Cotton-Textile-Apparel Sectors of Pakistan
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IFPRI Discussion Paper 00800 September 2008 Cotton-Textile-Apparel Sectors of Pakistan Situations and Challenges Faced Caesar B. Cororaton Abdul Salam Zafar Altaf David Orden with Reno Dewina Nicholas Minot Hina Nazli Markets, Trade and Institutions Division INTERNATIONAL FOOD POLICY RESEARCH INSTITUTE The International Food Policy Research Institute (IFPRI) was established in 1975. IFPRI is one of 15 agricultural research centers that receive principal funding from governments, private foundations, and international and regional organizations, most of which are members of the Consultative Group on International Agricultural Research (CGIAR). FINANCIAL CONTRIBUTORS AND PARTNERS IFPRI’s research, capacity strengthening, and communications work is made possible by its financial contributors and partners. IFPRI receives its principal funding from governments, private foundations, and international and regional organizations, most of which are members of the Consultative Group on International Agricultural Research (CGIAR). IFPRI gratefully acknowledges the generous unrestricted funding from Australia, Canada, China, Finland, France, Germany, India, Ireland, Italy, Japan, Netherlands, Norway, South Africa, Sweden, Switzerland, United Kingdom, United States, and World Bank. AUTHORS Caesar B. Cororaton, Virginia Polytechnic Institute and State University Research Fellow, Institute for Society, Culture, and Environment, and Research Collaborator, International Food Policy Research Institute, Washington, D.C. ([email protected]) Abdul Salam, Federal Urdu University of Arts, Science, and Technology Professor and former chairman of the Agricultural Prices Commission of Pakistan Zafar Altaf, Pakistan Agricultural Research Council (PARC) Chairman of PARC and former Federal Secretary, Ministry of Food, Agriculture, and Livestock David Orden, International Food Policy Research Institute Senior Research Fellow, and Director, Global Issues Initiative, Institute for Society, Culture, and Environment, Virginia Polytechnic Institute and State University Reno Dewina, International Food Policy Research Institute Research Analyst, Markets, Trade and Institutions Division Nicholas Minot, International Food Policy Research Institute Senior Research Fellow, Markets, Trade and Institutions Division Hina Nazli, University of Guelph Ph.D. Graduate Research Assistant Notices 1 Effective January 2007, the Discussion Paper series within each division and the Director General’s Office of IFPRI were merged into one IFPRI–wide Discussion Paper series. The new series begins with number 00689, reflecting the prior publication of 688 discussion papers within the dispersed series. The earlier series are available on IFPRI’s website at www.ifpri.org/pubs/otherpubs.htm#dp. 2 IFPRI Discussion Papers contain preliminary material and research results. They have not been subject to formal external reviews managed by IFPRI’s Publications Review Committee but have been reviewed by at least one internal and/or external reviewer. They are circulated in order to stimulate discussion and critical comment. Copyright 2008 International Food Policy Research Institute. All rights reserved. Chapters of this material may be reproduced for personal and not-for-profit use without the express written permission of but with acknowledgment to IFPRI. To reproduce the material contained herein for profit or commercial use requires express written permission. To obtain permission, contact the Communications Division at [email protected]. Contents Acknowledgments vii Abstract viii 1. Introduction and Overview David Orden and Caesar B. Cororaton 1 References 7 2. Global Cotton and Textile Markets Caesar B. Cororaton 8 References 21 3. Production, Prices, and Emerging Challenges in the Pakistan Cotton Sector Abdul Salam 22 References 51 4. Challenges in the Pakistan Cotton, Yarn, Textile, and Apparel Sectors Zafar Altaf 52 References 96 5. The Impact of Global Cotton Markets on Rural Poverty in Pakistan David Orden, Abdul Salam, Reno Dewina, Hina Nazli, and Nicholas Minot 99 References 117 iii List of Tables 2.1. World cotton supply and use 8 2.2. Major sources of world cotton production (% share) 9 2.3. Harvested area and yield 10 2.4. Major exporters of cotton (% share) 10 2.5. Major users of cotton (% share) 11 2.6. Major importers of cotton (% share) 12 2.7. Direct government assistance to cotton producers, 1997–1998 to 2002–2003 (millions of US$) 14 2.8. Government assistance to U.S. cotton producers, 1995–1996 to 2002–2003 (millions US$) 15 2.9. World prices of cotton, cotton yarn, and cotton fabric 16 2.10. Textile exports of selected economies 17 2.11. Clothing exports of selected economies 18 2.12. Pakistan exports of textiles and clothing to restricted markets, % 20 3.1. Cotton area and production (% distribution) 23 3.2. Staplewise production of cotton (% distribution) 24 3.3. Area, production, and yield of cotton in Pakistan 25 3.4. Major cotton-producing districts in Punjab (1996–2005 average % distribution