KARACHI: In local market, prices of cotton continued to decline. Trading volumes also remained relatively low. However, New York cotton prices showed an upward trend. Cotton imports are on the rise. Approximately 50 lac bales of cotton worth $2 billion will have to be imported.
Imran Mahmoud, Chairman of All Pakistan Bed Sheets and Upholstery Manufacturers Association (APBUMA) said that Pakistan has become the largest importer of American cotton. Reduced cotton production and increased energy costs have put the textile sector in trouble.
Head Transfer of Technology Central Cotton Research Institute Multan Sajid Mahmood said that FPCCI’s research team is hopeful for the revival of the cotton industry. Tax policy reforms are necessary in the cotton sector.
Chairman of the Ginners Forum Ehsan Haq said due to the sales tax exemption on imported cotton, the highest amount of cotton has been imported in the country’s history.
Over the past week, there has been an overall downward trend in cotton prices in the local market. However, there has been an upward trend in New York cotton prices. Due to the arrival of imported cotton, most mills are not showing much interest in local cotton, resulting in relatively low trading volume. Another reason is that the quality of cotton in the local market is also low. Some ginners are storing cotton, expecting an increase in price in the future.
Along with the import of raw cotton, there’s been a significant increase in the import of cotton yarn, which is causing a surge in local payments. Many mills are interested in purchasing cotton on credit. Several ginners are entering into agreements on bank L/Cs, apart from delayed payments.
The rise in the New York cotton futures price has slowed down import deals. However, according to cotton import agents, approximately 35 lac bales of import deals have already been finalised, and more agreements are in the pipeline.
Mills dealing in imported cotton yarn have an advantage due to being exempt from sales tax, unlike locally-sourced cotton and cotton yarn. This means that these mill owners don’t face delays in tax refunds. On the other hand, locally-sourced cotton is subject to an 18% sales tax, and the subsequent delays in refunds, blocking a significant amount of capital. This is a primary reason why local mills prefer imported cotton and cotton yarn.
Due to cotton shortage, Pakistan will have to import approximately 50 lac or more bales of cotton this year to meet its demand. This will cost around 2 billion dollars. These imports will put a severe strain on the national treasury.
The prices of cotton in Pakistan vary across different provinces and qualities. The rate of cotton in Sindh is in between Rs. 16,000 to 18,000 per maund depending on quality. The rate of Phutti is in between Rs. 6,500 to 8,000 per 40 kg.
The rate of cotton in Punjab is in between Rs. 16,700 to 18,000 per maund. The rate of Phutti is in between Rs. 7,000 to 9,000 per 40 kg.
The rate of cotton in Balochistan is in between Rs. 16,700 to 18,000 per maund. The rate of Phutti is in between Rs. 7,200 to 9,200 per 40 kg.
The rate of Balochi Cotton is in between Rs. 18,500 to 18,600 per maund. The rate of Primark cotton is in between Rs18,800 to 19,200 per maund.
The prices of Banola, Khal, and oil; however, remained stable.
The Karachi Cotton Association’s Spot Rate Committee has decreased the spot rate by Rs 100 per maund and closed it at Rs. 17,400 per maund.
Naseem Usman, Chairman of the Karachi Cotton Brokers Forum, told Business Recorder that international cotton prices witnessed a rising trend. The New York cotton December futures contract closed at 73.35 US cents per pound.
According to the USDA’s weekly export and sales report, three lac and twenty four thousand and one hundred bales were sold for the 2024-25 year.
Pakistan topped the list by purchasing one lac and forty six thousand and three hundred bales. Vietnam came in second with the purchase of fifty two thousand and three hundred bales. Turkey secured the third position by purchasing forty eighty thousand and five hundred bales.
Meanwhile, in a statement issued on Thursday, Imran Mahmud, the central chairman of APBUMA, said that the survival of the textile sector depends on the availability of a large quantity of cotton, which has seen an unprecedented decline in the last 10 years. He further stated that the cotton yield has reduced to almost half due to the lack of incentives for cotton growers.
Some factory owners have already moved their units to Bangladesh due to unfavourable local conditions,” Mahmud said, adding that electricity and gas locally are also being provided at the highest prices compared to regional competitors.
