Cotton: Handling the White Gold Crisis of Pakistan

GVS looks at Pakistan's white gold (cotton) crisis, which may have a silver lining if the government uses this as an opportunity to undertake reforms and incentivize the textile sector to encourage greater movement towards the value-added sector.


Last week the fortnightly report of the Pakistan Cotton Ginners Association (PCGA), revealed that cotton production fell by 34 percent to 5.6 million bales in the current fiscal year 2020-21, the lowest cotton production in 30 years. For a country whose exports are almost 60 percent textiles, it made for grim reading in the media.

According to a study conducted by the University of Agriculture Faisalabad, Pakistan’s cotton production has generally been static since 1990-91, and 2004-05 and 2014-15 were the only years when we reached a high of around 14 million bales.

Between 1983 to 1984 Pakistan’s cotton yield improved from 223 to 450 kilogram/hectare, and we have not gone below this until 2020 when our cotton yield was 445 kg/ha. What’s more, for the first time since Pakistan’s inception, India’s yield has gone above ours at 479 kg/ha compared to our 445 kg/ha (see Figure 1.1).

Line graph showing Pakistan's yield in cotton has always been above India's until recently(Source: USDA)

As for the acreage, research shows that among the top cotton growers of the world, acreage has decreased over the last 20 years, as the focus has gone towards other cash crops and within textiles towards value-added goods. In Pakistan, the overall cotton area this decade has declined by 28 percent from 3.07 million hectares to around 2.22 million hectares. Almost 1.5 million farmers grow cotton out of which 75 percent is grown in Punjab while the rest is grown in Sindh. Since 2010, the cotton-growing area in Punjab has declined by 37 percent (from 2.44 million hectares to around 1.55 million hectares).

India is among the few countries that have seen an increase in acreage, mostly as a result of giving low Minimum Support Price guarantees to farmers. It is the intended reversal of such policies through the Modi government’s Farm Bill, which led to the farmer protests in India that we have witnessed for the past three months.

Why should the government be worried?

Low cotton production matters because the country loses valuable foreign exchange from importing cotton for its textile products. Currently, the country imports close to 3 billion dollars of cotton. While that is the direct loss to the country – indirect losses easily add up to $9 billion including from the lost lint production and other contributors such as loss in seed, feed meals, oil, etc.

However, just as significant and what is less commonly understood by the general public is the role the cotton-producing areas play in increasing the welfare of the rural population. The poorest segments of the society – often women and children do cotton picking and the cotton season gives them cash income. In essence, playing a similar role to the government’s flagship Ehsas program, for example, out of this year’s imports close to 100-200m dollars would have gone to these laborers. These incomes have a multiplier effect and sustain the rural economies also.

Shahid Sattar, Executive Director APTMA explained to GVS that this multiplier effect of an increase in cotton production will have a direct impact of $ 1 billion per 1 million bales and a 7 times multiplier impact on the fiscal flows in the economy. In essence, if we import $3 billion of cotton, it potentially sets the economy back by $21 billion due to the multiplier impact. Apart from the bad economics of the import effect – having to import cotton because of lower local availability has a huge human security angle also.

Low productivity issues

Following India, Pakistani policymakers tend to be focused on the factors behind reduced acreage in the country, however, they ignore yield. The informal introduction of Biotech seeds 15 years ago has been blamed for allowing backcrossing, weak gene expression, and growing ineffectiveness against bollworms, particularly pink bollworms. This has led to a poor or almost no increase in yield in the country.

One of the major reasons why pests attack Pakistani crops is that the seed Pakistani farmers use, such as the old BT cotton like Ballgrad-1, is not resistant to pests and diseases. It is currently not being used anywhere in the world and has been termed outdated, as the world has shifted to advanced pest-resistant GMO seeds increasing their yield.

Secondly, out of the 24 well-known pest diseases, Pakistan has 22 of them. Every year, almost 4 million bales of cotton are wasted due to these; along with this, the low technology available in Pakistan to fight pests leads to more crop wastage, further decreasing productivity.

Furthermore, Pakistan has also seen a movement by farmers towards sugarcane farming. From FY10 to FY18, the area of sugarcane crop has increased from 0.94 million hectares to 1.34 million hectares up by 42 percent. Sugarcane crop is subsidized through protective prices such as the 40% customs duty on the import of sugar which was imposed. However, sugarcane farming has an economic comparative disadvantage to cotton farming.

