It may be “Brazil”s year,” but the country’s textiles and apparel industry isn’t celebrating.
Asian imports continue to soar, flooding Latin America’s largest economy with pirated and undervalued garments that local brands can’t compete with. Furthermore, key export markets are shrinking, particularly to neighboring Argentina, which continues to favor protectionist policies to protect its volatile economy.
Rafael Cervone, president of top textiles lobby ABIT, said the Brazilian industry continues to writhe under cutthroat Chinese competition, despite deploying a series of strategies to quell imports, which have skyrocketed.
This year, imports are forecast to surge 10 percent to nearly $294 million from $267 million in 2013. China accounts for 80 percent of Brazilian imports, 90 percent of which originate from Asia. Bangladesh, Indonesia, India and Pakistan are also top suppliers.
“The problem continues,” Cervone sighed, adding that shielding Brazil from Chinese and other Asian garment sellers has become increasingly tough. “It’s very difficult. Our territory measures 8.5 million square kilometers, which makes these imports difficult to control.”
Seaports apart, Cervone said Chinese apparel is also being smuggled into the country from Paraguay, Bolivia, Chile, Venezuela and Peru.
In 2002, ABIT launched a three-pronged strategy to keep the Chinese at bay, seeking punitive actions against China’s “unfair” exporter subsidies, including compensatory duties. A fixed tax for all underpriced merchandise was also proposed. The scheme failed, however, and was later reshuffled in favor of safeguards for up to 60 clothing products. That project also went awry because it proved too expensive and bureaucratic to pursue for small firms.
According to Cervone, the government asked Brazil’s 33,000 small and midsize manufacturers — which represent 90 percent of clothing makers — to issue financial and production data that they did not have the scale and capability to provide.
ABIT has since rejiggered the plan to only include safeguards for large firms in the flagship denim, underwear, beachwear and women’s apparel markets, Cervone said, adding that the association has begun talks with the government about how to pursue it.
In a glimmer of hope, Cervone said efforts to bolster Brazilian Customs and police raids to curb undervalued Chinese imports — along with a strategy to provide Customs with a slew of reference prices — is bearing fruit. The average Brazilian imported garment price (at least officially) has plunged to around $4 a kilo, compared with nearly $20 in 2004. However, more than 50 percent of Chinese imports cannot be accounted for, so actual prices may be somewhat higher, Cervone noted.
Meanwhile, the industry’s revenues are forecast to rise 2.4 percent to $59.4 billion in 2014, matching a similar increase last year but half the 5 percent gain chalked up in 2012.
Despite World Cup euphoria, consumer spending is seen declining ahead of general elections and a weakening economy. Therefore, domestic and retail spending are forecast to rise 3 to 4 percent, compared with 11 to 12 percent in recent years, Cervone said.
He added that Asian brands continue to take a growing slice of the domestic sales pie, which generates 90 percent of the industry’s fortunes. So much so that “we are not achieving real growth,” Cervone lamented.
To reverse the situation, Brazilian brands are rushing to make more fashionable and distinct apparel for domestic and international markets.
“We are losing the market to imports, so our focus is on raising exports,” Cervone said. “Brazil does $720 billion worth of global trade [in all goods], of which we have 0.5 percent. We want that to increase that to 1 percent, or $7 billion, in 10 years.”
With exports hovering at $1.5 billion, that won’t be an easy task. This year, exports are set to rise 10 to 15 percent, partly due to a weaker Brazilian real. However, problems selling to the biggest export market, Argentina, are threatening to dent future volumes.
“Argentina is being very difficult,” Cervone claimed, adding that it has unilaterally imposed a series of import quotas, even in the free cotton-trade zone enjoyed by both countries. “They are getting worse and worse,” he added. “We don’t see light at the end of the tunnel.”
Argentina’s protectionist maneuvers have triggered clashes not just with Brazil but with other members of the Mercosur free-trading block that also comprises Paraguay and Uruguay.
Cervone said an upcoming free-trade deal between Mercosur and the European Union will swing the old Continent’s market open for Brazilian brands, enabling them to reduce their reliance on Argentina. The accord is in the final stages and could be signed in the coming months, Cervone said. He said Brazil wants current tariffs between it and Europe to gradually fall to zero in eight years. It also wants strong rule-of-origin rules to block Chinese goods from reaching Brazil via Europe.
Striking a free-trade deal with Mexico is crucial and in the cards for the near term, Cervone added. The two Latin American economic powers had planned to ink the deal in 2008, but the worsening global economy scotched those efforts.
China is also a target. According to Cervone, Brazil recently sent a clutch of leading manufacturers and brands to the country, as well as to Japan, to boost nominal sales there. “We plan to work very hard to enter China, where we are now selling just a bit of denim, underwear and bikinis,” Cervone said.
Fledgling markets in Eastern Europe, the Middle East and Australia are also on the radar.
Meanwhile, Brazil is moving to diversify beyond its comfort area of making jeans, intimates and beachwear to produce higher-quality brands in functional and high-tech activewear markets, as well as in women’s eveningwear, notably party dresses and evening gowns.
As part of this drive, manufacturers are boosting production of sustainable and eco-friendly apparel made by indigenous tribes and using organic fabrics and feedstocks from the rain forest and Amazon regions. Sugar cane is gaining popularity as one such raw material, adding to fish skin, bamboo and other natural ingredients that have earned brands like Osklen the “e-fabrics” tag.
As trademarks move to win new hearts, the trend is expected to continue.
“In 10 years, we want apparel to more closely reflect our cultural values of life, happiness and lifestyle versatility,” Cervone said. “We want to have something intrinsic, truly Brazilian, that can set us apart from the Chinese.”
Brazilian brands will fight to be known as “always inspiring,” Cervone said, adding that Blue Man, Colcci, Despi, Dudalina, GIG, Hering, Pedro Lourenço and Trendt are a few notable Brazilian brands jumping on the innovation bandwagon.
To further boost exports, ABIT plans to strengthen its partnership with export promotion agency Apex-Brasil and the Texbrasil Program. Through Texbrasil, firms have access to 30 international trade fairs a year. To help develop a more fashion-centric industry, Texbrasil’s fashion academy has partnered with Japan’s Bunka Fashion College to train emerging designers and is expected to engage in similar actions and receive additional state funds in coming years, Cervone said.
Doing this is crucial to tame Brazil’s rising talent exodus, he added.
Brazil’s protectionist agenda — which has fueled complaints from a slew of foreign labels seeking expansion — remains unchanged, with a 35 percent duty on apparel, 26 percent on textiles and 18 percent on yarns.
Despite high duty barriers and other red tape, Cervone said foreign enterprises can still do well in Brazil, if they find a good local partner or seasoned consultant. “People have trouble understanding our logistics,” Cervone said. “Brazil’s way of doing business is very different. Our retail sector is diluted and divided into many regions with diverse climates and lifestyles. Having a partner to help you navigate these complexities is crucial.”