The week in focus

Last year around 11.7 million bales of cotton were produced. This year 15 million bales were expected.

Cotton production is expected to be quite satisfactory this season despite the devastation from the floods that have damaged around two million bales of cotton, prompting many to question the performance of textile industry, a vital pillar of the economy, which took the country’s exports to unprecedented highs last year.

This is the second year in a row when cotton, among other crops, has been damaged by floods, but this time only Sindh has been affected while Punjab is doing well and is expected to harvest a bumper crop of 10 million bales. This comes on the back of an increase in area under cultivation and sowing of high-yielding Bt cotton varieties.

According to an expert, Bt cotton varieties yield around 35 maunds per acre compared to 7 to 8 maunds from normal varieties.

“Despite rains the cotton crop will be more than last year’s output and there will be no major impact on the textile industry,” said Jawed Bilwani, the chairman of Pakistan Apparel Forum.

Last year, the country produced around 11.7 million bales of cotton and this year the government had expected a bumper harvest of 15 million bales, but floods curtailed it.

In order to encourage cotton production, he said, the government should protect farmers by ensuring a minimum price of Rs3,000 per maund for their produce. He also sought a ban on cotton export to avoid shortage of the commodity.

Prices under pressure

Discussing market performance, cotton analyst Shakil Ahmed said prices had come down from around Rs7,000 per maund earlier this season to Rs6,000 because of water-soaked cotton from Sindh. However, Punjab, which produces 80 per cent of the crop, was fetching good prices.

“There was a difference of around Rs2,700 between minimum prices fetched by Punjab and Sindh cotton varieties,” he said. Ahmed said prices had started rising from Friday but the weak New York cotton market dragged down the domestic market again on Saturday, when spot rate dropped from Rs6,400 to Rs6,300.

Cotton supply from Sindh has slowed down as rains and floods have submerged many ginning factories in lower areas of the province.

Ahmed said textile mills would surely import 1.5 million bales of cotton this season to meet requirements of some importers who set quality specifications which were only met through imports. Mills mainly import cotton from the US, Brazil and India.

BMA Capital Group Head of Equities Hamad Aslam said the textile industry would come under pressure this year as its margins were expected to come off from highs of last year, when textile exports soared 35 per cent to $14 billion and took overall exports of the country to an unprecedented level of $25 billion.

Textile product exports soared last year mainly because of high unit prices in the international market on the back of record high cotton rates. However, there was no significant increase in terms of volume.

Energy shortage is also a major stumbling block, affecting the textile industry’s performance and forcing many small mills to stop operations. Another worry is faltering economies of Pakistan’s major export markets of the US and Europe, which may import less than previous years in the face of their weak financial conditions.

Aslam said flood damage to the cotton crop would force the textile industry to import the commodity, which would in turn widen trade deficit and pile pressure on the country’s balance of payments.

Increased imports will not be good idea at a time when foreign assistance has slowed down and the government relies heavily on record high remittances from overseas Pakistanis as well as export earnings.

The writer is incharge Business desk for the Express tribune and can be contacted at [e-mail]

Published in The Express Tribune, October 3^rd, 2011.