Lastly, Pakistani ginned bales contain up to 10% trash, the world average is only 2 to 3 percent. Contamination is one of the foremost issues, where untrained cotton pickers from field to low ginned quality standards all add to cotton fetching lower value in the market. This increases processing costs and results in low-quality products being produced in the market.

Quick and ready solutions

Solutions being floated by analysts include that in the short term government should work on the possibility of directly importing seed from places where the climate is similar to Pakistan. Along with this farmers should be trained in proper farming techniques and be taught the use of technology to implement proper fertilization and disease control processes.

In addition, the government should set up state-of-the-art laboratories and greenhouses for fast-tracking seed development and approval, as well as setting up awareness campaigns to educate farmers on isolating cotton crops from rice and sugar cane to avoid fungal attacks as it is currently a large factor in lower yields.

In the medium to long term, suggestions include a variety of development systems, seed production structures, zoning, corporate farming, crop protection, and input cost, and lastly technology transfer. The solution lies not with increasing the acreage but increasing the yield.

Recently, Federal Minister for National Food Security and Research Syed Fakhar Imam announced that the government has taken some steps following the bad year cotton has had this year. He explained that the government has taken three important steps towards the improvement of cotton crops. The first was that the government will provide subsidies on cotton seeds, fertilizers, and whitefly pesticides, which will be distributed among the farmers through the provincial governments.

Second, the government is going to make use of technology and agricultural research, and eliminate the role of middlemen in the agriculture sector. To create awareness among farmers, a web portal will be set up to provide accurate information to the farmers about agricultural research, so they can know in time which sprays should be applied or which disease has occurred in which area.

Thirdly, the government is cracking down on the fake seed companies to make sure seed provision is properly regulated, and substandard quality is removed from the market. For this, 200 companies have been registered as official seed providers.

Read More: Pakistani textile company sells 9.3 million pairs of jeans in UK

The import vs. local production paradox

Local cotton is actually more expensive (estimated 5-10%) for the local textile manufacturer to use – but despite this most manufacturers use it to avoid using imports due to the latter requiring greater working capital needs amongst other factors.

line graph showing Pakistan's cotton is more expensive then imported cotton

(Source: APTMA).

It is also worth noting the fact that the solution is not to stop industries from having the choice to import. On government-imposed duties on importing cotton, Secretary APTMA said, “This policy, which was announced on the last day of the PML-N’s government, proved to be the last nail in the coffin of the cotton industry. 125 out of 400 textile mills have been shut in the last four years. The export deficit has reached 1.5 billion dollars a year.”

Textiles sector

However, when we think of the bigger picture of Pakistan’s exports – for the textile sector the growth solution revolves around investing in the value-added products sector, as Pakistan’s rest of the world’s competitors are doing. A study commissioned by Pakistan Business Council (PBC) shows that in 2017, Pakistan’s garment exports were only 5 billion dollars, accounting for only 1.1% of global garment exports.

Read More: 2020, a critical year for cotton crop, says Minister

This means that Pakistan is not exporting value-added products. According to Statista, by 2019, Pakistan is not even in the top 9 countries exporting garments to the world, despite being in the world’s top five largest cotton-producing countries. (see Figure 1.3)

Share in world exports of the leading clothing exporters in 2019, by country. Pakistan is not in top 9

(Source: WTO)

Furthermore, even though India is the world’s largest producer of cotton, Bangladesh’s share in textile value-added exports is significantly higher than that of India or Pakistan. This is because Bangladesh has had a policy that has concentrated on producing more value-added products rather than cotton itself and worked on increasing its yield rather than acreage.

Recently, public policy expert Hasaan Khawar argued in a recent article for the Global Village Space, looking at how Pakistan can increase its exports, that it was critical to focus on value-added sectors across the board. So long as the country focused on its primary sector alone it is tantamount to remaining poor.

Bangladesh is proving to be a prime example in this region of a country whose focus on the value-added sector has seen its exponential growth. Yes, Pakistan has benefitted from increased textile orders during COVID, but this is because it is primarily producing low value-added products that saw an increase in demand from the West as consumers sat at home and wore basic clothing like tee shirts. Pakistan cannot rely on this scenario for too long.

graph of the amount of resources countries are spending in cotton vs. value-added products

(Source: Business Recorder)

Read More: LCCI asks govt to declare cotton emergency

Research contribution by Ms. Najma Minhas and Hassaan Ul Haq.

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