KARACHI: The Karachi Cotton Association (KCA) understands from the reports appeared in a section of press on Tuesday that while chairing a meeting on cotton by the Federal Minister for National Food Security and Research, the official of Pakistan Mercantile Exchange Limited (PMEX) discussed with the minister in detail, the proposal of hedge trading in cotton.
The KCA believes that in order to stabilize cotton prices in the country, hedge trading in cotton should be resumed for the benefit of the cotton trade under the aegis of KCA with the consultation of all stakeholders of cotton economy as cotton marketing involves a tremendous business risk. It was, therefore, necessary that there should be some form of price insurance to reduce the risk of volatile fluctuations in prices.
It may please be noted that The KCA used to perform hedge trading in cotton since 1934. Following the nationalization of export trade and establishment of Cotton Export Corporation of Pakistan in the public sector, the hedge trading in cotton was suspended by an administrative order of the Government of Pakistan in 1976. Since last four decades, the KCA is urging upon the government to allow resumption of hedge trading in cotton for the benefit of all segment of the cotton trade.
It is worthwhile to mention here that the utility of the hedge trading in cotton has been re-affirmed by three Cotton Hedge Enquiry Committees set up by the government in 1953, 1965 and 1971. In 2002, the then Federal Minister for Commerce constituted a formal Committee headed by the Chairman, the KCA and comprising all the segments of cotton trade such as the Pakistan Cotton Ginners' Association (PCGA), All Pakistan Textile Mills Association (APTMA), Cotton Growers, State Bank of Pakistan, Agriculture Development Bank of Pakistan and Securities & Exchange Commission of Pakistan. The Terms of Reference of the Committee encompassed the modus operandi, proper discipline and regulation and time frame for re-starting the hedge trading in cotton.
The Committee referred to above held various deliberations and deeply examined the merits of resumption of hedge trading in cotton and recommended that the government should allow to resume hedge trading in cotton under the aegis of the KCA.
It is recalled that the Federal Cabinet in its meeting dated 24 March 2005 also agreed and decided to resume hedge trading in Pakistan under the aegis of the KCA. However, necessary notification of the government in this regard has not been issued to-date.
The KCA is fully prepared to resume hedge trading in cotton as it has full and comprehensive infrastructure and adequate By-Laws for hedge trading in cotton, 320 licensed cotton brokers, who have their own offices at The Cotton Exchange to facilitate trading of cotton with the ginners, spinners & exporters. It has also a Clearing House, Survey Room, Sample Room, Trading Hall, Fiber Testing Laboratory equipped with High Volume Instrument (HVI).
The KCA is of a strong view that if there is proposal to resume hedge trading in cotton in the country, the government should convene a consultative meeting of all stakeholders of the cotton economy before taking any decision in this regard and if the government permits the resumption of hedge trading in cotton, it should be resumed under the aegis of the KCA as it is only recognized Association in Pakistan to run hedge trading in cotton under the Cotton Act 1957.-PR
Copyright Business Recorder, 2020
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