Cotton prices have nosedived at home and everywhere in the world. From a whopping Rs13,000 per maund in March this year, prices have stooped to as low as Rs5,200 per maund on Wednesday.
A good crop outlook - estimated around 16 million bales for the coming year, in contrast to about 11.7 million bales in the previous year - has been the driver of the commoditys downhill journey.
In the wake of this alarming plunge in cotton prices, the government has been reportedly contemplating the imposition of one of its favourite agricultural policy instruments to protect the farmers: support price.
At Rs7,000 per 40 kg, which equates to roughly Rs6,500 per maund, the envisioned support price currently stands close to international cotton prices, which are hovering around the range of $1 per pound.
A point to consider with respect to the fixing of cotton support prices, however, is the impact on export of the commodity, and textile exports, in general, if international prices slump even further.
Naseem Usman, a renowned Karachi-based cotton broker, believes that global cotton prices can potentially fall to as low as 75 cents per pound in a couple of months. If this happens, and a support price of Rs7,000 per 40 kgs - approximately 92-93 cents per pound - is pegged for Pakistani cotton; exporters might be doomed to stand at a disadvantage.
Therefore, if the welfare of farmers is such a grave concern for otherwise indifferent policymakers, a feasible suggestion could be to revise the support price periodically in case of declining global prices, to render it flexible and viable for exports.
But if recent experience with other commodities (read wheat) is anything to go by, prudent revision of support prices is an alien concept for the government. Even if global prices of a commodity will be low or falling, the support price will usually stay put, only rendering exports unfeasible.
This, of course, applies when the country is expecting a good output of a commodity and when exports can bring home some needed revenues.
Given the governments lacking efforts at setting rational support prices and inefficient procurement, perhaps it would be best to leave this crop to market mechanisms. The commodity has followed international prices for the past few years and the market has performed satisfactorily.
Gohar Ejaz, chairman, All-Pakistan Textile Mills Association believes a free market mechanism would be a viable option too, recommending that uninterrupted gas supply to the textile industry can be a better and more well rounded solution.
"The industry can consume all the cotton that is being produced, provided gas is available seven days a week and textile firms operate at full capacity," Ejaz says. He stresses that a robust demand from the industry will help keep up prices and be beneficial not only to farmers but also to the textile industry and the economy in general.
On the flip side, Usman argues that if the government really wants to support farmers, it should set a support price for phutti (seed cotton) and not for cotton. "Support prices for phutti will indirectly peg cotton prices too, but the benefits will then accrue directly to farmers," he explained.
Besides, critical to assessing the prospective imposition of a support price on cotton is the quantity that would be procured. The governments fiscal machinery is already under strain meeting the costs of wheat procurement, and an additional burden is the last thing they need.
At the risk of hearsay, one wonders whether big farmers and landlords, who would have been lured to increase cotton acreage a few months back given the price bonanza witnessed back then, are lobbying for a support price when falling cotton prices present a rather gloomy picture.
While that remains indeterminate, reaching a sensible decision on support prices remains very crucial.
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