Weekly Cotton Review: Rates rise: PCGA demands govt prepare ‘clear’ price strategy

KARACHI: Cotton prices witnessed rise after some volatility. Due to undue pressure from government sources to buy Phutti at the intervention price of cotton at Rs 8,500 per 40-kg set by the government, a crisis hit the cotton market, as ginners decided to close their factories.

Pakistan Cotton Ginners Association (PCGA) has demanded the government prepare a clear strategy to buy cotton and oil at the prices set by the government and immediately remove the illegal tax on Banola and also solve the problem of electricity. In the conflict between the government and the ginners, the cotton farmers will be in trouble. Cotton crop will also be affected.

Senator Sehar Kamran said that government should intervene and take steps to protect the interests of cotton farmers.

On the directions of Former President Asif Ali Zardari, Sindh government has issued a notification of fixing the intervention price of Phutti at Rs 8500 per 40 kg.

The local cotton market remained stable after unusual fluctuations in cotton prices during the past week as cotton farmers and ginners started panic selling during the Eidul Azha holiday, which led to an unusual drop in cotton prices. The price of cotton had fallen to a very low level of Rs 16,000 to Rs 16,200 per maund. But at the beginning of the week under review, the price continued to improve. Finally, from Wednesday evening, the price of cotton started to rise. The rate of cotton in Sindh reached in between Rs 17,000 to Rs 17,300 per maund while in Punjab the rate of cotton is in between Rs 17,500 to Rs 17,700 per maund.

On the other hand, on Wednesday, the DC of Sanghar district of Sindh province, the largest producer of cotton in the country, directed the ginners to buy Phutti at the government-fixed price of Rs 8,500 per 40 kg. Ginners refused to buy Phutti at the price announced by the government.

As a result, the cotton farmers were in panic and business came to a standstill. In some ginning factories, the local police also pulled out the trolleys ready for delivery of cotton.

The rate of cotton in Sindh is in between Rs 17,000 to Rs 17,300 per maund. The rate of Phutti is in between Rs 7,000 to Rs 7,300 per 40 kg. The rate of cotton in Punjab is in between Rs 17,500 to Rs 17,700 per maund while the rate of Phutti is in between Rs 7,200 to Rs 7,700 per 40 kg. The rate of cotton in Balochistan is in between Rs 17,000 to Rs 17,200 per maund and the rate of Phutti is in between Rs 7,200 to Rs 7,600 per 40 kg. The rate of Banola, Khal and oil remained stable.

The Spot Rate Committee of the Karachi Cotton Association decreased the spot rate by Rs 500 per maund and closed it at Rs 17,000 per maund.

Naseem Usman, chairman of Karachi Cotton Brokers Forum, said that the price of cotton fluctuated in the international cotton market. According to the USDA’s weekly export and sales report, sales for the year 2022-23 were one lac and ninety nine thousand and two hundred bales.

China was at the top by buying 61,700 bales. Mexico came second by buying 33,100 bales. Vietnam bought 13,200 bales and ranked third.

One lac and thirty thousand bales were sold for the year 2023-24.

China was at the top by buying 76,100 bales. Turkey bought 15,900 bales and came second. Japan bought 10,600 bales and stood at third place.

Mexico bought 6,200 bales and ranked fourth. Pakistan bought 4,400 bales and stood at the fifth position.

Meanwhile, under the chairmanship of Chairman PCGA Chaudhry Waheed, the Central Executive Committee meeting of PCGA was held on July 6, 2023 at PCGA Head Office Multan. In the meeting, discussions were held regarding the unfair taxes imposed on the ginning industry by the government, especially the sales tax imposed on Banola, fixed charges by Nepra and notices of NHA.

It was unanimously decided in the meeting that the cotton producers will suspend the purchase of cotton in the whole of Pakistan. Repeatedly, the promises made by the government are not being full filled, the latest examples of which are sales tax notices on Banola and Rs 8500 support (intervention) price. Since the rate has gone below Rs 8500, the government has not yet formulated any policy on cotton procurement.

The leadership of PCGA stated that cotton ginners should not be pressured for no reason. They said we will keep the purchase of cotton suspended until our demands are met.

Former PCGA chairman Dr Jaisumal also protested by holding a press conference in Hyderabad.

