The outgoing fiscal year and the re-emergence of external pressures due to global commodity price spiral has once again laid bare the Achilles’ heel that is poor agri-productivity. As per, PBS, Pakistan’s cotton import bill climbed to $1.82 billion during FY22 even as the country imported half a million fewer bales compared to the preceding year.
Even though the import bill rose to its highest ever, these were not made at record prices. Pakistan imported 4.6 million bales (of 170kg) at average unit price of $2.36 per kg during FY22. Exactly ten years ago, the country had imported fiber at much steeper price of $2.84 per kg in FY12, when global commodity markets witnessed their last major boom.
Yet, the import bill in FY22 is nearly 4 times higher simply because of the sheer rise in the demand for imported variety. A decade ago, Pakistan imported just one million bales of cotton, while local production still flirted with peak levels of 14 million bales per annum. Today, as local production has dropped to 8.5 million bales, Pakistan imports 4.5 times more fiber (by volume), adding a drag of $1.5 billion on trade deficit compared to a decade ago.
In between, the country has replaced its cotton acres with substitute crops that have done relatively well, at least from farmers’ perspective. Between FY12 and FY22, cotton lost 1 million hectares of sown area, which was taken over primarily by rice, maize and sugarcane (in roughly the ratio of 60-20-20). But has the fall in cotton output (and the ensuing pressure on imports) been compensated by the gains in other crops?
FY22 may have been a special year in that records were broken, and not just by cotton. Rice exports reached a fresh high, crossing $2.5 billion for the first time. Over the last decade, Pakistan’s rice exports have increased by about $0.5 billion, spurred by increase in volume exported by nearly 1MMT. Meanwhile, maize– a fresh horse in the exports race – has reportedly added close to $0.2 billion. And although sugar export remains banned, the marketable surplus could have generated at least $0.3 billion in export earnings.
But even when put together, the collective export potential of major cotton substitute fail to add up to the drag on trade deficit caused due by higher cotton imports. The incremental rise in cotton imports over the last decade stands at $1.5 billion (on peak global prices on both occasions) against the incremental $1 billion in export earnings of rice, maize and sugar (the last of which were not realized). So, has cotton substitution been a poor bet for the economy?
That depends, if one takes into account the extent of potential import bill substituted due to higher local output of competing crops. Between FY12 and FY22, domestic maize output alone rose by 6MMT. Had the rising local demand for maize been met through imports, it would have added at least $1 billion to import bill (excluding 1MMT or $0.2 billion in exportable surplus). Similarly, although rice exports have only risen by 1MMT, local output increased by 3MMT, implying increase in domestic rice demand of 2MMT or approximately $1.5 billion. Domestic sugar output has also increased by nearly 3MMT over the last decade, which is equivalent to at least $0.6 billion in value terms.
Put together, the substitution of cotton over the last decade has arguably added output of close to $4 billion in competing crops. Although majority of additional output does not show up in foreign trade, it has most certainly resulted in import substitution, which is only partially cancelled out by $1.5 billion in cotton import bill.
Of course, had Pakistan managed to simultaneously improve its cotton productivity over time, the trade-off could have been avoided altogether. But is substitution of cotton necessarily something to bemoan?