Weekly Cotton Review: Import on the rise as local production sees a big fall

21 Oct, 2024

KARACHI: Cotton production has decreased by 29 lac bales (48.26%) which is an alarming level. Total production is expected to be around 60 lac bales.

Approximately 55 lac bales will need to be imported. Import agreements for around 30 lac bales have already been made. Several major textile groups are importing cotton yarn due to shortages. Meanwhile, textile exports have seen an 18% increase. However, the textile sector remains concerned at the local level.”

Currently, Pakistan’s cotton market is experiencing a downward trend, while yarn prices remain stable and business volumes are improving. Efforts are under way to restore cotton production, particularly in Rahim Yar Khan, where discussions focus on increasing production and addressing challenges faced by farmers.

The Federation of Pakistan Chambers of Commerce and Industry (FPCCI) is actively engaged in promoting Pakistan’s textile sector.

Last week, Pakistan’s cotton market mirrored global trends, experiencing a price drop due to declining international cotton prices. As global cotton markets saw a downturn, local cotton prices also declined by Rs 300 to Rs 400 rupees per maund. Phutti prices similarly saw a relative decline. Despite this, business volumes remained robust, indicating a resilient textile sector.

Pakistan’s textile sector is receiving export orders, but struggling to capitalise due to various challenges. If the government addresses its issues, export growth prospects appear promising, particularly as Pakistan benefits from India’s declining textile trade with Bangladesh and the latter’s unfavourable business environment.

The decline in India’s textile trade with Bangladesh and the current unfavourable business environment in Bangladesh have resulted in Pakistan’s textile exporters receiving more export orders. However, the industry still requires immediate government assistance to capitalise on these opportunities, as rising energy tariffs continue to drive up production costs.

Pakistan’s textile exporters face severe capital shortages due to delayed refund payments and rising interest rates. To alleviate this, reducing interest rates is crucial. Currently, billions of rupees are stuck in sales tax refunds for extended periods, while duty drawback refunds also experience delayed payments.

Pakistan faces an alarming decline in cotton production, exacerbating concerns for the textile industry. If measures aren’t taken to boost cotton production, yields will continue to dwindle in coming years. Urgent government action is vital.

This year, cotton farmers, traders, ginners and textile sectors face numerous challenges, with farmers being severely impacted. Disheartened, they may opt for alternative crops over cotton, further threatening production.

The rate of cotton in Sindh Province after dropping down by Rs 300 to Rs 400 per maund is in between Rs 17,200-17,600 per maund. The rate of Phutti is in between Rs 7,800-8,400 per 40 kg. The rate of cotton in Punjab is in between Rs 17,800-18,000 per maund. The rate of Phutti is in between Rs 7,800-8,500 per 40 kg. The rate of cotton in Balochistan province is in between Rs 17,200-17,500 per maund. The rate of Phutti is in between Rs 7,800-9,000 per 40 kg.

However, a bearish trend prevails in the prices of Banola, Khal and oil. The Spot Rate Committee of the Karachi Cotton Association decreased the spot rate by Rs 400 per maund and closed it at Rs 17,600 per maund.

Karachi Cotton Brokers Forum Chairman Naseem Usman reported that international cotton prices remained bearish. New York cotton futures traded between 70 to 72 US cents per pound.

According to the USDA’s weekly export and sales report for 2024-25, one lac and fifth nine thousand and eight hundred bales were sold.

Vietnam topped the list by purchasing forty seven thousand and seven hundred bales. Pakistan secured second place with forty five thousand and six hundred bales. Turkey ranked third, by buying seven teen thousand and three hundred bales.

Meanwhile, the latest data from the Pakistan Cotton Ginners Association (PCGA) highlights a grim scenario, revealing a deepening crisis in Pakistan’s cotton industry. As of October 15, 2024, the PCGA reports a total cotton arrival of 3,101,743 bales, a stark contrast to the 5,996,086 bales recorded on the same date in 2023—reflecting a sharp 48.26% decline in production compared to last year.

