Bangladesh has the world’s longest list of defaulters on cotton deals with overseas suppliers – an issue that prevents importers from sourcing cotton.
A total of 96 textile mills of Bangladesh failed to make payments to the suppliers in due time, putting the country on top of the default list, according to February 4 update of International Cotton Association (ICA).
In its previous update in July last year, the country was also on top with 93 defaulters.
Textile mills in Bangladesh had the highest number of defaults since 2011 when the tide of contract defaults stemmed due to the wild volatility in cotton prices.
India is just behind Bangladesh with its 88 companies defaulting, followed by China with 84, Brazil 55 and Pakistan 50 companies, said the ICA, the world’s leading international cotton trade association and arbitral body based in Liverpool, UK.
ICA, having more than 600 members across the globe, identifies a company as defaulter after failure of payment within a period set by its arbitral body.
“Mills in Bangladesh, which have had the highest number of defaults since 2011, were left high and dry as prices more than halved from the March 2011 peaks,” said Muhammad Ayub, president of the Bangladesh Cotton Association.
Manufacturers have also canceled orders in the wake of the price swings but they are not the only ones to blame, either, industry insiders said.
Many farmers who contracted to sell their cotton crops at much lower prices in 2010 reneged on those deals as prices soared a year later, forcing merchants to pay much more to meet export commitments, they said.
“Defaulters are the victim of the circumstances,” Ayub said. But some breach of contracts has been settled amicably too, he said.
A miller admitted that growing default list has an adverse impact on the industry. “It is the question of image crisis … for which cotton sourcing has been hampered,” he said.
Bangladesh, the world’s second-biggest cotton importer after China, has more than 300 spinners who depend on cotton outsourcing to feed their mills with importing more than 10 lakh tons annually.
ICA was inundated by a record number of arbitration requests in 2011 and 2012. Its blacklist of companies that have not complied with its arbitration proceedings has risen by more than a third since 2011 to over 500.
“At the year-end stage, we received 76 requests for arbitration, a marked reduction compared to the record high of 247 requests received in 2012,” said ICA in its statement.
It also saw an increase in the value of arbitration awards up from a pre-2008 average of around $300,000 to $1.1m, a situation that has seen a corresponding rise in the number of appeal hearings at the ICA, with 30 appeals published during 2013 compared to a yearly average of 13.
