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Pakistan is slated to record its slowest season of cotton production in 35 years, with ginneries struggling to achieve output of 6.5 million bales (of 170kg). It appears intuitive that the impact of poor crop performance on textile exports will be determined on pricing of imported cotton. But what exactly is the volume of Pakistan’s cotton demand?

Cotton bales are processed into yarn by the spinning industry. Ergo, either a shortfall in domestic production should be fulfilled by increase in imports or lead to fall in yarn production. The latter has certainly not happened (barring Covid-19 related decline in FY20). Between FY10 – FY19, domestic yarn production increased by one-fourth, an increase that is corroborated by various private and public sector sources, including APTMA, PBS, PCCC and MoIP.

Meanwhile, while cotton imports have increased, they haven’t increased nearly fast enough to keep pace with falling domestic output. Recall that as recently as FY15, Pakistan was producing 13-14 million bales of cotton annually, while importing 1.5 million bales on average to fill the supply gap. Output has since fallen to average 9 million bales, yet imports have increased by a million bales only.

In fact, between FY05 – FY14, domestic availability of cotton (production + net imports) averaged at 15 million bales; by FY19, this has since fallen to 12 million bales. Meanwhile, yarn production has continued to increase, as if falling cotton supply has had no effect.

Interestingly, domestic cotton consumption statistics supplied various official and non-official sources corroborate this tale. While cotton consumption estimates wildly vary between Economic Survey, Textile Commissioners Organization (& Karachi Cotton Exchange), and US Department of Agriculture, each indicates a stable but upward trend in consumption (except for the Survey, explained below). But what is the correlation between yarn and cotton production?

To understand that, we must dig into the source of Pakistan’s yarn production statistics. According to Ministry of Industries & Production, the high-powered monthly cotton yarn production figures are reported by 408 yarn producing units (spinning factories), collated by Textile Commissioners Organization (a dept. under MoIP).

These are the same figures that are later reported in the Large-Scale Manufacturing Index by the Pakistan Bureau of Statistics, and then feed into Annual Economic Survey published by Q-block. Pakistan Central Cotton Committee (a body under MNFS&R) also reports the same number, as does APTMA – the heart, and you guessed it – ultimate source of - Pakistan’s yarn statistics supplied to TCO.

Why is this important? Because the annual cotton consumption figures as reported by KCA and TCO seem to mirror the annual yarn production statistics very neatly. Dig deeper, and it becomes clear that KCA and TCO apply an output-input ratio of 1.25:1 to yarn produced for every unit of cotton consumed; i.e., each ton of cotton is processed into 1.25 tons of yarn.

Dig even deeper, and one discovers that prior to FY10, that ratio averaged at 1.10 times, and varied more frequently from year to year. And that neat estimate explains why APTMA members are able to spin more yarn post-2015, than they did before, despite reduction in availability of cotton. This estimate also explains why cotton consumption as reported by the Economic Survey underwent a correction post 2015.

It is unclear why the ratio was revised. On one hand, according to APTMA, production of coarse count yarn has decreased, while share of medium-, fine-, and superfine- counts (that require more cotton) is improving. Meanwhile, share of blended yarn (poly-viscose, and poly-cotton) hasn’t increased nearly fast enough to account for the difference.

Is Pakistan producing more lower quality yarn than in the past? Does lower quality yarn result in weaker ability to command pricing power for textile value-adds? Is the cotton-to-yarn ratio applied retrospectively to extrapolate an ‘acceptable’ yarn production figure? Is the ‘missing cotton’ explained by under reported sales by ginneries to spinners? More research is required to answer these questions.