With the announcement of the export package yesterday now comes duty free import of cotton something that the yarn manufacturers have been demanding for quite some time, particularly in light of another season of low cotton production.
This column regularly writes about the countrys situation regarding cotton production and imports. To recap (and to paraphrase the State Banks quarterly State of the Economy report), the final estimate by the CCAC puts the seasons production at 10.5 million bales only six percent higher than last years multi-year low; the lower output this season has been due to a sharp contraction in the sowing area in Punjab a decline of over 20 percent year-on-year. Exceptional losses from last years crop (due to pest infestation) and low domestic cotton prices at the sowing time pushed growers away from cotton to other crops.
Given this context, duty free cotton seems like a no-brainer. However, as per a statement issued by the PCGA last month, there were around two million bales of cotton (1.5 million now, as per an industry source) lying with ginneries as unsold stock, with textile mills reluctant to purchase!
As per industry sources, the ginneries had been holding the stock, waiting for a better price. Moreover, imports have already been coming in despite the four percent RD (Read: Indian cotton imports, published December 08, 2016); the majority of Pakistans cotton is imported from India, which, albeit equal or marginally more expensive, is of better quality. Cotton analyst Naseem Usman told BR Research that part of the existing stock in Pakistan, to some extent, is not of ideal quality, which can partly explain the unsold stock and the imports. Finally, he said Pakistan has imported more cotton from African countries this time around. This cotton usually takes a few months to reach, and so the orders that were placed back then are now arriving.
Since Pakistan has been importing cotton all along, its heartening to see the removal of the duty. However, something must also be done to address the existing stock that is going unsold. And to make matters worse for cotton growers right now, the fertilizer subsidy has also been withdrawn!