Of spins and turns

Textile spinning industry calls for diplomatic pressure on India to release 1m cotton bales it ordered last year
By Shahzada Irfan Ahmed

The country’s textile industry, already reeling under pressures of all types, is now confronted with the challenge of meeting shortage of cotton required for its consumption. The deficit caused by crop destruction due to floods has worsened after India’s reluctance to release one million bales of cotton booked by Pakistani importers in August/September 2010. It was expected that the booked cotton will start arriving in December last but this did not happen.

Players in Pakistan’s textile industry believe that Indian government made an undue intervention in the free trade mechanism and imposed a non-tariff barrier for no genuine reason. They also disagree with the argument that India resorted to a tit-for-tat reaction once Pakistan imposed restriction on export of onions to the country via land route. Their point is that onion export has been discontinued only through Wahga route and there is no let up in the activity via sea. Secondly, onion export has led to its shortage in the local market and escalation in prices. Whereas, India has produced surplus cotton this year and set a target of exporting 5.5 million bales.

There was no issue till the Indian government issued a direction in December last that only those who register themselves with the Textile Commissioner and then the Office of Foreign Trade would be allowed to export cotton from India, says Anis ul Haq, Secretary All Pakistan Textile Mills Association (APTMA). This, he says, seems to be a planned move to make execution of previously booked orders difficult as Indian merchants were allowed to even register through email. There was no requirement of producing documentary proof of having a confirmed export order in hand.

Anis says within weeks merchants registered export orders of around 15 million bales at which the Indian government decided to allow export on first come first serve basis. He tells TNS, now people who were swift in registering are selling the orders in the market on premium.

Anis says the real issue, in their view, is that the cotton prices have increased incredibly over the last couple of months. Its price was 90 cents per lb when the orders were booked in November last but today they are hovering around $1.5 per lb. “It’s quite probable that Indian merchants want to sell the cotton available with them at current rates by canceling previous orders. Even if they want to do that, we are ready to sit with them and work out a middle way,” he adds.

He says APTMA had demanded of the government of Pakistan and India and take up and solve this issue at diplomatic level. International arbitration is not possible as India does not stick to the terms of International Cotton Association (ICA). Anis says India is facing criticism from all over the world for subsidising its textile sector and facilitating merchants at the cost of farmers who are committing suicides in thousands every year. “The benefits of rise in cotton prices has not benefited the farmers as it were the merchants who procured the commodity when the prices were low,” he adds.

The Indian government’s intervention has made it possible for the textile industry to procure cotton at prices 30 percent less than the international price. This is against the interest of the growers whereas in Pakistan, the cotton growers were offered rates higher than export parity rates by APTMA, he adds.

In the current scenario, Pakistan has no alternative plan as US and the Central Asian States have already sold their cotton. Australia and Brazil have cotton crop in April but this time there are fears that a lot of cotton crop will be destroyed due to the recent floods in that country.

Estimates of textile ministry put the sector’s demand at 15 million bales per year. This year’s production stood around 10.7 million. To date, around 1 million bales have been imported and the current deficit hovers around 3 million bales. The industry had planned to plug this shortage by importing 1 million bales from India and the remaining from countries like Australia and Brazil once they have their crop ready. Pakistan is not importing cotton from India for the first time and has brought in similar or larger quantities than that withheld currently.

APTMA Chairman, Gohar Ejaz, tells TNS that they are hopeful that the country will have bumper crop in the next season. The all-time high prices in the global cotton market will encourage the growers to cultivate more and more cotton this year. He says India must realise that Pakistan is under pressure this time and a similar situation can arise there in future. This is quite probable as 100 percent cotton growing agricultural lands are fed by irrigation water in Pakistan whereas 70 percent cotton growing area in India is rain-fed, he says adding: “A drought or abnormal rain pattern can cause severe cotton crisis in India.” If they extend help to Pakistani textile industry in time of need, they will receive similar treatment when they are in trouble,” he says adding: “the issue at hand needs immediate attention as India has started selling the withheld stocks.”

With cotton buyers like US and China on shopping spree there’s no shortage of buyers. But India must fulfill its commitments rather than go for greater profits. Gohar tells TNS that the unprecedented escalation of cotton prices in the world has benefited the growers in the cotton-growing regions of Pakistan. He says the prices have shot up from Rs3500 per maund to Rs11000 maund and there seems to be no let up in the spiral till coming June.

Gohar says the cotton price surge has been a blessing for cotton growing areas like Sahiwal, Multan, Bahawalpur, etc, as Pakistan’s textile industry transferred Rs200 billion there under cotton purchase deals. He says the injection of this much money in these areas, devastated by floods, has generated enough economic activity and compensated the loss of the locals to a great extent.

Keeping in view the pace of advancement on composite dialogue between Pakistan and India, stakeholders in the former’s textile industry are a bit skeptic about a positive development on this issue. But the fact that mutual trade between the two countries has always preceded other issues leaves some hope. An amicable and immediate resolution of the issue is something needed the most at this time to foster cordial relations between the two countries.