The post-budget fall in lint, phutti and seed prices exposes a deeper policy failure: Pakistan’s cotton chain is being squeezed by weak crop economics, high taxation and shrinking mill demand.
Pakistan’s cotton market has fallen sharply after the federal budget for 2026-27 failed to deliver the tax relief expected by ginners and cotton-sector stakeholders. In four trading sessions, cotton prices dropped by up to Rs2,500 per maund, while the Karachi Cotton Association cut its spot rate by Rs2,000 to Rs19,500 per maund. Open-market cotton fell to around Rs20,000 per maund in Punjab and Rs19,000 in Sindh.
Tax promises meet budget reality
The immediate trigger was the industry’s disappointment over the absence of promised fiscal reforms. Cotton Ginners Forum Chairman Ihsanul Haq said the sector had expected relief on sales tax, income tax and electricity fixed charges before passage of the Finance Bill. Earlier, ginners said officials had indicated that sales tax on cotton seed and oil cake would be abolished or reduced, but the budget did not reflect those assurances.
Ginners argue that the tax structure is pushing the sector toward undocumented trade. Haq claimed the ginning chain faces a cumulative sales-tax burden of over 86%, including taxes on raw cotton, cotton seed, cottonseed oil, oil dirt and oil cake. Dawn reported industry estimates that around 1.5 million bales and related by-products may already be traded off the books annually.
Crop weakness adds pressure
The market fall is not only a budget reaction. Pakistan’s cotton economy was already fragile. The USDA’s April 2026 outlook forecast Pakistan’s 2026-27 cotton production at 5.05 million 480-lb bales, about 3% lower than 2025-26, with planted area stagnant and growers shifting toward crops such as corn, sugarcane and rice because of better returns.
The same report forecast domestic cotton consumption at 10.2 million bales, with mills relying on imports for nearly half their requirements because domestic output remains insufficient and export demand is weak.
The next policy test
The government’s broader budget is constrained by IMF targets, high debt servicing and a tax-revenue target of Rs15.26 trillion, leaving limited fiscal room. But cotton’s problem is now structural. Without tax rationalisation, enforceable crop zoning, better seed, reliable weather advisory and lower energy costs for ginners and mills, Pakistan risks further erosion of its domestic fibre base just as regional competitors are strengthening textile export competitiveness.
