Why Bangladesh's Cotton Supply Chain is Getting a Major Investment

Posted by Ryan Robinson on Jun 20, 2013

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Multi-billion dollar French commodities conglomerate Louis Dreyfus Group, is seeking to make heavy investments into the Bangladesh cotton supply chain network.

With the goal of setting up central 'cotton hubs' throughout Bangladesh, the Louis Dreyfus Group aims to make this basic raw material much more accessible to textile factories. 

Bangladesh, the world's second largest global cotton importer behind China, has long had supply chain difficulties in getting cotton to the country's textile mills. Lack of developed infrastructure in their raw materials supply chain is a major factor keeping them trailing behind China.

That could all change soon, however.

Golden Harvest Group, an agent of Louis Dreyfus Group, has submitted a proposal that is in review by the National Board of Revenue. The proposal details plans to set up numerous centrally located warehouses where several global raw cotton traders will stockpile their goods. From these warehouses, local textile mills will be able to purchase raw cotton through opening lines of credit or paying cash. 

Chief Operating Officer of Golden Harvest Commodities, Azizul Huq said that various global cotton traders would house their inventories, stocking up to a three month supply at all times.

The benefits are two-fold Huq says, "millers who buy cotton from these hubs will be able to avoid paying interest charges to local banks for a long term loan as well as eliminate the problem of time constraints when cotton is needed in a hurry."

Currently, Bangladesh is in negotiations to nearly double it's cotton imports from India. With a growing apetite for the commodity and a booming textile industry built around it, the country can no longer afford to have a broken infrastructure supporting it.

Who Stands to Win?

Everyone. Cotton demand in Bangladesh is increasing at an astronimical rate that can no longer be sustained without improved supply chain infrastructure. Bangladeshi textile mills will be getting unparalleled access to the raw materials they need in order to keep up with production at more competitive prices. Governments stand to increase tax revenues on higher textile outputs.

The Louis Dreyfus Group has seen an opportunity to invest on the ground floor of the Bangladeshi cotton supply chain, which could make this a potentially very lucrative deal for them in the long run. Building the inroads of this supply chain now will afford them early access to importing more materials & products later down the road as well.

In a culture often rooted in skepticism of foreign investment, there remains some hesitancy with the National Board of Revenue, but signs point towards this happening sooner rather than later. This is an example of how multinational corporations are now investing heavily into emerging markets to diversify their exposure and develop infrastructure that will help them stay ahead of the curve. Innovation in its truest form.