Cotton farmers of Multan, Dera Ghazi Khan and Bahawalpur divisions are facing crisis like situation at the harvesting stage, as on one hand the cotton prices have slumped internationally due to the global financial meltdown, while on the other textile industry is not in a position to buy and stock the commodity due to dried-up credit.
Cotton prices, which were hovering around Rs 4,000 to Rs 4,200 per 37.5 kg in the local market a month ago, have dropped to Rs 3,475, as global cotton rates continue to go down due to turmoil in global financial markets. The cotton farmers' miseries have compounded due to the inability of cash-strapped textile mills to lift around 80 per cent of the entire crop immediately after harvesting. A large number of spinning mills have stopped servicing their past loans that means they do not qualify for fresh funds.
FPCCI President Tanvir Ahmed Shaikh says the textile industry is under severe stress. He says the mills, which are still servicing their loan obligations, are doing so by disposing of their other assets. "No one is currently making money in the textile industry. The banking crisis has occurred at the worst time," he adds.
Tanvir says every year banks provide huge credit to the textile industry to buy cotton from farmers. The mills arrange 20 per cent funds while the balance of 80 per cent comes from banks. At current, cotton rates are around Rs 3,400 per maund, he said.
He says an average spinning mill of 25,000 spindles stocks 4,000 to 5,000 cotton bales annually on bank financing. This requires some Rs 48-60 million, which is now seemed difficult to obtain under prevailing circumstances.
Another spinner, Khawaja Muhammad Jalaluddin Roomi, said the dilemma for textile exporters is that yarn prices have declined by 15 per cent in the global market after crisis gripped financial institutions of the developed world. This has nullified the advantage of rupee depreciation by over 20 per cent. Rampant inflation, he says, has also eaten away the advantage owing to higher cost of gas, electricity and other inputs.
The farmers, however, argue the industry is exploiting the situation. Progressive farmer Abdul Ali Zakir Osmani says global cotton prices have not declined as much as is depicted in the local market, adding the fall in rates at the time of harvesting is a regular ploy of the spinners to put pressure on the farmers.
He suggests the Trading Corporation of Pakistan should enter the market immediately as a parallel buyer with a clear intent to export the commodity. Local production of cotton, he adds, is expected to improve this year but it would still be much lower than total demand of the industry.