Cotton brokers have urged the government for resumption of 'Hedge Trading' with immediate effect to safeguard the interests of all segments of cotton economy. Addressing a press conference here on Tuesday, Muhammad Naseem Usman, chairman of Karachi Cotton Brokers Forum, said that if the government would not resume the hedge trading this year, brokers would start it themselves from next cotton season.

He said that the Federal Cabinet in its meeting on March 23, 2005 had decided to resume hedge trading in Pakistan through Karachi Cotton Association (KCA). However, he said, hedge trading is still banned in Pakistan, as the resumption case of hedge trading has now been transferred to the Ministry of Textile Industry.

Naseem said that hedge trading is a special segment of the cotton trade and it provides a cover against the risk of fluctuations in price, thereby facilitating smooth flow of national and international trading in cotton. He said that cotton marketing involves a tremendous business rise; therefore, it is necessary that there should be some form of price insurance to reduce the risk of volatile fluctuations.

Following the nationalisation of export trade and establishment of Cotton Export Corporation of Pakistan in the public sector, hedge trading in cotton was suspended by an administrative order of the Government of Pakistan in 1976. In 2002, the Ministry of Commerce constituted a formal committee headed by chairman KCA to prepare regulations and time frame for re-starting of forward trading is cotton market.

The Committee held various deliberations and deeply examined the merits and demerits of resumption of hedge trading in cotton and recommended that the Government should allow the KCA to resume hedge trading, he said. However, it has still not resumed.

Naseem said that KCA has full and comprehensive infrastructure and adequate bylaws for hedge trading in cotton inclusive of storage capacity of cotton bales at Karachi, while some 320 licensed cotton brokers are also ready to facilitate the ginners, spinners and exporters.

"KCA has also other facilities--Clearing House Survey Room, Sample Room, Trading Hall, Fiber Testing Laboratory equipped with High Volume Instrument (HVI) Spectrum and skilled and experienced manpower to run the Hedge Market smoothly and efficiently," he added.

KCA bylaws regarding the hedge trading in cotton have been thoroughly re-examined and improved by the association so as to operate hedge market effectively for the benefit of all stakeholders of the cotton trade, he said.

He said that KCA has already a transparent mechanism of fixation of daily Spot Rates which reduces speculative trade and credit risk for the borrowers. He said that cotton is the backbone of the Pakistan's economy. However, this sector is being ignored by the policy makers. He saqid that cotton and its allied products have a share of about 66 percent in the country's export earnings. He urged the government for Bt cotton with a view to enhance cotton crop size in Pakistan like other neighbouring countries such as India and China.

"To achieve high production, the Government should have to play a vital and important role and emphasise upon all the stakeholders including the growers to adopt production of BT cotton in large scale and gradually switch-over to modem integrated pest system," Naseem said. He said that KCA is one of the oldest trade associations in Pakistan and has been providing necessary facilities for domestic and export trade in cotton.

It is the premier body of the cotton trade in Pakistan, therefore it should allow to start hedge trading, he added. "We urge honourable Textile Minister, Commerce Minister and high ups to take up reopening of the hedge trading on parity basis," he demanded.

Source: Business Recorder