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ISLAMABAD: The government is to extend Cash Credit Limit (CCL) to Trading Corporation of Pakistan (TCP) to initially procure 2 million bales of cotton at intervention price during season 2022-23, after Advisor to Prime Minister on Commerce and Investment proposed that cotton should be directly procured from farmers instead of ginners, well informed sources told Business Recorder.

The Ministry of National Food Security and Research briefed the ECC that Pakistan had the potential to produce 20 million bales, as compared to 7.01 million bales produced in 2020-21, provided historic cotton area is re-gained, farmers are supported with appropriate technology and also ensured a fair price.

According to MoNFS&R the price intervention policy during 2021-22 had impacted on price stability in domestic market and fair investment in crop management, which resulted in production of 2 million more bales in 2021-22. It was also noted that consultations on the policy were held with the provincial governments, growers and cotton-related Associations.

The Ministry added that announcement of price intervention policy at this point of time would positively affect growers’ decision about planting of cotton and would ensure investment on crop management, which would enhance production by 10 percent and area by 20 percent.

Spot rate unchanged on cotton market

Agriculture Policy Institute (API) had calculated the cost of production and M/o NFS&R recommended the intervention price at Rs 5,700/40kg of seed cotton for the year 2022-23.

The sources maintained that in order to revive cotton production in the country, bring stability in domestic market and assure fair return to the farmers, M/o NFS&R submitted the following proposals for consideration and approval of the ECC on March 15, 2022: (i) constitute a Cotton Price Review Committee (CPRC) with mandate to review market prices and propose intervention at fortnightly bases; (ii) regularly monitor the cotton prices in the main domestic markets of Punjab and Sindh, as well as, those in the international markets and issue a brief price report at weekly interval; (iii) the threshold intervention price of seed-cotton is Rs. 5,700/ 40kg.

When domestic prices drop below this threshold, they trigger the intervention price of seed-cotton at 10 percent discount of the estimated import parity price using the Cotlook ‘A’ Index; (iv) direct TCP, when to procure cotton lint (base grade –III with staple length 101/32) and pre-selected ginning factories based on the methodology and advise TCP when to sell procured bales by assessing the local and international markets; (v) present a monthly report of the activities to ECC within five working days of the end of each calendar month; (vi) provide a Cash Credit Limit (CCL), as required by the TCP, to initially procure two million bales of cotton at intervention price. The estimated mark-up cost of capital for three months would be 7.08 percent but would be charged on actual expense of CCL as financial and administrative cost etc. of TCP; and (vii) this intervention price policy would terminate on December 31, 2022.

During discussion, Advisor to the Prime Minister on Commerce and Investment Abdul Razak Dawood supported the proposal. However, he added that the price stability last year was not due to the intervention of the TCP but due to the higher prices of cotton in the international market.

He further added that the mechanism adopted by the TCP last year was intended to mainly benefit the ginners instead of the farmers and the strategy should be to procure cotton directly from the farmers, if intervention is required.

It was further added that the target of procurement of cotton should not be kept flexible at this stage and left to the Cotton Review Committee, which meets on monthly basis to decide, based on the market conditions. He further proposed to include Pakistan Textile Council amongst the stakeholders.

After detailed discussion the ECC approved intervention price for cotton 2022-23 crop with the direction that the Cotton Review Committee shall review quantity of procurement of cotton on monthly basis.

Copyright Business Recorder, 2022

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