With the Pakistan government's announcement of the export package comes duty-free import of cotton, something that the yarn manufacturers have been demanding for quite some time, particularly in light of another season of low cotton production. The final estimate by the CCAC puts the seasons production at 10.5 million bales only 6% higher than last year's multi-year low; the lower output this season has been due to a sharp contraction in the sowing area in Punjab – a decline of over 20% year-on-year. Exceptional losses from last year's crop (due to pest infestation) & low domestic cotton prices at the sowing time pushed growers away from cotton to other crops.
Given this context, duty-free cotton seems like a no-brainer. However, as per a statement issued by the PCGA last month, there were around two million bales of cotton (1.5 million now, as per an industry source) lying with ginneries as unsold stock, with textile mills reluctant to purchase!
As per industry sources, the ginneries had been holding the stock, waiting for a better price. Moreover, imports have already been coming in despite the 4% RD; the majority of Pakistan's cotton is imported from India, which, albeit equal or marginally more expensive, is of better quality.
Cotton analyst Naseem Usman said that part of the existing stock in Pakistan, to some extent, is not of ideal quality, which can partly explain the unsold stock and the imports. Finally, he said Pakistan has imported more cotton from African countries this time around. This cotton usually takes a few months to reach, and so the orders that were placed back then are now arriving.
Since Pakistan has been importing cotton all along, its heartening to see the removal of the duty. However, something must also be done to address the existing stock that is going unsold. And to make matters worse for cotton growers right now, the fertilizer subsidy has also been withdrawn!