Cotton is one of the four major crops in Pakistan. The other three are wheat, sugar cane and rice. Cotton accounts for 8.6 per cent of the value added in agriculture and 1.8 per cent of GDP. It is the only fibre crop, others being food crops.

The international price of cotton has not changed in line with world inflation or even the prices of other agricultural commodities. In early 1970s, the price of cotton in New York was 35 cents per pound and after more than three and half decades it is 70 cents per pound. The international price level has more than quadrupled during this time period. But the income of cotton growers has not kept pace with international rate of inflation.

There is secular deterioration in the terms of trade of agricultural commodities vis-à-vis manufactures. Besides other factors, the main reason is the subsidy given by developed countries especially the EU and the USA which give gigantic bail outs to protect their farm sector. Prices of agricultural commodities produced by developing countries remain depressed because the lucrative market of developed countries is denied to them.

Cotton is produced mainly in developing countries of China, India, Pakistan, Brazil, Uzbekistan and small quantities in few African countries. The US is the major producer among developed countries being the third biggest producer after China and India, but world’s largest exporter.

US gives substantial subsidies to cotton both at production and export stage and this is the main reason for the slower crawl in the price of cotton as compared to other commodities during the last 35 years. Pakistani and farmers in other developing countries would have received much better prices if cotton trade as preached by western economists and institutions, was totally free of subsidies and tariffs by developed countries. Removal of agricultural subsidies by EU and USA is the main sticking point in the stalled Doha Round.

Pakistan’s cotton production decreased from 14.3 million bales in FY 05 to about 11.5 million bales in FY 08 - a fall of about a fifth in three years. Our neighbour India with almost similar climatic conditions has been producing record crops of cotton.

In FY 08, India’s cotton production is estimated at 31 million bales - an increase of more than 25 per cent in last three years. With domestic requirement of 25 million bales, India has an export surplus of six million bales, that exceeds Pakistan’s import gap of four million bales. India has increased cotton output not by hiking area under cotton but improving yield per acre by adopting new Bt seed variety and other farm technologies. Indian yield of cotton per hectare was almost a third higher than Pakistan in FY08.

The sharp fall in cotton output in FY 08 is attributed to pest attack – cotton leaf curl virus and mealy bug. It is surprising that with a large plan protection department and many multinationals providing pesticides, our farmers and agricultural extension staff cannot curb the viruses.

Pakistan is the only country which charges 15 per cent GST on pesticides and fertilisers making them expensive and discouraging their use. Moreover, with modern technology pest resistant seeds have been developed but only 10 per cent of our cotton acreage is sown with certified seeds. Even without Bt seed which India has adopted successfully Pakistan can produce 15 million bales with efficient use of current technology.

Cotton is the most important commercial crop. It has very strong backward and forwarded linkages. Its backward linkage is reduction in income of cotton farmers and tenants. Southern Punjab – the cotton belt is the poorest region of Punjab because of more pervasive feudalism and land concentration when compared with central and northern Punjab. If the average rural poverty is 28 per cent at the national level, but in the cotton belt of southern Punjab it is about 35 per cent. So the very poor in the cotton belt of the province become poorer as a result of reduction in cotton output.

Cotton crop is picked exclusively by women. Millions of women cotton pickers spend winter months of November and December and earn about Rs7000 for two months of arduous labour. Although it is below the minimum wage, still it provides a useful supplement to poor households in the region. With cotton crop dipping by 20 per cent, the wages of these hardworking poor rural women also fall by the same amount.

Cotton is ginned by inefficient factories. The fall in production also means less income for the ginners. Cotton crop produces the cotton ball as well as seed which has two-third weight. Cotton seed is crushed to produce cotton seed oil which is the main domestic raw material for vegetable ghee industry that imports most of its raw material mainly palm oil from Malaysia and Indonesia. Fall in cotton output results in greater import of edible oil. A by-product of cotton seed crushing is the cotton seed cake which is used as feed for the livestock. Reduction in its availability raises its price and affects livestock output.

Cotton based textiles contribute over 60 per cent of the total exports, 46 per cent of total manufacturing and provide employment to 38 per cent of industrial labour force. Presently, the textile industry is in crisis with many units being forced to close, rendering thousands unemployed. The main reason for this situation is less availability of domestic cotton with consequent impact on local prices. The cotton requirement of our textile industry is at 15 million bales and thus four million bales need to be imported.

Textile industry is not so efficient that it can spin imported cotton into yarn and export it profitably. While in FY07, the total exports increased by 3.5 per cent, textile exports fell by more than four per cent. In July-December 2007 textile export has again fallen by about five per cent as compared to same period of last year. Our total exports cannot increase by double digit figures unless textile exports which comprise 60 per cent of the total exports, also rise by at least 10 per cent. And textile exports cannot surge without a cotton crop of 15-16 million bales.

Balance of trade and current account balance have deteriorated sharply during the last two years and reached an unsustainable level. By significantly increasing import of raw cotton and edible oil and stagnant export of textiles, the fall in cotton output has contributed greatly to these imbalances in trade and current account.

The cotton crisis is not felt by the common man as the wheat crisis but its significance for the economy is far-reaching, adversely effecting millions who are involved in the cotton chain from production to export.

(The author is former Secretary Planning)