Required Report - Public distribution

**Date:** 5/23/2008

**GAIN Report Number:** PK8020

PK8020

**Pakistan**

**Cotton and Products**

**Cotton Annual Report**

**2008**

**Approved by:**

Margaret E. Thursland

Agricultural Counselor

U.S. Embassy ![](media/image1.wmf)Islamabad

**Prepared by:**

Mohammad Shafiq Ur Rehman

Agricultural Specialist

**Report Highlights:**

The MY 2008/09 cotton production forecast is 9.375 million (480 lb)
bales, 6 percent above the current year's arrivals registered as of May
1, 2008. The GOP and Monsanto have signed a Letter of Intent for mutual
collaboration in biotechnology. The initial focus is to expand cotton
production in Pakistan. Severe power shortages and reduced water for
irrigation are likely to impact cotton production and trade. Pakistan is
a major cotton importer, especially for U.S. upland and Pima cotton.
Consumption is forecast at 12.175 million (480 lb) bales, marginally
lower than last year. Pakistani farmers are expected to plant about 50
percent of this year's cotton crop in illegal Bt varieties.

Includes PSD Changes: Yes

Includes Trade Matrix: Yes

Annual 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 4](#production)

[Status of Bt Cotton 4](#status-of-bt-cotton)

[Production Policy 5](#production-policy)

[Consumption 5](#consumption)

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

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

[Trade 7](#trade)

[Cotton Tariffs 7](#cotton-tariffs)

[Stocks 7](#stocks)

[Table 4: Monthly Imports and Exports of Cotton
8](#table-4-monthly-imports-and-exports-of-cotton)

[OTHER RELEVANT REPORTS 8](#other-relevant-reports)

# Executive Summary

Pakistan's MY 2008/09 cotton crop is forecast at 9.375 million (480 lb)
bales - based on increased production, improved technology, and good
management practices adopted by cotton growers. Strong demand from
Pakistan's textile industry is expected to consume 12.175 million (480
lb) bales of cotton. The Government of Pakistan (GOP) and Monsanto have
signed a "Letter of Intent" to initiate collaboration in biotechnology
-- an extremely favorable development for future commercialization of
transgenic technology in Pakistan. Reduced availability of irrigation
water, high fuel prices and daily power shortages are taking a toll on
this year's cotton production and trade. Progressive textile mills are
focused on producing better-quality products, particularly for the
export market. Consequently, Pakistan is a major cotton importer \--
especially for U.S. upland and Pima cotton. In the face of dwindling
local supplies, rising prices and continued contamination problems,
local mills are finding the importation of upland cotton increasingly
attractive.

