Pakistan's Cotton Sector Faces Imminent Collapse as Government Scrambles for Solutions

The current crisis is said to be the unintended result of years of policy misadventures and structural failures that have systematically undermined Pakistan's cotton sector. At the heart of the problem lies the Export Facilitation Scheme (EFS), which has created an uneven playing field that—surprisingly—favours imports over domestic production. The government maintains an 18% General Sales Tax on domestically produced cotton while allowing tax-free imports. This creates a pricing disadvantage that domestic producers simply cannot overcome.

Most concur that the tax-free import of raw cotton and yarn threatens viability of the local industry, reports Dawn newspaper. The Pakistan Cotton Ginners Association (PCGA) and All-Pakistan Textile Mills Association (APTMA) have time and again warned that the current tax structure makes domestic cotton unviable, forcing mills to rely increasingly on cheaper imported alternatives. Industry insiders fear that during the crop year 2025–26, cotton ginning and textile sectors may operate at less than 50% of their total production capacity.

The production decline has been precipitous and—unfortunately—sustained. According to the Pakistan Cotton Ginners Association (PCGA), a 59.4% decline in cotton production was seen till 1 October last year. These numbers paint the picture of an industry in freefall, unable to arrest its decline despite various interventions. Earlier data of August 2024 from the Pakistan Cotton Ginners Association revealed that a total of 1.075 million bales were produced in Pakistan till 15 August that season, compared to 2.11 million bales the same period the previous year, a drop of almost 50%. What was bad in 2024, has turned out to be progressively worse in 2025.

Climate change has exacerbated these policy failures, with erratic weather patterns, water scarcity, and pest infestations decimating crop yields. Research published in Scientific Reports indicates that various factors related to agronomics, physical conditions, human factors, crop production practices, crop protection, and advisory services approaches are contributing to the projected drastic decline in cotton production in Punjab province.

Add to this the international angle. Global cotton markets have experienced significant volatility, with pricing pressures making Pakistani cotton less competitive internationally. Pakistan's cotton arrival fell by 60% last August 2024 during the new marketing year, due to high temperatures and heavy rains damaging crops in key regions.

Moreover, the financing challenges facing the sector have been particularly acute. Many ginning operations lack the capital necessary to modernise their facilities or invest in more efficient processing technologies, leaving them unable to compete with international standards. The reduced cotton production is having severe impacts on rural economies and the country's balance of payments. It’s when you are in a crisis but don’t have the means to battle it.

Industry experts suggests that Pakistan's cotton industry requires a comprehensive strategy to address declining yields and rising imports, making 2025 a critical year for the sector's survival.

The collapse of Pakistan's cotton sector has unleashed a cascade of economic and social consequences that extend far beyond industry stakeholders. The textiles sector, which historically served as one of Pakistan's largest export earner, now faces an existential threat that could alter the country's economic structure and employment landscape.

The employment implications are staggering. Several textile mills have closed their units due to inability to sustain operations, with mills reportedly turning away export orders due to power cuts lasting upwards of 12 hours daily. Each mill closure represents hundreds of direct jobs lost, with multiplier effects rippling through local economies as supporting businesses—transport companies, equipment suppliers, and service providers—lose customers and revenue streams.

Rural communities bear the heaviest burden of this crisis. Cotton farming has traditionally provided livelihoods for millions of Pakistani families, particularly in Punjab and Sindh provinces. As farmers abandon cotton cultivation, entire agricultural ecosystems face disruption. The shift to alternative crops, while economically rational for individual farmers, has left cotton ginning facilities without adequate raw material supplies. There are reports of ghost towns in areas previously bustling with agricultural activity.

The foreign exchange implications represent perhaps the most serious long-term threat to Pakistan's economic stability. Precious forex is now being used to import lint as farmers shift to other crops owing to the unavailability of seeds and low returns, according to Dawn's analysis. This double burden—reduced export earnings coupled with increased import bills—places additional pressure on Pakistan's already strained balance of payments.

The crisis has exposed the interconnected nature of Pakistan's agro-industrial ecosystem. Cotton processing facilities support numerous downstream industries, from textile manufacturing to oil extraction from cotton seeds. As ginning operations close, these related industries face supply shortages and operational challenges. The oil extraction sector, which processes cotton seeds to produce edible oils, now confronts raw material scarcity that could force increased reliance on imported oils, further straining foreign reserves.

