Last weekend, Pakistan Cotton Ginner’s Association (PCGA) announced fortnightly cotton arrival figures, and the numbers has delivered a shock to market players. As already reported in the press, cotton bales arrival is 160 percent higher than last year. While cynics may claim low-base effect, it is pertinent that arrivals as of mid-September are highest in at least 7 years! (PCGA fortnightly data prior to FY16 is unavailable).
Cotton-watchers will recall that historically, only 20 percent of the crop has been harvested by this time of the year, as second and third pickings in Punjab are yet to take place. If the momentum continues, this could theoretically lead to domestic cotton output of as much as 13.4 million bales! That would be truly astonishing, as it would cancel out all previous forecasts of cotton output and import requirement during the ongoing marketing year. However, even the inter-ministerial Cotton Crop Assessment Committee (CCAC) isn’t so hopeful, while Pakistan Central Cotton Committee (PCCC) has so far placed forecast at 8.46 million bales. Has the Naya Pakistan government finally staged a turnaround in domestic cotton output?
To be fair, in August 2020 BR Research had noted that CCAC’s estimate of “8.46 million bales (of 170kg) appears unrealistic, considering that at 1.94 million hectares, area under cultivation is lowest since at least FY80”. Official forecast was (and still is) based on projected yield of 769 kg ha, last witnessed in FY15. Average yields have fallen dramatically since, clocking in at just 541 kg ha in FY21. For official target to become a reality, average yields would have to climb by at least 42 percent, a seemingly insurmountable challenge considering the crop has lost its best acres over the past decade.
Yet, PCGA’s arrival report has made impossible change into a forgone conclusion, a forecast revision rarely associated with Pakistan’s cotton crop performance. If the unbelievable output of 13.4 million bales is achieved, it would translate into an average yield of 1,180 kg ha. This would not only be the highest ever, it would also exceed country’s previous top yield of 815 kg pa by 45 percent, witnessed 10 years ago! Could it be true?
Naturally, there is a lot of disbelief among market participants, as many are simply unwilling to endorse an outlandishly optimistic forecast out of fear of being mocked at. Official sources are equally reluctant, probably hoping not to jinx a perfect opportunity to claim victory. Afterall, PCGA’s fortnightly arrival announcements continue well into April and May, meaning there is still a long way to go. But are there any serious threats to the upside?
BR Research’s discussions with growers and brokers from both Sindh and Punjab indicates that crop performance so far is primarily attributable to two factors. One, early sowing by February in most regions of northern Sindh and southern Punjab helped avoid pink bollworm attack, which usually begin with monsoon rains.
Second, all discussants agree that weather conditions during the ongoing kharif season has been remarkably friendly, as neither extreme heat nor devastating rains were witnessed in most cotton growing regions until early September. However, growers note that since the first picking, pink boll worm attack have started, and second and third pickings may not prove as promising.
As crop performance so far has shown, forecast is a messy business, and it may be best to avoid placing any bets at this stage. Even so, it has raised questions that policy makers and farm advocacy groups must address.
Until recently, cotton’s poor performance was frequently blamed on seed quality. Most observers agree that seed quality did not change substantially during the ongoing season, as the varieties available were mostly same as last year.
But if seed quality plays such a significant difference, how has it not adversely impacted yields in the ongoing season? According to growers, germination rates were poor just like last year. Weak demand turned seed into a buyer’s market, allowing farmers to sow seeds – purchased at low prices - in greater quantities. Farmers insist that if seed quality remains equally poor, change in weather conditions could lead to a dramatic reversal in fortunes next season.
This is worrisome for several reasons. Cotton demand is currently undergoing a revival. Prices have rallied in the ongoing season on account of an upturn in textile exports, falling domestic output, growing cotton import bill, higher international prices, ban on import from India, and imposition of minimum support price.
Improved financial returns for those who sowed the crop this year shall attract others back to cotton in the next season. Greater supply could take the steam out of ongoing price rally; consider that local prices have fallen by nearly 11 percent since beginning of September when PCGA announced its first fortnightly report. If the weather takes turn for the worse, cotton farmers would be back to square one, blaming only themselves for giving the crop a second chance.
Moreover, good crop performance has ironically exaggerated the impact of climate change. In absence of quality seeds, farmers remain at the mercy of vagaries of weather. This vindicates a long-held belief that given cotton’s extreme susceptibility to weather conditions, the crop is only sown in those areas where climatic conditions do not allow a switch over to substitutes. This leaves cotton farmers not only the most financially vulnerable, but also hostage to geography.
However, even the most vocal critics agree that developments are fast taking place on the seed front. Although varieties approved in recent months have not been adopted on mass level commercially, they may come to dominate the market in coming seasons. If stewardship and quality is maintained - a big if – the administration can finally claim a major victory.
But that still leave the challenge of extreme weather unresolved, as no seed variety can win against devastating rains or heat waves. If policymakers are to ensure meaningful financial security for cotton farmers, steps must be taken immediately to provide them with reliable crop insurance programs.