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Business & Finance

WEEKLY COTTON REVIEW: No trading activity witnessed for two months

Formulation of new cotton policy 2020-2021 is under process. Federal Committee on Agriculture (FCA) will announce the total estimates of cotton production and the total area of cotton cultivation. All Pakistan Textile Mills Association has presented their
Updated 21 May 2020

KARACHI: Cotton sowing continues. The farmers are in panic. Contradictory opinions on cotton support price and increasing threat of attack of Locusts.

In the last week due to ease down in coronavirus lock down some mills started their operations partially. The mills were not taking interest in buying cotton from the market because they had already stock of cotton in the mills.

On the other hand the delivery of imported cotton is continued. The ginners had the stock of 5 lac bales and they were waiting for the customers but there was no buyer in the market. In this situation ginners were in panic.

According to the ginners they had cotton in the stock of worth Rs 20 billion and they had to pay billions of rupees to farmers and traders.

The ginners are of the view that in this situation if they fail to pay the affected farmers they will not be able to sow cotton in the next season so government should buy cotton through Trading Corporation of Pakistan and provide relief to the farmers. Other than that ginners had the stock of Khal in abundant quantity and there was no buyer so ginners were facing extreme financial crisis.

Moreover, the sowing of cotton has started for the year 2020-21. The sowing has completed in lower areas of Sindh while sowing is going on in upper areas of Sindh and many areas of Punjab. In some sowing areas rain proved to be beneficial for the crop but in some areas, cotton has to be re-sown due to hail storm. There is a collective complaint of farmers that this year quality of seeds is not good.

The germination level of seed is 30 percent to 50 percent. Farmers were not satisfied because they were not getting desired results despite using double quantity of seeds. In some areas there is an extreme threat of attack of Locusts but it is difficult to say anything before time. Contradictory reports regarding sowing were coming. Most of the reports were not positive. There is hardly any deal of cotton in the market but the rate of cotton in Punjab and Sindh is in between Rs 7000 to Rs 8600 per maund.

The Spot Rate Committee of Karachi Cotton Association has stabled the rate of cotton at Rs 8600 per maund as there was no business in the market.

Chairman Karachi Cotton Brokers Forum Naseem Usman told that mixed trend was seen in international cotton market. The rate of New York Cotton remained stable because of buying by China. According to the USDA weekly report exports were decreased by 35 percent as compared to last week. However, China remains number one importer. The rate of cotton remained stable in China. In India the rate of cotton increased to some extent but again bearish trend was seen during the week under review.

Moreover, USDA on May 12 has released initial statistics of international production of cotton and its demand. According to report production of cotton decreased internationally but its consumption increased sharply world wide. After the publishing of positive statistics of May bullish trend was witnessed in international cotton markets. In the report for the year 2020-21 world stocks have risen sharply for the second year in a row. Due to reduction in the cultivation land of cotton world wide it is expected that internationally cotton production will decrease by 3.72 million bales. While it is expected that consumption will be increased by 11.46 million bales due to recovery of the economy worldwide.

According to report in Pakistan production of cotton will increase by 10 lac bales while its consumption will increase by 15 lac bales while 15 lac bales will be imported also. In the same way the production of cotton in India will be increased by approximately 30 lac bales. In America production will decrease by 4 lac 10 thousand bales while exports will increase by 10 lac bales. The downfall in production of cotton in China is expected to be 7 lac 50 thousand bales while consumption is likely to be increased by 10 lac bales. The import of cotton of China is likely to be 9.5 million bales which were 7.5 million bales in 2019-20. During the last week positive progress has been made regarding cotton and especially related to agriculture.

The Economic Coordination Committee (ECC) of the Cabinet has approved a multi-billion agriculture package to provide the farmers subsidy on fertilizers, reduction in bank mark-up on agriculture loans, subsidy on cotton seed and white fly pesticides and sales tax subsidy on locally manufactured tractors. The agriculture package is part of the Rs 100 billion earmarked out of the Rs 1,200-billion coronavirus relief package, for the Small and Medium Enterprises (SMEs) and the agriculture sector. The agriculture package was proposed by the Ministry of National Food Security and Research at a cost of Rs 56.6 billion but the ECC chaired by Adviser to the Prime Minister on Finance & Revenue Dr Abdul Hafeez Shaikh asked the Ministry of NFSR to rationalize it as per its share in the overall Rs 100 package announced for the SMEs and the agriculture sector out of the Rs 1200 billion coronavirus relief package.

Under the agriculture package as prepared by the Ministry of National Food Security and Research in consultation with the stakeholders, subsidy to the tune of approximately Rs 37 billion would be offered to farmers on the purchase of fertilizers. The amount would include a subsidy of Rs. 925 per bag on DAP and other Phosphatic fertilizers and Rs. 243 per bag on urea and other nitrogen fertilizers.

The ECC was told that the estimated Urea off take would be around 3.04 million ton while DAP was estimated at 0.95 million ton for the Kharif season. The ECC was told that the fertilizer share in cost of production for major crops was around 10 to 15 percent and the provision of subsidy would reduce cost of production for farmers and increase their affordability to adopt the recommended level of fertilizer nutrient use and best agricultural management practices.

Similarly, under the agriculture package, reduction in mark-up of agriculture loans to farmers at the total cost of Rs. 8.8 billion and subsidy on cotton seed at a cost of Rs 2.3 billion and White Fly pesticides at a cost of Rs 6 billion were also approved. The package would also include Rs 2.5 billion subsidy on sales tax on the locally-manufactured tractors for a period of one year.

There is encouraging news for farmers that after the discussion during the current cabinet meeting the cabinet has rejected the decision of ECC of rejecting the fixing of intervention price of cotton. According to the sources cabinet has constituted a four member committee comprising of Syed Fakhar Imam, Shah Mahmood Qureshi, Makhdoom Khusroo Bakhtiar and Malik Amin Aslam to look after the matter and gave their proposals.

Ministry of National Food Security and Research had given the proposal of fixing the intervention price of cotton in the ECC. Experts were of the view that any announcement regarding announcing the fixing of intervention price will not be fruitful after the completion of sowing season.

During the week contradictory opinions were came regarding the announcement of fixing the intervention price of cotton. All Pakistan Textile Mills Association is against the fixing of intervention price while the farmers and cotton experts are in favor of fixing the intervention price.

The Karachi Cotton Brokers Forum has sent their budgeted proposals regarding budget and cottage policy.

Experts were of the view that cotton emergency should be imposed. They also said that cultivation land of cotton should be increased as well as provision of good quality seeds should be ensured.

Copyright Business Recorder, 2020