KARACHI: Pakistan's cotton industry is enjoying a revival as favourable weather and increased planting have boosted the crop outlook, offsetting last year's flood damage, a brokerage report said on Tuesday.
Insight Securities, a Karachi-based brokerage, said in a report that the strong start and arrival of the new cotton crop have raised hopes for the sector, which faced challenges last year due to devastating floods and subdued textile demand.
Pakistan is the world's fifth-largest cotton producer and exporter, and the crop accounts for about 60 percent of its exports. Cotton is also a key input for its textile industry, which employs about 40 percent of the workforce and generates more than half of foreign exchange earnings.
The report said that cotton sowing had increased by 34 percent year-on-year to 2.767 million hectares as of June, while production was expected to reach 12.77 million bales, up from 4.91 million bales last year. The yield was projected at 785 kg per hectare, well above the 10-year average of 658 kg per hectare.
The report attributed the improved crop outlook to favourable weather conditions, especially two spells of monsoon rains in July that supported crop growth and reduced pest attacks. However, concerns remain for the coming months as August and September are crucial for determining crop health and historically prone to heavy rains and flooding.
The Pakistan Cotton Ginners Association reported 1.4 million bales of cotton arrival as of July, indicating an early movement of the new crop.
The report said the government had announced a support price of Rs8,500 per maund (40 kg) to encourage cotton cultivation, but the market price had remained lower at around Rs7,000-Rs8,500 per maund due to weak demand from the textile sector.
It said that the absence of a practical mechanism for enforcing the support price has led to market dynamics influencing the prices.
The report said that the Trading Corporation of Pakistan (TCP), a state-owned entity, had decided to buy one million bales from farmers to stabilise the market price and ensure adequate supply for the domestic industry.
Pakistan’s textile exports declined by 15 percent year-on-year to $16.5 billion in fiscal year 2023, compared to $19.3 billion in the same period last year, while volumetric sales also declined by about 15 percent year-on-year.
The report attributed the slowdown in exports to suppressed demand caused by recessionary fears in the West (particularly in the U.S. and Europe), coupled with gas shortages, rising cost of working capital, lower cotton arrivals and diversion of export proceeds due to uncertainty regarding exchange rate.
The government was eyeing to fetch textile exports of $25 billion for fiscal year 2023, but recent domestic and global challenges have dampened the outlook.