IMPORT OF COTTON AFFECTING LOCAL PRICES
Spinners take the advantage of depressed international prices
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 best, marginal.
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.