Concern over poor cotton output has rightfully taken centre stage over the past two months. The crop has gained sown area by 14 percent in the current season at the expense of competing crops, yet even best- case scenarios estimate yield at 640kg per hectares, second worst in 15 years.
It appears that those responsible for providing stewardship to the fibre crop are fast running out of scapegoats to blame. Afterall, cropping season began with better than average water availability, whereas acreage under sugarcane – the perpetual patsy for previously contracting cotton area – is also at a decade-long low. Talk of crop-zoning is back in fashion, as if the lint experts never read beyond the chapter on ‘land' of the imaginary “‘Idiot's Guide to Cotton Production". Indeed, if all hope of improving yield has been given up, cotton production will need additional 1.35 million hectares to achieve 15 million bales – the Camelot of annual FCA targets. This is equivalent to eliminating all area under maize, as if other crops have zero value-addition potential and are only grown for fun.
Running out of fall guys, the switch has been turned back on a bogeyman from the past, namely the exploitative ginneries. A leading textile expert noted this week that ginneries purchase seed cotton at Rs3,600 per 40kg, selling processed lint at prevailing market rate of Rs9,200 per 40kg after incurring nominal ginning cost and wastage. Going by this estimate, ginneries bag a gross margin of 133 percent, possibly unheard of in any industrial sector of the economy.
The assertion begs few questions. First, the quoted average lint price of Rs9,200 per 40kg (or Rs230 per kg) is roughly equivalent to prevailing rate in international markets, $1.5 per kg. If the ginneries racketeers really do earn abnormal profits by exploiting growers while charging textile mills prices at international parity, does it not follow that Pakistan's cotton production is remarkably competitive? Unless, of course, the practice is a global norm and ginneries worldwide earn the highest economic returns for the entire textile value chain. Never mind that as the first step in the cotton supply chain, ginneries are at the bottom of value addition ladder.
For the more aware readers of textile sector dynamics, the explanation will come as no surprise. Nevertheless, it needs stating, considering such claims have come from a leading voice in textile lobby, well-placed to influence policy on the sector.
The cotton plant or phutti, in fact, is two crops – fibre and seed. According to cotton.org, an online repository on crop data, “for each 100lb of fibre produced by cotton plant, it also produces 162lb of seed". Also known as ginning percentage or lint index, separation of cotton lint from seed is the raison d'etre of ginneries, and then press remainder lint into bales.
Globally, ginning efficiency ranges between 20-45 percent, measured by quantity of lint extracted from a unit of seed cotton. According to Karachi Cotton Association, the number is close to 35 percent for Pakistan's phutti. This means that in order to produce a cotton bale of 40kg, 115kg of seed cotton or phutti is required. At the afore-cited seed cotton rate, this brings ginner's cost of raw material alone to Rs10,350kg.
The purpose is in no way to insinuate that the 'poor' ginners are posting losses at gross level yet operating in larger national interest. After all, the cottonseed extracted – roughly 24kg out of every 40kg of phutti (along with 2kg of waste) – is sold to oilseed pressers at average price of Rs45 per kg.
At this ratio, 115kg of phutti would yield 69kg of seeds which at Rs45 per kg would rake in additional revenue of Rs3,100. Add back to the average selling price of 40kg lint of Rs9,200; and, the ginner earns revenue of Rs12,300 against cost of raw material Rs10,350 and processing cost of Rs700. Or a very normal gross margin of 11.3 percent on production of every 40kg cotton bale.
Having said that, the ginning stage has the lowest capital investment ratio in the textile value chain, with over 1,200 units operating as SME units according to an SBP report. In sharp contrast, the ginning function is part of a larger composite textile mill operation in rest of the world.
When the composite yarn and/or fabric maker is also responsible for cotton ginning, its incentive to maximize efficiencies in the ginning process is also higher. Purely ginning operations, on the other hand, are a known failure for producing low quality lint, with high level of dust particles and other impurities in them.
The inefficiency in ginning process is thus not of price but quality, and the onus for it falls as much on downstream players who have not made investment, both capex and technological, to scale and optimize processing at ginning stage. But if the purpose of poor cotton productivity discussion is only to look for scapegoats, then surely more can be found in the shape of climate change or even act of god.