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PCGA urges government not to allow hedge
trading
MULTAN (April 14 2004): The Pakistan Cotton
Ginners Association (PCGA) has demanded of the
government not to allow hedge/speculative trading
of cotton as it may harm the small traders, cotton
ginners.
The PCGA Chairman, Seth Jethanand Kohistani, in an
appeal to the President of Pakistan, Federal
Commerce Minister, Federal Finance Minister,
Chairman, Senate and Speaker of the National,
recalled the role of the PCGA to bridge the gap
between the cotton growers and the government.
Besides, the PCGA in promoting common national
interest.
Since its inception, was promoting the common
national interest of increasing cotton production
and providing employment as well as earning
precious foreign exchange by improving its quality
and looking after the interest of the growers, he
added.
He said the PCGA members were playing an important
role in supplying of contamination-free quality
cotton to the textile industry, which had resulted
in a sustained growth both in terms of providing
employment as well as earning precious foreign
exchange.
"In this way, our association is an important part
of the cotton economy and it is actively engaged
in the implementing policies of the Federal and
provincial governments," he said.
"Lately, some vested interests are highlighting
the need to open cotton hedge trading" in the
country. We have to mention that the important
stakeholders in the cotton sector are growers,
ginners, textile mills and exporters.
"Our association, which represents the entire
cotton ginning industry has unanimously opposed
the hedge trading in its general body meeting held
in Multan on March 19. Similarly, the textile
industry is also not in favour of hedge trading,"
he said.
The PCGA chief said the Karachi Cotton Association
(KCA), which mostly represented cotton exporters,
and a lobby of speculators, who were already
active in the stock exchange and other commodity
market, was supporting the hedge trading.
He said: "We have to explain for kind
consideration of your good-self that our cotton
production is hardly 10 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," he said.
The PCGA chief said at present only one cotton
futures market was running successfully in New
York, US, but its position was quite different.
"Its production is about 18 million bales and the
consumption only six million bales. Since the
growers are also the cotton ginners and exporters,
therefore, they need hedge facility as they have
to market their entire crop by selling forward and
they need to cover the risk in the hedge market,"
he added.
He said if cotton hedge market was also opened in
Pakistan, speculators would dominate it and
gamblers, who would not hesitate to endanger the
entire cotton economy by excessive speculation due
to inadequate backing of free supply of cotton.
This might result in the disaster of growers,
ginners as well as mill owner, he added.
The PCGA Chairman said it was again a miserable
fact that the New York Cotton Future Market had
already caused enough instability in our market,
resulting in huge losses to the cotton ginners
this season.
He said: "We cannot afford another future market
in our country for the disaster of cotton trade
because they will be exploited by the clever elite
to the disadvantage of small country ginners.
"Even in Bombay, the experiment of hedge market
has failed simply because India is also a net
cotton importing country like Pakistan," he said.
The PCGA chief said: "We humbly seek your kind
intervention in this most sensitive issue with the
request to kindly instruct the Ministry of
Commerce and Ministry of Finance not to allow an
non-Islamic way of business and gambling in the
cotton trade under the garb of hedge trading," he
said, adding: "Our association will be pleased to
clarify any query by the concern ministries."
Meanwhile, Khwaja Mohammad Azam has issued a
statement that the figure issued by the PCGA
indicated that the total crop size of cotton would
end about a 9.9 million bales during 2003-04.
"On the other side, the lifting of cotton bales by
textile mills and exporter is about 5.50 million
bales per month, which shows that the stocks lying
with the cotton ginners will be exhausted up to
mid of June," he said.
He further said that the ginners should not show
any hurry as the present stocks of cotton bales
and seed cotton lying with growers and ginners
were insufficient for requirement of textile mills
and exporters.
He said: "Now-a-days we are looking different
point of view in the newspapers about the cotton
hedge market. Some are in favour and majority is
against the system of hedge market," he said.
He said that according to his version, the
advantage of hedge market was only to five percent
of the business community whereas about 95 percent
of the business community in cotton would have all
the disadvantages.
He explained that in this system, some of the
people thought that once they had sold the cotton
bales in hedge market, then there would be no
burden.
He said that this idea was not correct because 90
percent cotton ginners and 85 percent small
growers, having land holding less then 12.5 acres,
had no financial power to hold the stock in this
system of business.
The payment of cotton bales was received only when
these cotton bales were tendered on the expiry of
that hedge contract and cotton so tendered was
found qualitywise tenderable.
He said that only five to 10 percent cotton
ginners in Pakistan had the equity to hold the
stock, valuing billion of rupees for a period of
four to six months and were able to pay weekly
price difference according to the hedge market
changes.
In this way, the ginner would be forced to remain
involved in the business for whole year whereas
the small growers wanted to sell crop within two
months, he added.
He said that the hedge system would create huge
shortage of funds because textile mills would like
to purchase the cotton during 12 months instead of
present buying system in three months.
Similarly, he said that the sowing of cotton
before May 1 always helped to increase the pest
attack for which the government should take full
measure against the early sawing of cotton.
Due to this, a good and healthy crop could be
achieved during coming season of 2004-05.
Courtesy Business Recorder
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Pakissan.com; Advisory Point
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