Required Report - public distribution

**Date:** 8/17/2005

**GAIN Report Number:** PK5012

PK5012

**Pakistan**

**Cotton and Products**

**Quarterly Report**

**2005**

**Approved by:**

Howard Anderson, Agriculture Attaché, US Embassy
I![](media/image1.wmf)slamabad

**Prepared by:**

Mohammad Shafiq Ur Rehman, Agriculture Specialist, US Embassy, Islamabad

**Report Highlights:**

The MY 2005/06 cotton harvest is forecast at 1.89 Million Metric Tons
(MMT) - a significant decrease from the previous year production of 2.48
MMT. Progressive textile mills are focusing on producing better-quality
products, particularly for export, making Pakistan a leading market for
U.S. Pima and other grades of cotton. Consumption continues to expand in
response to a resurgence in export markets and strong domestic demand.
With domestic prices increasing mills are finding the importation of
upland cotton increasingly attractive.

Includes PSD Changes: Yes

Includes Trade Matrix: No

Quarterly Report

Islamabad \[PK1\]

\[PK\]

**Table of Contents**

[Executive Summary 3](#executive-summary)

[Table 1: Cotton Production, Supply and Demand
3](#table-1-cotton-production-supply-and-demand)

[Production 3](#production)

[Production Policy 4](#production-policy)

[Consumption 4](#consumption)

[Table 2: Cotton and Synthetic Fiber Consumption
5](#table-2-cotton-and-synthetic-fiber-consumption)

[Table 3: Yarn and Fabric Production
5](#table-3-yarn-and-fabric-production)

[Trade 5](#trade)

[Stocks 6](#stocks)

# Executive Summary

The MY 2005/06 crop is forecast to be 1.89 Million Metric Tons (MMT),
assuming a normal weather pattern and pest infestation. Progressive
textile mills are focusing on producing better-quality products,
particularly for the export market, making Pakistan a leading market for
U.S. Pima and other grades of medium to long staple cotton. Total
consumption continues to expand in response to strong export and
domestic demand. Domestic prices are increasing, and are higher than the
world rates for comparable grade local lint. Mills are finding the
importation of upland cotton increasingly attractive.

