EDITORIAL: Cotton Association of Pakistan has released disturbing data that indicates a decline of 35.67 percent in production this year – from 7 billion bales till 15 December 2019 to 5 million bales in the comparable period of 2020. This woefully poor performance was evident throughout the production chain with Cotton Ginners Association revealing that 384 ginning factories were operating this year compared to 424 last year, their stocks declined to 800,000 this year as opposed to 1.2 million bales last year and 15 local textile mills bought 35.06 percent less this year in comparison to the comparable period of last year.
While the obvious reason for the decline in cotton output is the onslaught of Covid-19 this year yet sector specialists have been warning the government, present and past, that a policy that favours sugarcane over and above cotton is flawed for three broad reasons. First, because cotton is a cash crop, and a major input for the largest export earning sub-sector of the economy, hence its relevance to the Gross Domestic Product (GDP) is greater than its contribution to the farm sector alone. Second, it earns valuable foreign exchange while to export surplus sugar the federal and provincial governments have been compelled to provide an export subsidy – money that the government(s) can ill afford. And, (iii) Pakistan has a comparative advantage in producing cotton unlike sugar as a subsidy on sugar exports indicates that not only is production of sugar in excess of our demand but that its international price/cost is lower than the cost of producing sugar in the country.
Prime Minister Imran Khan has repeatedly lamented the prevalence of a “mafia”, read those who collude to set the price, an illegal activity, even in those commodities where in other countries the suppliers are too many to be able to collude. Unfortunately, however, this is not the case in Pakistan as associations/trade groups ensure that their many members speak with one voice. And the fact that many of the more key market players have considerable political influence makes them all the more difficult to tackle by any sitting government.
In this context, it is relevant to note that the sugar inquiry report indicated collusion in setting price through manipulating supply and the recent oil report also concluded that there was collusion in setting the price. To be able to deal with this in an effective and meaningful manner would require the government to: (i) revisit special policy incentives offered to sugar industry that account for a 15 percent increase in sugarcane acreage and a commensurate decline in cotton acreage; (ii) market committees empowered to purchase the commodity on behalf of the poor farmers with no access to transport (thereby getting rid of the middlemen); and (iii) a reduction in input costs (on the pattern of those extended to the export sectors) including providing farmers with high yielding seeds.
Karachi Cotton Brokers Forum Chairman Naseem Usman, however, did not express concern over this data, noting that demand by the textile sector is projected to rise to more than 10 billion bales, a view that substantiates the claim by the Faisalabad textile sector during Prime Minister Imran Khan’s visit, that they are overwhelmed with export orders requesting assistance to set up a training institute to provide skilled labour to the sector. Needless to add, this implies reliance on imported cotton which many textile exporters prefer as they argue that it is better quality. There is therefore a need for the government to initially focus on the impediments facing the farmers to raise acreage under cotton cultivation which would require considerable support from the government. The Khan administration’s over 300 billion rupee farm policy announced by Jehangir Tareen last year did not mention cotton, a charge leveled by several farmers associations, and one would hope that the cabinet takes notes of that and makes appropriate changes. Last but not least, the decline of cotton was expected, it is highly disappointing nevertheless.
Copyright Business Recorder, 2020
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