ANALYSIS: prospects of bumper new crop
further depress cotton prices
KARACHI (August 05 2004): New cotton season 2004-05 has taken
its start from August 1, but previously Pakistan's cotton
season used to commence from September 1 every year.
The reason for this revision is that our cotton
activities---crop sowing, development and harvesting---are now
starting quite earlier than before and that we have joined the
international cotton community where cotton season starts from
August 1 every year.
It is hoped that this new season would prove to be beneficial
by producing a crop of 1.955 million tons = 8.98 million
480-lb bales = 11.5 million Pak (170 kg each) bales against
our record high production of 12.8 million 375-lb bales in
Our average annual cotton production of last 12 years (
1992-93 to 2003-04) has been below 10 million local bales and,
in these 12 years period, our best production was 10.6 million
bales (in 1995-96) and lowest one was 8.0 million bales (in
In 1991-92, when our production was 12.8 million bales, our
total cotton consumption was 8.5 million bales.
In 2003-04, our production was 10.0 million bales and our raw
cotton consumption around 12.0 million bales.
In the last 12 years, our production has been reduced by
21.875 percent from 12.8 million bales to 10.0 million bales,
while consumption has increased by 41.17 percent---from 8.5
million bales to 12.0 millions bales.
The most unfortunate aspect is that the Ministry of Food,
Agriculture and Livestock (Minfal) has perhaps not bothered to
let the nation know the reasons for the reversal of cotton
production and consumption phenomenon.
Perhaps Minfal has the highest number of research scholars /
Ph Ds but research work has been reduced to lowest level as
most of these scientists may be working on non-research /
The nation has the right to know why Minfal has miserably
failed in keeping up with the already achieved cotton
production performance of 12.8 million bales and has also
failed to improve quality of cotton.
Strangely, Minfal wants to fix lower production targets,
perhaps admitting that it cannot produce as much as 12.8
million bales already produced. The seed, namely S-12, which
revolutionised our cotton production, has been buried deep
down in the earth to die.
The President of Pakistan has already issued an Ordinance in
November 2002 to introduce Cotton Standardisation System but
it has been scrapped. In about two years' period, neither the
Cotton Grading /Cotton Standardisation System has been
implemented at ginning stage nor there appears any indication
of implementing it in near future.
The plain reason is that through implementation of this Cotton
Standards Ordinance, cotton growers will be entitled to
receive payment of quality premium for quality better than
Base Grade cotton according to a set formula.
The premium amount may run into billions of rupees in a
season. In 2003-04 season, Pakistan imported record high
quantity of cotton equivalent to 2.3 million local bales to
meet its shortfall in cotton which is 23 percent of our
If the Cotton Standardisation System is implemented in real
spirit, Pakistan can increase its production considerably to
meet its domestic requirement and simultaneously improve
quality of our cotton to international level.
We are short in wheat and may be importing more than 1.0
million tons. Sometimes, we import sugar and sometimes onion.
We are an 'agriculture country' and are short in prime
The government should form a broad-based 'Inquiry Commission'
for bringing out the facts of a possible conspiracy for low
cotton production and poor lint quality thus keeping our
economy dependent on other countries and the country poor.
Presently, our cotton crop is reported to be fine under very
conducive weather conditions. We may receive less rainfall
this cotton season and are already short in canal water.
Even then we are hopeful of producing a bumper crop of 11.5
million bales. Less rains means less undesirable vegetative
growth, less chances of pest attack and less spray expenses.
About ten ginning factories each in Punjab and Sindh are
already in operation and more and more factories are resuming
operation in new crop.
The Pakistan Cotton Ginners' Association is trying to persuade
the ginniers to delay ginning operation by one month to bail
out the ginners (mostly of Rahimyar Khan and Bahawalpur
districts) who are holding larger stocks of unsold cotton from
The other day, a cotton man who had taken a tour of Punjab,
told me that there were many ginners in Rahimyar Khan and
Bahawalpur districts whose total production of 2003-04 season
was still intact and they had not sold a single bale.
