The fibres of development: Expanding markets and raising the quality of production

An ancient industry in Peru, textiles not only represent a cultural heritage but also an important part of the manufacturing sector that aims to compete on a global level. By the end of 2011 textile and garment exports grew by 26%, meaning the industry had almost fully recovered from the effects of the global economic crisis. Revenues were close to 2008 levels, when textile exports reached a high of $2.03bn. In 2009 the downturn lowered demand in prime markets such as the US and Europe, reducing export figures by around a third.

After three years, textile production and exports are on the rise again. While the US is still the biggest importer – it was the destination for 37.1% of textile exports in 2011 – local companies are now looking beyond their traditional markets. Other Latin American countries are now importing more Peruvian textiles, with Venezuela buying 20.2% of exports in 2011. Whereas in 2009, both Colombia and Brazil received only 2% of exports, in 2011 those figures increased to 5.4% and 5.2%, respectively. Though with smaller export percentages, the Chilean and Ecuadorian markets have also seen an increase in Peruvian textiles and clothing products this past year. Exports to Argentina also rose, but recently instituted tariff policies will lower those figures in 2012. Peru has thus positioned itself more favourably by diversifying its markets, and has matched this expansion with a wider range of textile products.

MATERIALS: Peru is famous for producing high-quality Pima cotton, characterised by its long strands and silky texture. Pima cotton is cultivated in northern Piura’s coastal valleys and is harvested by hand, adding significant value to the product. As it grows only in Peru and parts of the southern US, supply is limited and Pima is thus reserved primarily for high-end exports.

Wool from several camellia species is also key to textiles production. Llamas, vicuñas, guanacos and alpacas are native to the Andes and their wool has been used by locals for centuries. Among these wools, alpaca is the most prized for its smoothness and warmth. Often compared to cashmere, this material generates international demand in luxury garment circles, assuring Peru a sustainable market niche. The Ministry of Production estimates that cotton production directly sustains more than 20,000 families, while raising camellias provides a livelihood for a further 180,000 families. In addition, the textiles sector indirectly generates 215,000 jobs, including sewing, dyeing and washing.

Gender-specific labour roles continue to characterise the sector, with more women working in textiles than in heavy industries. While positive growth means this will help close the employment gap between women and men, Peru is far from balancing gender equality in the workforce, according to Javier Dávila, a project manager for the National Society of Industry.

GROWTH TRENDS: Textiles production is expanding at a yearly rate of 10%, fed by vast resources of cotton and wool, as well as other man-made fibres. Innovative trends, such as combining synthetic and natural fibres, have helped galvanise the industry as well. Major export company Sudamericana de Fibras, for example, has successfully begun using this technique. The firm now exports both alpaca and cotton products with 20-30% acrylic fibres. This shift away from pure cotton or wool has improved the quality of garments by cutting down on weight, creating more elasticity and resilience, and increasing product endurance in general, meaning prices have stayed steady despite the change.

BRANDING: Topitop, one of the leading Peruvian textile and garment companies, is both a producer and retailer, having opened boutique retail stores all over the country, as well as in Venezuela and Colombia. Other leading companies in the sector include Michell, which produces fibres and alpaca fabric, and Sudamericana de Fibras, which specialises in synthetic fibres.

Efforts to secure a wide consumer base have seen the sector create myriad goods targeted at different markets. For the domestic and Latin American markets, the trend seems to be headed towards manufacturing products with competitive prices and generating new brands for boutique retail. Products destined for Europe and the US will be made with premium materials, such as pima cotton and alpaca wool. Taking advantage of these export niches will be crucial to sustaining growth. Providing material for top brands in these markets is also important, as is the introduction of Peruvian brands.

LIBERAL TRADE: Over the past decade Peru has signed free trade agreements (FTAs) with a number of countries within the Americas and overseas, showing special interest in the possibilities in Asia. The FTA with Korea, in particular, will facilitate exporting camellia-derived textile products. An important FTA with the EU was scheduled to come into effect in May of 2012, but at the time of writing had still not been instituted. Once approved, the benefits would be immediate. Since developed economies tend to generate demand for value-added goods and entry prices on many manufactured goods to Europe are high, this deal will be vital for developing the value-added sector, including textiles.

These trade accords create attractive opportunities to expand the textile industry’s exports, especially in the premium segment. Yet some local industries are inevitably affected by international trade. Of slightly lesser quality than Pima, Tanguis cotton is widely produced in the southern Ica region. But with the arrival of cheaper cotton imports from India, mainly destined for T-shirts and other casual apparel, local cotton prices have fallen, provoking layoffs and strikes in Ica. Indeed, most companies in Gamarra, a key textiles district, find it more convenient to buy imported Indian cotton. Regardless, this will not affect the market for Pima cotton used to produce luxury garments.

The strength of the sector at the high end has not been matched in the mass market, and there are several reasons that Peruvian textiles have not been able to compete. First, worker unions have gained power in comparison to previous years and labour costs may be on the rise, increasing by 7.5% in 2011 alone; second, new labour laws set to be debated may not favour companies, considering measures such as increasing severance pay from 12 to 18 months’ wages for arbitrary layoffs; and finally, prices for raw material prices are rising, adding to manufacturers’ overheads.

EXPECTED EXPANSIONS: A combination of exploring new market niches, increased local and international demand, and innovative production strategies are working together to strengthen the textile industry’s contribution to the overall economy. Total investment in the industry reached $150m in 2011, but this figure could fall to $100m for 2012 based on the financial uncertainty in the EU that has made some investors wary.

Still, Europe continues to be a key market for high-end products. From the industry perspective, creating new brands and targeting international markets will help to sustain growth. This will rely in part on the FTAs expected in 2012. A constant flow of goods to Latin American countries will also be important, as many of their economies are showing growth trends among consumers, providing assured destination markets.