## 

## Table 1: Cotton Production, Supply and Demand

<table>
<colgroup>
<col style="width: 19%" />
<col style="width: 7%" />
<col style="width: 7%" />
<col style="width: 1%" />
<col style="width: 9%" />
<col style="width: 9%" />
<col style="width: 9%" />
<col style="width: 9%" />
<col style="width: 9%" />
<col style="width: 9%" />
<col style="width: 8%" />
</colgroup>
<tbody>
<tr class="odd">
<td colspan="3"><p id="psd-table" class="heading"><strong>PS&amp;D
Table</strong></p></td>
<td colspan="8">UOM</td>
</tr>
<tr class="even">
<td colspan="3"><h6 id="country-pakistan">Country Pakistan</h6></td>
<td colspan="8">Area ( 000 Hectares), Cotton Lint ( 000 480 lb.
Bales)</td>
</tr>
<tr class="odd">
<td colspan="3"><h6 id="commodity-cotton">Commodity Cotton</h6></td>
<td colspan="8">Yield ( KG/HA)</td>
</tr>
<tr class="even">
<td></td>
<td colspan="4"><p><strong>2006</strong></p>
<p><strong>Revised</strong></p></td>
<td colspan="3"><p><strong>2007</strong></p>
<p><strong>Estimate</strong></p></td>
<td colspan="3"><p><strong>2008</strong></p>
<p><strong>Forecast</strong></p></td>
</tr>
<tr class="odd">
<td></td>
<td>USDA<br />
Official</td>
<td colspan="2">Post<br />
Estimate</td>
<td>Post<br />
Estimate<br />
New</td>
<td>USDA<br />
Official</td>
<td>Post<br />
Estimate</td>
<td>Post<br />
Estimate<br />
New</td>
<td>USDA<br />
Official</td>
<td>Post<br />
Estimate</td>
<td>Post<br />
Estimate<br />
New</td>
</tr>
<tr class="even">
<td><h6 id="market-year-begin">Market Year Begin</h6></td>
<td></td>
<td colspan="2">08/2006</td>
<td>08/2006</td>
<td></td>
<td>08/2007</td>
<td>08/2007</td>
<td></td>
<td>08/2008</td>
<td>08/2008</td>
</tr>
<tr class="odd">
<td>Area Planted</td>
<td>0</td>
<td colspan="2">0</td>
<td>0</td>
<td>0</td>
<td>0</td>
<td>0</td>
<td>0</td>
<td>0</td>
<td>0</td>
</tr>
<tr class="even">
<td>Area Harvested</td>
<td>3250</td>
<td colspan="2">3250</td>
<td>3250</td>
<td>3250</td>
<td>3000</td>
<td>3000</td>
<td>0</td>
<td>0</td>
<td>3050</td>
</tr>
<tr class="odd">
<td>Beginning Stocks</td>
<td>4912</td>
<td colspan="2">2872</td>
<td>4912</td>
<td>4327</td>
<td>2260</td>
<td>2260</td>
<td>0</td>
<td>0</td>
<td>2050</td>
</tr>
<tr class="even">
<td>Production</td>
<td>9900</td>
<td colspan="2">9916</td>
<td>9900</td>
<td>9000</td>
<td>10405</td>
<td>8750</td>
<td>0</td>
<td>0</td>
<td>9375</td>
</tr>
<tr class="odd">
<td>Imports</td>
<td>2298</td>
<td colspan="2">2343</td>
<td>2298</td>
<td>3600</td>
<td>2485</td>
<td>3515</td>
<td>0</td>
<td>0</td>
<td>3000</td>
</tr>
<tr class="even">
<td>MY Imports from U.S.</td>
<td>0</td>
<td colspan="2">0</td>
<td>0</td>
<td>0</td>
<td>0</td>
<td>0</td>
<td>0</td>
<td>0</td>
<td>0</td>
</tr>
<tr class="odd">
<td>Total Supply</td>
<td>17110</td>
<td colspan="2">15131</td>
<td>17110</td>
<td>16927</td>
<td>15150</td>
<td>14525</td>
<td>0</td>
<td>0</td>
<td>14425</td>
</tr>
<tr class="even">
<td>Exports</td>
<td>258</td>
<td colspan="2">290</td>
<td>258</td>
<td>150</td>
<td>300</td>
<td>140</td>
<td>0</td>
<td>0</td>
<td>150</td>
</tr>
<tr class="odd">
<td>Use</td>
<td>12500</td>
<td colspan="2">15556</td>
<td>12500</td>
<td>12500</td>
<td>12545</td>
<td>12310</td>
<td>0</td>
<td>0</td>
<td>12150</td>
</tr>
<tr class="even">
<td>Loss</td>
<td>25</td>
<td colspan="2">25</td>
<td>25</td>
<td>25</td>
<td>25</td>
<td>25</td>
<td>0</td>
<td>0</td>
<td>25</td>
</tr>
<tr class="odd">
<td>Total Dom. Cons.</td>
<td>15525</td>
<td colspan="2">12581</td>
<td>15525</td>
<td>12525</td>
<td>12570</td>
<td>12335</td>
<td>0</td>
<td>0</td>
<td>12175</td>
</tr>
<tr class="even">
<td>Ending Stocks</td>
<td>4327</td>
<td colspan="2">2260</td>
<td>4327</td>
<td>4252</td>
<td>2280</td>
<td>2050</td>
<td>0</td>
<td>0</td>
<td>2100</td>
</tr>
<tr class="odd">
<td>Total Distribution</td>
<td>17110</td>
<td colspan="2">15131</td>
<td>17110</td>
<td>16927</td>
<td>15150</td>
<td>14525</td>
<td>0</td>
<td>0</td>
<td>14425</td>
</tr>
<tr class="even">
<td>Stock to Use %</td>
<td>33.9159</td>
<td colspan="2">17.5930</td>
<td>33.9159</td>
<td>33.6126</td>
<td>17.7501</td>
<td>16.6531</td>
<td>0</td>
<td>0</td>
<td>17.031</td>
</tr>
<tr class="odd">
<td>Yield</td>
<td>663</td>
<td colspan="2">664</td>
<td>663</td>
<td>603</td>
<td>755</td>
<td>635</td>
<td>0</td>
<td>0</td>
<td>669</td>
</tr>
</tbody>
</table>

# Production

Pakistan's MY 2008/09 cotton lint production is forecast at 9.375
million (480 lb) bales compared to the GOP's final figure of 8.87
million bales registered with the ginning industry as of May 1, 2008.
(See Table 1 for FAS Islamabad's revised 2007 estimate of 8.75 million.)
This production increase is mainly in response to better prices received
by producers in MY 2007/08; average prices received were \$ 600 per MT
compared with last year's average price of \$ 480 per MT. Prices
remained significantly above the indicative price fixed by the
government. This year, acreage under cotton is projected to increase
slightly over the preceding year as some sugarcane area was planted to
cotton. Despite a bumper sugarcane crop, farmers are expected to divert
acreage to cotton as sugarcane was purchased by millers at below the
support price. MY 2008/09 cotton area is forecast at 3.05 million
hectares, an increase of 2 percent over the previous year.

