Cotton contamination level, lack of proper grading: losses estimated at $3 billion

The extent of losses to Pakistan's cotton, due to contamination and lack of proper grading, is estimated to run into $1.4 billion to $3 billion, according to a study sponsored by the office of Economic Opportunities, United States Agency for International Development (USAID), Pakistan.
The project, namely 'Reform of Regulatory Framework: Cotton Ginning Sector', was contracted to Chemonics International Inc, and authored by Ali Murtaza and Saif Anjum. The document has, however, clarified that the views expressed in the publication do not necessarily reflect the views of the USAID, the United States Government or Chemoncis International Inc.
Pakistan is the world's fourth largest producer and third largest consumer of cotton. Pakistan cotton's key characteristics are good. However, it does not fetch high price due to unacceptable contamination levels. Low cotton prices appear to be an important contributor to poverty in Pakistan's cotton producing regions, which are one of the poorest in Pakistan and any effort to improve prices will have a direct impact on poverty reduction in these areas.
The study says that high contamination levels and other issues with Pakistan cotton are direct result of a weight-based pricing system, which suits a substantial number of Pakistani weaving and spinning units. These units are in the business of production of coarse cotton cloth and do not have, or generate, demand for clean cotton. This lack of demand, coupled with inadequate regulation, has led to a near-complete collapse of the production differentiation systems. The study focuses on the regulatory aspects of this failure.
According to the 'Executive Summary' the country produced 9.6 million bales of cotton in 2009-10, while it consumed 10.9 million bales in the same year. However, Pakistan's share in the international trade is not significant - it imported 1.5 million bales and exported 0.2 million bales of cotton in 2009-10. Pakistan's cotton is generally of medium staple length; its fibre strength is high; and its micronaire values are acceptable. Pakistan's cotton is stress-free and handpicked, although picking practices are not of international standard.
Pakistan's cotton does not attract high values, and fetches significantly lower prices than cotton of similar grades, due to high level of contamination, inappropriate moisture content and mixing of different grades of cotton. All of these issues are considered to be direct outcome of the prevailing weight-based pricing system and/or absence of viable product differentiation systems.
It has been pointed out that impurities reduce the beneficial effect of cultivars, and impair the rating of yarn and fabric, preventing the manufacture of a final product with high value. The level of contamination in Pakistan can be gauged from a survey carried out by the International Textile Machinery Manufacturers Federation, which found Pakistan's cotton as being one of the most contaminated in the world.
In fact, the International Textile Manufacturing Forum advises member textile units to avoid using yarn and fabrics originating from Pakistan due to contamination. Various estimates place contamination content of Pakistan's cotton at 18-19 grams per bale, against an international standard of 2.5 grams. Various estimates place the value of loss suffered by Pakistan, due to contamination, at $1.4 billion to $3 billion in export earnings each year. Of this loss, $308 million is estimated to occur at the stage of raw cotton alone.
Contamination occurs throughout the value chain. Major reasons for contamination appear to be lack of awareness regarding benefits of clean cotton, low economic incentive for picking, and keeping cotton clean and/or demand for clean cotton. Low economic incentive occurs due to unwillingness at various levels of the value chain to transfer monetary benefit of clean cotton to the lower rung. Lack of demand for cleaner cotton is due to the reason that majority of Pakistan's cotton cloth producers are engaged in production of coarse cotton cloth (known as the power loom sector), which does not require high quality cotton and, accordingly, these manufacturers do not appreciate or pay premium for clean cotton.
Lack of economic incentive/demand for clean cotton has led to absence of product differentiation, which manifests itself in cotton bales being either not labelled or incorrectly labelled. Further, labels do not indicate specifications/contents of the cotton bale, despite the presence of a national grading system. In terms of technological advancement, lack of incentive/demand for clean cotton has translated into poor factory infrastructure, low quality machines, poor picking, transport, storage and ginning practices.
As a result, most ginning factories in Pakistan operate with poor quality machines; ginners mix cotton of different grades; pickers start picking cotton early in the morning; and farmers store cotton in polypropylene bags--all intended to obtain maximum production by weight at the lowest cost. The impact of the weight-based system is so intense that lint-cleaning machines present in factories have been removed due to their weight-reducing cleaning action.
This situation in Pakistan's cotton market has not been helped by the cotton regulatory regime, which fails to provide for or encourage product differentiation and/or appropriate labelling despite the fact that it regulates nearly every segment of the value chain. It is also marketed by poor enforcement systems, repetitive and confusing compliances and overlaps. Current regulation in the cotton sector and how regulation can help the market to move towards a quality based pricing system - a declared government objective - is the subject of this study.
The document recommends that the regulatory regime in the cotton sector should be redone to support labelling and encourage ginning factories to bring technological improvements. It suggests that this should be done by reducing the number of statutes, removing inconsistencies and overlaps, clearly delineating regulation responsibilities, encouraging voluntary certification, and restricting intrusive regulation.
It further suggests that the regulatory regime should move away from ensuring varietal purity and focus on adequate labelling. Again, it calls for providing incentive to spinners in the shape of lesser, or no, payment of cotton cess, to buy labelled bales. It also suggests that research in cotton should be funded through budgetary appropriations, and cotton cess should be used for technology improvements.