PAKISTAN ECONOMY

M.Rahim Ejaz
HASNAIN IRFAN COTTON AND GINNERS
History of Cotton

What is Cotton?

Cotton, belonging to a family that includes hibiscus and okra, produces a

natural vegetable fiber used in the manufacture of cloth. Cotton produces
sweet nectar that attracts a variety of destructive insect pests, including
the boll weevil, bollworm, armyworm, and the red spider. In addition to
insect pests, there is also a very destructive fungus, called the wilt that
attacks the root system of the cotton plant.

Species

A few species are grown commercially; these range from a small tree of
Asia, to the common American Upland cotton, a low, multi branched shrub
that is grown as an annual. Another species includes the long-fiber
Egyptian and Sea Island cottons botanically derived from the Egyptian
species brought to the United States about 1900. Sea Island cotton thrives
in the unique climate of the Sea Islands, located off the southeastern
coast of the United States, and on the islands of the West Indies such as
Barbados. As with Egyptian cotton, the fiber is white and lustrous but its
fiber length is longer than that of any other type of cotton, which permits
the spinning of extremely fine yarns. Pima, originally called American-
Egyptian cotton, is a hybrid type. It is the only variety of long-fiber cotton
now grown in commercially significant quantities in the United States,
where it is cultivated under irrigation in the Southwest.

Foot Steps

It is almost impossible to determine the original habitats of the various

species of cotton. Scientists have determined fiber and boll fragments
from the Tehuacn Valley of Mexico to be about 7000 years old. The
plant has certainly been grown and used in India for at least 5000 years
and probably for much longer. Cotton was used also by the ancient
Chinese, Egyptians, and North and South Americans. It was one of
the earliest crops grown by European settlers, having been planted at the
Jamestown colony in 1607.

Cotton was the most important crop in South before the American Civil
War (1861-1865). Slaves usually worked all day picking cotton for their
masters while overseers watched from their horses.
PAKISTAN ECONOMY
M.Rahim Ejaz
HASNAIN IRFAN COTTON AND GINNERS
England was one of the South's largest cotton customers, many therefore
Southerners believed England would enter the war on their behalf to

Preserve Englands supply of cotton. The South was confident this would
assure a swift Confederate victory.

Cotton was king and Louisiana was queen! New Orleans was the major
l9th-century port for cotton export, and Louisiana's fertile valleys were the
South's major cotton producers. The Confederate government realized
cotton was as good as if not better than gold. Cotton's value gave
Louisiana a major financial role during the war. Not only did the
Confederacy use the foreign exchange paid to the South for the exported
1860 cotton crop, the Confederate government purchased cotton to use
both as security for European loans and for export.

This plan worked until 1862 when the Union army occupied New Orleans
and Baton Rouge. Federal forces raided from Morgan City up to
Alexandria. Vicksburg and Port Hudson fell, giving the Union control of the
Mississippi River.

As Confederate troops retreated, they destroyed as much of the cotton

crop as possible, to prevent this "gold" from falling into enemy hands.

History of Cotton Ginning

The cotton gin, invented in 1793 by Eli Whitney, was designed to separate
raw cotton fibers from seeds and other foreign materials prior to baling
and marketing. The design was so efficient that it remains virtually
unchanged to the present day.

American Eli Whitney invents the cotton gin, a device that rapidly and
effectively removes seeds from cotton fiber. This task had previously been
done by hand, making fiber processing slow and expensive. The invention
will help spur expansion of the cotton industry in the southern United
States. The South as booming cotton economy in turn will increase the
reliance on slaves, owing to the labor-intensive character of cotton
harvesting.

Although the invention of the cotton gin changed history, its inventor, Eli
Whitney, did not reap much of a profit. The gin made cotton cleaning so
PAKISTAN ECONOMY
M.Rahim Ejaz
HASNAIN IRFAN COTTON AND GINNERS
efficient that the crop became a primary enterprise for the South.
However, patent disputes and supply problems kept Whitney from
successfully producing the cotton gin. His later venture into arms
manufacturing was more fruitful, and Whitney became a strong promoter
of mass production and interchangeable parts.

The role of the cotton gin has changed dramatically in the last 50 years to
keep up with technological and production changes in the cotton industry.
At one time, the gin's only function was to remove cottonseed from the
fiber. Today, gins must not only separate the seed from the fiber,
they must also dry and clean the fiber and package it into bales before it
reaches the textile mill.

All gins differ in some aspects of the ginning process. In the Southwest, for
instance, gins are equipped with both saw and roller gins: saw gins for
ginning Upland cottons, and roller gins for ginning Pima cotton, a cotton
grown almost exclusively in this region of the Cotton Belt. Elsewhere in
the Cotton Belt, gins use only saw gins in their operation.

Role of cotton in Pakistan

Pakistan is the fifth largest producer of cotton in the world, the third
largest exporter of raw cotton, the fourth largest consumer of cotton, and
the largest exporter of cotton yarn. 1.3 million Farmers (out of a total of 5
million) cultivate cotton over 3 million hectares, covering 15 per cent of
the cultivable area in the country. Cotton and cotton products contribute
about 10 per cent to GDP and 55 per cent to the foreign exchange
earnings of the country. Taken as a whole, between 30 and 40 per cent of
the cotton ends up as domestic consumption of final products. The
remaining is exported as raw cotton, yarn, cloth, and garments.