of area and production) 27 3.5. Major cotton-producing districts in Sindh (1996–2005 average % distribution of area and production) 28 3.6. Cotton yields (kilogram/hectare) 29 3.7. Distribution of cotton-growing farms and cotton area by farm size in Pakistan 31 3.8. Balance sheet of Pakistan cotton (thousand tons) 34 3.9. Support and market prices of seed cotton 35 3.10. International price of cotton, U.S. cents/pound (Index B) 37 3.11. Domestic and international nominal and real prices of seed cotton 38 3.12. Regression analysis of lagged income effect on cotton area 41 3.13. Prices of important inputs and cost of production of seed cotton 42 3.14. Average farmers’ cost of production of cotton in Punjab and Sindh, 2004–2005 crop year 44 4.1. Pakistan export of textile products 53 4.2. Number of ginning factories and machines 60 4.3. Industry losses due to cotton contamination, 2004–2005 61 4.4. Installed and working capacity in the spinning sector, all Pakistan 62 4.5. Installed capacity in the spinning sector, by province (% distribution) 64 4.6. Consumption of cotton and other fibers (% distribution) 65 4.7. Production of yarn, % distribution 66 iv 4.8. Production of yarn, by major province (% distribution) 66 4.9. Production and market for Pakistan yarn 67 4.10. Major country destination of exports of cotton yarn from Pakistan 68 4.11. World production of cotton yarn 68 4.12. Production of cotton yarn, countwise (% distribution) 70 4.13. World export of yarn 71 4.14. Equity internal rate of return of different counts 72 4.15. Production and market of Pakistan cloth 73 4.16. Installed and working capacity in the loom sector, all Pakistan 74 4.17. Installed capacity in the loom sector and production of cloth (mill sector), by major province 75 4.18. Production of cloth mill sector (% distribution) 76 4.19. Quality of cloth production, mill sector (% distribution) 76 4.20. Major country destination of exports of cotton cloth from Pakistan 77 4.21. Exports of textile made-ups 78 4.22. Major exporters of towels and cleaning cloths 79 4.23. Pakistan’s exports of towels and cleaning cloths (million dollars) 79 4.24. Major country destination of exports of towels from Pakistan 80 4.25. Major exporters of bed wear 81 4.26. Composition of Pakistan's exports of bed wear 81 4.27. Major country destination of exports of bed wear from Pakistan 82 4.28. World export of clothing 83 4.29. Exports of clothing 84 4.30. Major country destination of exports of garments from Pakistan 85 4.31. Major country destination of exports of knit wear (hosiery) from Pakistan 85 4.32. Recent estimates of losses due to outdated technology 86 4.33. Cross-country evaluation of apparel marketing channels 87 4.34. Cross-country evaluation of apparel human resources 88 4.35. Cross-country evaluation of apparel bureaucracy and infrastructure 88 4.36. Value added in cotton to apparel marketing chain 89 4.37. Financial and rebate cost comparison, Pakistan and India 91 4.38. Cross-country evaluation of ease of doing business 91 4.39. Pakistan’s economic planning process for textiles 92 5.1. Distribution of households by location and agricultural activity 100 5.2. Average per capita (adult-equivalent) annual consumption expenditures by households at the national, provincial, and primary cotton-producing district levels 102 5.3. Distribution of households by per capita (adult-equivalent) consumption expenditure quintiles at the national level 103 v 5.4. Sources of income of urban and rural households at the national level 104 5.5. Sources of income of landowner cotton-producing households at the national, provincial, and primary cotton-producing district levels 105 5.6. Sources of income of sharecropper cotton-producing households at the national, provincial, and primary cotton-producing district levels 106 5.7. Simulated effects of increased cotton prices on poverty among landowner cotton-producing households at the provincial and national levels 109 5.8. Simulated effects of increased cotton prices on poverty among sharecropper cotton- producing households at the provincial and national levels 110 5.9. Simulated effects of increased cotton prices on poverty among all cotton-producing households at the provincial and national levels 110 5.10. Simulated effects on increased cotton prices on poverty at the primary cotton-producing district, provincial, and national levels 112 5.11. Simulated effects on increased cotton prices on rural poverty at the primary cotton-producing district, provincial, and national levels 113 5.12. Simulated effects at the provincial and national levels of increased wheat prices on poverty among all households producing wheat 115 List of Figures 2.1. Trade ratio—exports/production, % 9 2.2. Nominal cotton price: COTLOOK A and B indices and U.S. price 12 2.3. Cotton versus polyester fibers 14 2.4. World prices of cotton, cotton yarn, and cotton fabric 17 3.1. Arrival of seed cotton (average 1993–2005) 23 3.2.Cotton yield in Punjab and Sindh 30 3.3. Exports/production and imports/consumption of cotton, % 34 3.4. Support and market prices of seed cotton 36 3.5.