. The main idea is that without state-based actions it would be problematic to raise textile industry. What extent of such actions will be? To solve all problems efficiently in 2004 RCA took part in roundtable for the subject Economic policy of states aimed to defense for domestic producers in light industry. And mow the first step has been done already it is abrogation of customs duty for imported equipment for spinning production. There are also a number of matters raised in State Duma and in Government aimed to maintenance and development of textile industry branches. Besides, aiming closer interaction with the state institutions, RCA has become a member of Chamber of Commerce and Industry of Russian Federation and participates in Textile and Light Industry Committee. Summarizing the above stated, we could say that despite all mentioned negative factors RCA will further interact with all concerned organizations to maintain cotton and textile markets in Russia. 35