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Cotton Hedge Invites Strong Resistance
MULTAN, April 17: The
cotton hedge, a by-product of gambling based
speculative trading of cotton has invited a strong
resistance among three major stakeholders of cash
crop include growers, ginners, textile millers and
exporters who feared the new form of gambling
might be harmful to the small traders and ginners,
it is learnt. This vicious circle has completely
failed in India in a few months after the
establishment in Mumbai while Pakistan’s
production is already receiving reduced compared
to consumption.
Agriculture economy has already been facing a
serious crunch as the crop ending prospects
revealed shortfall of 6 Lakh bales from the fixed
target of 10.5 million bales and total 9.9 million
bales could be produced during Kharif 2003-04. On
the other side the lifting of cotton bales by
textile mills, exporters is about 5.50 million
bales per month which shows that the stocks lying
with cotton ginners will be exhausted up to mid of
June 2004.
The Karachi Cotton Association, which mostly
represents Cotton Exporters and a lobby of
speculators who are already active in the Stock
Exchange and other commodity market, is supporting
the Hedge Trading, observed cotton crop
stakeholders. Some vested interests are
highlighting the need to open “Cotton Hedge
Trading” in the country, they said.Cotton growers,
ginners observed the advantage of hedge market is
only to 5% of the business community where as
about 95% of the business community in cotton
shall have all the disadvantages. They explained
that in this system some of the people think that
once they have sold the cotton bales is Hedge
Market there remains no burden left but they were
thinking on wrong track.
The idea is not correct because the 90% cotton
ginners and 85% small growers having land holding
less then 12.5 acres have no financial power to
hold the stock in this system of business. The
payment of cotton bales is received only when
these cotton bales are tendered on the expiry of
that Hedge contract and cotton so tendered is
found quality wise tender able. Only 5 to 10%
cotton ginners in Pakistan have the equity to hold
the stock valuing billion of rupees for a period
of 4 to 6 months and are able to pay weekly price
difference according to Hedge Market changes. In
this way ginner will be forced to remain involved
in the business for whole of the year where as
small growers want to sell has crop within two
months. They further said that the Hedge system
would create huge shortage of funds because
textile mills like to purchase the cotton during
12 months instead of present buying system in 3
months.
Pakistan Cotton Ginners Association Chairman Seth
Jethanand Kohistani said the average cotton
production is hardly ten million bales while mill
consumption is over 12 million bales and in this
way there remains no room for export of cotton and
the Hedge facility for the cotton exporters. A
small quantity of Pakistani cotton as a token may
continue to sell abroad but it does not justify
the need for “Hedge Trading”, hence, our point of
view is that why to introduce speculation and
gambling in the cotton trade just for the sake of
“outsiders”.
He said at present only one cotton futures market
is running successfully in New York, USA but their
position is quite different. Their production is
about 18 million bales and the consumption only
six million bales.
Their growers are also the cotton ginners and
exporter, therefore, the growers of America need
Hedge facility as they have to market the entire
crop by selling forward and they need to cover the
risk in the Hedge Market.He feared if cotton Hedge
Market is also opened in Pakistan, speculators
will dominate it and gamblers who will not
hesitate to endanger the entire cotton economy by
excessive speculation due to inadequate backing of
free supply of cotton. This may result into the
disaster of grower, ginners as well as mill owner.
It is again a miserable fact that New York Cotton
Future Market has already caused enough
instability in our market resulting in huge losses
to the cotton ginners this season. Sir, we cannot
afford another future market in our country for
the disaster of Cotton Trade because the clever
elite to the disadvantage of small country ginners
binds it to exploit. Even in Bombay the experiment
of Hedge Market has failed simply because India is
also a net cotton importing country like
Pakistan.He sought immediate governments’
intervention in this most sensitive issue and
demanded to instruct the Ministry of Commerce and
Ministry of Finance not to allow an Un-Islamic way
of business and gambling in the cotton trade under
the garb of “Hedge Trading”.
By Nadeem Shah |
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Pakissan.com; Advisory Point
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