BT COTTON WILL NOT BE QUICK FIX FOR PUNJAB'S TEXTILES, WHICH

C O N F I D E N T I A L SECTION 01 OF 02 LAHORE 000291

SIPDIS

E.O. 12958: DECL: 10/21/2018
TAGS: ECON PGOV ENRG PK ETRD
SUBJECT: BT COTTON WILL NOT BE QUICK FIX FOR PUNJAB'S TEXTILES, WHICH
CONTINUE TO SUFFER

REF: ISLAMABAD 2633

CLASSIFIED BY: Bryan Hunt, Principal Officer, Consulate Lahore,
U.S. Department of State.
REASON: 1.4 (e)

1. (C) Summary: Leadership of the All Pakistan Textile Mills
Association (Punjab Zone) told Poleconoff October 17 that the
global crisis has resulted in a 15-20 percent drop in exports
during the last three months. Moreover, the lack of bank
liquidity has constricted capital, making it difficult for mills
to purchase cotton. They estimated that the mills have shut 30
percent of their spindles, and 80 percent of the mills in Punjab
operate at a loss. While the mill owners hoped that the
introduction of BT cotton, which contains bacillus thuringiensis
bacteria to make the crops more resistant to insects, would
stimulate the cotton and textile industries, Monsanto Country
Manager Amir Mirza cautioned PO in an October 20 meeting that
even if it could introduce BT cotton by January 2009, the seeds
would not be widely available until the 2011 growing season.
End summary.

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Global Crisis Impacts Already Troubled Textile Industry
- - -


2. (SBU) Akhbar Sheikh, Chairman of the All Pakistan Textile
Mills Association (APTMA) Punjab Zone, told Poleconoff October
17 that the downturn in the U.S. and Europe have hit Punjab's
textile industry. He estimated that in the last three months
exports have dropped 15-20 percent because consumers have
started to defer purchases on bedding, knitwear and other
non-priority goods. The global crisis has also constricted the
availability of cash, Sheikh continued. He related that banks
have refused to loan to mill owners, who need to buy more
cotton. APTMA Secretary Anis ul Haq pointed out that because
much of Pakistan's cotton imports come from the U.S. (which
provided 627,953 bales to Pakistan in 2006-07, second only to
cotton imports from India),American cotton growers will see
likely see far fewer orders from Pakistani mills. Likewise,
orders for machinery, which tend to come from Georgia, will also
drop because of a lack of credit, ul Haq predicted.

- - -
Electricty and Gas Too Expensive and Unreliable
- - -


3. (SBU) Compounding the problems generated by the global
crisis, the energy shortage in Punjab has also raised costs,
Sheikh noted. Although the power providers have attempted to
exempt textile mills from loadshedding, Sheikh reported that
outages have reached levels of five-to-six hours per day,
resulting in mills missing clients' targets. Those mills that
converted to gas (about 70 percent of the capacity) also face
cutoffs approximately 90 days of the year, most recently 13-19
October 2008, Sheikh complained. The government has also not
decreased gas prices to reflect the lower costs of oil and gas
worldwide, he continued, while commodity prices have shot up.

- - -
Several Barriers Exist for Exporters
- - -


4. (SBU) Senior Vice President of APTMA Raja Nazir said that the
poor law-and-order situation has prevented buyers from making
the journey to Pakistan, which he believed offers highly
competitive prices. Ul Haq added that difficulties in obtaining
visas have also made travel to the U.S. infeasible. He thought
that the GOP has done a poor job of marketing Pakistani textiles
and negotiating market access, and he singled out India, from
which Pakistan imports 25 percent of its cotton, as a
particularly closed market.


5. (SBU) As a result of the crisis, Chairman Sheikh estimated
that the mills have shut 30 percent of the spindles available
(spinning capacity normally occurs around 85 percent). The
mills have subsequently laid off workers, prompting several
protests in southern Punjab in mid-October. He predicted that
big mills will survive the current quagmire, but many small
mills will go out of business in the near future. However, he
hoped that public-private partnerships, USAID-led projects, and
the imminent introduction of BT cotton would help the textile
industry recover.

- - -
Monsanto Pursues BT Cotton Entry With or Without Government
Buy-In
- - -


6. (C) In an October 20 meeting with PO, Monsanto Country
Manager Amir Mirza described his firm's strategy to introduce BT

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Cotton in Pakistan while protecting the seed's intellectual
property. Mirza has started separate negotiations with the
Punjab province government and the federal government to
determine a mechanism in which the government would pay Monsanto
for the use of the technology according to the acreage planted.
Although he worried about the provincial and federal
government's ability to reimburse Monsanto, he surmised that
they could leverage a tax on land owners, growers or millers to
pay for B T cotton. If the government refused to cooperate,
Mirza proposed that Monsanto could sell BT cotton directly to
private growers, but this option raises concerns about leakage
of the technology. He also thought that a hybrid system
combining government-controlled distribution with private sector
pricing was possible.

- - -
Best Case Scenario Has Several Years Until B T Cotton Introduction
- - -


7. (C) Mirza stressed that even if Monsanto signed an agreement
today, the global shortage of seed stocks would mean that B T
cotton widely available in Pakistan in 2011 after small trials
in 2009 and 2010. He also recognized that Monsanto must find a
way to price the seeds in Pakistan on par with those in India.
Finally, he related, Monsanto must find a way for the
government, whether provincial or federal, to have an interest
in preventing government research institutes from stealing the
B T cotton technology, although once B T cotton enters the
Pakistan market, Mirza estimated, it would increase yields by
30-40 percent.

- - -
Comment: No Quick Fix in Textiles
- - -


8. (C) The same multiple factors that have contributed to the
dismal state of Pakistan's textile industry are those that have
hurt every Pakistani industry: high commodity prices, unreliable
and expensive energy, lack of security and a cash crunch. But
with a nine percent share in the GDP, mill layoffs and shutdowns
would compound the problems already experienced in southern
Punjab, fueling a greater breakdown in law-and-order. A
significant rise in unemployment coupled with a rise in
commodity prices could provide a pool of potential recruits for
extremist groups that have the funding to provide basic
necessities. Ensuring that these desperate workers, whose
numbers will surely increase, have access to food, shelter, and
a livelihood will help avoid a breakdown in the stability of
Pakistan's last stable province.HUNT