# 

# Table 1: Cotton Production, Supply and Demand

+------------------------+-----+-----+-----+-----+-----+-----+-----+
| #### Pakistan          |     |     |     |     |     |     |     |
|                        |     |     |     |     |     |     |     |
| Cotton                 |     |     |     |     |     |     |     |
+------------------------+-----+-----+-----+-----+-----+-----+-----+
|                        | **  | **  | **  | **E | **  | **F | *   |
|                        | 200 | Rev | 200 | sti | 200 | ore | *UO |
|                        | 3** | ise | 4** | mat | 5** | cas | M** |
|                        |     | d** |     | e** |     | t** |     |
+------------------------+-----+-----+-----+-----+-----+-----+-----+
|                        | **U | **P | **U | **P | **U | **P |     |
|                        | SDA | ost | SDA | ost | SDA | ost |     |
|                        | Of  | Es  | Of  | Es  | Of  | Es  |     |
|                        | fic | tim | fic | tim | fic | tim |     |
|                        | ial | ate | ial | ate | ial | ate |     |
|                        | \[O | \[N | \[O | \[N | \[O | \[N |     |
|                        | ld\ | ew\ | ld\ | ew\ | ld\ | ew\ |     |
|                        | ]** | ]** | ]** | ]** | ]** | ]** |     |
+------------------------+-----+-----+-----+-----+-----+-----+-----+
| #                      |     | 0   |     | 0   |     | 0   | M   |
| #### Market Year Begin |     | 5/2 |     | 5/2 |     | 5/2 | M/Y |
|                        |     | 003 |     | 004 |     | 005 | YYY |
+------------------------+-----+-----+-----+-----+-----+-----+-----+
| **Area Planted**       | 0   |     | 0   |     | 0   |     |     |
+------------------------+-----+-----+-----+-----+-----+-----+-----+
| **Area Harvested**     | 3   | 3   | 3   | 3   | 0   | 3   | (1  |
|                        | 092 | 092 | 200 | 193 |     | 000 | 000 |
|                        |     |     |     |     |     |     | HA) |
+------------------------+-----+-----+-----+-----+-----+-----+-----+
| **Beginning Stocks**   | 491 | 491 | 442 | 442 | 808 | 808 | (1  |
|                        |     |     |     |     |     |     | 000 |
|                        |     |     |     |     |     |     | MT) |
+------------------------+-----+-----+-----+-----+-----+-----+-----+
| **Production**         | 1   | 1   | 2   | 2   | 0   | 1   | (1  |
|                        | 687 | 687 | 504 | 504 |     | 890 | 000 |
|                        |     |     |     |     |     |     | MT) |
+------------------------+-----+-----+-----+-----+-----+-----+-----+
| **Imports**            | 403 | 403 | 218 | 218 | 0   | 325 | (1  |
|                        |     |     |     |     |     |     | 000 |
|                        |     |     |     |     |     |     | MT) |
+------------------------+-----+-----+-----+-----+-----+-----+-----+
| **MY Imp. From U.S.**  | 0   | 0   | 0   | 0   | 0   | 0   | (1  |
|                        |     |     |     |     |     |     | 000 |
|                        |     |     |     |     |     |     | MT) |
+------------------------+-----+-----+-----+-----+-----+-----+-----+
| **TOTAL SUPPLY**       | 2   | 2   | 3   | 3   | 808 | 3   | (1  |
|                        | 581 | 581 | 164 | 164 |     | 023 | 000 |
|                        |     |     |     |     |     |     | MT) |
+------------------------+-----+-----+-----+-----+-----+-----+-----+
| **Exports**            | 44  | 44  | 131 | 131 | 0   | 34  | (1  |
|                        |     |     |     |     |     |     | 000 |
|                        |     |     |     |     |     |     | MT) |
+------------------------+-----+-----+-----+-----+-----+-----+-----+
| **USE Dom.             | 2   | 2   | 2   | 2   | 0   | 2   | (1  |
| Consumption**          | 090 | 090 | 220 | 220 |     | 419 | 000 |
|                        |     |     |     |     |     |     | MT) |
+------------------------+-----+-----+-----+-----+-----+-----+-----+
| **Loss Dom.            | 5   | 5   | 5   | 5   |     | 5   |     |
| Consumption**          |     |     |     |     |     |     |     |
+------------------------+-----+-----+-----+-----+-----+-----+-----+
| **TOTAL Dom.           | 2   | 2   | 2   | 2   | 0   | 2   | (1  |
| Consumption**          | 095 | 095 | 225 | 225 |     | 424 | 000 |
|                        |     |     |     |     |     |     | MT) |
+------------------------+-----+-----+-----+-----+-----+-----+-----+
| **Ending Stocks**      | 442 | 442 | 808 | 808 | 0   | 565 | (1  |
|                        |     |     |     |     |     |     | 000 |
|                        |     |     |     |     |     |     | MT) |
+------------------------+-----+-----+-----+-----+-----+-----+-----+
| **TOTAL DISTRIBUTION** | 2   | 2   | 3   | 3   | 0   | 3   | (1  |
|                        | 581 | 581 | 164 | 164 |     | 023 | 000 |
|                        |     |     |     |     |     |     | MT) |
+------------------------+-----+-----+-----+-----+-----+-----+-----+

# Production

Pakistan's MY 2005/06 crop did not start well, due, in part, to above
normal winter and spring rains that collectively increased surface and
ground water. Moreover, cooler and cloudy weather with intermittent
rains slowed the planting campaign, especially in Sindh province.
Similarly, Punjab province experienced land preparation and planting
delays of 15-21 days, especially in areas where rains disrupted and
delayed the harvest and threshing of the wheat crop. In addition, the
market did not have the capacity to supply significant volumes of
certified seed for replanting. A third factor is above normal pest
infestation due to the moist weather in a situation where most farmers
are not fully equipped to use quality pesticides and other inputs. Thus,
cotton yields are forecast to be lower than last year based on crop
damages due to floods, rains and pests. The monsoon season, which
usually arrives in early July, started in late June and rainfall has
remained above normal. During July heavy

rains in the catchment areas of rivers and in the cotton belt resulted
in flooding and damaged more than one hundred thousand hectares of
cotton. Prevailing humid conditions and succulent growth may bring pest
infestation above normal levels. Re-sowing may be constrained and have a
significant impact on the harvest due to the limited availability of
quality seed. Based on these factors MY 2005/06 production is forecast
at 1.89 MMT, which assumes a 6 percent decrease in area under
cultivation and in the face of uncertain weather for the remainder of
the season. This projected drop in production is significant given
Pakistan's Ministry of Food, Agriculture and Livestock (MINFAL)
estimates placing the MY 2004/05 cotton harvest at 2.48 MMT.

## Production Policy

Cotton is the backbone of Pakistan's economy and the government has
intervened in the cotton market to support seed cotton prices. Seed
cotton prices on average have been between Rs. 800-900 per maund (1
maund = 37.324 kilograms, Rs. 59.50=\$1). The season average open market
prices had hovered near the set government intervention price of

Rs. 863 per maund (Rs. 925 per 40 kilograms). Despite what turned out to
be a record crop in MY 2004/05, initial uncertainty over the size of the
crop proved sufficient to spur market speculation early in the year,
which in turn, increased farm-gate prices to the benefit of the farmer.

