By the mid of February, as the ginning factories stop cotton ginning processes, they would mark this ginning season as the worst in 50 years. Everyone except the Cotton Crop Assessment Committee is persuaded that annual output will stay shy of 6 million bales (of 170 kg), let alone the ‘considered’ forecast of 7.7 million bales.
According to USDA, Pakistan imported 4.7 Million bales (480 lb) into the country. However, the average unit price of imports clocked in at $1.63 per kg, only nominally higher (3 percent) than the monthly average rate of the Cotlook A index(figure 2)Â during the calendar year. Cotton Outlook Index is the average of the cheapest five quotations from a selection (at present numbering eighteen) of the principal upland types of cotton traded internationally.
(Source: USDA)
But, since April 2020, the prices of cotton have increased in the international market at a very high rate. Cotton spot prices in February 2020 are not only 40 percent higher than the levels they dropped to due to the pandemic last year, but they are also 14 percent higher on a year-on-year basis. In fact, Cotlook A index is at its highest in 30 months, raising alarms over how long before spinners’ forward buying stock ends, and they get stuck with buying the high-cost cotton.
Read More: Government to ensure cotton crisis doesn’t repeat
(Source: Business Recorder)
It must be noted that the higher price of local cotton is due to it being pegged with the international market. The local production output has nothing to do with the higher procurement prices for spinning mills or– as insisted by few experts.
It must be realized that even though the macroeconomic indicators show a deficit in the cotton trade, there is a silver lining in it. Change in cotton prices has historically been a pass-through element for the textile value chain; and does not necessarily have an adverse impact on the profitability of garment exporters, especially during periods of exchange rate stability. This is because of imported cotton being almost the same price as local but of better quality.
Even the cotton growers have benefitted from the price hike, especially those who sold their produce in the last quarter of 2020. The impact of low cotton yield was eased by the increase in the price of cotton.
Even the textile industry didn’t suffer much, especially those who made their purchase at the time when global cotton prices had dropped to a record low. They managed to reduce the production cost then enough to even it out with the price hike later.
The poor cotton output is indeed bad for the trade deficit, but it must be highlighted that Pakistan’s textile exports during 7MFY21 are at their highest ever. So far, the country has imported 2.5 million bales of raw cotton in FY21.
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However, importing cotton is not always the best thing for the economic development of the country as Global village did an in-depth analysis, which showed that in the long term it has an adverse impact on the cotton industry of Pakistan, as the poor cotton-picking families suffer along with many other people in the economy.
Thus, in the long term, Pakistan must work on improving its yield to save the agriculture-related industry, and make sure that this record is not broken again.