The government is likely to fix seed-cotton (phutti) intervention price at Rs 1500 per 40 kg for the base grade 3, with staple length 1-1/32 during 2009-10, an increase of Rs 35 (less than one rupee per 40 kg of Rs 1465 last year), sources told Business Recorder here on Sunday.
The task force on food and agriculture, headed by the Minister for Food and Agriculture (Minfa) Nazar Muhammad Gondal, has endorsed Rs 1500 per 40 for phutti.
Last year, cotton production achievement was 12.1 million bales from an area of 2.85 million hectares with average yield of 719.51 kg per hectare. During the current crop year (2009-10), cotton production target is 13.36 million bales from cultivated areas of 3.20 million hectares (48 percent higher than last year) with average yield of 737 kg/hectare.
During 2008-09, the domestic price of seed-cotton was reported at around Rs 1900 per 40 kg in early season. However, the price started sliding, particularly in November/December, and touched the level of Rs 1300 per 40 kg at some places. The fall in seed-cotton price was mainly due to lower economic activity caused by massive power load shedding. It was further compounded by cash flow problems with the ginners, creating a bottleneck in bulk purchase of seed-cotton from farmers.
In view of future forecast of world supply and demand, cotton prices in the international market are likely to be higher than last year. Similarly, the market price of seed-cotton is also expected to follow the same pattern in view of the depressed demand for it.
As the government fixed intervention price of Rs 1465 per 40 kg for phutti last year, the market price averaged around Rs 1557 per 40 kg in Punjab, and Rs 1525 in Sindh.
Sources said that Agriculture Policy Institute (API), an attached department of Ministry of Food and Agriculture (Minfa), carried out a detailed analysis and has proposed Rs 1500 per 40 kg for the base grade 3 with staple length 1-1/32.
This estimate is based on the following four criteria: (i) cost of production;(ii) import parity price;(iii) export parity price; and (iv)domestic prices.
API has carried out a cost of production analysis of seed-cotton for the year 2009-10 which is estimated at Rs 1450 per 40 kg for Punjab and Rs 1296 per 40 kg for Sindh at market level, showing an increase of about 8-14 percent over last year due to hike in land rent, tillage charges, price of seed, tube well water supplies, daily wages and other related charges.
Based on average quoted CFR Far Eastern Price of Orleans/Texas SLM 1-1/32 during 2008-09, the import parity price calculates to Rs 1725 per 40 kg. Based on average actual fob Karachi price of Pakistani cotton, the export parity price of seed-cotton calculates at Rs 1413 per 40 kg.
The domestic market prices averaged around Rs 1557 per 40 kg in Punjab and Rs 1525 in Sindh during last season. Sources said that the Planning Commission is of the view that intervention price of seed-cotton for 2009-10 crop at Rs 1500 per 40 kg seems to be on lower side and needs to be adequately enhanced so that the growers assign higher priority to this crop and ensure enhanced local production for Pakistan''s textile industry.
They said that the government would also direct the Trading Corporation of Pakistan (TCP), if needed, to implement the price policy through procurement of cotton lint from the ginners at the price based on the intervention price of seed-cotton.
At the same time, sources said, urgent measures are required to improve the cash flow position of the ginners and to minimise power load shedding so that market forces interact to stabilise supply/demand position.