Egypt Business Network
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Dr. Nilgün Birgören Premium Member Group moderatorThe company name is only visible to registered members.Cotton industry
Fifteen years ago, the Upper Egyptian Factory for Spinning, Weaving and Clothes relied on local cotton for just about everything.
The words “made with Egyptian cotton” used to be enough to boost the price of textiles by 50%. Today, the factory’s output has a decidedly international feel; 80% of the cotton in it products comes from foreign sources.
“Everyone stopped using Egyptian cotton because it’s too expensive,” says Magdy Abdel Fatah, the factory’s sales manager. “All the local factories use imported cotton instead.”
Domestic use of Egyptian cotton plummeted 78% last year. Exports are equally grim; they are a third of what they were in 2008, according to industry researchers and factory owners.
Long considered a global mark of luxury, Egyptian cotton products have been slashed from many budgets in the wake of the global financial crisis.
This diminishing demand, combined with a decline in land allocated for cotton production and an absence of government subsidies, is making it difficult for factory owners like Abdel Fatah to justify paying for Egypt’s most renowned crop.
“The Egyptian cotton industry has gone through highs and lows over the years,” says Mohamed Abdel Aziz, head of the Cotton Research Institute (CRI) at the Ministry of Agriculture. He says he remains optimistic that the industry will rebound as countries continue to recover from 2009’s financial turmoil, but recognizes that Egyptian cotton is facing one of its most difficult periods ever.
From Public to Private
According to Abdel Aziz, Egypt’s cotton crisis began in 1994 with the privatization of cotton production and the textile industry. Prior to this, the government was responsible for the allocation of land specifically for cotton, supervising the farming process, buying crops from farmers, and selling them at a subsidized price to domestic mills.
But in an effort to encourage growth and productivity, the Ministry of Public Enterprise (MPE) decided to open the industry to competition.
According to a report issued in 2000 from the Ministry of Agriculture and consulting agency Abt Associates, privatization initially had a positive effect on the cotton industry. “The MPE privatization program, policy reforms affecting cotton marketing and trade and overall economic liberalization in Egypt are having a positive impact on the spinning industry in Egypt,” said the report.
Before privatization, local textile factories were buying Egyptian cotton because government subsidies made it affordable. But with no subsidies and a market brimming with cheap foreign imports, that was no longer the case.
Egyptian cotton currently costs $1,000 (LE 5,445) per ton, while foreign equivalents average $400 (LE 2,200) per ton.
Factories like Abdel Fatah’s now choose imported cotton from countries with subsidies such as Russia, Sudan and Syria.
Cotton producers were always aware that there would be a limited market for premium Egyptian cotton produced from costly raw materials, but it was last year’s financial crisis that really turned the screw. The market changed so drastically that the lack of subsidies suddenly appeared be the thread that might unravel Egypt’s iconic industry.
Down With the World
Global economic uncertainty has re- sulted in a change in consumer attitudes toward luxury items; Egyptian cotton is just one of its casualties.
According to Abdel Aziz, Egypt used to export a total of 120,000 tons of Egyptian cotton annually but exported only 40,000 tons in 2009.
Egypt was once the world’s top cotton producer, but production has fallen from a previous annual average of 240,000 tons to just 105,000 tons in 2009. Countries like the United States and China are now poised to take over the industry.
Diminishing cropland is also compounding Egyptian cotton’s poor prospects. 2009 witnessed a dramatic decrease in the area used for growing cotton, according to Abdel Aziz.
The total farmland used for Egyptian cotton has dropped from 585,000 acres in 2007 to 285,000 in 2009.
Farmers have the freedom to grow any crop they choose and are less inclined to grow a crop with declining demand.
Patching the Holes
Abdel Aziz explains that two bodies currently oversee the Egyptian cotton industry: The Export Federation, which exports approximately half of Egypt’s cotton to over 30 countries, and the Ministry of Trade, which monitors the use of Egyptian cotton in local factories.
Despite heading the CRI, which has been tracking cotton trends since 1907, Abdel Aziz can only make recommendations on how to improve the industry and has no authority to carry them out. A staunch advocate for subsidization, he thinks it’s about time for the government to step back into the cotton game.
“The government should intervene and set some ground rules for farmers, factories and merchants,” says Abdel Aziz. “They should create a much needed political solution for people.” With the reintroduction of subsidies, the fortunes of Egyptian cotton might turn around, he says.
Another change in strategy could come regarding the country’s exporting process. According to Abdel Aziz, when Egypt exports a shipment of cotton as raw material, it fetches only a fifth of what it could if that same amount were woven.
Sold as a finished product, the price is double that.
“We can weave Egyptian cotton here, it’s not a hard process,” says Abdel Aziz. “However, we choose to always export it as raw material, which is such a shame.”
Source: Financila Times
- 07 Feb 2010, 8:43 pm
