ISLAMABAD: All Pakistan Textile Mills Association (APTMA) has strongly opposed government’s intention to impose duties on import of cotton in budget 2024-25, urging improvement in quality, productivity and yield of domestic cotton for better returns.
In a letter to Commerce Minister, Jam Kamal Khan, Secretary General, APTMA, Shahid Sattar, has conveyed textile sector’s grave concern regarding government’s contemplation to impose customs duties on cotton imports in the upcoming budget for FY25, saying that this measure will pose a severe threat to the textile sector, particularly to the Small and Medium Enterprises (SMEs) that dominate the value chain and will undoubtedly lead to serious economic repercussions.
APTMA argues that the current economic environment, characterized by uncompetitive energy costs, prohibitive borrowing costs, and a dysfunctional tax regime, has already forced over 60 percent of basic industry to shut down.
Imports of cotton yarn, for instance, have skyrocketed from around 2 million KG in July 2023 to 14 million KG in May 2024, indicating the inability of yarn manufacturers to compete with international prices.
“The imposition of duties on cotton will have a serious negative impact on the SME sector, including domestic yarn and cloth manufacturing. Textile and apparel manufacturing in Pakistan is highly disaggregated. Very few firms possess full vertical integration, and the benefits of duty-free import schemes such as the Export Facilitation Scheme (EFS) do not extend across the entire value chain,” Sattar added.
For instance, a spinner cannot import under EFS because the yarn they manufacture goes through several stages of value addition—such as weaving, processing, and dyeing—before reaching the final exporter. Despite persistent requests for a multi-stage EFS with a robust traceability system, the multi-stage EFS has been effectively sabotaged by the FBR.
The destructive impact of these duties will also spill over to the domestic cotton sector. Rather than focusing on measures to enhance cotton productivity and yield to improve farmers’ returns, the government is again resorting to the outdated, tried, tested and failed approach of import protection, which will prove counterproductive as has occurred in the past, he continued.
APTMA further contended that as evidenced by the historic unfair treatment and exploitation of farmers on part of ginners, the benefits of import protection will become concentrated at the ginning stage and not passed on to farmers.
The import protection will lead to further stagnation in domestic cotton productivity and a shift away from domestic cotton, yarn, cloth, and other inputs as exporting firms will increasingly utilize EFS on their own to substitute all domestic inputs, manufactured with expensive imported cotton (following import duty) or low-quality domestic cotton, with imported ones.
“In effect, import duty on cotton will subsidize foreign manufacturers of yarn and greige cloth by making production more expensive for local manufacturers, favouring them as preferred suppliers to downstream manufacturers and exporters,” Sattar maintained.
Moreover, the introduction of customs duties on cotton will result in closure of businesses, job losses, reduced exports and economic downturn. Cotton is the primary raw material for the textile sector, which accounts for over 50 percent of Pakistan’s total exports.
The industry consumes around 14-16 million bales of cotton annually. However, the current season has witnessed a significant reduction in cotton cultivation, exacerbating an already dire situation.
APTMA claimed that for the current season, area under cotton cultivation has reduced by 30-35 percent, amounting to only 4.415 million acres compared to 6.62 million acres last year. In Punjab, the sowing target was reduced from 5 million acres to 4 million acres, but less than 3 million acres have been sown. This reduced sowing area will yield no more than 4.5 million bales.
Similarly, Sindh and Balochistan have also slightly reduced their cotton sowing areas. Nationally, with the current sowing area of approximately 4.4 million acres, production is not expected to exceed 7-8 million bales. This represents only 50-60% of the industry’s consumption needs. Consequently, Pakistan will need to import significantly more cotton compared to last year to meet export requirements.
The situation is further exacerbated by climatic challenges. So far, about 50,000 acres of cotton plantations, constituting 9.0 percent of the total, have been damaged by abnormal heat in Sindh, one of the country’s most fertile provinces.
The Pakistan Meteorological Department has predicted the rapid onset of a fresh drought in June due to low rainfall and high temperatures. This phenomenon is leading to crop failure, wildfires and water shortages in the country’s South, further threatening domestic cotton supply.
“We strongly urge the government to properly evaluate and reconsider any such proposal while taking all stakeholders into confidence,” Sattar recommended.
APTMA has suggested that the government should focus on enhancing quality, productivity and yield of domestic cotton, which is the primary factor behind low returns for farmers, so it can compete better with imported cotton and thereby improve farmers’ incomes, and implementing a multi-stage EFS with robust traceability which will support the entire textile value chain and foster sustainable growth.
“Issues such as uncompetitive energy costs, prohibitive borrowing rates, and the dysfunctional tax regime must also be addressed to stimulate growth in the industry which will increase demand for domestic cotton and therefore automatically increase its price and returns to farmers,” Sattar said.
Copyright Business Recorder, 2024
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