September 23, 2021 (MLN): Last week, the Ministry of National Food Security and Research (MNSFR) was seen celebrating the 160 per cent increase in cotton arrivals as bales arrived increased to 2.69 million by September. Commenting on the numbers, Syed Fakhr Imam, Minister for MNSFR said the country’s cotton production could likely surpass the FY22 target of 8.46m bales.

Although the bales reaching mills in September are undoubtedly higher than the last year’s arrivals, it is worth mentioning here that the cotton season last year was badly hit by the onslaught of rains and locusts. Cotton arrivals were particularly short of their target last year at the beginning of the sowing season due to locust attacks which wasted output worth thousands of hectares along the Sindh-Punjab border.

Last year’s poor output led to a sharp increase in cotton imports as textile millers tend to book cotton in advance to meet their demand throughout the year. As per the State Bank of Pakistan figures, the country imported 857,373 metric tonnes (around 4 million bales) of raw cotton at the cost of $1.892 billion during FY21. Meanwhile, as per the annual Pakistan Economic Survey (PES) for FY21, the country produced around 7.06m bales. Adding the figures, we can assume that annual cotton demand stands at around 11m bales.

With that in mind, let’s look at the FY22 cotton crop estimates. The government has set a production target of 8.46m bales this time around. However, the target is unlikely to be achieved.

Firstly, as per the SBP’s Monetary Policy Committee’s minutes of July 27, 2021, meeting the area under cultivation for cotton crop fell by 12.8 per cent during the ongoing season. Last year, the area under cotton cultivation stood at 2.079m hectares, yielding an average of 578 kg/hectares – the lowest per hectare yield since FY05.

Assuming per hectare yield will remain the same, the country’s cotton output would unlikely surpass the 7m mark. With annual demand of around 11m bales – which will likely inch up with textile exports showing steady growth – the country would have to import the deficit of around 5m bales. Imports numbers during the first two months of the FY22 tell a similar story. During the July-August period, the country has so far imported 102,408 MT (around 0.47m bales) at a cost of $207m.

Cotton imports historically pick up the pace from November onwards as textile manufacturers ramp up production at the end of the local sowing season.

What this trend has essentially done is increase the share of imported inputs in the textile value chain. On a FY basis, the share of textile group imports in the sector’s exports has risen from 15% in FY09 to 33% in FY21. To further clarify, for every $1 worth of textile exports, input imports now account for 33 cents in FY21 compared to 15 cents FY09.

It seems highly likely that the country would have to import at least 4m bales to meet local demand and pay a bill of around $1.5-2bn in FY22.

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