INDONESIAN MARKET FOR RAW COTTON

This study has been undertaken on receipt of the news report that Pakistan is expecting a bumper raw cotton crop and about 9 million bales of cotton will be available for export during financial year 1999-2000. In order to facilitate Pakistani firms and Trading Corporation of Pakistan (TCP) in export of cotton to Indonesia, this report has been compiled on the basis of information gathered from cotton brokers, traders and spirnning mills in Indonesia. The report will provide good insight into the dynamics of cotton marketing in Indonesia.

The main theme of the report is about Indonesian cotton market size, import duties, important sappliers, marketing practices, complaints of Indonesian brokers, traders, price trend, distribution channels and the addresses of important cotton agents, trading companies and spinning mills. The report also suggests strategies for Indonesian market penetration.

Introduction to Indonesian Market:

Import duties and restrictions: It may be seen from Table No 1 below that there is no import duty or VAT, on import of raw cotton.

H.S.No. Description Import duty VAT

5201.00000 Cotton, Not carded 0% 0%

or combed.

5203.00.000 Cotton, Carded or 5% 10%

combed

Indonesian Marlset Size

The Table No.2: shows the import of Cotton in Indonesia during last three years:

Weight in M.T. value in million US$

1996 1997 1998

Weight Value Weight Value Weight Value

492,165 980.1 465,416 816 454,476 763.7

Indonesia has a large textiles industry and it is a major textiles and garments exporter. Its worldwide apparel exports, despite the ongoing financial and economic crisis faced by the region, totalled more than US$.3,390 million in 1998. However, Indonesia does not grow much cotton itself and it imports large quantities of raw cotton every year for its cotton textiles industry. Its annual imports of raw cotton have averaged US$ 800 million. A major part of its cotton needs comes from U.S.A and Australia who meet 70% of Indonesia's raw cotton needs. Since cotton is an important input into its textile industry, its future demand in Indonesia will be stable, due to her strong international competitiveness in apparel industry.

Pakistan was one of the major cotton exporters to Indonesia up to 1996. During 1995-1996, Pakistan had supplied 49,844 M.T. of cotton to Indonesia valued at US$82.42 million with a market share of 10.3%. However, in subsequent years, due to decreased availability of surplus cotton in Pakistan its market share declined and we exported only US$ 10.5 million worth of cotton to Indonesia during 1996-1997 with a market share of 1.3%, and worth $. 25.5 million with 3.2% market share during 1997-1998.

Due to some recent strains in her bilateral relations with Australia in which trade unions and private sectors in the two countries have exchanged threats of trade boycott, and tine consequent anxiety amongst Indonesian importers and consumers of raw cotton, Indonesia leas been looking abroad for exploring a1ternate sources for meeting its raw cotton needs. At the same time, Pakistan has had a bumper cotton crop this year and the domestic prices in Pakistan have declined markedly and thus become very competitive. This has brightened prospects for export of Pakistani cotton to Indonesia. Pakistan should now be able to re-capture a sizeable share of Indonesia's market for raw cotton.

Sources of Import:

Indonesia's sources of import of raw cotton during 1998.

Country Quantity (M.T.) Value (M$)

Australia 206,291 340

United States 112,134 198.1

Pakistan 15,726 24.8

Tanzania 10,870 18.5

China 8,810 13.5

India 2,957 4.9

Indonesia's sources of import of raw cotton during 1997.

Country Quantity (M.T.) Value (M$)

Australia 131,766 233

United States 109,416 206.6

Pakistan 8,937 13.7

India 48,046 78.4

China 668 1.2

Uzbekistan 9,109 14.9

Indonesia's sources of import of cotton during 1996

Country Quantity Value

United States 146,828 314.6

Australia 123,645 249.5

Pakistan 41,183 75.3

India 24,496 41.5

Tanzania 14,069 26.7

Argentina 13,411 23.1

China 499 0.99

Ex-USSR 21,771 41.1

US, was the market leader during 1996 with 39.3% market share followed by Australia with 31.1% market share, awhile Pakistan with market share of 9.4% was third. During 1998 Australia was the market leader with 44.5% market silare followed by US with 26% market share, while Pakistan was third with 3.2% market share.

This year with reports of bumper cotton crop, Pakistan has a fair chance to recapture a significant market share.

Pakistan's cotton production: Cotton is the most important cash crop of Pakistan. More than 60% of Pakistan's exports are cotton based. Pakistan's cotton production in 1999 is expected to be above 10.5 million bales. Out of this, approximately 9 million bales will be needed by domestic textile industry, while 1.5 million bales will be available for export. This year due to an overall increase in global cotton production, cotton prices are under pressure and present international prices of cotton of US$ 1100 per M.T. are at 5 years low.