He pointed out that higher mark-up rates, a deteriorating law and order situation, and conflicting economic policies that have severely damaged the SME sector. He demanded that exporters be provided with electricity and other commodities at competitive rates so that the exportable surplus can be made competitive in international markets.
Imran Mahmud said that 125 factories have already closed this year, and if immediate relief is not provided, more factories will close down soon. He said that in 2020, electricity was supplied relatively cheaply, and as a result, industrial units operated at full capacity. He urged the government to provide a positive environment for the industrial sector so that it can not only increase its production for exports but also create more employment opportunities for unemployed youth.
However, Head Transfer of Technology Central Cotton Research Institute Multan Sajid Mahmood said that SM Tanveer, Chairman of the United Business Group, in a WhatsApp group mentioned the formation of a 20-member research team at the FPCCI. This is certainly a positive step. Hopefully, SM Tanveer will also present an actionable plan through the FPCCI platform for the revival and promotion of cotton, special incentives for cotton growers, and financial support for cotton research institutions, especially the Pakistan Central Cotton Committee.
There is a need to ensure that the continuous decline in cotton production and cultivated area in the country can be stopped and the issues of the cotton industry and all its stakeholders can be resolved. Furthermore, the FPCCI will take immediate steps through its platform to resolve the cotton cess issue between the Pakistan Central Cotton Committee and the textile industry.
The formation of a 20-member research team by the FPCCI platform is a very significant and encouraging step. Cotton is a major pillar of Pakistan’s agriculture and economy, and the formation of such a research team to address the decline in its production and related issues was absolutely necessary.
A deep analysis of various aspects of the cotton industry with the help of a research team and a successful strategy will not only increase production but will also solve the problems faced by this industry.
The FPCCI, under the leadership of United Business Group and SM Tanvir, needs to present a viable plan that outlines the necessary steps to halt the continuous decline in cotton production. This plan should not only provide incentives to farmers but also allocate increased funds to research institutions to adopt modern cotton cultivation techniques and address the challenges posed by climate change.
This initiative by the FPCCI could open up a new avenue for the cotton industry and all its stakeholders. This could include government policy support, adequate capital provision, and other incentives for the industry that would be beneficial for cotton production and the industry. Simultaneously, it could also resolve market issues related to cotton, such as price fluctuations and farmers’ problems, leading to a steady increase in cotton production across the country.
Absolutely, if the efforts of this research team are implemented and the FPCCI, under the leadership of Mr. SM Tanveer, executes this project promptly, then a significant step can be taken to resolve the cotton industry’s problems. Pakistan could witness a new agricultural revolution.
The current policy of imposing an 18% sales tax on domestic cotton and exempting imported cotton from taxes has had negative impacts on agricultural economy and local farmers. On the other hand, increasing reliance on imported cotton not only consumes valuable foreign exchange but also deprives local farmers of a fair remuneration for their labour. The government should develop a comprehensive mechanism under which spinning mills are mandated to purchase all domestic cotton. Imported cotton should only be allowed after the complete utilization of local production. This will not only encourage local agricultural production but will also help save foreign exchange and stabilize the national economy.
Furthermore, due to the exemption of import duty on imported cotton, there are reports of Pakistan importing the highest amount of cotton in its history during the cotton year 2024-25. This significant increase in cotton imports has led to a decline in domestic cotton and lint prices, causing concern among farmers and cotton ginners.
However, Chairman of the Cotton Ginners Forum, Ehsan Haq stated that in the federal budget 2024-25, imported cotton and cotton yarn were exempted from 18% sales tax for the export-oriented textile sector, but this sales tax was maintained for domestic purchases. Additionally, the unusual cultivation of sugarcane in cotton zones has led to environmental pollution and affected cotton quality.
As a result, the textile mills have significantly increased their cotton import trend this year. It is expected that during the cotton year 2024-25, textile mills will have import agreements for nearly 60 lac cotton bales, the highest in the country’s history.
Out of these, agreements for nearly 30 lac bales have reportedly been finalized. He further stated that, according to information, more than 13 lac bales have already arrived in Pakistan, and their arrival is continuing at a rapid pace.
Copyright Business Recorder, 2024
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