Dec 14, 2009

Raw deal

Increase in the export of cotton yarn has created problems for the local textile industry

By Aoun Sahi

An increase in export of raw cotton this year has created panic in the local market. Resultantly, the textile sector has been unable to get cotton yarn at an affordable price; the price in the international market has increased as well.

"We have exported 284,000 tonnes of cotton yarn in the first four months of current fiscal year. Last year, we exported about 500,000 tonnes of cotton yarn," says Ibrahim Mehmood, Secretary Pakistan Readymade Garments Manufacturers Association (PRGMA). "During the first quarter of 2009-10 export of raw cotton has observed an increase of 39 percent while cotton yarn has seen an increase of 4.5 percent. On the other hand, export volume of value-added products has fallen around 7 percent," he adds.

Mehmood believes that decline in export of value-added textiles in the first quarter of the year was directly linked to rising levels of export of cotton yarn. "Value-added textile sector is converting one pound raw cotton worth of 67 cent into value-added finished goods worth USD5 to USD7 a piece, earning valuable foreign exchange for the country."

So, he says, cotton yarn produced by 250 spinning mills in the country is not more than the country's requirement -- "The textile sector employs 60 percent of the total labour force in the country, out of which 94 percent is employed by value-added sector while the spinning sector employs six percent. The value addition sector has been facing real problems to keep their commitments to foreign buyers due to high prices and non-availability of cotton yarn in the market. The price of yarn has increased by 40 percent only during the month of October. World cotton production has fallen by around 4.2 percent this year while consumption is likely to increase by 2 percent."

Mehmood maintains that even under the WTO regime Pakistan can restrict its cotton and yarn exports as its two members -- India and China -- have already done that. "WTO rules for restriction on exports also state that export restrictions are permissible for raw materials in order to protect or promote a domestic fabricating industry," he says.

Under the Textile Policy 2009, the government has put the export target of textile items at USD25 billion by 2013, which is not impossible to achieve. But in the given circumstances it seems impossible. "During 2008-09 Pakistan exported textile items worth USD9.60 billion. The target for this year has been put on USD12 billion. We will never achieve the target if the momentum of exports of raw cotton and yarn continues. We will also have to import yarn in April 2010; which is likely to collapse the whole value-added chain," he says.

The official data of the ministry of textile reveals that 80 percent of cotton yarn was consumed domestically and only 20 percent yarn was exported in 2008-09. The textile sector wants the government to intervene as many units and factories working in the value-addition field have been closed down because of either high prices or unavailability of raw material in the local market. "We have around 0.2 million cotton power looms in Faisalabad alone, out of which more than 50,000 have been closed down while the rest have been partially shut down. Consequently thousands of workers have been rendered jobless," Rana Akhlaq Ahmed, Chairman All Pakistan Cotton Power Looms Association, tells TNS.

Rana says Pakistan can earn USD2 billion only by the export of cotton yarn surplus to local needs while value-added textile sector can earn USD10 billion from exports besides providing jobs to hundreds of thousands of people, "High price of cotton yarn is not the main issue, in fact, it is not available enough to the local markets. We have recent example of Bangladesh that has imposed ban on raw jute export. Raw cotton export should be banned immediately until the next season, otherwise the whole value-addition industry will be destroyed," he warns.

The government is trying to intervene but has failed to resolve the problem. It has made it mandatory for cotton yarn exporters to get their export orders registered with the Trade Development Authority of Pakistan (TDAP).

All Pakistan Textile Mills Association's Punjab Chapter Chairman, Gohar Ejaz, says any restriction on the exports of cotton yarn will not only be harmful to the spinners and farmers but also to the value-added manufacturers. "The textile sector is running short of three million bales and the orders from the import market are likely to stop because of the law and order situation and government's interference."

Gohar dispels the impression that the country is facing shortage of cotton yarn for the textile industry. "So far as the price of cotton yarn is concerned, the local exporters of value addition textile sector get it for 15 percent less. The spinning industry is facing shortage of raw cotton but has never demanded ban on the export of cotton. It is expected that about 1 million bales or 8.5 percent of total estimated production of cotton will be exported this year. This is a free market, and if the spinning industry can compete in the international market after importing its requirement of raw materials why can't the textile sector do the same, which is already enjoying a number of facilities."

Gohar says the government "has also earmarked more than 90 percent out of the Rs 40 billion incentive package to the Textile Policy for the textile sector". He advises the textile sector to purchase yarn at export price and try to pass on the same to their international buyer. "This year 84 textile mills have resumed production because of the favourable international market. If the government keeps on creating problems for spinners, I fear over 100 factories will be shut down again before the next season," he warns.

Rana Farooq Saeed Khan, Federal Minister for Textile Industry, tells TNS that the government is trying its best to safeguard the interests of all stakeholders of the industry. "We have been trying to convince spinners to offer yarn at affordable rates at the local market. It is right that we cannot disturb the open market mechanism under WTO regime but this does not mean we will allow anybody to destroy the local industry. We have also told the value addition sector of textile industry to revise their rates at the international market as textile goods have observed a visible increase at the global level."

Khan further tells TNS that the draft of new textile act has been prepared which is likely to allow the ministry to intervene in matters of market. He admits that value addition sector at present is facing problems due to cotton yarn crisis. "There is no data available even about the exact number of textile mills with the ministry. The new act will empower the ministry to some extent. We have asked spinners to ensure the availability of cotton yarn in the local market."

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