MoC fails to allow KCA hedge trading : Textile Ministry to allow hedge trading

KARACHI: The Ministry of Textile Industry should allow resumption of hedge trading of cotton through the floor of Karachi Cotton Exchange (KCE) to safeguard the interest of all segments of cotton economy.

The Ministry of Commerce (MoC) had not been serious and indecisive in taking any decision on the proposed changes in Rules of Business submitted by the Karachi Cotton Association (KCA) for the last five years, experts on cotton hedging and KCA members said Thursday. The proposal for resumption of hedge trading in cotton has now been transferred to the Ministry of Textile Industry, KCA appealed to allow resumption of hedge trading as early as possible, which would help ensure efficient marketing of the cotton crop. Fazal Ahmad Khilji an expert on cotton at Drachenberg in Lubbock, Texas said,

in the proposed document it was asked from MoC to allow KCA to function as a regulatory body for monitoring the lint trading as well, like similar bodies operating in different countries such as China Federation of Trading Cotton, India Cotton Corporation and The New York Board of Trading. Cotton and its allied products account for about 66 percent of the country’s export earnings, he added.

He said the KCA has full and comprehensive infrastructure and adequate By-Laws for hedge trading in cotton, including storage capacity of cotton bales at Karachi, 320 licensed cotton brokers, who have their own offices at the Cotton Exchange to facilitate trading of cotton with the ginners, spinners and exporters. Further he pointed that Pakistan is the fourth larger cotton grower in the world and the only country in the world where a cotton trading body was not allowed to make and implement plan programmes by its own..

He said in if hedge trading in cotton is allowed then the body could work for the benefit of the cotton sector and growers as in USA, around 42 organizations, joined NCC urging the House Appropriations Committee to refrain from including amendments to the farm law in the FY10 appropriations measure. Hedge Trading is a special segment of the trade. Hedge trading performs an economic function by providing a cover against the risk of fluctuations in price, thereby facilitating smooth flow of national and international trading in cotton.

The KCA used to perform hedge trading in cotton since 1934. Following the nationalization of ginning factories and establishment of Cotton Export Corporation of Pakistan in the public sector, the hedge trading in cotton was suspended by an administrative order of the Government of Pakistan in 1976.

The utility of the hedge trading in cotton has been re-affirmed by three Cotton Hedge Enquiry Committees set up by the Government in 1953, 1965 and 1971.

In 2002, the Ministry of Commerce constituted a formal committee headed by chairman KCA and comprising of all the segments of cotton trade. Federal Cabinet in its meeting on March 2005 also agreed and decided to resume hedge trading in Pakistan through the aegis of KCA. Cotton would continue to play a dynamic role in the economy of Pakistan in years to come. Pakistan has a potential to increase cotton production to over 20.0 million bales and to increase exports of cotton and cotton based products to fetch over $ 15.0 billion annually, he added. razi syed

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