Total unsold stocks with the ginners / exporters are estimated
around 300,000 to 350,000 bales---about 50,000 bales in Sindh
and rest in Punjab. Exporters are holding unsold stocks of
some 30,000 bales.
Reportedly, some spinners are offering imported cotton for
sale in local market. Both the ginners and the spinners are
caught in their own trap of making incorrect assessment of
cotton production and consumption.
Generally speaking, many ginners have incurred heavy losses in
cotton business and some of them may go bankrupt.
The lint prices have crashed to the level of Rs 2,200 to 2,000
per maund from season's record high price of Rs 3,600 per
maund---a fall of 40 to 45 percent.
The attempt of the PCGA to persuade the government to bail the
ginners out by purchasing all their unsold cotton stocks has
also failed and the ginners are in soup.
In all prominent cotton producing countries of the world, the
talk of the town is the prospects of a bumper cotton crop in
2004-05, but in Pakistan the talk of the town is heavy losses
to cotton ginners / spinners.
The ginners / exporters should try to unload their long
position before the present level of prices receives another
blow when the arrivals of new cotton crop get momentum.
New crop lint is selling around Rs 2,200 to 2,300 per maund
ex-gin and in view of expected record high world crop---nearly
105 million 480-lb bales---in 2004-05 season with China
claiming more than 28 percent share at 28-30 million bales and
anticipated structural changes in cotton marketing system /
policies in view of abolition of old restrictive / quota
system and introduction of free-trade policies under WTO
regime from January 05, cotton market is likely to bog down
below the strong psychological barrier of Rs 2,000 per maund
ex-gin in the country and to the level of 40 cents or even
below in world market.
The recently concluded WTO General Council meeting indicates
that some agreements have been concluded between rich and poor
nations. The main points of the agreements are as under:
1. All 147 members of World Trade Organisation (WTO) have
agreed on the basis of talks on a trade deal but still have
months of hard negotiations ahead.
2. Rich countries have agreed to eliminate all forms of export
farm subsidies but can keep some of their domestic support.
3. The deal includes a "down payment" that would see an
immediate 20 percent cut in the maximum permitted payments by
4. Europe's multibillion-pound sugar industry is still outside
5. West African states failed in their attempt to open
separate negotiations over the $3 billion subsidies for its
6. Poor countries will have to cut import barriers under which
the highest get cut the most.
7. Developing countries have to negotiate on rules to make
customs procedures easier and less expensive for business.
There are indications that prominent countries appear
committed to the implementation of WTO regime from January 1,
2005. This would provide breathing space to developing
The yarn and other textile products prices are ruling quite
easy and are likely to add to the easiness of cotton prices in
coming months. Over the last two years, China has increased
its cotton acreage by 36 percent and Brazil by over 50
Any increase in cotton prices would encourage specially Brazil
and China to increase cotton areas.
In 2003-04, China has proved its power in setting the
direction of world prices of cotton and textiles products.
Adam, vice-chairman of National Cotton Council (NCC) remarked:
"As China goes, so the world markets".
Of course, China is the engine of world cotton and textile
markets but in show of its strength which caused heavy losses
to world cotton trade, it has also burnt its fingers and is
now licking its economic wounds.
Cotton and textile operations in China have been slowed down
due to high priced cotton imports, abnormally high local
cotton prices, short power supply and liquidity squeeze.
New York cotton market's October contract is ruling only less
than three cents above the psychological barrier of 40 cents
and the new crop has yet to exert its arrival pressure on
prices. The barrier of 40 cents may be washed away to enter
into late 30s.
On the other hand, two-month long crucial period for cotton is
there and fears of possible havoc playing by rude weather may
reverse the cotton prices.
Cotton-surplus countries, especially USA, Brazil, CIS, African
franc zone countries and Australia may face great difficulty
in export sales of their cotton and that even at below
production cost level to provide strength to their buyers who
lost heavily in 2003-04 season.
Courtesy: Business Recorder