By SHABBIR H. KAZMI
July 05 - 11,1999
Cotton from 1999-2000 crop is expected to reach the ginneries shortly.
However, spinners have already imported about 400,000 bales. Import at such a high level
has depressed local prices despite the fact that there was a forecast for shortfall in
local production of cotton. The estimated production for the last year's crop was 7.5
million bales against a target of 10.5 million.
Fearing a shortfall in local production, spinners made hectic efforts
to import large quantity by taking the advantage of lower international prices of cotton.
It is estimated that letters of credit were established for import of over 500,000 bales
of cotton. Spinners' efforts to convince the government to impose ban on export of cotton
from Pakistan failed. The government was not ready to change the policy of free trade of
cotton. Despite no restriction on export, cotton could not be exported from Pakistan in
large quantity because of higher domestic prices. Import of about 400,000 cotton bales has
helped in improving supply and containing local prices.
The reported production of 7.5 million bales is still a mystery. In the
absence on any reported pest and virus attack one fails to understand the wide gap between
the target and the estimated production. The sector experts say that production of about
one million bales was not reported due to imposition of GST. Therefore, the total
production was 8.5 million bales not 7.5 million bales. This was the reason that at the
fag end of season the prices declined.
While talking about the actual consumption of cotton in the country, it
is necessary to ascertain the number of working spindles and rotors. The All Pakistan
Textile Mills Association has not been able to provide authentic figure. However, only the
members are responsible for the failure of the Association. The sector experts say that
many mills which were reported 'closed' by the management are still in operation. Besides,
the mills do not report exact level of production to the Association.
Textile sector experts say that even 7.5 million bales were sufficient
to meet the demand of local spinners on the basis of reported working spindles and rotors.
This assumption was based on a fact that the textile exports were on a decline due to
recession in importing countries. Asian currency crisis further aggravated the situation
for local manufacturers of textiles and clothing. Still, spinners took the advantage of
depressed international cotton prices and imported superior quality cotton in fairly large
quantity. However, it is feared that spinners are using the superior quality cotton for
the production of coarse counts of yarn which fetch lower price. Therefore, the
profitability of spinners will not be improved.
Many textile sector experts believe that instead of complaining about
poor quality and higher prices of locally produced cotton, spinners should import long
staple cotton. It will facilitate in the production of fine and super fine counts of 100
per cent cotton yarn. It is not only in the interest of the spinners but also in the
larger interest of the country that the production of coarse counts should be stopped.
They also say that value-addition in case of coarse counts of yarn is negative or, at the
Though, the spinners are against the free trade policy of cotton, it is
also a fact that they have been the largest beneficiary of the policy in the past. They,
as a group, have been exporting the largest quantity of cotton. Spinners also complain
about the inferior quality of locally produced cotton. Since there is no bar on import of
cotton, they should import long staple cotton and produce fine and super fine counts of
yarn which fetch higher prices.
The arrivals from next crop are about to start poring in. Therefore, it
is necessary to emphasize two points: realistic estimation of crop size and continuation
of free trade policy of cotton. Last year's experience clearly highlights the flaws of
crop estimation process. The government should also withdraw GST at ginning level.
Spinners often demand that export of raw cotton should be banned but
they do not like any quantitative restriction on export of coarse counts of yarn. In all
fairness if export of cotton has to be stopped, there should also be a complete ban on
export of less than 20 counts of yarn.
The export refinance facility for cotton yarn of less than 30 counts
has expired on June 30, 1999. It is suggested that State Bank of Pakistan should not
extend the policy for the current financial year. The immediate advantage of the shift in
policy will be reduction in export of coarse counts. One should not fear that yarn export
will be reduced due to non-availability of export refinance facility. It will rather
encourage production of finer counts and help in increasing foreign exchange earning from
each kilogram of cotton from the country.