COTTON CRISIS - A BAD OMEN FOR THE TROUBLED TEXTILE SECTOR

THE OUTLOOK

SHAMSUL GHANI (shams_ghani@hotmail.com)
Mar 10 - 16, 2008

One of the four major crops, and the only fiber crop, cotton has often been the source of economic concerns for its very crucial linkages. The textile sector's dependence on the size of cotton crop warrants economic and technological reforms to follow in the footsteps of the modern producers. Leaving this all important crop at the mercy of changing climatic conditions in a passive manner is a national crime. The use of latest farm technology, utilization of good quality seed and pesticides combined with the modern farming techniques can take care of the uncertainty factor and the crop size can be accurately estimated to match at least with the domestic requirement under bad conditions. This is not being done. The existing acreage of 8.03 million acres and the per acre yield of 740 pounds are far away from the world standards. India has a 30 per cent higher per acre yield.

Cotton's contribution to the GDP is 1.8 per cent. Its conversion first to different grades of yarn and then to the fabric makes it a raw material of high value-addition potential. During the financial year 2005, Pakistan produced a record 14.3 million bales. We saw a drastic fall in the crop size during the last two financial years when annual import averaged at 2.25 million bales. The decline in cotton production during the current year is, as usual, attributed to pest attack. India, farming under the same climatic conditions is estimated to produce 31 million bales during the current financial year as against its domestic requirement of 25 million bales, thereby having an export surplus of 6 million bales.

The following figures released by the Karachi Cotton Association show the statistics of the leading cotton producing countries of the world.

WORLD'S LEADING COTTON PRODUCERS

(IN 000, 480 POUNDS BALES)

 

PRODUCTION

 

USE

IMPORTS

EXPORTS

ENDING STOCK

PRODUCER

06-07

07-08

06-07

07-08

06-07

07-08

06-07

07-08

06-07

07-08

World

116713

115087

122544

127411

37781

42109

37092

41578

56386

51229

China

30900

31000

50000

54000

11750

17000

-

-

14586

14536

United States

21588

18800

4900

4400

-

-

13000

17500

9800

8700

India

21500

22500

18500

20000

-

-

-

-

7364

6764

Pakistan

9900

10400

12101

12400

2200

2300

-

-

4087

4212

Brazil

6500

6000

-

-

-

-

1400

2700

5467

4917

(2007-08 figures are not complete year figures)

Pakistan is the 4th leading cotton producer after China, India and United States, with an almost constant cultivable area and a markedly low per acre yield. The following figures released by KCA prove this"

COTTON ACREAGE AND PER-ACRE YIELD

YEAR

ACREAGE (000 ACRES)

YIELD PER ACRE (POUNDS)

2000-01

7234

557

2001-02

7700

517

2002-03

6903

550

2003-04

7380

550

2004-05

7750

517

2005-06

7536

785

2006-07

7598

723

2007-08

8030

740

WORLD COTTON PRICES AND ITS IMPACT ON PAKISTAN'S ECONOMY

United States and EU countries allow heavy subsidies on cotton to keep in check its prices and to provide sustenance to the farm sector. It has taken more than 35 years for the cotton prices to move from 35 cents per pound in seventies to 90.52 cents per pound a few days ago. It can be observed that the cotton moved up quite slowly as against other world commodity prices. The present bullish cotton market with the skyrocketing international cotton prices has put a big question mark on the already dubious viability of the Pakistan textile sector. Breathing heavily in the clutches of WTO regime, the sector finds the cotton price hike a deadly blow to its very survival. Its inability to be competitive in the international market has now become more pronounced.

Cotton Textile export which accounts for 60 per cent of the total export, has been showing a declining trend with an average annual decline of 4 to 5 per cent during the last two years. For a consistent growth, our textile sector requires 15 to 16 million bales every year. The present estimated production of 11.5 million bales falls terribly short of the said target. The shortfall has to be met through import. The value addition on imported stuff produces little profit margin for the spinners making the survival a difficult proposition. Our fiscal policies have worked to the detriment of the farm sector. The 15 per cent GST on pesticides is conveniently passed on to the farmers thereby adding to the cost of the farm input. The farmer, in his effort to minimize input cost, compromises on both the quality and the quantity of pesticides exposing the crop to the hazard of pest attack.

The current week has seen big jumps in the New York Cotton Exchange prices. The cotton futures on March 01 crossed the barrier of 80 cents. The price flare-up picked further momentum on March 05 when forward July delivery hit the record price of 90.52 cents. There seems to be no end to this hike game as the market players are quite upbeat aiming for the 100 cent shot with the result that the Pakistani ginners, having taken positions, are holding cumulative stocks of 1.463 million bales for release at still higher prices. During the week, most of the deals have been finalized at a price of Rs.3,500 per bale weighing 37.324 kgs.

Yet another disturbing factor is that India, having committed to export cotton to Pakistan, has halted the shipment process, obviously with an intention to re-negotiate the prices which are now much higher as compared to the previously agreed prices. Major portion of cotton shortfall is imported from India. During the current financial year, 1.1 million cotton bales have already been imported from India whereas another 0.5 million bales orders are in the pipeline. The bottleneck is hurting the Pakistani spinners who are committed somewhere else under value-added yarn export orders. To sum up, the textile sector, already in a bad shape, has now been taken by the adverse developments raising their heads on the international scene. With the political delay we are all experiencing these days, who will take time out to care for the country's economy by taking swift actions required to come out of the cotton crisis situation.