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Restoring cotton standardisation fee

Updated December 22, 2014

Sindh has opposed the levying of the cotton standardisation fee without the payment of premium to cotton producers and ginners.

The cotton standardisation fee (CSF) was proposed to be levied at the ginning stage in October by the federal textile ministry. However, it required the secretaries of Sindh and Punjab agriculture departments to link the renewal of the working licences of cotton ginning factories with a CSF payment of Rs5 per bale at the original rate.

The ministry is not only interested in restoring the CSF — which was earlier suspended for one season under the clean cotton programme — but also plans to raise it to Rs20. It also intends to recover Rs316.91m of CSF dues from ginners for the 2008-09 and 2012-13 seasons.

In October, the federal ministry expressed its concern to the Sindh agriculture department regarding high contamination levels and lack of required grading. Standardisation — an issue of proper packaging of cotton bales — would only be resolved once ginners are made to avail the services of the Pakistan Cotton Standardisation Institute (PCSI) while paying the CSF.

The PCSI, it says, has so far been able to train barely 203 cotton classers and 2,247 cotton selectors in Multan, Sukkur and Karachi due to lack of cooperation from the ginners. Despite being the fourth largest cotton producer, Pakistan still does not have a uniform cotton grading and standardisation system.

According to Federal Cotton Commissioner Dr Khalid Abdullah, the decision over the CSF would be taken after consultation, as the government doesn’t want to disadvantage any sector. Practically, he said, the CSF would start at the stage of picking, if growers could ensure picking of contaminant-free cotton, to get a better price from ginners, who would then produce quality lint cotton to be sold to textile millers after adding the cost.

“This would develop a value chain and create a win-win situation for all,” he asserts, and argues that the payment of Rs5 per bale translates into Re1 per maund/37kg, as a bale is equivalent to 170kg of phutti.

The CSF was imposed to meet the international market’s requirements of clean cotton and arrest the declining trend in export prices. Its parameters were to be ensured by the PCSI, which was established in 2002.

But it did not turn out as simple as it was then deemed. Neither the ginners, growers, nor the Sindh government felt that it could be implemented in letter and spirit. Agriculture officials and growers pointed out that considering the manual picking of cotton, the chances of mixture of trash in seed cotton could not be ruled out.

Growers tried their best to ensure the picking of clean seed cotton for ginners. The provincial agriculture department had banned the use of hessian bags for transportation of seed cotton when the programme was launched. Such bags contaminate cotton.

Besides, training was given to cotton pickers. And growers complain that ginners cut the price during the weighing of the cotton crop. Growers bear the additional labour charges for ensuring contaminant-free seed cotton, but don’t get any advantage from it.

Some factories were selected in Punjab and Sindh where contaminant-free cotton bales were produced. The programme continued for two seasons. Then, its recovery was suspended as the ginners went on strike in 2008 against the CSF. For two seasons, Rs1.089m were recovered under the CSF from 18 ginning factories in 2006-07 and Rs198,305 from just two factories in 2007-08 in Sindh.

Quality premium (Rs50 per maund for growers) was given for the two seasons in some districts on an experimental basis when the CSF was first introduced. The total premium was calculated on a 50-50 sharing basis at Rs70m. It was meant for production of an estimated 100,000 clean grade-I/II bales of cotton after ginning 1.4m maunds of clean seed cotton of grade-II or above. It was paid for by the federal and the Sindh and Punjab governments as per their share. Sindh deposited its share of Rs10.5m.

Former Pakistan Cotton Ginners Association (PCGA) chairman Mahesh Kumar says if ginners pay the CSF of Rs5 per bale, they would add it in their purchase price of phutti and transfer it to growers instead of millers. The millers, he says, are not willing to buy and raise quality.

Cotton producers like Mahmood Nawaz Shah also feel such decisions are taken to the farmers’ detriment by a weak regulatory set up. However, farmers, in principle, support that quality standards and parameters must be ensured, considering the competitive market’s needs.

Considering these factors, the Sindh government has proposed to the federal textile ministry that the burden of CSF should not be passed on to growers in any manner. The clean cotton programme could be linked with the payment of quality premium to growers, which would eventually and automatically resolve the CSF issue. It also seeks a mechanism for payment of this premium to ginners after taking all stakeholders on board, and imposing the CSF from the next season.

Published in Dawn, Economic & Business, December 22th , 2014