Cotton farmers grow worried with each bale of cotton that reaches Pakistani shores at the behest of the textile sector. It might be the final straw for the already struggling industry, as imports are crucial with cotton production having fallen by approximately 50 percent.

 

Cotton farmers are already facing neglect at the hands of the government in terms of 'minimum support prices' (MSP).

 

The MSP refers to the lowest guaranteed price that farmers can receive if they are unable to sell their produce in the market. This neglect by the government can be attributed to the International Monetary Fund (IMF), which views the existence of MSPs as a significant burden on the cash-strapped nation.

 

In fact, the IMF has set a condition to remove MSPs entirely by 2026.

 

While this sounds like bad news for cotton farmers, this is not even the worst part.

 

The kicker here is that textile manufacturers have to pay an 18 per cent sales tax if they are to source cotton locally while no such taxes exist on imports. As such, business owners in the textile sector are now gravitating towards imported cotton and yarn.

 

While imports are helping increase profit margins for textile exporters, cotton farmers could be getting pushed to the brink of financial destitution. This should ring alarm bells in Islamabad because importing cotton and yarn tax-free might endanger the livelihoods of a staggering 1.3 million farmers.

 

The situation is so severe that yarn is even being imported from India via the United Arab Emirates (UAE). Bureaucratic red tape surrounding yarn imports from India and cotton shipments taking up to 44 days to arrive from the United states, brew inefficiency in the local industry.

 

This inefficiency can be eliminated if textile manufacturers source cotton locally as it will reduce travel times associated with imports. However, the textile industry seems to be willing to bear the longer travel times if they can get cotton for a lower cost.

 

This could possibly drive local farmers out of the agricultural sector entirely.

 

In the worst case, the closure of farms in the light of cheaper imports will drive over a million farmers off of the six million acres they currently cultivate. It is possible that the unemployment rate in Pakistan might then surge beyond the already high 6.3 per cent.

 

Moreover, as imports rise, so will the import bill. For the State Bank of Pakistan (SBP), this will be a huge set back that has been consistently working hard to build up its foreign reserves. Just this week, SBP reserves rose by $84 million to cross $11.26 billion but the trend of rising imports may nullify the gains that the SBP has achieved.

 

Experts, however, are predicting that the textile sector will be favoured over cotton farmers as it accounts for approximately 60 per cent of national exports. It will be interesting to note now how cotton farmers will navigate the uncharted waters of unfavorable taxation policies ahead of them.