In Punjab, 1,185,647 bales have been produced so far this year, compared to 2,543,100 bales by this time last year, representing a 53.38% drop. Similarly, Sindh’s production has fallen from 3,452,986 bales in 2023 to 1,916,096 bales in 2024, marking a 44.52% decrease. In Balochistan, 94,850 bales have been reported this year.

These figures paint a dire picture of the continued decline in cotton production, which poses significant threats to Pakistan’s economy and agricultural sector. Against this backdrop, Dr Jassu Mal Leemani, Chairman of the PCGA, has undertaken urgent initiatives aimed at reviving and promoting cotton production for the upcoming 2025 season. He has already begun engaging with stakeholders to devise comprehensive strategies. However, the pressing question remains: Can Pakistan’s cotton industry reclaim its former glory under the current challenges?

Today, cotton farming is significantly less profitable than competing crops such as sugarcane, maize, rice, and sesame. Farmers are neither provided with a support price nor are they offered subsidies on agricultural inputs, and the absence of an organised market system further exacerbates their challenges. Exploitation by middlemen and commission agents continues to impose financial burdens on growers.

Adding to these economic challenges, the cotton crop is severely impacted by climate change, extreme heat, heat waves, torrential rains, and pests such as whitefly, pink bollworm, and cotton leaf curl virus. Neither the federal government nor the private sector has allocated adequate research funding to combat these issues. As a result, cotton production and the area under cultivation have been steadily shrinking.

While Dr Jassu Mal Leemani’s proactive efforts are commendable, the road ahead remains fraught with obstacles. It remains to be seen how effectively these challenges can be overcome.

Dr. Jassu Mal Leemani, Chairman of the Pakistan Cotton Ginners Association (PCGA), along with his delegation, met with Naseem Usman, Chairman of the Karachi Cotton Brokers Forum, and other cotton brokers. During the meeting, Dr. Leemani emphasised the need for all stakeholders to unite in boosting cotton production, as the country’s economy heavily relies on the revival and growth of the cotton sector.

He stressed that increasing cotton production is a national responsibility and achieving success in this endeavour will guarantee Pakistan’s economic stability and prosperity. The meeting highlighted the significance of collective efforts in enhancing cotton yields, which is crucial for the nation’s economic well-being.

However, Rashid Mahmoud Langrial, Chairman of the Federal Board of Revenue (FBR), visited the Federation of Pakistan Chambers of Commerce and Industry (FPCCI) head office in Karachi on October 16, 2024. He met with Dr Jasso Mal Leemani, and Sham Lal Manglani Chairman of the Task Force on Agriculture, Pakistan.

During the meeting, Dr Leemani highlighted the struggles of the ginning industry, emphasizing that excessive taxes have severely impacted the sector. He urged Chairman Langrial to prioritize resolving the industry’s tax issues, allowing it to recover and grow. Chairman Langrial assured Dr Leemani that the FBR would make every effort to address the ginning industry’s problems.

A representative meeting of Rahim Yar Khan’s cotton ginners was held to discuss key issues which includes cotton crop size and market trends and impact of new taxes on the cotton and oil industry. Attendees, including Imad Fayyaz, Malik Abdul Karim, Qaiser Sajid Munir and Muhammad Waseem, shared their insights.

The consensus was that the crop size is not alarmingly low, but market rumours exaggerate the issue.

In the meeting it was also agreed that the ginning costs are Rs 1,000; accepting lower costs would incur losses. Taxation matters were extensively discussed, with agreements on several points.

In the meeting concerns were also raised about the 18% sales tax exemption on cotton imports. Current state of affairs of the textile industry was also reviewed.

However, Muhammad Bashir Ali Muhammad, owner of Gul Ahmed Textile, has been elected Chairman of the International Cotton Advisory Committee (ICAC). He is the first Pakistani to hold this prestigious position. This achievement brings immense pride and honour to Pakistan. ICAC promotes sustainable cotton production, trade and consumption globally. Muhammad Bashir’s leadership will significantly contribute to Pakistan’s textile industry growth and international reputation.

Copyright Business Recorder, 2024

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