The crisis has also worsened regional disparities. Cotton-producing regions, already lagging behind urban centres in development indicators, now face accelerated economic decline. The closure of ginning facilities and spinning mills removes crucial employment anchors from rural areas, potentially triggering migration to already overcrowded urban centres. This internal displacement could create additional social and economic pressures in Pakistan's major cities.

The banking and financial sector faces mounting pressure as cotton-related businesses default on loans and struggle to service existing debt obligations. Pakistan's ongoing economic crisis, which required IMF intervention and bailout packages, has been compounded by the textile sector's troubles. Banks with significant exposure to cotton and textile financing now face potential losses that could further constrain credit availability for economic recovery efforts.

According to December 2024 data from the Pakistan Cotton Ginners Association, cotton arrivals stood at 5.19 million bales, highlighting the continued underperformance of the sector.

The Pakistani government has its task cut out: it has to make up its mind as to whether the cotton sector can be salvaged or whether the country should transform from being a cotton producer to an importer. The recommendations emerging from stakeholders present both immediate relief measures and longer-term structural reforms necessary for sector revival.

The most urgent intervention involves addressing the tax disparity that has made domestic cotton uncompetitive. Dawn reports that the government, as mentioned earlier, is mulling over tax breaks to avert a complete collapse, with industry recommendations underscoring the urgency of immediate tax relief for producers or the imposition of equal taxes on imports to restore a level-playing field. The Food Security Ministry has endorsed these proposals, suggesting government willingness to abolish the 18% GST on domestic cotton.

However, tax relief alone cannot address the structural problems. A comprehensive approach must include investment in agricultural research and development, particularly focusing on developing climate-resilient cotton varieties and improving farming techniques. Pakistan contributes only 5% of worldwide cotton production despite high potential, with yields remaining stagnant and profitability lessening. There is substantial room for improvement.

Infrastructure development represents another critical component. Power cuts lasting upwards of 12 hours daily force mills to turn away export orders, highlighting the need for reliable energy supply systems. The government must prioritise consistent power supply to textile-producing regions, and also explore renewable energy alternatives.

Water management becomes crucial given Pakistan's increasing water scarcity challenges. Cotton cultivation requires substantial water resources, and climate change has made traditional irrigation methods less reliable. Investment in efficient irrigation systems, water conservation technologies, and drought-resistant crop varieties could help stabilise production whilst reducing environmental impact.

The financing landscape also requires some restructuring. Traditional banking approaches have proven inadequate for agricultural financing, particularly given the seasonal nature of cotton cultivation and the long-term nature of required investments. Specialised agricultural financing institutions, crop insurance schemes, and government-backed loan guarantee programmes could provide the capital necessary for sector modernisation.

International cooperation and technology transfer represent additional avenues for sector development. Countries like India, China, and the United States have achieved significant improvements in cotton productivity through technological innovation and modern farming practices. Pakistan could benefit from technology transfer agreements, joint research initiatives, and best practice sharing arrangements with leading cotton-producing nations.

The role of private sector innovation cannot be overlooked. Encouraging investment in modern ginning and processing facilities, supporting the development of cotton trading platforms, and promoting vertical integration within the textile value chain could improve efficiency and competitiveness. The Pakistan Textile Council's January 2025 MoU with the Better Cotton Initiative represents a step towards sustainable practices and international cooperation.

Export promotion strategies must be recalibrated to account for Pakistan's changing position in global cotton markets. Rather than competing solely on volume, the country might focus on developing niche markets for speciality cotton products or value-added textile goods that command premium prices in international markets.

Uneasy Days Ahead

Pakistan's cotton crisis is more than an agricultural or industrial challenge—it embodies a test of the country's ability to adapt and modernise its economic structures in response to changing global conditions. The decisions made in the coming months will determine whether Pakistan can reclaim its position as a significant cotton producer or whether it will join the ranks of nations that have lost traditional industries to policy neglect and structural inertia.

The path forward requires unprecedented coordination between government agencies, industry associations, financial institutions, and farming communities. Despite consistent failure to achieve cotton cultivation targets, the Federal Committee on Agriculture has set an ambitious production target of 10.18 million bales for 2025–26, indicating either unrealistic optimism or genuine commitment to sector revival.

Time is running short, and that window for effective intervention is rapidly closing. Each passing season without adequate support sees more farmers abandon cotton cultivation and more processing facilities close permanently. That seems ominously like Doomsday.