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  • Supply and demand in the national market

    Chapter 6 - Market profiles - Indonesia 

     
     
    Domestic cotton production

    Despite its sprawling land area, Indonesia is not a very favourable place to grow cotton on a commercial scale. Although the land is naturally fertile, the climatic conditions are not very suitable for cotton plantation.

    Cotton production in Indonesia is stagnating at a very low level incommensurate with the needs of the local spinning industry. This is mainly due to climatic and soil limitations, and to farmer preference for growing alternative crops with higher yields and profits and shorter growing periods.

    Average cotton yields remain low and are unlikely to increase without new technology. No significant effort has been made to increase yields or to reintroduce the use of biotech cotton since commercial production was discontinued in 2002 when it proved to be not commercially viable.

    The country’s cotton production accounts for less than 2% of demand. The harvested area is estimated at about 10,000 hectares and the production around 6,000–7,000 tons of lint. South Sulawesi, Central and East Java and West Nusa Tenggara are the major cotton producing areas in Indonesia.

    The Indonesian spinning sector

    The total spinning capacity of Indonesia is about 7.8 million spindles, out of which about 45% are used to produce cotton and cotton blend yarns. Indonesian mills are producing predominantly lower counts ranging from 10s to 45s, and a very small quantity of finer counts (60s to 80s). About 60% of yarns produced are directly exported all over the world and the balance is converted into fabrics and garments for the domestic and the export markets.

    Indonesian mills are running at around 70% capacity. About one-third of total spinning machinery and two-thirds of total weaving capacity are reportedly more than 20 years old. However, firms that have made recent investments and modernized their plants are operating near full capacity.

    Older machinery tends to use power inefficiently and operate at lower productivity levels than newer machines in competing countries. Textile labour in Indonesia has higher wages and lower productivity than other Asian textile exporting countries and the cost of electricity is relatively high.

    Bank loans are rather difficult to come by, particularly for the textile and clothing sector, because of the current world market situation and because of the competitiveness of Indonesian mills compared to other countries’ mills.

    The domestic market for local textile and apparel production is shrinking because of fierce competition from lower-priced imported products. Smuggling of imported textile products and second hand garments is a serious problem for the Indonesian textile manufacturers.

    Mill consumption of cotton rose very rapidly from 100,000 tons in 1980 but has levelled off at around 480,000 tons since the mid 1990s.

    Indonesia is a net exporter of cotton yarn and cotton fabric. In 2005, Indonesia exported 98,000 tons of cotton yarn (mostly to Hong Kong (China), Japan and the Republic of Korea) and imported 24,000 tons, out of which 10,000 tons came from Pakistan. Indonesia exported 490,000 tons of cotton fabric and imported 123,000 tons in 2005.

    Future demand

    In March 2007, in order to increase the cost efficiency and competitiveness of the textile industry, the Government of Indonesia issued a regulation to provide assistance to textile manufacturers who modernize their equipment. Companies will be reimbursed 11% of the cost of the textile machinery up to IDR 5 billion ($925,000).

    Nevertheless, given the constraints described above, mill cotton consumption is expected to remain stable at approximately 480,000 tons. 
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