The production forecast assumes normal weather conditions and low pest
infestation. This year, the cotton yield is forecast to be higher due to
improved management practices, availability of better quality inputs and
launching of a special media campaign. Pakistani farmers, inspired by
increased cotton production in India and China, are keen to cultivate
transgenic cotton varieties, especially in the core cotton-producing
areas of Punjab and Sindh.

Pakistan's cotton crop is planted from end-April through June and is
harvested in the fall. Planting area and production strategy is
influenced by a number of factors including crop prospects in the
international market, relative prices of competing crops, input
availability, weather forecast, and government policy. This year's
severe energy and electricity crises is likely to impact cotton
production as operating costs have increased significantly.

The major threat to Pakistani cotton is the prevalence of mealy bugs and
cotton leaf curl virus (CLCV). At present, there are no resistant
varieties.

In a recent development, the GOP signed a "Letter of Intent" with
Monsanto for collaborative research and development in biotechnology.
The initiative will start with cotton, followed by future collaboration
on corn, oilseeds and other major crops. Local scientists and
researchers have also focused on developing resistant varieties through
traditional breeding, hybridization, and biotechnology.

## Status of Bt Cotton

On May 13, 2008, the Ministry of Food, Agriculture and Livestock
(MINFAL) signed a Letter of Intent (LOI) with Monsanto to initiate
collaboration in the field of biotechnology. This landmark agreement
provides an opportunity to expand cotton production through the
commercialization of Bt technology in Pakistan. The LOI outlines a
strategy to extend cooperation in advancing transgenic technology in
Pakistan's agricultural sector. Under the agreement, information and
education regarding the safety and benefits of the technology will be
provided to farmers. Also, assistance will be provided to develop
business models and marketing services to meet the Pakistani cotton
industry's long-term strategy.

Pakistan's Biosafety Guidelines and Rules were enacted in 2005, followed
by the establishment of a National Biosafety Centre within the Ministry
of Environment which has the capacity to evaluate any proposal submitted
for GMO testing and approval. National institutions like the Center of
Excellence in Molecular Biology (CEMB) and the National Institute for
Biotechnology and Genetic Engineering (NIBGE) have submitted proposals
to the National Biosafety Committee (NBC) for approval which are being
evaluated.

This year, farmers are expected to plant about 50 percent of the crop in
illegal transgenic varieties. This poses several serious problems.
First, the pirated varieties are not developed for Pakistan's agronomic
conditions and do not always perform well, especially against mealy bugs
and CLCV. Secondly, while farmers have no assurance that they are
purchasing quality Bt seeds, they nonetheless reduce spraying - -
raising the risk of increased pest damage, particularly later in the
season. Raw material from unapproved Bt varieties results in reduced
quality cotton which traders are reluctant to export.

## Production Policy

Pakistan's economy is heavily dependent on the cotton and textile sector
-- which accounts for 8.2 % of the value-added in agriculture and about
2 % to GDP. The country's gross exports in 2006-07 were valued at about
US\$ 17 billion, of which US\$ 9.978 billion (59%) were accrued through
raw cotton and textile products. Hence, growth in the national economy
is essentially linked with the volume and value of cotton produced in
the country. Major components of the strategy to increase cotton
production includes increased area, enhanced tonnage of certified seed
of approved varieties, use of a higher seed rate, discouragement of late
cotton sowing, increased plantings, subsidizing fertilizers, assured
availability of quality and insect-specific pesticides - particularly
for mealy bug and whitefly - and a focused media campaign.

The GOP announces the Minimum Support Price (MSP) for cotton at the
start of each marketing season. The Trading Corporation of Pakistan
(TCP) is responsible to intervene in the market if prices fall below the
MSP. During the past two years, prices generally remained above the
MSP - thus, the TCP did not intervene. For MY 2008/09, the previous
year's support price of Rs. 1025 per 40 Kg (\$1 = Rs. 65) was left
unchanged. Despite what turned out to be a good crop in MY 2007/08,
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. During the past two years, good returns on cotton production
have encouraged farmers to use their resources efficiently and adopt
better management practices.

