Required Report - public distribution

**Date:** 4/26/2004

**GAIN Report Number:** PK4006

PK4006

**Pakistan**

**Cotton and Products**

**Cotton Annual: 2004**

**2004**

**Approved by:**

Michael Henney, Regional Director U.S. Consulate,
D![](media/image1.wmf)ubai

**Prepared by:**

Asif Farrukh, Agri. Marketing Specialist U.S. Embassy, Islamabad,
Pakistan

**Report Highlights:**

The MY 2004/05 crop is forecast at 1.96 Million Metric Tons (MMT), to be
the second largest ever. Progressive textile mills are focusing on
producing better-quality products, particularly for the export market,
in the process making Pakistan a leading market for U.S. Pima cotton.
Consumption continues to expand in response to resurgence in export
markets and strong domestic demand. With domestic prices increasing,
mills are finding importing upland cotton increasingly attractive.

Includes PSD Changes: Yes

Includes Trade Matrix: No

Annual Report

Islamabad \[PK\]

\[PK\]

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
4](#table-2-cotton-and-synthetic-fiber-consumption)

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

[Year 1/ 5](#year-1)

[Trade 5](#trade)

[Stocks 5](#stocks)

# Executive Summary

The MY 2004/05 crop is forecast to be the second largest ever at 1.96
Million Metric Tons (MMT) as farmers covet the higher return witnesses
with the MY 2003/04 crop and seek to avert repeat of problems
encountered with the alternative crop (sugarcane) for the past two
years. Progressive textile mills are focusing on producing
better-quality products, particularly for the export market, in the
process making Pakistan a leading market for U.S. Pima cotton. Total
consumption continues to expand in response to export and strong
domestic demand. Domestic prices are increasing, rising to world rates
for comparable grade local lint. Mills are finding importing upland
cotton increasingly attractive.

# Table 1: Cotton Production, Supply and Demand

  -------------- ---------- ---------- ---------- ---------- ---------------- ----------
  Commodity      Cotton                                      (HECTARES)(MT)   

                 2002       Revised    2003       Estimate   2004             Forecast

                 USDA       Post       USDA       Post       USDA Official    Post
                 Official   Estimate   Official   Estimate   \[Old\]          Estimate
                 \[Old\]    \[New\]    \[Old\]    \[New\]                     \[New\]

  Market Year               08/2002               08/2003                     08/2004
  Begin                                                                       

  Area Planted   0          0          0          0          0                0

  Area Harvested 2796000    2796000    3000000    3092400    0                3200000

  Beginning      710006     710006     490973     490973     463758           475676
  Stocks                                                                      

  Production     1698267    1698267    1687381    1699300    0                1956000

  Imports        185068     185068     413680     413680     0                152409

  TOTAL SUPPLY   2593341    2593341    2592034    2603953    463758           2584085

  Exports        50295      50295      32659      32659      0                43550

  USE Dom.       2046630    2046630    2090175    2090175    0                2109770
  Consumption                                                                 

  Loss Dom.      5443       5443       5443       5443       0                5443
  Consumption                                                                 

  TOTAL Dom.     2052073    2052073    2095618    2095618    0                2115213
  Consumption                                                                 

  Ending Stocks  490973     490973     463758     475676     0                425322

  TOTAL          2593341    2593341    2592035    2603953    0                2584085
  DISTRIBUTION                                                                
  -------------- ---------- ---------- ---------- ---------- ---------------- ----------

# Production

Pakistan's MY 2004/05 is off to a good start, due in part, to near
normal snowfall and close to normal winter rains that collectively have
enhanced surface and ground water supply availability for agriculture.
Cooler and cloudy weather in the higher elevations, however, has slowed
the snowmelt process, thus far delaying water availability for
irrigation in some areas. As a consequence, cotton planting in Punjab
province faces a delay of 10-15 days, especially in areas where ground
water supplies are not sufficient for irrigation. Cotton yields,
however, are forecast to be higher as the farmers are geared to use
quality pesticides and other inputs spurred on by record returns for the
MY 2003/04 crop (seed cotton prices are around 50 percent higher than
received a year ago). The monsoon season, which usually arrives in early
July, is expected to provide sufficient moisture to get the crop
started. Resowing, like last year, has not been a problem in Sindh
province thru April 26, 2004. MY 2004/05 production is forecast at 1.96
MMT, assuming 3 percent increase in area and other production conditions
hold steady the remainder of the season.

