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'Cotton hedge trading' still in decision loop

03
May '10
According to members of the Karachi Cotton Exchange (KCE), the recommencement of hedge trading in cotton prices will aid in maintaining the rates within the sphere of fair price mechanism.

According to Shakeel Ahmad, member of Karachi Cotton Association (KCA), “There has been a sudden flare-up of cotton prices which could have been avoided if hedge trading is permitted in KCE. According to the Ministry of Textile Industry, recommencement of hedge trading in cotton prices will protect the interests of all sectors of the cotton economy.”

Since marketing in cotton involves greater amount of business risk, it was vital to incorporate a medium that would ensure a cover for cotton prices thereby lessening the risk of unstable fluctuations in the prices. The functionality of hedge trading in cotton has been reassured by three Cotton Hedge Enquiry Committees that were established by the Government in 1953, 1965 and 1971.

Although the ministry is still deciding about the proposed changes in the Rules of Business put forward by KCA about six months back, KCA continues to push early implementation of hedge trading to ensure efficient marketing of the cotton crop.

As per the proposed document, KCA should be allowed to act as a governing body to monitor lint trading in all boards across the country such as, China Federation of Trading Cotton, India Cotton Corporation and The New York Board of Trading. Lint and its associated products amount to nearly 66 percent of the country's earnings from overseas sales.

KCA comprises of all the infrastructural facilities with adequate by-laws for hedge trading in cotton, including storage capacity for cotton bales in Karachi and 320 cotton brokers with license. These brokers have their own set up at the Cotton Exchange, which helps them trade cotton with spinners, ginners and exporters. Owing to this, during a meet in March 2005, the Federal Government too had agreed upon restarting hedge trading in Pakistan with the support of KCA.

Earlier, due to its position of being the fourth largest cotton grower country across the globe, Pakistan was the sole country, wherein a cotton trading organisation was refrained from making any plans for its region's cotton growers. With the decision of restarting hedge trading, KCA could now work towards benefiting the cotton growers and sectors of the country.

Hedge trading is a special section of the trade market as it performs a cost-effective function by protecting against the risk of price fluctuations, thereby ensuring a smooth flow of domestic and global cotton trading.

KCA used to practice hedge trading since 1934, but following the conversion of ginning factories into public sectors and with the development of Cotton Export Corporation of Pakistan in the public sector, hedge trading was discontinued after the Government of Pakistan passed a directive for the same in 1976.

For Pakistan, cotton will continue to be of importance for the country's economic development in the future. It has the capacity to raise manufacturing of cotton to about 20 million bales thereby, raising the overseas sales of cotton and cotton based products, which will help achieve a turnover of over $16 billion on a yearly basis.

Fibre2Fashion News Desk - India


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