Old Fashioned Regulations Damaging Cotton Industry

A sharp fall in the Global cotton price has signalled the beginning of a troubling period for Bangladesh’s textile industry which is set to suffer significant loses.

In this week’s blog post, Dian Skelton will be discussing this announcement and investigating the reasons why Bangladesh’s textile industry is not adapting to global fluctuations.

Completely Avoidable?

Dian Skelton is Director at ViewPoint Software Services Limited, founder of the MostlyManx shop on the Isle of Man and co-owner of the Laxey Woollen Mills. The Mills specialises in producing Laxey Manx Tartan which unique to the Isle of Man.

Perhaps the most concerning aspect of this announcement is that it was actually avoidable. The old fashioned regulations set by the central bank of Bangladesh limit certain industries, such as the textile industry, from adapting to fluctuations that occur in the global market.  

Given that Bangladesh is the second largest garment exporter in the world, you would think that the central bank would give industries more freedom in order to flourish rather than tying their hands and making them vulnerable to price changes.  

The central bank does not promote modern financial tactics and therefore hedging commodity importers from price fluctuations.

How Does This Affect the Textile Industry?

China is currently the largest producer of fabric and importer of cotton, but they currently have huge volumes of carried-over stock meaning they need to curb the amount they import. They have done this by increasing duty on cotton imports.

In response to this, the global market feared a drop in demand and since June, cotton prices have fallen to 20 cents per pound, compared to the average $1 per pound and Bangladesh spinners had bought cotton for the latter price.

Since the central bank does not provide coverage for hedging, the spinner were left without coverage for market fluctuations. Spinners will either have to accept the financial loss or garment manufacturers will have to buy yarn at a higher price that is not consistent with the global trend.

Dian Skelton’s Thoughts

As somebody who has been in the textile industry for most of her life, Dian is of course very passionate about this subject. Commenting on this she said that the idea of a central bank restricting a highly fertile industry is extremely disappointing.

Dian also understands the importance of tradition, given her families ties to the Laxey Woollen Mills dating back to the 1950’s. Dian said that the textile industry in Bangladesh is one of the single most important industries in the country given the amount of income it provides and the tradition.