Pakistan's Ministry of Food, Agriculture and Livestock (MinFAL)
estimates the MY 2003/04 cotton harvest at 1.7 MMT.

## Production Policy

Cotton is the backbone of Pakistan's economy. The government has not
intervened in the cotton market to support the seed cotton prices. Seed
cotton prices presently hold at Rs. 750 per maund (1 maund = 37.324
kilograms, Rs. 57.50=\$1). The season average open market prices had
been around 50 percent higher than the set government intervention
price. Despite what turned out to be an average crop in MY 2003/04,
initial uncertainty over the size of the crop proved sufficient to spur
market speculation early in the year which, in turn, pushed farm-gate
prices up, to the benefit of the farmer.

The government current policy of not restricting cotton exports was
maintained the entire of last season. In prior years 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 9 months of MY
2003/04, yarn and textile exports are running 15 percent (value basis)
above the corresponding year earlier period despite around one percent
appreciation in the Pakistani Rupee value since the start of the year.
The spinning and weaving industries continue to invest heavily into new
equipment as well as to renovate existing equipment due to improved
profitability over the last five years. Strong domestic demand, with a
marginal increase over last year, and stronger export demand underpin
the current market surge. Looking toward 2005 the textile industry knows
it must aggressively pursue quality improvements and production
diversification to include more value-added products, rather than to
rely mainly on low-value yarn-based exports, if it wants to remain
competitive in the global market.

Synthetic fiber continues to gain acceptance among consumers who
increasingly seek less expensive blended products to compensate for
their shrinking buying power. The longer term trend is for synthetics to
comprise an increasing share of domestic consumption.

## 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 2/          807,286                  199,819
  ------------------- ------------------------ --------------------------

**1/ July/June Marketing Year**

**2/ July-November Data Only**

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

# Table 3: Yarn and Fabric Production

+-------------+-----------------+------------------+------------------+
| # Year 1/   | **Cotton Yarn** | **Blended Yarn** | **Cotton Cloth** |
|             |                 |                  |                  |
|             | **(MT)**        | **(MT)**         | **(Mil. Square   |
|             |                 |                  | meter)**         |
+-------------+-----------------+------------------+------------------+
| 1999/00     | 1,276,095       | 402,441          | 437.2            |
+-------------+-----------------+------------------+------------------+
| 2000/01     | 1,335,629       | 393,501          | 490.2            |
+-------------+-----------------+------------------+------------------+
| 2001/02     | 1,384,903       | 433,442          | 568.4            |
+-------------+-----------------+------------------+------------------+
| 2002/03     | 1,346,424       | 412,120          | 576.0            |
+-------------+-----------------+------------------+------------------+
| 2002/03 2/  | 1,269,252       | N.A.             | 364.1            |
+-------------+-----------------+------------------+------------------+
| 2003/04 2/  | 1,294,678       | N.A.             | 385.5            |
+-------------+-----------------+------------------+------------------+

**1/ July/June Marketing Year**

**2/ July-February Data Only**

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

# Trade

In MY 2003/04 Pakistan is projected to be a net importer of cotton as a
result of strong domestic demand for better grades of cotton. During
first 6 months of the MY 2003/04, Pakistan imported 119,000 MT of cotton
(about 27 percent higher than the corresponding period a year earlier)
and exported 21,622 MT of cotton (about 35 percent less than 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 2002/03 Pakistan was 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 and for
specialized products demanded in the domestic market thus will continue
to turn to quality inputs such as the U.S. Pima cotton.

In MY 2004/05 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 decline if the forecast of a
large domestic crop materializes.

# Stocks

MY 2004/05 carry out stocks is forecast to decline substantially as a
consequence of higher domestic disappearance and lower imports of medium
staple cotton during the year. Some mills will not be covered through
November and December, when the bulk of domestic crop will come onto the
market.