The government has continued a policy of placing no restriction on the
cotton trade for import and export. In the 90's the government
restricted exports at the beginning of the season until the size of the
crop could be determined.

# Consumption

Pakistan's cotton consumption increased sharply, for a third year in a
row, in response to export-driven demand. Thru the first 8 months of MY
2004/05, textile exports are running 4 percent (volume basis) above the
corresponding period of last year despite around 11 percent decrease in
export of cotton yarn. The textile industry has reported a 6.3 percent
increase in the use of cotton and 3.2 percent of man-made fiber in first
six months of the MY 2004/05, compared to the corresponding periods of
last year. The spinning and weaving industries continue to invest
heavily in new equipment as well as to renovate existing equipment due
to improved profitability over the last several years. Strong domestic
demand, with a marginal increase over last year, and stronger export
demand underpin the current market surge. Looking toward 2006 the
textile industry knows to remain competitive in the global market it
must aggressively pursue quality improvements and production
diversification to include more value-added products, rather than rely
on low-value yarn-based exports.

Synthetic fiber continues to gain acceptance among consumers who
increasingly seek less expensive blended products to compensate for
their shrinking buying power. The long-term trend is for synthetics to
comprise an increasing share of domestic consumption. The growth in
synthetic fiber use has been slow in 2004/05 due to rising petroleum
prices and increases in end product prices.

## Table 2: Cotton and Synthetic Fiber Consumption

  ------------------- ------------------------ --------------------------
  Year 1/             Cotton (MT)              Synthetics (MT)

  1999/00             1,566,348                404,008

  2000/01             1,673,280                405,038

  2001/02             1,755,669                409,557

  2002/03             1,780,963                406,515

  2003/04             1,938,678                468,984

  2004/05 2/          1,194,037                292,670
  ------------------- ------------------------ --------------------------

**1/ July/June Marketing Year Data: Based on reporting mills
information**

**2/ July-January Data Only: Based on reporting mills information**

**Source: Ministry of Industries and Ministry of Finance, Government of
Pakistan**

## Table 3: Yarn and Fabric Production

+-------------------+------------------------+-------------------------+
| **Year**          | **Yarn**               | **Cotton Cloth**        |
|                   |                        |                         |
|                   | **(MT)**               | **(Mil. Square meter)** |
+-------------------+------------------------+-------------------------+
| 1999/00           | 1,669,900              | 437.2                   |
+-------------------+------------------------+-------------------------+
| 2000/01           | 1,721,000              | 490.2                   |
+-------------------+------------------------+-------------------------+
| 2001/02           | 1,808,600              | 568.4                   |
+-------------------+------------------------+-------------------------+
| 2002/03           | 1,915,160              | 576.6                   |
+-------------------+------------------------+-------------------------+
| 2003/04 2/        | 1,929,130              | 683.4                   |
+-------------------+------------------------+-------------------------+
| 2004/05 3/        | 829,900                | 283.4                   |
+-------------------+------------------------+-------------------------+

**1/ July/June Marketing Year**

**2/ Preliminary Data**

**3/ July-Nov Data Only**

**Source: Ministry of Industries and Ministry of Finance, Government of
Pakistan**

# Trade

In MY 2004/05 Pakistan is projected to be a net importer of cotton as a
result of strong domestic demand for better grades of cotton. During the
first 6 months of the MY 2004/05, Pakistan imported 110,000 MT of cotton
(about 7 percent lower than the corresponding period a year earlier) and
exported 73,021 MT of cotton in the first 8 months (compared to 25,117
MT in the corresponding period a year earlier). Firms often import
upland cotton for their export programs due to contamination problems in
local cotton, particularly with alien fibers (polypropylene, jute). The
problem occurs during the harvest and handling and wreaks havoc in the
industry by creating yarn with differential yarn strength and
differential dye uptake. Estimates are that contamination increases a
mills' cost by 10 percent or more. Some mills have standardized their
blend for export markets, with a predefined origin and percentage of
imported cotton in the product. In MY 2003/04 and in MY 2004/05 to date,
Pakistan is the largest buyer of U.S. Pima/ELS cotton. Progressive firms
are focused on producing higher-count yarns and better quality fabrics
for the export market. Specialized products demanded in the domestic
market thus will continue to turn to quality inputs such as the U.S.
Pima cotton.

In MY 2005/06 Pakistan's import of US Pima/ELS and a variety of other
medium to long staple cotton is expected to be strong. The demand for
imported strict middling grade cotton may increase if the forecast of a
small domestic crop materializes.

# Stocks

MY 2005/06 carry out stocks are forecast to decline substantially as a
consequence of the decrease in the domestic harvest, higher domestic
disappearances, and lower imports of medium staple cotton during the
year. Most of the mills will be covered through November and December
2005, when the bulk of domestic crop will come onto the market.