KARACHI: In his budget speech on 26-05-2017, the announcement made by the Federal Finance Minister that in order to stabilize cotton prices in the country, a system of hedge trading for the domestic cotton will be initiated in consultation with all stakeholders.

The KCA wholeheartedly welcomes the announcement of the Government to resume Hedge Trading in Cotton with the consultation of all stakeholders of the cotton economy.

The Cotton marketing involves a tremendous business risk. It was, therefore, necessary that there should be some form of price insurance to reduce the risk of volatile fluctuations in prices.

It may please be noted that the KCA is of the firm view that 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.

It may also please be noted that the KCA used to perform Hedge Trading in Cotton since 1934.

Following the nationalization of export trade 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. Since last 4 decades, the KCA is urging upon the Government to allow resumption of Hedge Trading in Cotton for the benefit of all segment of the Cotton Trade.

It is worthwhile to mention here that 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 then Federal Minister for Commerce, constituted a formal Committee headed by Chairman, The KCA and comprising of all the segments of Cotton Trade such as the Pakistan Cotton Ginners’ Association, All Pakistan Textile Mills Association, Cotton Growers, State Bank of Pakistan, Agriculture Development Bank of Pakistan and Securities & Exchange Commission of Pakistan. The terms of reference of the Committee encompassed the modus operandi, proper discipline and regulation and time frame for re-starting the hedge trading in cotton. The Committee referred to above held various deliberations and deeply examined the merits of resumption of Hedge Trading in Cotton and recommended that the Government should allow the KCA to resume Hedge Trading in Cotton.

It is recalled that the Federal Cabinet in its meeting dated 24-03-2005 also agreed and decided to resume Hedge Trading in Pakistan under the aegis of the Karachi Cotton Association.

However, necessary Notification of the Government in this regard has not been issued to-date.

Sir, the KCA is fully prepared to resume Hedge Trading in Cotton as it has full and comprehensive infrastructure and adequate By-Laws for Hedge Trading in Cotton, 320 Licensed Cotton Brokers, who have their own offices at the Cotton Exchange to facilitate trading of cotton with the Ginners, Spinners & Exporters. It has also a Clearing House, Survey Room, Sample Room, Trading Hall, Fiber Testing Laboratory equipped with High Volume Instrument (HVI) Spectrum, skilled and experienced Manpower to run the Hedge Market smoothly and efficiently.

In view of the above, the Karachi Cotton Association strongly recommends the Government to convene a consultative meeting of all stakeholders of the cotton economy on the above subject immediately and allow to resume Hedge Trading in Cotton under the aegis of the Karachi Cotton Association to safeguard the interest of all segments of cotton economy and ensure efficient marketing of the cotton crop.—PR