ALTHOUGH Pakistan’s textile sector is averse to buying raw materials or products from India, it feels compelled for a while to import cotton in large quantities from its traditional rival.

The government had recently imposed a 10pc regulatory duty on the import of cotton yarn from India.

The compelling reason is the havoc played by the recent floods, which reduced the size of the cotton crop to the smallest it has been since 2003. Owing to rains, pest attacks and the usage of substandard inputs during the sowing season, Pakistan has lost an estimated 4.5m bales against the original estimate.

Meanwhile, it is currently cheaper to buy yarn from India. So, the country is purchasing 1m bales of cotton from its neighbour at a price of 63-66 cents/lb; India has a surplus stock of the commodity in the current marketing year that started from August 1.

As the shipment will be transported by road through the Wagah border, it will be less expensive and will take much less time. Incidentally, Pakistan’s purchases have pushed up cotton prices in India to over state-fixed support prices in most regions.

India intends to export 2m bales this year. Normally, China buys more than 50pc of India’s shipments, but Pakistan has already signed for half of that. The president of the Cotton Association of India expects Pakistan to buy another 500,000-700,000 bales. One bale is equal to170 kg. “We were not expecting such kind of demand from Pakistan,” says Dhiren Sheth.

Meanwhile, spinners in Punjab have so far imported 1.7m bales, according to the All Pakistan Textile Mills Association (Aptma). There will be an overall negative impact on the external sector because of the big cotton imports.

Since the country’s textile industry is no more cost-effective, the demand for its products in the international market is not picking up, says Aptma

However, cotton purchases by the spinning industry have dropped from last year owing to problems faced by the industry. Spinners have so far purchased 6.289m bales of cotton against 9.375m bales during the same period last year.

Pakistan’s Cotton Crop Assessment Committee had in February forecast a 15.5m bales crop for the current season, but it has since then revised the figure downward twice. The Cotton Ginners Association puts the latest estimate of the crop at 8.631m bales, down 29pc. The expected shortfall of 4.5m bales by the end of the season is likely to deal a big blow of about Rs260bn to the national economy.

Punjab, which produces almost 80pc of the country’s cotton, has borne the brunt. Monsoon rains and heavy floods in April-May badly mauled the crops in key production areas of the province. Then, the aggressive use of pesticides to counter pest attacks on the crops still in the fields also damaged the fibre.

Till December 1, cotton production in the province stood at 5.102m bales, a fall of 39.95pc from last year’s comparable figure.

Meanwhile, the damage to Sindh’s crop is comparatively much less at around 3.26pc. The province has produced 3.528m bales against 3.647m bales a year ago. By the close of the season, which may come two months earlier, Pakistan may have produced around 10m bales. The country produced 14.9m bales last year.

Aptma expects cotton consumption to be restricted to 8.5m bales this year, down from 14m last year, because of lower working capacity of spindles and looms, which have either been restricted to one-shift operations or closed down because of the high cost of doing business.

The high cost of doing business, particularly due to enhanced electricity tariffs, has put the textile industry under a lot of strain. Since the country’s textile industry is no more cost-effective, the demand for its products in the international market is not picking up, says Aptma.

According to the latest Global Cotton Outlook, cotton is in for another weak season, with ‘no visible catalysts’ for growth or price support. Hence, demand will remain subdued, which doesn’t give a lot of hope for the next couple of seasons.

And the increase in cotton demand in China will be met internally, and even though it is no longer buying cotton and stockpiling it, quotas remain in place, so more competitive prices won’t have much of an impact on Pakistani exporters.

The expected increase in demand from Pakistan and India by about 3pc in the current season will account for 5-6m tonnes of imports. Lower production will eventually be the answer for cotton prices, as the commodity sector generally adjusts when prices fall.

Published in Dawn, Business & Finance weekly, December 21st, 2015