Back in 2011, the fourth largest producer of cotton had enough clout to drive the commodity price sky-high. That’s when floods hit the agrarian heartland before the kharif harvest, driving raw cotton price to USD five per kilogram in the international market, a never before seen 150 percent increase in a matter of six months.
Since then, reason has been restored in the global commodity market – in the seven years since peak prices of March 2011, commodity rates have remained below the USD 2.5 per kilo resistance level. Demand volatility from China and other East Asian countries have seen price wrangle between USD 1.5 – 2.5 per kg.
However, none of it seems to bring any respite for Pakistan, which has struggled since the flood year to reassert itself in the global market. In FY12, import to export ratio (value) of cotton exported stood at 1.1 times, which by FY18 end has climbed up to 18.5 times. The situation is no different for volumes traded, which has declined from 256,541 tons in FY12 to 35,347 tons by FY18 end.
What has pushed Pakistan’s cotton exports to oblivion, even as the country’s position amongst the top five global producers has remained firm? Observers disagree. One denim exporter blames increasingly demanding buyers. Exporters with firm contracts with international brands such as Levis, GAP, Abercrombie, and Zara are increasingly reliant on imported cotton due to increased competition and pressure from the buyers.
Numbers neither fully contradict nor confirm this version. On one hand, Pakistan imported cotton bill from countries such as USA has continued to balloon, growing by 16 percent in 2017 alone. Similarly, top destination for Pakistan remains China, where cotton imported from Pakistan is reportedly used for local consumption or export to other third world nations. At the same time, undervalued USD also encouraged local players to increase import between FY14 – FY17, further widening the gap between raw cotton import and export.
On the other hand, the differential in the average price of cotton imported and exported by Pakistan has begun to narrow over the past five years. From a peak per metric ton differential of one thousand dollars in FY12, the differential has come down to a $120 as of June 2018.
This should suggest that cotton produced and exported by Pakistan has improved in quality, at best: at its worst, textile value-add sector seems to be wasting precious foreign exchange over cotton import under pressure from buying houses even though the quality of local cotton is not quite dissimilar.
Whatever may be the explanation, it appears that local farmers have become discouraged over the buying trend, reflected in consistent decline in area under cotton cultivation which declined by 15 percent between FY15 and FY17. Policymakers should pay heed!
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