Indonesia's textile industry faces foreign competition
According to data from the US Department of Agriculture on May 9, 2007, due to the particularly long dry season and farmers choosing to plant other crops with higher yields, better profits, and shorter planting periods, Indonesia’s cotton production in 2006/2007 will be reduce. Cotton yield is still very low, 500 kg per hectare. The main cotton production areas in Indonesia include South Sulawesi, Central Java and East Java. The capacity utilization rate of Indonesian textile mills is approximately 71%. 35% of spinning machines and 66% of looms are more than 20 years old. Outdated machines are usually inefficient in terms of electricity use, and their production volume is low. They are not as good as the newer machines and equipment owned by competing countries. Therefore, Indonesia's textile industry will encounter difficulties in obtaining loans from banks. The increase in the price of raw materials such as cotton, polyester and rayon in the international market also affects the price competitiveness of finished products, because the cost of raw materials accounts for 60% of the total production cost. 70% of the energy required by the Indonesian textile industry is provided by the National Power Corporation (PLN). Therefore, any measure implemented by the PLN will affect the efficiency of the textile industry. In addition, the textile industry has about 1.8 million workers, whose wages are higher than those of other Asian textile exporting countries, and their productivity is lower. At the same time, the domestic market, which has shrunk due to competition from low-priced imports, has reduced sales of Indonesian textiles. Due to these restrictions, it is estimated that Indonesia’s cotton consumption in 2006/2007 will remain stable at approximately 473,555 tons. Indonesia's cotton production can only supply 0.5% of the local demand, and the rest is imported. It is estimated that cotton imports in 2006/2007 rose slightly to 487,700 tons, mainly due to fierce price competition in the international cotton market. It is expected that the consumption of cotton in Indonesia will increase to 490,000 tons in 2007/2008, because the Indonesian presidential election will be held in 2009. During 2005/2006, the United States was Indonesia’s main cotton supplier, with a market share of 45%, followed by Australia (22%) and Brazil (9%). Imports of cotton from India are increasing year by year because the price of cotton in India is lower than that in the United States and the quality is also competitive. Cotton spinners usually keep 2-2.5 months of US cotton inventory because of the long distance and long delivery time of the United States. The Indonesian textile industry retains Australian cotton stocks for approximately 2-3 weeks, due to Australia's geographical proximity. Due to the decrease in cotton imports from Australia, it is estimated that the cotton inventory in 2006/2007 was 84,480 tons. The Indonesian government has taken several measures to prevent the illegal transshipment of textiles exported to the United States and Europe. The Indonesian government amended the law to reduce the number of units that issue certificates of origin from 193 to only 14. In September 2006, the United States and Indonesia signed a memorandum to prevent illegal transshipment. In addition, the Indonesian government also amended the law to increase the sentence and fines for smugglers. Indonesian laws also require that all imported textiles must now be inspected at the port of entry.