Another cotton crunch?

After the disaster this past year, the current year's cotton production could be just another recap waiting to happen; cotton sowing this season is 11 percent lower than last year. The resultant loss in cotton production is anyone's guess, but one thing's for certain - the country's 14.1-million-bale target is unlikely to be met.

As per the USDA's estimates, Pakistan's cotton production forecast is at 1.96 million MT (around 12.6 million bales), which is still almost 30 percent more than last year's 9.8 million bales, but 12 percent lower than the target. The KCA and PCGA are both bracing themselves for another shortfall this year. Even the SBP writes in its State of the Economy report that the cotton production target of 14.1 million bales for FY17 "seems challenging," and that's assuming an overly generous yield of 800kg per hectare (the USDA puts the same number at 726kg for FY17).

What are the implications of this? Well firstly, Pakistan is a net importer of cotton, and is expected to purchase some 2.4 million bales in 2017 to keep the textile industry's wheels turning. The quantity of cotton imports is determined by the production each year to make up for the shortfall (notwithstanding a certain number being allocated for exports each year). If commodity prices rebound this year, and they sure might (global cotton prices have seen an 11-month high in the past couple weeks on lower production from China and India) our import bill will take another hit. Already for FY16, over $700 million was spent on cotton imports. Though the number might not be as high for this year, a potential increase in cotton prices will nevertheless ensure another burden on the exchequer this year again.

Then, there's what this lower area indicates - farmers shifting away from cotton. It was reported earlier this month that the sugarcane crop has taken over the cotton-rich areas of Punjab such as Rahimyar Khan, Muzaffargarh, and Rajanpur. The lower prices of cotton, both domestic and international, seem to have discouraged growers. They opted to cultivate sugarcane, maize, and rice in some districts of Punjab for better market returns. As a result, 4.8 million acres have been covered in Punjab so far, as against 5.5 million acres the year before.

Faith has been lost in cotton as a cash crop. Sugarcane in its stead is not a good alternative; Pakistan is already in surplus of sugar for the past many years and is unable to export it due to the high cane support price.

Finally, there are policy issues to top everything off. The restoration of zero-rating on textile exports and increased provision of electricity to textile mills were positive steps in bringing back competitiveness to the floundering industry. But the budget brought with it an increment in cotton import duty of one percent, bringing the total duty to four percent. Moreover, there's the issue of disallowing Indian imports via Wagha border, as per the Trade Policy (2012-15) (Read: "To let the cotton flow?" published May 20, 2016). So, at a time when imports needed to be facilitated, the government has created more hurdles for the industry.