Cotton production supports Pakistans largest industrial sector, comprising

some 400 textile mills, 7 million spindles, 27,000 looms in the mill sector
(including 15,000 shuttle less looms), over 250,000 looms in the non-mill
sector, 700 knitwear units, 4,000 garment units (with 200,000 sewing
machines), 650 dyeing and finishing units (with finishing capacity of 1,150
million square meters per year), nearly 1,000 ginneries, 300 oil expellers,
and 15,000 to 20,000 indigenous, small scale oil expellers (kohl us). It is
by any measure Pakistans most important economic sector. Not
surprisingly, government policy has generally been used to maintain a
stable and often relatively low domestic price of cotton, especially since
PAKISTAN ECONOMY
M.Rahim Ejaz
HASNAIN IRFAN COTTON AND GINNERS
1986-87 through the imposition of export duties, in order to support
domestic industry.

First BT Cotton Grown in Pakistan

Cotton is an important cash crop for Pakistan known as white gold. It

accounts for 8.2 percent of the value added in agriculture and about 3.2
percent to GDP; around two thirds of the countrys export earnings are
from the cotton made-up and textiles which adds over $2.5 billion to the
national economy; while hundreds of ginning factories and textile mills in
the country heavily depends upon cotton. Life of millions of farmers is
dependent on this crop, in addition to millions of people employed along
the entire cotton value chain, from weaving to textile and garment
exports The area under the cultivation of cotton crops has been increased
significantly in the last 30 years - around 7.85 million acres in 2005-06 as
compared to 7.2 million acres in 2002-03. Beside being the worlds fourth-
largest cotton producer and the third largest exporter of raw cotton and a
leading exporter of yarn in the world our yield per acres ranks 13th in the
world; as a result Pakistan annually imports around 1.5-2.00 million bales
of cotton to meet growing demand from local textile mills; therefore it has
become vital for Pakistan to increase its yield per acre.

If we look at the Pakistan scenario, two major types of pests are damaging
our cotton crops sucking and chewing; to certain extent it is easier to
control sucking pest by strong pesticides but is very challenging to control
chewing pests - Bollworms known as Sundies American, Army, Pink
and Spotted - cause major devastations in the cotton crop fields; as a
result of this, overall both quality of lint and production of cotton have
declined substantially. Moreover, recent disaster resulting from the cotton
leaf curl virus (CLCV) spread in Punjab and Sind pushed our institutes like
Pakistan Atomic Energy Commission (PAEC), National Institute for
Biotechnology and Genetic Engineering (NIBGE) and Nuclear Institute of
Agriculture and Biology (NIAB) in Faisalabad, and National center of
Excellence in Molecular Biology (NCEMB) at Punjab University Lahore to
cope with such problems; significant amount of financial resources and
manpower have been committed by the Government of Pakistan for
developing genetically modified (GM) local cotton varieties.

Farmers, who cultivated these Bt cotton varieties at heart of cotton

PAKISTAN ECONOMY
M.Rahim Ejaz
HASNAIN IRFAN COTTON AND GINNERS
growing regions in Punjab - Bahawalpur, Multan, Muzaffer Garh and Karor
Pakka; observed and evaluated independently its resistance and
susceptibility to different pests including factors like a biotic stress and
yield than compared it with non Bt cotton varieties grown in the same
locations. A large number of farmers have visited these fields, and
become aware of the benefits of the locally developed BT cotton.

Today, all major cotton producing countries are benefiting from the
cultivation of Bt Cotton. In the last season 54 percent of cotton crops
grown in USA, 76 percent in China and 80 percent in Australia were with
single or double BT gene technology. India, the worlds third-largest
cotton-grower has cultivated 1.36 million acres of BT cotton crops. It is
expected that within two years more than half the worlds cotton may be
grown from genetically modified crops.

Crop reviews carried out by various independent sources illustrate that

unrecorded sowing of new Bt cotton varieties also played its role in
increasing cotton productivity, with unofficial estimates suggesting 3 to 5
percent of the area in Punjab and 10 to 15 percent of the area in Sind may
have been planted in transgenic cotton.
PAKISTAN ECONOMY
M.Rahim Ejaz
HASNAIN IRFAN COTTON AND GINNERS

HASNAIN
IRFAN
COTTON AND
GINNERS
PAKISTAN ECONOMY
M.Rahim Ejaz
HASNAIN IRFAN COTTON AND GINNERS

Hasnain Irfan Cotton and Ginners

Introduction

Hasnain Irfan Cotton and Ginners is one of the oldest and famous
organizations in the D.G.Khan area. It is located at Jampur road D.G.Khan.
It is a partnership organization. They are engaged in this field for more
than 20 years. They are famous for their goodwill and reputation in the
local as well as countrywide market. It is their family business. Now they
are expanding their business. They recently planted new machinery for
the cotton seed. They started their business with only one cotton ginning
factory, now they have two cotton ginning factories and also have shares
in other businesses.

