November 10, 2003	Monday	Ramazan 14, 1424

The textile industry is once again facing a severe crisis of price flare-up in raw cotton which has risen by 38 per cent (from Rs2500 to Rs3400 per mound) in six weeks or so.

Sudden jump in prices have taken the industry by surprise. Yarn prices have also risen in unison with cotton prices and, hence, poised a serious threat to the ability of the downstream industry for viable fulfilment of export commitments.

Current prices have risen due to sudden rise in global prices. Pakistan cotton is linked with international market. China being the biggest producer and consumer of cotton has the capability to singularly shake the world market with any adverse news.

China is facing one of its worst crop damage which has forced it to grab huge quantities from major cotton producing countries i.e. the USA, CIS, West Africa, etc. Successive estimates have kept the damage figures moving further high. Whole episode exploded beyond the industry pundits’ imagination with too huge impact in too little time leading to chaos in all major cotton markets.The textile industry in Pakistan was also an obvious victim.

China was expected to have crop harvest of around 27 million bales viz-a-viz its enhanced consumption estimate of around 30 million bales. Due to capacity addition, consumption has climbed to record high levels. Floods and bad weather in major cotton growing areas during August and early September raised the fear of crop delay, damage and quality deterioration.

Chinese crop harvest estimates were first revised downward from 27 million bales to 25 million bales by the USDA in early September. Soon after,the Cotlook came up with a new estimate at 22 million bales based on its industry sources in china. As if this was not good enough, a few days later the department of agriculture put the harvest as low s 20.2 million bales.

Panic became order of the day. Chinese scrambled in world market to pick up any quantity at any given price.

It is estimated that China would require around 8 million bales to fulfil its shortfall. As per the USDA weekly export sales data released on November 6,2003, Chinese buying to date in the 2003/2004 marketing year (August/July) now stand at 2.31 million bales compared with 322,900 bales at the same time last year.

It is estimated that China has bought large quantities from other sources as well and might have covered half of its shortage so far. If it turns out to be true, it may signal a cool down in the otherwise chaotic world market or at least put a cap against further highs.

Pakistan is also facing similar dilemma of lower than expected crop contrary to earlier jubilant estimates of as high as 12 million bales. Widespread damage due to pest attack late in the season has dampened the hopes of bumper crop.

Though government officials are reluctant to swallow a lower than 10 million bale crop estimate but trade circles are estimating crop size hardly equal to last year level of 9.7 million. The advantage of an impressive increase of 15 per cent in acreage has been shaved off by pest attack. Now Pakistan is poised to a shortfall of over one million bales.

Value added textile sectors are now facing the wrath of 30 per cent price hike in yarn viz-a-viz severe resistance from buyers to absorb this phenomenal price hike. Various textile trade associations have given SOS calls to the government to rescue them from this crisis.

The APTMA has its own list of demands to ease the situation. This includes import of one million bales from CIS countries through government channels and drastic reduction in the import duty on polyester fibre.

It is often being reported that this crisis may hamper export growth of the country. This does not fully take into account the fact that current price hike is a global phenomenon and has universally put all manufacturers in the same situation. China, being the biggest suppliers and capable to outprice the world, is itself hardest hit and shall be forced to resort to somewhat realistic pricing.

The world market has witnessed two significant trends during the last few years. “Wall Mart” syndrome has taken over the global sourcing culture and forced major chain stores around the world to resort to ruthless price war through aggressive global sourcing and flexing the muscles of huge buying power.

All leading chains stores in USA are threatened for survival with barbaric price competition unless they offer cheaper and serve better. This has lead to many corporate beheadings in developing countries by these giant warriors with their sharp price swords.

Raw cotton has been in a cycle of falling prices since mid 90’s. It fell to its 30-year low when it was valued under 30 cents per pound two years ago. This helped the manufacturers around the world to swallow the pills of perpetual price reductions.

But now that price has rocketed to contract high at cents 84.80 per pound last week (to descend to mid 70’s per pound on November 6,2003), sympathy of falling raw cotton price is not available to support further price reductions as demanded in routine by these price warriors to stay competitive back home.

Near future deals would decide whether an increasingly free textile trade is forced to lose its viability to feed their vast overcapacity or able to obtain a realistic consideration from the price winners of all times!

Cotton is a crucial economic resource in many developing countries where farmers depend upon cotton as a premier cash crop.

Poverty stricken African growers along with Pakistan and India have been seriously hit by spiral fall in cotton prices far last many years. The USA had repeatedly bumper crops during last three years. Its shrinking consumption at home coupled with bumper crop glutted the world cotton market which crumbled to historic 30 years low two years ago.

The USA was quick to offer subsidies to its growers and exporters along with liberal farmers’ loan programme. Poor cotton growing nations had to pay the price of the US cotton glut through price rip-off. The issue came up as a major trade issue during recently broken trade negotiations at Cancun for the WTO trade talks. African countries were first time ever vocal on a global forum to press ahead their grievance against the “big boy”.

Price hike in cotton has been a blessing to cotton farmers around the world. They are now in a commanding position to ask for otherwise unthinkable prices of their produce. Pakistani growers are also set to reap huge windfall particularly in the areas where crop is not significantly damaged. Timing of price increase couldn’t be better from growers’ point of view as it occurred right at the start of the harvest season.

In the face of the severity of the crisis in the context of Pakistan, collective responsibility lies on government as well as textile industry for their failure to spot the crisis while in the making and moving fast to hedge themselves by timely coverage from world market when prices were still in attractive limits. Self-induced arrogance on the part of the government and deeply embedded indifference by the textile industry towards a collective stance to monitor globally situation has trapped the industry in the current crisis.

As experience reveals, most of the price increase would be absorbed once the global prices settle down and simultaneous price enhancement demands are put forward from all textile producing countries. Textile products would regain their better price levels prevailing till mid 90’s. This would ultimately provide natural cushion for another round of price decline (a hallmark of free trade!) in subsequent years after a temporary but desperately needed break.

Increased unit price would lead to higher export earnings for the country in terms of Dollar. Margins of trade may be squeezed in the short term, which have been the case with growers for many years, but ultimately textile trade should recover the lost ground as normalcy returns to world market in due course. Let the industry and government should not waste the hard learned lessons from this crisis to escape from any similar disaster in future.