THE unprecedented negative growth in the agriculture sector is attributed to the huge decline in cotton production to 10.07m bales compared with 13.96m in 2014-15, and the initial estimate of 15.5m bales.
The forecast for the upcoming season is also not promising either, as the provincial governments of Punjab and Sindh have reported a 19.5pc and 5.1pc less sowing of cotton compared to the corresponding period last year. According to USDA, ‘looking at cotton futures, it appears that farmers will again face low cotton prices during at least the early stages of the upcoming season.’
Cotton has pivotal importance in the country’s farm economy. It contributes one per cent to the GDP and 5.1pc to the value added to agriculture, and, more importantly, provides a raw material base for the textile sector which constitutes 60pc of export earnings and employs 10m people (40pc of the industrial labour force).
The shortfall in the production of cotton has resulted in a 48pc decline in the export of raw cotton and a 203pc increase in the import of raw cotton during the first 11 months of the current financial year.
The problem was compounded by the sharp decline in the prices of cotton in the international market, which declined by 24pc from 71.49 US cents per pound in September 2014 to 54.54 cents per pound in February 2016. Although during the last four months prices have gradually improved to 64.56 cents per pound, the forecast till September is uncertain.
The challenge to Pakistan’s cotton sector is more systemic than agronomic which holds back the sector from realising its potential
Though the seasonal and climatic shocks related to temperature, precipitation, floods and other aspects of weather are intrinsic to the agriculture sector, the challenge to Pakistan’s cotton sector is more systemic than agronomic which holds back the sector from realising its potential.
Firstly, Pakistan primarily produces medium-staple cotton varieties whereas significant quantities of long-staple cotton are imported. This is for the blending and production of better quality fabrics for the export market, and specialised products for the domestic market.
Secondly, the productivity of cotton in Pakistan remains consistently lower than major competitors. The Bacillus Thuringiensis (Bt) cotton developed abroad accounts for around 90pc of cotton area in Pakistan, whereas indigenously developed cotton varieties suited to the Pakistani climate have almost become extinct; the varieties developed abroad for different agro-climatic conditions cannot provide optimum yield in Pakistan.
Thirdly, the over-production of sugarcane induced by an inflated support price has been cannibalising the land and water resources of cotton, especially in the prime cotton zone.
Fourthly, domestic cotton continues to face quality problems along the value chain — poor quality of picking, high level of contamination and mixing of varieties.
Lastly, according to Aptma, the main reason for Pakistan’s lagging behind India in cotton production is ‘the introduction of modern technology and research by India, which we are lacking here’.
Consequently, despite being the fourth largest producer of cotton, Pakistan relies on imported long staple and quality cottons to produce high quality textile products.
Ensuring adequate farm incomes is not only desirable but essential towards guaranteeing a sustained production of raw material base for the textile sector; a sector which has seminal importance for exports. Adequate returns for cotton farmers can be achieved through multiple policy instruments — increasing yields, reducing input costs, price premiums through quality improvements, or enhancing prices through market interventions.
So far, the strategy to increase cotton output has remained limited to supporting domestic cotton price through interventions in the market. These interventions consist of purchasing cotton lint at higher-than-market prices through the Trading Corporation of Pakistan.
The strategy has side effects. An increase of Rs100 per 40Kg in phutti (seed cotton) price translates into Rs8.5bn in appreciation of value of 10m bales of cotton lint produced in the country. Any artificial boost in the cotton price beyond international prices, therefore, loads additional cost to the raw material base for the entire textile value chain, making it uncompetitive. The industry deserves to have access to market-priced raw materials if it is to keep afloat in a highly competitive international market.
To conclude, cotton production single-handedly dragging down the growth of the entire agriculture sector stands as a testimony to its vital importance in Pakistan’s economy. There is little dissent amongst stakeholders on the viability of boosting production to 20m bales within four years, and a quality premium of 30pc, through the cultivation of long staple varieties and a reduction of contamination.
However, the sustained production of cotton depends on the resolution of systemic issues which require a long term policy commitment.
The core strategic interventions include (a) the increase in productivity of cotton through development of indigenous varieties, (b) shift in production from short-medium to long and extra-long staple cotton, (c) improvement in harvesting and post-harvest management practices for quality preservation, and (d) shielding the cotton areas from encroachment by the sugarcane crop.