Climate damage to Pakistan’s cotton crop hits economy

About 2 percent of the estimated 25 million people whose livelihoods are linked with cotton and the textile sector are at risk of losing their jobs this fiscal year. (AFP)
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Updated 19 December 2019

Climate damage to Pakistan’s cotton crop hits economy

  • Erratic weather has crippled the textile sector, resulting in lost revenue and jobs that could cost more than $3 billion

LAHORE: Mahboob Ahmad was so sure he would have a bumper crop of cotton last season that he was planning to finally fix the date of his eldest son’s wedding.

Then unusually heavy rains pelted Khanewal district in eastern Pakistan’s Punjab province, destroying the cotton plants just as they were fruiting.

“All my dreams and plans were shattered,” said Ahmad. “I am so disappointed with this year’s loss that I may quit cotton cultivation from next year.”

Another season of erratic weather has crippled Pakistan’s already ailing cotton sector, resulting in lost revenue and jobs that could cost the economy more than $3 billion by the end of the fiscal year in June 2020, industry experts have warned.

Heavy rains and high temperatures during the whole of the cotton-growing season from April to September severely damaged the crop, said Khalid Abdullah, cotton commissioner and vice president of the Pakistan Central Cotton Committee.

That has put a strain on the entire textile industry.

Most of Pakistan’s cotton is grown in the southern part of Punjab province which experienced unexpectedly high temperatures in August and September, even at night, Abdullah explained.

The rest is mainly cultivated in Sindh province in the southeast.

Together, the heavy rains and dry spells destroyed over a third of the country’s expected cotton harvest, according to the state-run Central Cotton Research Institute (CCRI) in Multan, southern Punjab.

Yet again, Pakistan’s cotton farmers have seen their cash crop devastated by climate extremes, said Abdullah. “The farmers are continuously hit by changing weather conditions,” he said.

Last year the culprit was unusual heat which parched crops and dried up rivers in the two regions.

Cotton is a major driver of the economy, contributing almost 1 percent of GDP, according to the Pakistan Bureau of Statistics.

But this fiscal year, cotton farmers will fall drastically short of the government’s target of 15 million bales.

To meet the demands of its textile industry, Pakistan regularly imports cotton — mainly from Turkmenistan, Uzbekistan and the US, according to the CCRI. By June, the country will have to bring in at least 6 million bales — almost double what it imported last financial year, said Shahid Sattar, executive director of the All Pakistan Textile Mills Association (APTMA).

Importing cotton is expensive, which pushes up the overall cost of textile production, he explained.

Figures from the APTMA show that cotton, the main raw material for the textile industry, accounts for about 70 percent of the basic cost of the final garment.

“Failure of the cotton crop translates into damage to the country’s economy,” Sattar said.

Pakistan’s Economic Survey 2018-2019, published in June this year, said climate change poses “a serious challenge” to agriculture.

For the past decade or so, Pakistan’s cotton industry has been struggling to adapt. Production fell by more than a quarter from 2011 to 2019, according to the CCRI.

This year, Pakistan’s ranking among cotton-producing nations dropped from fourth to fifth behind Brazil, the US, China and India, showed data from the Washington-based International Cotton Advisory Committee.

Employment will also take a hit, Sattar warned.

About 2 percent of the estimated 25 million people whose livelihoods are linked with cotton and the textile sector are at risk of losing their jobs this fiscal year, he said. “This low (cotton) production will definitely ... result in a burden on our fragile economy,” said Abid Qaiyum Suleri, executive director of the Sustainable Development Policy Institute, an independent think-tank in Islamabad.

Much of that burden falls on farmers, Suleri noted, as one poor cotton crop after another eats away at their standard of living.

Farmers often rely on the money they make from cotton to procure what they need to cultivate other crops for the rest of the year, he explained.

“If one crop is affected, it affects other crops as well because farmers have to buy inputs like seeds, fertilizers and water,” he said.


Oil-rich wealth funds seen shedding up to $225 billion in stocks

Updated 30 March 2020

Oil-rich wealth funds seen shedding up to $225 billion in stocks

  • Risking more losses is not an option for some funds from oil-producing nations

LONDON: Sovereign wealth funds from oil-producing countries mainly in the Middle East and Africa are on course to dump up to $225 billion in equities, a senior banker estimates, as plummeting oil prices and the coronavirus pandemic hit state finances.

The rapid spread of the virus has ravaged the global economy, sending markets into a tailspin and costing both oil and non-oil based sovereign wealth funds around $1 trillion in equity losses, according to JPMorgan strategist Nikolaos Panigirtzoglou.

His estimates are based on data from sovereign wealth funds and figures from the Sovereign Wealth Fund Institute, a research group.

Sticking with equity investments and risking more losses is not an option for some funds from oil-producing nations. Their governments are facing a financial double-whammy — falling revenues due to the spiraling oil price and rocketing spending as administrations rush out emergency budgets.

Around $100-$150 billion in stocks have likely been offloaded by oil-producer sovereign wealth funds, excluding Norway’s fund, in recent weeks, Panigirtzoglou said, and a further $50-$75 billion will likely be sold in the coming months.

“It makes sense for sovereign funds to frontload their selling, as you don’t want to be selling your assets at a later stage when it is more likely to have distressed valuations,” he said.

Most oil-based funds are required to keep substantial cash-buffers in place in case a collapse in oil prices triggers a request from the government for funding.

A source at an oil-based sovereign fund said it had been gradually raising its liquidity position since oil prices began drifting lower from their most recent peak above $70 a barrel in October 2018.

In addition to the cash reserves, additional liquidity was typically drawn firstly from short-term money market instruments like treasury bills and then from passively invested equity as a last resort, the source said.

It’s generally a similar trend for other funds.

“Our investor flows broadly show more resilience than market pricing would suggest,” said Elliot Hentov, head of policy research at State Street Global Advisers. “There has been a shift toward cash since the crisis started, but it’s not a panic move but rather gradual.”

The sovereign fund source said the fund had made adjustments to its actively managed equity investments due to the market rout, both to stem losses and position for the recovery, when it comes.

Exactly how much sovereign wealth funds invest and with whom remain undisclosed. Many don’t even report the value of the assets they manage.

On Thursday, the Norwegian sovereign wealth fund said it had lost $124 billion so far this year as equity markets sunk but its outgoing CEO Yngve Slyngstad said it would, at some point, start buying stocks to get its portfolio back to its target equity allocation of 70 percent from 65 percent currently.

Slyngstad also said that any fiscal spending by the government this year would be financed by selling bonds in its portfolio.