In the wake of strained trade relations between Australia and China since 2020, the Australian cotton industry has sought alternative export markets. This has resulted in Vietnam emerging as the largest importer of Australian cotton, replacing China in this pivotal role.
Vietnam has been one of the fastest-growing importers of Australian raw cotton, with imports surging by 899 percent or US$555 million between 2020 and 2021. While the trade tension between Australia and China played a role in this shift, Vietnam offers several other advantages.
Vietnam was the largest market for Australian cotton exports from January to May 2023, accounting for 37 percent of the total. Australia was Vietnam’s second-largest supplier, while the United States led the suppliers’ list. Australia exported $211.902 million worth of cotton in January to May 2023 period, while Vietnam’s total imports were $945.038 million.
Several factors have contributed to the remarkable growth of Australian cotton exports to Vietnam:
Free trade agreements and location: Vietnam benefits from a network of free trade agreements, including the Comprehensive and Progressive Agreement for Trans-Pacific Partnership (CPTPP) and the Regional Comprehensive Economic Partnership (RCEP). These agreements have opened up supply chains for Vietnamese manufacturers, facilitating access to Australian raw materials. Australia, in turn, enjoys the benefits of Vietnam’s cost-effective, high-value labor for turning raw materials into valuable products. This symbiotic relationship has been mutually beneficial.
Geographical proximity has also played a significant role. Shipping cotton from Australia to Vietnam takes just 21 days, a notable advantage over longer shipping times to other destinations such as the United States or Brazil. This shorter transit time has not only reduced logistical costs but also increased profit margins for importers and exporters.
Rising demand in Vietnam: Vietnam’s textile and garment industry is experiencing robust growth, with exports projected to reach around US$46-47 billion in 2023. Although Vietnam produces some of its own cotton, it remains insufficient to meet the current demand. This has prompted substantial imports of raw cotton from countries like Australia. Consequently, Vietnam stands among the world’s top three cotton importers, alongside Bangladesh and China.
Long-term prospects: While the current situation has seen Vietnam replace China as Australia’s primary cotton export market, it’s important to note that trade relations between Australia and China have improved, and exports are gradually resuming. However, both Vietnam and Australia have benefited significantly from their current trade dynamics, and there are no immediate signs of this changing.
The cotton industry’s structure, wherein farmers sell to merchants who then supply spinning mills, offers flexibility and the potential for China to reemerge as a major export market if trade barriers are lifted.
Nevertheless, there are opportunities to maintain diversification, especially as brands and retailers seek to expand beyond China into other markets.
Australia’s cotton export strategy: Australia’s pivot towards Vietnam as a primary cotton export destination reflects the industry’s proactive response to the changing trade landscape. Prior to the trade tensions with China, China had been the largest market for Australian cotton. However, the imposition of tariffs on Australian cotton in the aftermath of the 2020 trade fallout prompted the Australian cotton industry to rethink its export strategy. Australia’s geographic advantage plays a crucial role in this strategy. Its proximity to Asian markets, including Vietnam, gives it a competitive edge over other top cotton exporters such as the United States and Brazil.
Shipping cotton to Vietnam takes only about 21 days, compared to longer transit times for cotton shipments to more distant markets. This quick turnaround time not only reduces shipping costs but also allows for a more efficient and reliable supply chain, which is attractive to cotton merchants and Vietnamese textile manufacturers.
Promoting Australian cotton: The Australian Cotton Shippers Association (ACSA) has played a significant role in promoting Australian cotton within Vietnam’s textile industry. Their mission involves showcasing the unique attributes of Australian cotton and emphasizing their ability to ship quickly. This concerted effort demonstrates the industry’s commitment to building stronger relationships with Vietnam’s textile industry.
The transition of Vietnam into Australia’s largest cotton export market underscores the complexity of global trade dynamics. As the industry continues to navigate shifting trade dynamics, it remains well-positioned to maintain a diversified market presence, ensuring its long-term sustainability and growth.