Pakistan's cotton Export: Table No.6 shows the exports of raw cotton from Pakistan during last 10 years

Table No. 6 Quantity in M.T. Value in (000) US$

Year Quantity Value A.U. Price % Share in % Change in

M.T. 000 UB $ Per M.T. Total Total

Export Exports

1987-88 501,977 609,967 1,215.13 13.7

1988-89 840,268 929,563 1,106.27 20.0 +52.4

1989-90 294,519 442,995 1,504.13 8.9 -52.3

1990-91 281,731 411,812 1,461.72 6.7 -7.04

1991-92 455,217 518,302 1,138.58 7.0 +25.9

1992-93 262,918 270,813 1,030.03 4.0 -47.7

1993-94 74,899 79,46l 1,060.91 1.2 -70.7

1994-95 31,009 62,082 2,002.06 0.8 -21.9

1995-96 310,930 506,765 1,629.84 5.8 +716.3

1996-97 20,958 30,749 1,467.17 0.4 -93.9

1997-98 - 88,650 126,139 1,422.89 1.5 +310.22

Important export markets for Pakistan's Cotton: Table No. 7 shows the important exports markets for Pakistan's cotton during last three years.

value in (000) dollar

Countries 1995-96 1996-97 1997-98

Indonesia 82,417 10,535 25,452

Hong Kong 61.482 732 15,897

Thailand 76,856 920 12,969

Bangladesh 27,574 1,301 12,443

Japan 28,068 2,886 6,345

South Korea 23,639 999 1,088

Philippines 17,386 2,196 2,350

Distribution channels

Cotton in Indonesia is imported through the following distribution channels.

Agents/Brokers: They are the most important distribution channel in cotton import in Indonesia. Most of the brokers are well established and are well connected to the international suppliers around the world. Almost 90% cotton is imported through Agents/brokers. They are not bound with any single firm and often look for the suppliers who offer best competitive price and from where they get their commission without hassle. However, they do not like to enter into deals with Pakistan firms directly, and prefer to import cotton from Pakistan through international trading companies, because of the latter's reliability and prompt commission payment. Their commission ranges from 1% to 2% depending on volume and negotiating skills.

International trading firms: Commodities trading firms from UK, US, Australia, and Hong Kong etc. are very active in Indonesian cotton trading. Since the international price of cotton comes from US (New York), these companies have competitive advantage of having inform about global demand/ supply and price trends. They also import directly against letters of credit in their own name, maintain their stock in warehouses in Indonesia and sell it to local spinning units directly.

Textile spinning mills: Some of the textile spinning units import cotton directly. The addresses and telephone and fax numbers of spinsters, brokers and trading firms are enclosed.

Conclusion: Indonesia is amongst the nest important market for Pakistan's raw cotton. Pakistan has fair chance to recapture its market share of above 10%, approximately valuing US$ 80 million. The recommendations given below can improve country's image and marketing efficacy.

Recommendations: In a meeting of the Pakistan Economic Forum, Jakarta on 26th October, 1999 some Indonesian cotton traders and brokers raised some very important issues critical to exports from Pakistan. The remedial measures for those complaints (dealt with in following paras) would improve Pakistan's business image and competitive edge.

Delay and uncertainties in payment of brokers commission. Brokers complained that whenever they make a deal with Pakistani Company they are not sure, whether and when they will receive their commission. In the past, their commission has often been unduly held up and in some cases even not paid at all. This needs to be seriously attended to, because brokers are important distribution channel in commodities like cotton and due to their past adverse experience they prefer to book from other countries even when Pakistan's prices are more competitive. Besides creating ill will and poor image, bad business practices also undermine country's overall international competitiveness.

U-reliability in honouring commitments: Another issue raised by trading companies was the unreliability of Pakistani firms in honouring their contractual commitments. In case of price fluctuation to their disavantage, Pakistani suppliers often back out from their commitments. Moreover, there are often delays in honouring deadlines.

Short-shipment: The consignments are often short in terms of number of units and also in terms of weight of units which leads to lack of credibility and confidence.

A leading tea exporter complained that he had sent his papers to TCP along with requisite fee, for a tea tender, but was not invited to the tender. In case TCP in future ask for tenders for export of cotton, such lopses may be avoided.

The above mentioned complaints are not specific to Indonesia, but also reflect the overall unprofessional dealing of some Pakistani companies, as such undermining the country's international image and competitiveness. It is suggested that Ministry of Commerce, State Bank, E.P.B., Chamber of Commerce, Associations and Customs Department may look into these complaints and evolve suitable solutions so that the country's business practices can be improved.

Such unethical business practices undermine the country's business image and influence its international competitiveness. It may not only be the fault of exporters. The parties involved at every stage from the growers to end consumers may have narrow vision of the business and thus unethical and unfair business culture has taken roots. We need to evolve a mechanism for promotion of fair business practices, through chambers, associations with active involvement of government to improve our business practices.

E.P.B. Web site htt://www.epb.gov.pk which has been recently developed and conveyed to this office on 27.10.99. contains useful information about exporters of Pakistani products. This Web site needs wide dissemination all over the world. This office in its earlier reports on sugar and Tobacco had recommended that the EPB web site may be updated and non-traditional export items like tobacco and Sugar may be brought on it. It is heartening to see EPB web site with updated information about Pakistani exporters of all traditional anal non-traditional export commodities. It reflects that Government of Pakistan is aware of the significance of e-Commerce in coming years. Leading Pakistani cotton exporters addresses, may be widely disseminated through E.P.B. web site.

