TORRENTIAL RAINFALLS TO AGGRAVATE FOOD INFLATION
A FRESH IMF LOAN PROGRAM IS EXPECTED ON SEPT 25.
Sep 12 - 18, 2011
Prior to devastating floods and torrential rains inflicting serious damages to the standing cash crops especially cotton, sugarcane, and vegetables, a noticeable decline in food inflation was expected in the current month of September 2011.
However, a drop in inflationary pressure is still possible on account of high base comparison from last year which supports the calculations for easing the current inflationary cycle. The government borrowing on the other hand has also remained in check at Rs1,157 billion.
The consumer price index (CPI) for the current month, in the face of gas tariff hike by 13.55 per cent, is also expected to push CPI up by 40bps, it is estimated.
Informed sources divulged that Pakistan has to seek either resumption of the ongoing IMF support program or a fresh loan on the sidelines of the World Bank's annual meeting scheduled on September 23.
The extension of the IMF support program is being considered important for stabilizing the depressed exchange rate, which is said to be the prime reason for price escalation and pushing inflation upward. The general prices and even prices of energy products would have been much affordable than what they are at present in the neighboring countries including India, had our exchange rate been not so weak against international currencies especially the US dollar.
Financial experts feel that exchange rate has to be improved to check mounting price inflation primarily due to heavy dependence on imported fuel oil.
However, there are positive signs of improvement on the financial front. Another cut of 50bps in interest rate is being expected in view of easing inflation and the record level of foreign exchange reserves at $18 billion mark for the first time in the country's history.
The decision regarding cut in interest rate is likely when the State Bank of Pakistan reviews the monetary policy by the end of this month.
The improved reserves position, easing of the inflationary pressures as well as expected cut in interest rate will in turn have an important impact on currency outlook, as the recent weakness in rupee-dollar parity i.e. 1.4 per cent since end July 2011 remains a key risk to easing inflationary pressures in the coming months.
RICE, SUGARCANE, ONION, TOMATO, CHILI PRICES
Textile economy is feared to suffer this year due to torrential rains and floods in the cotton growing areas of Sindh. There is a strong possibility of downward revision of the production target of cotton crop of 15 million bales by 2.25 millions bales this year.
The government would revise the cotton production target sometimes in the first week of October. The flood devastation and breaches in saline water drains have played havoc with the standing crops including rice, cotton, onions, and chilies.
Earlier the cotton production target was set at 14.5 million bales for 2011-12, however almost 50 percent of the cotton crop has been damaged in Sindh and cotton production would reduce to 13 million bales for the year.
The affected cotton growing areas include Mirpurkhas, Badin, Tando Muhammad Khan, Umarkot, Dadu, Ghotki, Hyderabad, Jacobabad, Jamshoro, Khairpur, Larkana, Matiari, Naushehro Feroze, Shaheed Benazirabad, Shikarpur, Tharparkar, Thatta, and Sanghar districts.
The shortage of cotton may not force the industry to import cotton due to closure of a large number of power looms and textile mills due to shortage of gas and electricity. Hence, the cotton consumption by the local industry would also be reduced simultaneously.
As a result of expected short supply, the cotton prices have already gone up in the local market from Rs5550-5650 to Rs7,100 per maund which may be taken as the first move towards price inflation.
Total crop affected area was initially estimated around 1.6 million acres. The current flood have resulted in human causalities, damaged crops, and culled 1,20,000 livestock heads.
As far as loss to cotton was concerned the floods have destroyed 2-2.5 millions bales of cotton, two million tons of Irri-6 rice, 70 percent of sunflower, 80 percent onion, 70 percent tomatoes, and 90 percent green chilies along with other minor crops as 22 districts out of 23 were badly hit by the torrential rains.
Sindh produces around three million tons of Irri-6 rice but due to damages, the crop would decline to 1-1.5 million against a target of three million tons. Similarly, the cotton production would decline to 0.5-1 million bales against the target of 4.5 million bales.
Pakistan's annual Irri-6 rice export is over two million tons to different export destinations especially to gulf region where the value of Irri-6 export was estimated at $1.1 billion. This year, it is feared that the export of Irri-6 may be badly affected.
According to initial assessment of the damages caused by the rains in Sindh, the Kharif crops suffered a loss of $4 billion in foreign exchange earnings or 2.323 percent of the agriculture GDP.
Cotton received a loss of 1.8 million bales, accounting for 1.8 percent of the GDP, while the rest of the loss occurred to paddy in rain-affected areas. The province of Sindh suffered a loss of Rs18billion due to damages to sugarcane crop, which might result in import of sugar as out of 600,000 acres of sugarcane cultivated areas, around 25 percent was damaged.
The rain-hit areas of Badin and Thatta grow 900,000 acres of paddy, 200,000 acres of cotton and 150,000 acres of sugarcane. These areas also grow onions and tomatoes at 80,000 acres each and fodder at 15,000 acres.
Around 200,000 acres of paddy was lost along with 80,000 acres of cotton in Badin and Thatta only. All 80,000 acres of onions and tomatoes were washed away in rains as well as 15,000 acres of fodder. Cost of cotton was Rs75, 000 ($882) per acre, paddy $705 per acre, onions and tomatoes $705 per acre and fodder $410 per acre. Nearly $1.059 billion losses occurred to crops and vegetables in Tando Allahyar, Mirpurkhas, Thar, Tando Muhammad Khan and parts of Sanghar district.
COTTON CROP FORECAST 2011-12
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|SUGARCANE CROP FORECAST 2011-12|
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RICE CROP FORECAST 2011-12 (IN MN)
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