KARACHI: The cotton trading and ginning sector is waiting for the final signal by the government when it allows Karachi Cotton Association (KCA) to initiate hedge trading in the country.
In the annual budget 2017-18 speech, Finance Minister Ishaq Dar gave a clear-cut impression that the government would soon take up the cotton hedge trading matter in consideration.
The government should allow cotton hedge trading in the country through the Karachi Cotton Association (KCA) as the Karachi Cotton Exchange (KCE) used to perform this since 1934. However,trading was stopped in 1976, senior member KCA Ghulam Rabbani revealed.
Hedge trading performs an economic function by providing a cover against the risk of fluctuations in price, thereby facilitating a smooth flow of national and international trading in cotton, Rabbani added.
This system will increase liquidity prospects and weak stakeholders will receive more benefits.
The Shariat Court in Islamabad on petitions by the All Pakistan Textile Mills Association (APTMA) and Pakistan Cotton Ginners Association (PCGA), on May 27, 2010 granted a six month period to stakeholders for comments on whether hedge trading should be started at KCE and whether it is against the Islamic laws.
KCE is the member of the International Cotton Association that is the world's leading international cotton trade association and arbitral body.
Hedge trading is a special segment of trade. The utility of hedge trading in cotton has been re-affirmed by three Cotton Hedge Enquiry Committees set up by the government in 1953, 1965, and 1971.
Cotton and allied cotton products account for about 68 percent of the country's export earnings, he remarked.
The country has been facing a production shortfall for the many years and the crop season in 2017(March-end) witnessed around a 3.4 million drop in production to around 11.40 million bales of cotton, Shakeel Ahmad, Chief of Sindh Agricultural Forum informed.
Following the nationalisation of ginning factories and establishment of Cotton Export Corporation of Pakistan in the public sector during the Z A Bhutto regime, the hedge trading in cotton was suspended by an administrative order of the government of Pakistan in 1976.
In case of resumption of hedge trading in cotton, it could only be resumed on the floor of the KCE. The APTMA and PCGA have alwaysopposed the opening of cotton hedge trading from any other forum except on the KCE floor, as nowhere in the country is recognised and capable of doing this job.
Cotton marketing involves a tremendous business risk. It was, therefore, necessary that there should be some form of price insurance to reduce the risk of volatile fluctuations in price, Rana Abdul Sattar, a leading ginner and former Sindh Assembly member observed.
Hedge trading would provide stability in cotton prices, better prices to cottonseed farmers and increased involvement of foreign buyers.
He said the government should continue the open cotton policy in the market as it is of utmost importance for the whole sector of the cotton from field to spinners and mills. He said KCE has a full and comprehensive infrastructure and adequate by-laws for hedge trading in cotton - inclusive of storage capacity of cotton bales in Karachi, more than 270 licensed cotton brokers, who have their own offices at the cotton exchange to facilitate trading of cotton with the ginners, spinners and exporters.
He believed this would not be possible without inviting all stakeholders of the cotton sector in the country.