Indonesian Cotton Brokers/Importers

Coutry code 62 Jakarta City code 21

1. Address Tele No. Fax No.

2. P.T. Mitra,(CottonBroker) 62-21-83l7768 62-21-8317769

Textile Trading (Mr. Indra Sunar) HP 0816-69548

Jakarta.

3. Pt. Dawai Indah Adi, 62-21-96904992 62-21-6922854

Jl. Malaka No.20-22, .lakarta. 6927881

Sourcing Manager: John Vigia

Jakarta.

4. Pt. Gokak Indotaesia, Jl. H.R. Rasuna Said 62-21-5221458 62-21-5221 515

Rav.8-4, Jakar Selatan. Jakarta. 62-21-5221459

C.E.O. Mr. Baggan

Factory: Bagor

5. Pt. Kanebo Tomen Sandang 62-21-5738762 62-21-5738762

Syntheticmills, 022-5940155

Mid Plaza Building, 6 'Floor, Jakarta. 022-5940848

Mr. Hutagalf

6. Pt. Kanindo Primapserkasa, JI. Jend Catot 62-21-5225222 62-21-5202910

Subroto Kav. 23, Jakarta 62-21-5228888 62-21-5258300

Mr. V.J. Sankar 62-98-522888 62-98-522297

7. Pt. Lucky Abadi Textile Factory 62-21-6902288

Jl. Tiang Bendera Utara No. 82, 62-21-679782

Jakarta

(Mr. Arifim)

8. Pt. Maligi Spinning Mills Ltd., 62-21-6907366 62-21-6907365

Jl. Malaka No. 15B, 62-21-6907367

Jakarta. 62-21-6304166

9. Pt. Mbangun Praja Industri, 62-21-3458527

Jl. Hayam Wuruk No.32-C, 62-21-3458725

Jakarta Pusat 022-631817

(Mr. Parsa)

10. Indo Cotton Mr Gemi Sumerlane (Cotton 62-21-6250559 62-21-6250558

traders) Jakarta. 62-21-6594212

(Mrs. Lily)

11. Pt. Mercu Prima Sentosa Textile. Jl Tiang 62-21-6900306-9 62-21-6903437

Bendera Selatan No.17-19 62-21-6900312

Jakarta G 62-21-6900307

12. Fabric Importer 62-21-3858616 62-21-3860857

Trading Company 62-21-3800189

Jakarta.

13. Pt. Panca Pilarsamudra Wisma SMR 4th 62-21- 62-21-6505156

Floor, Jakarta 6507828 (Lina) 62-21-6505156

(Mr. Agus Armawan)

14. Pt. Sandratex, 62-21-3101696 62-21-3147466

Jl.Cikini I1/2 A, 62-21-337475

Jakarta.

(Mr. Halim)

15. Pt. Yantex Bina Trading Co., 62-21-3841040 62-21-3853440

Jl. Tamansari No.99 A, 62-21-3865259

Jakarta Barat.

(Mr. Satani)

16. Asian Cotton Traders 62-21-75907346 62-21-75907437

Mr. Andrew Wakfild

Jakarta.

17. Ali Tex Jakarta. 62-21-6288333

18. Thomas haroon 62-21-6011836 62-21-6009305

Jakarta. 62-21-0916-

707370

19. Indra Boxio(Mr Heis) 62-21-63854655 62-21-63854656

Jakarta. 62-21-6326552

20. Mr. Rehman, Room No.310, 62-21-5702285-86 62-21-5702284

Hotel Sahid Jaya, Jakarta.

21. Pt. Artha Jeva Texindo, Jl Raya Bandung 62-22-56243

Garut KM. 28, Bandung.

22. Pt. Bintang Agung, Jl. Rumah Sakit 62-22-7800406-8 62-22-7800409

No.114, Bandung.

23. Pt. Dactex Indonesia, Jl. Dayang Surabi 6, 62-22-85003-5

Bandung. 81611

24. Pt. Dan Liris, Banaran Grogol Sukoharjo, 62-271-719113- 62-271-47182-

Solo, Idonesia. 714400 717182-78

25. Pt. Erresa Perdam Textile Mills, Jl. IR. H 022-81236 022-81236

Juanda No.90, Bandung.

26. Pt. Ever Indonesia Textile Mills, Jl 62-22-81007

Cipaganti No.184, Bandung.

27. Pt. Giriasih Indah Spinning Textile Jl. 62-22-0442/0486 62-22-631606

Desa Giri Asih, Bandung.

28. Pt. Gunawan Textindo, Jl Industri Raya 3 -62-21-6495658-

Blok AE Ne .21 Tangerang. 62-22-6497768

29. Pt. Indah Jaya Textile Idustry TI. 62-22-5480684 62-22-5494974

Kebayoran Lama No. 55 Kel. Grogol.