## 

Serious energy and electricity crises in the country are bound to take
their toll on cotton production. Growers in far-flung areas have limited
access to alternative sources of energy. The high cost of inputs
combined with escalating operating costs will impact cotton
productivity. A growing concern at present is the reduced availability
of canal water during the peak sowing season for cotton. This is further
compounded by electricity load shedding for 12 to 15 hours a day in
rural areas which has considerably reduced supplemental irrigation
through tube wells.

# 

# Consumption

Pakistan's cotton consumption for MY 08/09 is forecast at 12.175 million
(480 lb) bales, marginally less than the estimate of MY 2007/08. The
recent power crisis will hit cotton consumption, especially for smaller
operators who have limited back-up power generation capacity; they may
encounter serious problems in meeting their prior commitments. Sensing
this critical situation, the large textile houses have invested in
back-up power generation so the overall impact will be limited. The
severe electricity shortfall from April to September 2008 will slow down
industrial production while raising the cost of production and likely
resulting in product quality issues. The bearish trend in world yarn and
textile prices is also negatively affecting consumption.

During the first 8 months of MY 2007/08 (July-February), the following
trends (in value terms) for Pakistan's cotton and textile trade were
noted. Gross exports of raw cotton decreased by 1.3 percent; cotton yarn
exports decreased by 6.3 percent; nightwear declined by 3.9 percent;
towels lower by 2.8 percent; and cotton cloth declined by 20.8 percent.
Synthetic fiber grew by 32.7 percent; knitwear decrease by 7.7 percent;
and ready-made garments grew by 8.4 percent. Raw cotton and synthetic
fiber imports increased by 138.9 percent and 24.3 percent, respectively,
over the previous year.

To keep up with the competition in international markets, the ginning,
spinning and weaving industries must invest heavily in new technology
and equipment as well as renovate aging mills. However, investment in
the textile sector is on the decline. Imports of textile machinery from
July 2007 to February 2008, as compared to the same period a year ago,
dropped by 21 percent. Looking to the future, Pakistan's textile
industry is determined to remain competitive in the global market by
aggressively pursuing quality improvements and product diversification
-- producing more value-added products rather than relying on low-value
yarn-based exports.

Synthetic fiber continues to gain acceptance among consumers who
increasingly seek less-expensive blended products. The future growth in
cotton versus synthetic fiber will be determined by their relative
prices. The long-term trend is for synthetics to comprise an increasing
share of domestic consumption. Cotton-synthetic blends are popular due
to their durability and ease in washing and maintenance under tropical
conditions. Synthetic fiber use is growing despite rising petroleum
prices in the international market.

## Table 2: Cotton and Synthetic Fiber Consumption

  -------------------- ----------------------- --------------------------
  **Year \***          **Cotton (MT)**         **Synthetics (MT)**

  2000/01              1,673,280               405,038

  2001/02              1,755,669               409,557

  2002/03              1,780,963               406,515

  2003/04              1,933,679               468,982

  2004/05              2,124,408               498,416

  2005/06              2,407,560               525,000

  2006/07              2,563,510               580,000
  -------------------- ----------------------- --------------------------

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

**\*** July-June Marketing Year data based on reporting mills
information; Textile Commissioners Organization

## 

## Table 3: Yarn and Fabric Production

+-----------------+--------------------+-------------------------------+
| **Year \***     | **Yarn**           | **Cotton Cloth**              |
|                 |                    |                               |
|                 | **(MT)**           | **(Million Square Meters)**   |
+-----------------+--------------------+-------------------------------+
| 2000/01         | 1,721,000          | 490.2                         |
+-----------------+--------------------+-------------------------------+
| 2001/02         | 1,808,600          | 568.4                         |
+-----------------+--------------------+-------------------------------+
| 2002/03         | 1,915,160          | 576.6                         |
+-----------------+--------------------+-------------------------------+
| 2003/04         | 1,473,240          | 581.706                       |
+-----------------+--------------------+-------------------------------+
| 2004/05         | 1,770,340          | 842.292                       |
+-----------------+--------------------+-------------------------------+
| 2005/06         | 2,006,299          | 862.983                       |
+-----------------+--------------------+-------------------------------+
| 2006/07         | 2,039,056          | 871.282                       |
+-----------------+--------------------+-------------------------------+

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

**\*** July-June Marketing Year

# 

# Trade

In MY 2008/09, Pakistan is projected to be a net importer of cotton due
to strong domestic demand for better grades of cotton. During the first
ten months of MY 2007/08, Pakistan imported 700,560 MT and exported
40,306 MT of cotton.

