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April 14, 2021

Fibre fighting fabric

Business

April 14, 2021

LAHORE: The tussle between the value-added and basic textile sectors is heating up with each pleading with the government to formulate a policy suiting their specific interests that are conflicting in nature.

There are certain points for which they are fighting from common platforms. For instance both demand availability of power and energy at regionally competitive rates. The concession if granted benefits the basic textile sector more because bulk of the power and energy is consumed by spinning and fabric mills. The value-added sectors have small machines that consume very low power. However the subsidized power rates reduce the cost of yarn and fabric used by the value added producers. If the basic textile sector increases prices of yarn and fabric the value-added sector protests.

The basic textile sector ignores the advantage of higher consumption of power on subsidised rates. Basic textiles entrepreneurs resent when they are denied the export refinances at subsidised rate of three percent. They also demand this facility. They have a point as they have to stock cotton for the entire season. It involves billions of rupees the sector arranges on market rate from commercial bank loans. If they do not stock cotton the spinners lose consistency of quality as cotton bought on a daily or monthly basis has a different character that mars the uniformity of their yarn. There are certain business decisions that each sector has to take on the basis of their perception of the market. The value-added sector books apparel orders three months before delivery. They quote prices based on their perception of the average price they are likely to get from the market. They do not enter into a binding contract with the spinners about the supply of yarn at a fixed rate for three months. When the prices go further down the apparel sector benefits but if the prices go up the spinners enjoy the advantage. In both cases one of the sectors wins and the other loser. We have not yet developed a mechanism that ensures smooth supply of raw materials for at least four months. There is no mechanism to ensure the implementation of a contract through courts. The settlement may come after passage of a few years. So no one enters into a price contract.

The apparel sector shouts out if the yarn and fabric prices increase after they have signed export contracts at an agreed price. In the same way the spinners protest when the prices of cotton they import or stocked from local supplies goes down. For instance cotton was imported when dollar rate was Rs165 and it has now come down to 153. Those importing the commodity now would have 8-10 percent price advantage.

They have to keep the yarn rates higher. But why would the value-added sector buy yarn at higher price if it is available in the global market at lower? In such circumstances the spinners ask for imposing regulatory duty on the import of yarn (over and above the regular duty). The value-added sector on the other hand demands import of yarn at zero duty (demanding to withdraw the normal duty as well).

The war of words going on between the basic and value-added textile sectors is escalating. Both play to the gallery. For instance yarn producers claim that consumers produce 1.3 million bales per month on global prices buying 100 percent locally produced cotton. Local cotton production is 8 million bales while 8 million has to be imported (actual consumption of cotton has gone down to 12 million bales only). They claim they are charging the local apparel sector global yarn rates. The apparel producers claim the global prices are lower if import levies are withdrawn.

The basic textile sector in what could be dubbed as a blow below the belt has claimed that apparel producers do not pay regional wages of 150 dollars minimum (Rs22,000) to their labour in Pakistan causing huge damage to the country. The salaried class is burdened with rupee falling from Rs110 to Rs152 in 3 years with no minimum wage increase from Rs17,500 per month. This is the failure of the state to announce a higher minimum wage.

The value-added sector demanded forensic audit of spinning mills. The spinners countered by stating export refinance availed by value-added sector must also be audited to see whether the credit is utilised for the purpose it was meant to be.

Cheaper yarn as is claimed could have been imported but was not done so. It would be interesting to find out on what items this concessional finance has been spent - there will be nasty surprises.