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Cotton Crash: Why the Falling Prices?

In March, the government finalized the minimum support price of seed cotton (phutti before ginning) at Rs. 8,500 per 40kg, but the set bar is rarely being followed in spirit in both Punjab and Sindh, and the provincial governments as expected are paying just lip services.

Since mid-June, cotton (after ginning) spot market prices have fallen by more than 20 percent from Rs. 22,222 per 40kg on 13th June to Rs.17,683 per 40kg by July 7. The significant decrease happened during the Eid holidays as the IMF deal announcement hit the exchange rate. It plummeted the prices of nearly all agri commodities that are imported i.e., edible oil, pulses and cotton.

But a quick glance at the chart shows that the price decrease has been happening long before that. So is dollar price reduction one and only reason or just an excuse? If you talk with All Pakistan Textile Mills Association (APTMA) officials, they would tell you that they are still buying cotton at around Rs. 17,000 which is in line with the government’s announced support price.

On the other hand, farmers are selling their produce at far less than the support price. The recent prices of seed cotton per 40kg in different cities across the two provinces can be found below

Last week, the Sindh government took notice of non-compliance with official support prices and directed the district administrations to strictly implement the government’s policy.

When the Deputy Commissioner of District Sanghar in Sindh called the leaders of the Cotton Ginners to his office, he issued a firm order for compliance and warned of potential consequences. In response, the cotton producers promptly instructed the ginners to cease all cotton purchases immediately.

According to recent updates from interior Sindh, ginners’ factories in several locations are refusing to unload cotton, which farmers claim could deteriorate within 48 hours if left unattended.

The ginners lay the blame on the 17 percent sales tax imposed on cotton seed and the subsequent FBR notices for the market crash. They assert that the closure of oil mills and the overall market decline are the result. However, if cotton seed prices have indeed rebounded since then, it appears that their justifications are, at best, mere excuses or, at worst, an attempt to manipulate prices by employing blackmail tactics to secure purchases at lower prices.

“Traders come together and plan the market future over which they have complete monopoly, and they don’t care about the government.”, commented a market consultant talking to ProPakistani.

He added that they affirm that cotton won’t be sold at a government-set support price especially with the dollar coming down which has provided the dealers with a cover for their actions. Moreover, the monsoon season and resulting humidity have also played a role in declining prices.

The point is that taxes have been imposed across the industries including fertilizers but industries are still operating and maybe with increased prices but their markets are still open.

“Abolishing taxes on cottonseed is the only way of ensuring government support price and the other way is that government should buy cotton itself” stated a cotton trader talking to ProPakistani.

Regulatory bodies should investigate and address any unfair market practices that contribute to the decline in prices. This may involve reviewing tax policies, providing incentives, and penalizing those involved in market manipulation.

Farmers also need to be empowered with knowledge about market dynamics, price trends, and the significance of collective bargaining. Training programs and workshops can be organized to educate farmers on effective negotiation strategies and marketing techniques, enabling them to secure better prices for their produce.

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