Nature of Business

It is not an easy job to perform by the managers and owners of the

organization. A manager faces many difficulties during performing its
job. At local level prices fluctuate at daily basis. It is very difficult to
predict the prices of next day. Next day what happen, no body knows
about it. The rate of raw cotton is related to the rate of a bale of cotton
lint. If an organization buys raw cotton and high prices and next day price
falls then the organization surely face the deficit in that buying and if this
trend goes throughout the season then the organization must face the
condition of total loss. There are many examples present in the D.G.Khan
area. They become bank defaulter; some of them sold their business to
repay their loans. Thus this is the business of high risk and high return.

Organization Working

The nature of organization working is to buy raw cotton, produce cotton

lint, oil and oil cake and sell the production for profit generating purpose.
PAKISTAN ECONOMY
M.Rahim Ejaz
HASNAIN IRFAN COTTON AND GINNERS
Inputs

In the cotton industry only raw cotton is used as an input for the
production process.

Input Supplier
Their supplier is an intermediary person between them and farmer. He
buys the raw cotton from the farmer and they purchase it from him. In
another words he is doing business of buying and selling of raw cotton.

Outputs
After the completion of production process, raw cotton produces

1. Cotton lint

2. Cotton seed

Now further cotton seed is processed and they produce

1. Raw Oil

2. Refined Oil

3. Oil cake

Output Supplier

Now their output becomes input for other industries. They sell cotton lint
to textile mills where it becomes thread and cloth. Another output is
cotton seed; it is further processed and it provides oil and oil cake. Oil
becomes input of Ghee industry and oil cake becomes the input of
livestock and of soap industry. Oil cake is also sold to stockers for profit
generating purpose.

Buying and Selling Process

Pakistan cotton ginners association (PCGA) plays an important role in
buying and selling process. PCGA is directly linked with the New York
trade cooperation. It sets rate of raw cotton per 40 kg and cotton lint per 1
bale of cotton. These are revised after every 15 days. Every organization
PAKISTAN ECONOMY
M.Rahim Ejaz
HASNAIN IRFAN COTTON AND GINNERS
in the cotton industry follows the rates fixed by the PCGA. The buying and
selling process of raw cotton and bale of cotton is totally based on PCGA.

Production Process of Raw Cotton

Raw cotton is placed on the ground; firstly its quality is checked than
through pipes it sends to the ginning machine. Big fans are placed that
pulls the raw cotton from pipes and throw it to production chamber. In this
chamber raw cotton is refined and separated into cotton lint and cotton
seed. On the other side outputs are received. Then manually cotton lint is
converted into a bale of cotton. Now the production process is completed
and bales of cotton are ready for sale.

Production Process of Cotton Seed

In this stage cotton seed is further processed in the cotton seed
machinery. This plant separates raw oil and oil cake in the production
process. On one side oil cake is collected and on the other side raw oil is
collected in large basins. This Raw oil is further processed to convert it
into its refined form.

Peak Time of Business

Peak time of their business is November-December in lower Punjab and
September-October in upper Punjab.

Financial Information
Organization was not willing to show me their financial reports, balance
sheets, income statements and other information because they believe
that it is confidential and cannot be shown to other than organizations
personal. However they gave us slight information about their assets and
investment.

Assets
Their total amounts of assets are estimated 15 million to 20 million. It
includes land, building, office supplies and machinery.

Investment
PAKISTAN ECONOMY
M.Rahim Ejaz
HASNAIN IRFAN COTTON AND GINNERS
Their investment in the business is Rs. 20 million for the current season.
In this nature of business maximum to maximum amount is not a
guaranty of fulfilling the desired requirements. Many organizations
borrowed loan from the banks and after the season they returns the loan.

Profit and Loss Indicators

In this nature of business there are no specific indicators for recognizing
profit and loss situation. The only way to avoid from the loss is to buy best
quality raw cotton as possible. The reason is the best quality cotton
produces more cotton lint after ginning, so it earns revenue more and vice
versa. In many cases organizations realize their financial position at the
end of year. It is difficult to determine profit and loss during the running
season. Organizations come to know their financial position at end of
season.

Employees
There are 55 employees working in the organization. In which 10
employees are on permanent basis and rest are on temporary and daily
wage basis.

Problems
In this industry organizations faced many problems. It happens for many
times that organization does not get raw cotton according to their
expectations. Another problem is increasing number of cotton factories in
the local area. The amount of raw cotton is not increasing as compared to
increasing number of cotton factories. In this way they tried to snatch
share of each other. They tried to buy more raw cotton so they pay more
than the fix price and this is alarming situation. Government must fix the
number of cotton factories in the specific local area according to the
supply of raw cotton. Another problem is that government does not play a
role as a second buyer. Like wheat, governments should fix the
purchasing price of raw cotton and play a role as a second buyer.
PAKISTAN ECONOMY
M.Rahim Ejaz
HASNAIN IRFAN COTTON AND GINNERS