WITH cotton production dropping by around 35pc this year, the ginning business has suffered badly. Out of some 1,200 ginneries in the country, only 800 could start their operations, and that too only for a short period before erratic supplies forced closure.

Normally, a 35pc drop in cotton should have affected business in corresponding percentage. But that was not the case. The ginnaries’ losses multiplied in the absence of economies of scale owing to under utilisation of capacity even during their numbered days of operation.

Most of the ginneries, like all factories, have their fixed running expense, which they have to incur regardless of their capacity utilisation. As ginners say of around 70pc of the ginneries that were able to switch their machines on, only a few could reach 60-70pc of their capacity utilisation and that too only for a few days because of highly erratic supplies. In some of the worst affected districts, they did not operate beyond 15-20pc of full capacity.

Most of the ginners thought that since the crop is massively short, the prices were bound to rise in the subsequent weeks. They could not be more wrong. They purchased cotton at high rates (some quote as high as Rs5,800 per maund) only to see price crashing further and never going beyond 85 to 90pc of that rate. The textile industry was able to import at cheaper rates than what local ginners were asking for.

Apart from the current year’s immense loss, the fear that domestic and international scenarios instill among the ginners is the long-term cotton outlook. The crop is losing acreage to other competitive crops and has already lost 20pc area if compared with the situation a few years ago. This year, they fear more loss. Some farmers think that crop would lose around 20pc more area in Punjab alone, which means around 1m acres. Official circles concede around 10pc, or 0.5m acres. In either case, the ginning capacity will remain under utilised with the crop’s economics (competitiveness and acreage) under an increasing threat.

With sowing for this season underway, it is now time for the government to come up with a long-term cotton policy.

For having a clear picture of domestic cotton requirement, it should also consider the capacity closure: many textile units have gone out of operation along with ginners because of shortage of cotton and increasing cost of doing business.

Unless the problems of cotton growers, ginners and textile industry are addressed effectively by the government, while reconciling the conflicts of interests among these stakeholders on a fair and equitable basis, the cotton economy will remain afflicted with vicious production cycles, occurring more frequently.

Published in Dawn, Business & Finance weekly, March 21st, 2016