Cotton, known as the ‘silver fibre’, is Pakistan’s second important crop after wheat in terms of area and value-added earning. Cotton crop is mainly cultivated in southern Punjab and Sindh.

It brings cash returns to farmers, supplies raw materials to the textile industry and provides employment to thousands of workers—both in rural and urban areas.

Cotton feeds 1035 ginneries and about 5000 oil expelling units in the country,which produce 400,000 tons of edible oil.Cotton seed is also extensively used in milk production.

Pakistan has a distinct comparative advantage in cotton production and generally has been a net exporter of it. Cotton and its products together make up about two-third of the country’s export revenue. UPto 1987 the export trade in cotton was highly regulated in favour of the textile industry; its export in raw form was strictly restricted with a view of depressing prices in the domestic market. Tariffs on exports combined with government monopoly of export trade panelized cotton growers but provided heavy protection to industrialists.

The first step to liberalize the export trade was taken in 1987 when export was opened to the private sector since 1973. During 1973 and 1987, the external trade in cotton was monopolized by the Cotton Export Corporation (CEC). However, it never played any significant part in the procurement of seed cotton as the support price tended to lie below the market price.

Private traders (padhys) have always dominated this part of the marketing chain, acting as a main link between the growers and the ginning factories.

Marketing system: The marketing chain for seed cotton in Sindh is a fairly simple one (Figure 1), in which there are three major parties: growers, padhys and cotton ginners. Over 99 per cent of cotton output is marketed as a cash crop. The greater percentage of this is sold by growers to ginners. A small percentage is sold directly to factories. The fourth party, though far less significant, in the marketing chain is the “kanthy” who assemble relatively small quantity of cotton and sell either to factories or to padhys.

Cotton ginning factories process seed cotton into lint and cotton seed. Lint is sold via brokers either to spinners, located in large urban centres like Hyderabad and Karachi or to exporters. Seed is also sold via brokers to oilseed factories that produce cottonseed oil and seed cake. A small percentage of good quality seed is some times supplied to padhys and large farmers for planting.

Padhys (traders): ‘Padhy’ refers to a shop where seed and farm produce are sold. Padhy wallah are usually referred to as commission agents or beopari. The term arthi is also some times used In Sindh as a synonym. Padhys dealing in cotton own the commodity traded and are subject to all of risks typically associated with ownership.

The main function of a padhy is to link growers and ginners and arrange for transportation of cotton from farm to factory. Growers, usually approach padhys when they want to sell their crop rather than the other way round. In some cases, ‘padhy’ acts as an official agent or dealer for domestic fertilizer companies and imported pesticides.

In Mirpurkhas there are about 30 padhy shops. Out of these at least ten are closely associated with input agencies. Padhy shops are usually “hole in the wall” affairs, typically furnished with one or two tables or desks, a few chairs, a set of weighing scale and telephone.

Padhys are also located in all towns of the district as well as in most of the larger villages; especially those that lie along the paved roads that links the towns. Unlike many of the padhys in Mirpurkhas town, village padhys are also serving as important assembly points for cotton and other crops. Big bundle of seed cotton piled at the roadside next to large iron weighing scales are a common sight throughout the province during the months of August to January.

Kanthy wallahs: Kanthy wallah is a small-scale padhy who, unlike padhy,is not involved in supplying inputs or credit.He collects small amount of cotton, which he sells either to padhy, or more commonly direct to ginneries. During the rabbi season some kanthy wallahs also buy wheat and trade in other commodities, such as rice, chilies and peanuts.

Kanthys generally buy from growers; from hired labourers and from poor people, especially children who manage to scavenge small quantities from road side or else where. Kanthys do not themselves arrange for transport from the farm gate, their suppliers do this. They do, however arrange transport from their site to the factory.

Cotton ginners: In 2002, there were 30 cotton ginning factories operating in Mirpurkhas district and nearly 130 more in the rest of the province. They typically operate for about six months of the year. Before ginning they spread out ctton to dry in factories’ large open compounds where poorer quality seed cotton is usually separated from the better quality product. After ginning lint consists about one-third and cottonseed two-third. About one kg out of every 120 kg is waste material,e.g. the dried out bolls of the cotton seed plus dirt and dust.

The main function of a ginner is processing, but he also provides credit to padhys and land owners. This is usually on interest-free basis. The main purpose of lending is to secure supplies. Loans are provided under what is called the ‘cabaro’ contract. This is a formal document in which the conditions of agreement are clearly laid down. The borrower is required to supply a quantity of seed cotton to the factory; usually an amount equal to one mound of seed cotton. Repayment of the loan is deducted from the amount paid to the borrower for the seed cotton supplied.

The price paid for the delivery is the prevailing market price at the time of supply, unless supplier and ginners have entered into other arrangements for storage and delay of price determination as described below. The penalty to failing to meet the obligation to supply seed cotton is 5 per cent per month interest charges on the outstanding loan. Factories also store cotton, either as unprocessed seed cotton or as lint.

Transport agency: There are 15 to 20 transport agencies operating in Mirpurkhas town. Out of these, about half are permanently based in the town, whilst the remaining work mostly during the peak harvesting of the cotton.

Transport services are charged on mileage basis, with the additional charges being levied for labour engaged by the trucking company for loading and unloading. There is a certain amount of flexibility in pricing, with valued regular customers often receiving better terms than others.

The risks of transport are shared between the transporter and the padhy. The transporter is totally responsible for any cotton (or other commodities) that is stolen during the transit; it is not unheard of for a whole truckload to disappear. However, if the cotton is damaged or destroyed by accident, for example by fire, the padhy bears the cost.

Conclusion: Although formal analytical methods have not been applied to this analysis, cotton marketing system in Sindh appears to be relatively competitive and efficient. Recent liberalization has increased incentives to produce cotton and the benefits of higher prices have on the whole been transmitted to growers Interlocking transactions have played an important role in this by facilitating the provision to growers of farm input and credit.

This is particularly important in the case of “resource-poor” growers who generally have few alternative sources of finance. The ability to secure crops, especially cotton, at lower cost and with greater reliability provide the incentive for padhys to lend to producers. Without this incentive, a major source of seasonal finance for farm production would be absent. The risks and transactions costs of lending in the agricultural sector are high, and usually only “resource-rich” landowners who have a degree of local political influence are able to draw loans from formal financial sector.

There is considerable competition in the marketing system in Sindh. There are a large number of padhys and factories in the area and the number have increased in recent years. The majority of growers have more choice of padhys to sell their cotton to than was the case in the past. In Sindh over last few years’ favourable prices, good weather and improved levels of cotton production have encouraged new entrants. Despite increased levels of competition between cotton buyers, interlocking involving lending in kind and the commitment to sell output to the creditors is still very widespread.

As far as factory lending is concerned, evidence is mixed. During the exploratory survey a ginner explained that in Mirpurkhas district lending by ginners to padhys and growers had virtually ceased in 2002. As a result of the large cotton harvest in recent years, factories in Mirpurkhas had little problem in obtaining sufficient supply to operate at full capacity, thus reducing the need to lend. Some growers complained that this causes financial problems.