The worldwide attention given to the plight of the Uighurs in the Chinese Xinjiang province has led to a conscious policy adopted by the US retailers, who are now worldwide, to shun all products that may be tainted by the forced labour of the Uighurs. Recently the Hindustan Times of India reported that the buyers of Ikea and H&M have “stopped new cotton purchases from Xinjiang province.” Most exporters of textiles to the US in Pakistan have also been asked to explain the “source” of their cotton and yarn. US law stipulates that products made from slave, forced, or even badly paid, or poorly treated workers shall not be sold in the US. Most retailers pride themselves on their being socially and environmentally correct. Any hint in the press of a retailer tainted by a suspect supply chain brings about a strong consumer reaction. Consumers boycott not only the suspect products but the whole retail chain as well. The disclosures of poorly treated Bengali workers in the factories supplying to Nike and other western products a few years ago is a conspicuous example.
Almost all the cotton grown in China is grown in its Xinjiang province. This is very substantial and comprises almost 20% of the world crop. A boycott like this means that any firm who has any exports to the US market will not buy any products made from Xinjiang cotton or cotton yarn. So the Chinese exporters have started looking for yarn suppliers abroad to feed their factories. Consequently, the prices of cotton yarn in Pakistan and worldwide have shot up.
At the same time, the Chinese spinners are shunning Xinjiang cotton and are trying to import their requirements from the rest of the world. Coupled with this is the short crop in Pakistan and the US over the last winter. Along comes the snow storm in Texas, the prime cotton area. It’s like snow in our Multan area. What will happen to the next cotton crop of the USA, the biggest producer of cotton in the world? The NY price of cotton has shot up from the level of 64 cents/lb to 93 cents this week. We are all set for a disastrous year for our value-added textile industry that provides the bulk of our textile exports and employment.
The Indians on the other hand have had a good crop and have prospects of a better crop next year. Their export industry is in a bind because of the mishandling of the Covid pandemic and the resultant shutdowns. It will suddenly wake up to a bright future as all competitors get knocked out. All the gains made in the last six months by the Pakistani exporters will be washed away and we will be back to square one.
What can be done to protect ourselves?
For sure any industry must have plentiful and cheap raw material to flourish. For the value-added textile industry this means plentiful and reasonably priced cotton yarn. We have enough spinning capacity but now it is getting booked out by Chinese importers. While the spinners, especially those who have already stocked up on the years requirement of cotton will reap fabulous profits, the downstream industry will be ruined. The export value of cotton is about 80 cents per kg, cotton yarn is about two dollars per kg, while value-added products range from USD 4.4 to USD 8/kg. Not only do they add value but also provide the bulk of the employment in the industry.
It is reported that all the Pakistani crop has been sold out. This means that about six million bales have been purchased by the industry. In addition to this, the industry has imported another five million bales over the last half a year. So it has covered more than 80% of its annual requirements.
We cannot grow cotton in a jiffy, but we do need to get down to promoting our cotton farming. We have to give them the best inputs we can manage as well as put resources into improving our seeds and cultivation methods. These are long-term measures, but we need to start now. This is the real solution all others are palliatives. We now have to make sure that our value-added industry gets a reprieve from the current stranglehold. This can be done by a number of short-term measures and the government must listen to all suggestions and then make a short-term policy for this year.
1) Firstly, imports of cotton and cotton yarn must be allowed freely from any origin, including India and possibly China.
2) To break the price spiral a regulatory export duty should be imposed on cotton yarn exports.
Adviser for Commerce Razzak Dawood is an experienced businessman, he should convene a conference of all stakeholders to decide on the course of action.
Copyright Business Recorder, 2021