Although, it will be too early to make a definitive assessment, the news on this year's cotton crop are quite encouraging. According to certain unofficial early estimates, Pakistan is expected to get a cotton crop of well over 12 million bales during the current fiscal year, as compared to 11.6 million bales in the preceding year.
Analysts believe that the sporadic cultivation of BT cotton, both in Sindh and Punjab, may have resulted in the hike in cotton production. The estimates of higher output are corroborated by the official figures of phutti arrivals, which stood at 7.363 million bales by November 1, 2009, a fabulous increase of over 40 percent over last year's arrivals of 5.258 million bales in the same period.
A jump in phutti arrivals in Sindh by over 51 percent to 2.939 million bales has surprised most analysts, though the higher flow of phutti in Punjab was also encouraging, where 4.424 million bales have reached ginneries by November 1, 2009, as against 3.315 million bales in the corresponding period last year, showing an increase of 33.47 percent.
Raw cotton exports also tell us the same story. During July-September, 2009, Pakistan exported raw cotton worth 40.45 million dollars, as compared to 29.05 million dollars in the corresponding period last year, depicting an increase of 11.40 million dollars. In September 2009 alone, cotton exports at 20.80 million dollars were higher by about 48 percent than in the same month last year.
The projected increase in cotton production is likely to be realised at a time when the world cotton output is estimated to decline. According to USDA, world cotton production was expected to fall by 13 million bales to 107 million bales, compared to 120 million bales during the current season.
As a result, international cotton prices are increasing and Pakistani exporters are getting huge export orders. In particular, importers from Far Eastern countries, Bangladesh and China are reported to be extremely keen to enter into purchase agreements, ahead of further expected increase in cotton prices in the world market.
Although the overall picture appears to be positive, the trade circles have certain apprehensions and reservations over this favourable development. Some of the exporters fear that since most of the BT cotton seeds were not certified, the ultimate result may not be as promising as expected presently. There is also a perception in the market that it was the sowing of early maturity varieties of cotton seed that has added to the phutti arrivals until now.
Spinners and millers, therefore, are not so sure about the expected size of the final crop. However, the most important issue likely to be confronted by the authorities in the next few weeks would be the consistent demand by the textile industry to regulate cotton exports in a way that these do not hurt their manufacturing activities. Pakistan Hosiery Manufacturing Association (PHMA) has already fired the first salvos by urging upon the government to impose restrictions or banning the export of cotton and cotton yarn.
It was stressed that the export of value-added knitwear garments, ready-made garments, sportswear and other value-added products was badly affected by the export of cotton and cotton yarn. The argument of PHMA was strengthened by the fact that while export of raw cotton and yarn was showing increases, value-added textile exports registered a fall of more than 10 percent during the first quarter of FY10, as compared to the corresponding period of the previous year.
It is easy to understand that in the evolving situation, there are both opportunities and challenges for the economic managers of Pakistan because of the preponderance of cotton in the economy of the country.
If the anticipated increase in cotton crop materialises, it will be a sharp reversal from the trend of the last few years (cotton output had declined from 14.3 million bales in 2004-05 to 11.6 million bales by 2008-09) and would contribute a great deal in enhancing the growth rate, promoting industrial activity and reducing unemployment in the country because of huge backward and forward linkages in energising the economy.
Since cotton and cotton manufactures account for a bulk of foreign exchange receipts, exports of the country are likely to pick up and reduce the need to borrow from foreign sources. Added advantages could be the stabilisation of the exchange rate and foreign exchange reserves of the country. If properly manipulated, the government could also improve its fiscal position by adjusting the tariff rates on cotton and cotton yarn, depending, of course, on the difference in prices in the local and foreign markets.
Challenges, on the other hand, would include proper research on the new cotton seeds, especially BT, to ensure optimal yield and avoid pest infection and uninterrupted supply of electricity to the cotton manufacturing sector, in order to extract maximum gains of the higher yield in terms of employment-generation and export promotion.
However, the biggest challenge for the government would be to play an impartial role between the growers, ginners, exporters and textile manufacturers, engaged in the production of various finished items for the local and foreign markets. The interest of the domestic consumers of these products has also to be looked after. Unfortunately, past history in this respect is not worth emulating because of excessive greed and desire to exploit the situation for promoting self-interest by all the relevant stakeholders.
Aptma, in particular, was generally reported to be quite successful in exploiting the situation to its advantage in the past. We hope that the government would be monitoring all developments very closely and try its best to maximise the gains to the economy. The government is also expected to help ensure a fair deal to all the parties related to cotton production, its manufacturing and trade.