Cotton, much like sugar and wheat, is one of the prime crops owned by many politicians. Thus, in a situation when production shrunk to barely 5 million bales against the staggering demand of 15 million bales this year, cotton producers may have felt happy when the government scrapped the option of importing cotton from India.
Pakistan’s Economic Coordination Committee (ECC) approved the import of cotton from India, however, this decision was blocked by the federal cabinet on the protest of many federal ministers.
This decision may have added worries to the textile mill owners, but those who own cotton are happy as they now keep getting higher prices till the import allowed from India or any other country.
Currently, cotton is traded at an 11-year high.
According to the cotton brokers association, the prices rose from Rs8,000 in July to as high as Rs13,000 per mound in February and March. However, the price stabilised at Rs11,000 after the import but it is still much higher than the last season.
“Everyone knows import is inevitable but reluctance at this level has provided leverage to the political bigwigs — who own cotton fields — to sell their produce at higher prices,” sources in the industry commented on this trend.
‘Cotton is Political Crop’:
Cotton growers have always remained in the power circle. In the absence of cheap imports, cotton prices always shoot up, spelling trouble for the textile industry. But who is making profits off it?
A leading broker, who has clients across Pakistan, told The Correspondent on the condition of the anonymity that big landowners, who own vast cotton fields, make money off this.
“It is quite simple to see who is benefitting from the higher prices – the farm owners, and these people also sit in parliament,” he claimed. “Cotton, sugar, and wheat have always been political crops,” he said, hinting at collusion between the politicians and landowners. “If there will be any opening of cheaper imports, they will have a dent in their profits directly,” he added.
The broker feared that the price of the commodity will further go up due to the non-availability of cotton in the local market because of delayed imports. The scarcity of cotton will increase pressure on the mills as they have to buy it at all costs to deliver timely orders to their clients, he further said.
The Pakistan Cotton Ginners Association (PCGA) says the cultivation area has witnessed over 33 per cent decline during the past few years and now Pakistan is only producing 5m bales against a 15m demand.
To plug the demand and supply gap, Pakistan opted to import cotton from the US and Brazil and has imported 5m bales so far. But it is an expensive alternative – at least it costs more than India, as per the industry stakeholders.
The Pakistan Cotton Brokers Association (PCBA) said that the cotton from these countries costs Rs12,000 per bale as per pound price of cotton in the international market is hovering around 85 cents and takes at least 40 days to deliver.
India, on the other hand, provides a cheaper alternative. “The price of Indian cotton will probably cost Rs11,000 to the mills,” Naseem Usman, chairman of the brokers association said. “It takes less than a week to get the cotton delivered from India and it is also efficient in terms of freight charges, he added.
“It could have been at least 5 cents lesser per pound from India,” Naseem said in a phone interview from Karachi.
A textile mill owner concurred. “We are bound to buy cotton at any rate as timely delivery of orders, especially in the export markets, is mandatory for mills’ reputation.”
Any further increase in prices will leave the textile mills “non-competitive in export markets”, he said alluding to a potential price hike.
The supply and demand gap is keeping prices at higher levels. Currently, the cotton production in the country is only around one-third of the demand – 5m bales – that stood around 15 million bales.
An increase in the price of cotton in the global markets is expected to limit the potential growth of Pakistan’s textile exports and profitability during the current financial year.
The prices in the global market coming back around 85 cents to 90 cents per pound, the level where the imports become very costly, Dr Jassu Mal, chairman of the ginners association.
Dr Mal pointed out that textile exports during first half of FY2021 increased by 7.8 per cent compared to 5 per cent growth in total exports during same period of the previous year. However, it is noticeable that the sector’s share in total exports stood still at 61 per cent during the said period, which is not different from the sector’s weight in the exports of the previous year.