Firms often import upland cotton for their export programs. This is due
to contamination problems with local cotton, particularly with alien
fibers \-- mainly polypropylene and jute. The problem occurs during
harvesting and handling. These alien fibers wreak havoc in the industry
by creating yarn with different yarn strengths and dye uptake. Estimates
suggest that contamination raises costs by 10 percent. Some mills have
standardized their blend for export markets, with a predefined origin
and percentage of imported cotton in the product.

Pakistan is one of the largest importers of U.S. Pima/ELS cotton for its
specialized export industry. Given the need for higher-count yarns and
better quality fabrics for the export market and specialized products
demanded by the domestic market, Pakistan's textile industry is expected
to rely increasingly on U.S. Pima cotton and contamination-free upland
cotton.

This year, Pakistan has commenced significant purchases of short to
medium staple cotton from India. Trade through land routes, which is
more cost-effective than sea, has helped the domestic industry stay
competitive despite the reduced crop. Buyers are focused on non-U.S.
suppliers for medium grade cotton due to the significant price
differential; however, importers of long staple cotton look to the U.S.
due to high quality standards \-- despite high freight charges.

## Cotton Tariffs

The Government of Pakistan follows a free trade policy for cotton with
no quantitative restrictions or duties on either imports or exports.

# Stocks

My 2008/00 carryover stocks are forecast to increase based on imports of
all grades of cotton from diverse origins. Most mills will be covered
through November/December 2008 when the bulk of Pakistan's domestic crop
comes on the market.

## Table 4: Monthly Imports and Exports of Cotton 

  ---------------- -------------- -------------- ------------- -------------
  **MONTH/YEAR**   **IMPORTS**                   **EXPORTS**   

                   **Bales**      **Metric       **Bales**     **Metric
                                  Tons**                       Tons**

  2006                                                         

  January          193,282        32,858         37,494        6,374

  February         161,488        27,453         28,641        4,869

  March            478,041        81,267         36,594        6,221

  April            111,941        19,030         24,659        4,192

  May              100,694        17,118         32,565        5,536

  June             139,312        23,683         26,906        4,574

  July             136,571        23,217         5,400         918

  August           158,600        26,962         11,282        1,918

  September        80,524         13,689         18,906        3,214

  October          105,712        17,971         30,047        5,108

  November         216,788        37,753         39,618        5,252

  December         195,206        30,658         38,294        5,285

  2007                                                         

  January          406,465        64,151         25,459        2,958

  February         398,900        65,586         36,029        4,160

  March            295,176        51,094         48,235        6,447

  April            185,268        31,514         33,992        5,782

  May              237,400        40,381         15,138        2,575

  June             341,758        58,132         13,492        2,295

  July             375,680        63,902         13,057        2,221

  August           311,046        52,908         9,700         1,650

  September        289,911        49,313         15,662        2,664

  October          234,478        39,884         17,161        2,919

  November         210,750        35,848         38,919        6,620

  December         448,350        76,263         11,740        1,997

  2008                                                         

  January          1,038,549      176,654        17,702        3,011

  February         667,637        113,563        37,520        6,382

  March            542,191        92,225         75,498        12,842
  ---------------- -------------- -------------- ------------- -------------

Source: Federal Bureau of Statistics, Government of Pakistan

Note: One bale = 375 lbs (170 kg)

# OTHER RELEVANT REPORTS

  ----------- ----------------------------------------------------------------------------------------------------------------------------------------------------------------------- ----------------
  **REPORT    **SUBJECT**                                                                                                                                                             **DATE
  \#**                                                                                                                                                                                SUBMITTED**

  PK:8009     [Cotton and Products: Trade Report FY                                                                                                                                   03/17/2008
              2004-2006](https://mail.fas.usda.gov/exchange/Peg.Thursland/Inbox/cotton annual 2008.EML/PK8020.doc/Local Settings/Temporary Internet Files/OLK9/Cotton and Products)   

  PK:8002     [MY 2008/09 Cotton Outlook](http://intranetapps/GainFiles)                                                                                                              02/04/2008

  PK:8001     [Cotton Update: 2007/08 Crop Production Reviewed](http://intranetapps/GainFiles/200801/146293470.pdf)                                                                   01/15/2008

  PK:7010     [Cotton & Products Annual](http://intranetapps/GainFiles/200705/146281187.pdf)                                                                                          05/23/2007
  ----------- ----------------------------------------------------------------------------------------------------------------------------------------------------------------------- ----------------

To reach FAS/Islamabad, email us at <AgIslamabad@usda.gov>