The Ministry of Commerce and the Ministry of Finance have reportedly opposed procurement of one million bales of cotton from ginners, arguing that market forces should be allowed to determine cotton prices in the country, sources close to the Textile Minister told Business Recorder.
Pakistan Cotton Ginners Association (PCGA) had submitted a representation to Prime Minister Yousuf Raza Gilani, regarding their problems.
Finance Minister Dr Abdul Hafeez Shaikh desired consultation with relevant stakeholders held and proposals developed for consideration of the ECC of the Cabinet.
The sources said during 2010-11, cotton prices were extraordinarily high in local and global markets, which created high expectations among stakeholders.
During 2006-10, average seed cotton (Phutti) price stood at Rs 1535/40-kg, compared to Rs 4030/40-kg, in 2010-11.
Similarly, cotton lint price was Rs 3800/40-kg compared to Rs 9647/40kg.
During 2011-12 though prices have been much lower than last year (almost 50%) but these are still at par or better than the average price of the previous four years (2006-10).
This lower production is on account of losses of over 2 million bales due to floods, particularly in Sindh.
However, decreased demand from both local industry and exporters has resulted in accumulation of stocks at ginneries as high as over 1.45 million bales.
It is also to be noted that as of January 15, over 12.82 million bales have arrived in the market, the sources added.
A consultative meeting with representatives of growers, PCGA, Karachi Cotton Association (KCA), All Pakistan Textile Mills Association (Aptma), Commerce, Finance, and the Planning Division was held on December 28, 2011.
The main points raised by the stakeholders are as follows: (i) PCGA stated that over 2 million cotton bales are lying with ginners, and an additional 2 million bales are yet to arrive from farmers.
The lifting of stocks by spinners is also slow.
The prices of cotton lint have been in the lower range from Rs 5000/-to Rs 5500/- per maund.
PCGA has requested the government to procure one million bales of cotton lint at Rs 6500/- per bale to provide relief to farmers and ginners; (ii) KCA and Aptma are of the opinion, that free market policy should continue and no government intervention was needed.
Cotton enjoys the status of zero duty and 422,000 bales have already been purchased for exports.
They also pointed out that only a small percentage of cotton crop (less than 10%) is available with growers.
Any intervention at this stage will not benefit farmers.
In case government intervenes, the Trading Corporation of Pakistan (TCP) should procure cotton through open tender from both ginners and spinners; and (iii) growers proposed that TCP should be inducted in procuring cotton of prescribed specification to ensure quality.
Growers stated that Phutti remains available at the farms till February.
Phutti already delivered to ginners have not been fully paid for.
Procurement by TCP will stabilise the prices.
In case there is no intervention, it is feared that there will be less cultivation of cotton in the next season.
However, no consensus was reached due to different viewpoints of stakeholders.
The Ministry of Textile Industry, sources said, has submitted two options to the top economic decision making body ie ECC.
Option A: (i) The free market policy should continue and market forces may determine the cotton prices in the country keeping in view the supply and demand including for export purposes; (ii) to facilitate procurement of cotton bales from the local market, the State Bank of Pakistan (SBP) may extend credit limits and repayment period for ginners, exporters and spinners; and (iii) export of raw cotton be facilitated by simplifying the procedure of registration of export sale contracts with TDAP.
Option B: (i) the ECC may fix the support price of seed cotton (Phutti) at Rs 2400.00 /40kg for 2011-12 season as determined by the Agriculture Policy Institute; (ii) the ECC may approve, in principle, procurement of upto one million bales of newly arrived cotton lint (base grade 3 in 170-kg standard size bale) through TCP.
In the first phase, 200,000 bales only be procured: (iii) the Ministry of Commerce may work out the cotton lint price for procurement operation based on support price of seed cotton of Rs 2400/40-kg; (iv) the Finance Division may allocate sufficient funds to TCP for procurement of 200,000 bales of cotton lint in the first phase; and (v) a committee comprising secretaries finance, commerce, textile industry and chairman TCP may review the subsequent procurement on the basis of market situation.