Post-flood alluvial soils, favorable weather, and a dramatic recovery in acreage. During the last financial year, Pakistan recorded its highest production of cotton since 2018. The remarkable reversal in cotton output managed to save more than a billion dollars on imports, saving precious foreign exchange at a time when the economy was faced with its worst balance of payment crisis in at least 25 years. Unfortunately, that’s all set to change during 2024-25.
For at least the past eight years, Pakistan’s annual cotton import bill has averaged nearly a billion dollars, reaching peak levels of $2 billion dollars in the calendar year 2022. Of course, the peaking of import bills that year was in part driven by decade-high commodity prices but also came at a time when Pakistan’s annual cotton import requirements closed in at 5 million bales for three years in a row.
All that appeared to reverse during the outgoing fiscal year of 2023-24. Pakistan imported just 1.2 million bales (170kg), the second lowest in a decade. In fact, the last time Pakistan regularly imported less than 1.5 million bales of cotton was before 2004. At that time, domestic cotton production averaged above 14 million bales annually, and the textile industry primarily relied on local cotton for the production of yarn and greige fabric for export markets. This was also the time when imported cotton was primarily used for manufacturing luxury wear for high-end local retail markets.
Was local cotton production back with a bang? The persistent recovery in crop acreage – despite the widespread crop destruction during the 2022 monsoon floods – certainly seemed to indicate so. After a decade, cotton also appeared to be re-gaining its competitiveness against substitutes such as autumn corn, which lost track following the turmoil in the poultry industry. The dramatic fall in demand for cotton imports also boosted the confidence of local growers, indicating that the value-added and export-oriented industry did not have any inherent preference for imported raw material over locally produced raw cotton.
Sadly, good times don’t have a habit to last in Pakistan’s luckless economy. The recovery of local cotton output could not have come at a worse time for cotton growers. World cotton prices collapsed 50 percent versus their summer 2022 peak, yielding lower profit per bale for farmers despite the over hundred rupees decline in the currency exchange rate. Production of cotton yarn by the spinning industry fell to the lowest levels in two decades, as high energy tariffs and the collapse of domestic demand due to record-high inflation dried up local retail sales. For the time in 15 years, Pakistan had an abundance of cotton. Cash-rich mills managed to stock up on inventory at cheap prices compared to the global market, yet farmers still suffered with low per-unit margins.
Little surprise then that the area under cotton crop is slated to fall by at least 25 percent during the ongoing sowing season – from 2.4 million hectares (ha) last year to under 1.8 million hectares. Even if farmers manage to achieve an average yield of 600 kg per ha, crop output may still fall by nearly 4 million bales versus last year. That too appears unlikely considering the liquidity crunch in the farm economy due to the self-created wheat procurement disaster by the Punjab government.
That means demand for imported cotton may return with a vengeance, straining an already weak foreign exchange position. Ironically, the only hope to avoid high import bills might be a recession-hit global economy, which in turn could wipe additional billion dollars for value-added textile exports.
Even so, the cotton import bill shall at least double against the record low bill recorded last year. Hopefully, the central bank will be mindful of the upcoming demand.
Comments
Comments are closed.