In addition, Senator Sahar Kamran has said in a tweet that the government has fixed the rate of 40 kg Phutti at Rs 8500, but local buyers and factory owners are refusing to follow the government instructions.

Currently, farmers are being paid a rate of Rs 7,200 for 40 kg of Phutti, which does not cover the cost of cultivation due to rising prices of diesel, fertiliser, seeds, pesticides and other related inputs. Due to which the cost of production has increased, significantly.

Although government officials and deputy commissioners have taken notice of the situation, implementation of government rates is still a serious challenge, which is adversely affecting farmers, who cannot keep stocks for long. In case of rains, the price of cotton will decrease further.

The farmers of Sindh have suffered a lot from last year’s disastrous monsoon and are yet to recover. Whereas factory owners and ginning mills have their own monopolies and constraints due to which they are reluctant to purchase cotton at official rates.

Since this issue is critical for the sustainability of agriculture and the economy, identifying and understanding policy flaws and taking timely corrective measures is a top priority. The government should intervene and take measures to protect the interests of farmers, and arrange direct purchase from farmers. Otherwise, Pakistan will transform from a cotton growing/ exporting country to a pure cotton importing country.

Ehsan-ul-Haq Member Central Executive Committee PCGA, while presenting the position of cotton ginners regarding the District Cotton Management Committee meeting, said that due to the suspension of cotton purchase by ginners, especially in Sindh and in general in Punjab a major cotton crisis is being witnessed and both farmers and cotton ginners are worried a lot.

The main reason for this crisis is the sudden crash of the cotton markets a few days ago, during which cotton prices have fallen by Rs 2,000 per maund and reached at Rs 16,500 to Rs 17,000 per maund. There has also been an extraordinary reduction in the prices of Phutti as its prices come down to Rs 6,500 to Rs 7,000 per 40 kg.

On the protest of the farmers, district administrations in most of the districts of Sindh and in Vihari district in Punjab urged the cotton producers to buy Phutti at the intervention price of 8,500 rupees per 40 kg set by the government; otherwise, strict action will be taken against them.

This year, due to the efforts of federal and provincial governments more cotton was planted than previous years as part of the nationwide “Grow More Cotton” campaign to save billions of dollars spent on importing cotton and edible oil. The government had fixed the mechanism by fixing the intervention price of Phutti at 8,500 rupees per 40 kg and it was decided that in case the cotton prices fell below the intervention price, the federal government will initially purchase ten lac cotton bales from the cotton ginners through TCP to bring stability in the market and the prices of Phutti will improve.

But sometime ago, the prices of cotton decreased due to withdrawal of subsidized rates of electricity and gas from textile mills by the federal government and a record increase in electricity and mark-up rates and due to limited purchase of cotton by textile mills.

Phutti prices are lower than the intervention price, but instead of purchasing cotton through TCP by the federal government, the cotton ginners are being forced by the district administrations to pay the intervention price of Rs 8,500 per 40 kg to farmers. In this situation it is not possible for the ginners to buy Phutti from the farmers on the intervention price.

Another important issue is the 18% sales tax on cotton seed (Banola), which was earlier announced by the federal government to be abolished in the federal budget 2022-23, but was later restricted to cotton seed used only for seed purpose. Now the cotton ginners are getting notices from FBR for payment of millions of rupees of sales tax which is not acceptable to them.

In this situation, cotton producers have appealed to the federal government to immediately withdraw the 18% sales tax imposed on cotton seed, and TCP should buy Phutti from the farmers at the intervention price of Rs 8,500 per 40 kg to bring cotton prices back to the intervention price level.

They demanded that the federal government should also restore the subsidies withdrawn from the textile mills and also reduce the mark-up rate for the textile mills so that textile mills will resume cotton buying to bring stability in the cotton prices.

According to the instructions of Asif Zardari, the agriculture department has fixed the price of Phutti at Rs 8500 per 40 kg at Sindh. The agriculture department Sindh has already issued a notification in this regard. Agriculture officers have been instructed by the government to ensure that farmers get fixed price. Asif Zardari had protested to the federation regarding cotton prices. Farmers are complaining that they are not getting the government announced prices.

Copyright Business Recorder, 2023