A recent official decision to provide financial support to buyers of locally produced cotton might help in marketing the crop this season, Mona Al-Fiqi reports
When the cotton harvest season starts, a marketing problem usually surfaces, every year. Farmers hope that their high quality product with its distinguished international reputation will be sold at good prices, but the public as well as private spinning mills prefer to use imported cotton since it costs half the price of Egyptian cotton.
While imported cotton is priced at between LE400 to LE500 per qantar, the locally produced cotton is over LE1,000 per qantar. The result is that farmers are unable to sell their cotton harvest and complain about it to the government. In the meantime, the government is obliged to keep its market open to imports according to its commitments to the World Trade Organisation (WTO).
This season the problem started when spinning and weaving companies announced recently that they would refrain from buying locally produced cotton because of high prices. These announcements stirred farmers' fears that their cotton might remain unsold. "Cotton, unlike other crops such as rice or wheat, cannot be eaten if unsold. Having cotton after harvest time is considered a real problem for farmers," Magdi Al-Sheraki, chairman of the General Association of Agricultural Reform told Al-Ahram Weekly.
In an attempt to avoid an escalation of the problem, Salah Abdel-Momen, minister of agriculture and land reclamation, held a meeting Sunday with all concerned parties. Abdel-Momen announced that this season the cotton delivery price according to which local government mills would receive cotton from farmers is set at LE1,000 per qantar of cotton produced in Upper Egypt governorates (known as Giza 80 and Giza 90) and LE1,100 per qantar of cotton produced in the Delta (known as Giza 86). Moreover, Abdel-Momen advised farmers not to hurry to sell the cotton crop at a low price at the beginning of the season since it is expected that prices will rise to LE1,500 per qantar later on.
Abdel-Momen added that the Holding Company for Spinning and Weaving accepted to start receiving cotton from farmers at these prices from 1 October.
During the meeting, Abdel-Momen asserted that the government is still committed to pay the difference between the cotton's local market price and the delivery price previously determined by the Agriculture Ministry. It pays LE180 per qantar produced in Upper Egypt and LE150 per qantar produced in Delta.
The government's decisions were warmly received by experts. Al-Sheraki said that the decisions are good, but the Sunday meeting was not attended by a representative of the Finance Ministry, which is the responsible authority to provide the funds.
"The decisions are not considered final unless the Ministry of Finance or the prime minister approves them. I fear that the decisions would not be implemented due to lack of coordination between ministries," Al-Sheraki said.
Last year, according to Al-Sheraki, the government provided LE200 million to pay the difference between the cotton price in the local market and the delivery price. However, the price set by the government is non-binding on companies or traders. Al-Sheraki explained that last year, for example, the price was set at LE1,400 per qantar but cotton was sold at only LE1,050 per qantar.
To overcome the problem of cotton marketing, Al-Sheraki suggested that if the government could not stop importing cotton due to its obligations to the WTO, the government could impose a high import fee on cotton imports to balance the price in the local market and international prices. To reduce imports, Al-Sheraki added that last year the government imposed a levy of LE3.3 per kilo of imported yarn. He recommended higher import fees on imported cotton to reach LE400 per qantar.
In addition, the government could ban cotton imports temporarily until locally produced cotton is sold. It happened last year when Egypt banned cotton imports from October 2011 to March 2012.
Adel Ezzi, chairman of the General Committee of Cotton Internal Trade, also praised the decisions. "They are the best possible within the current economic situation and the application of these decisions immediately is very important since circumstances can change."
Ezzi added that the committee is keen to start applying the decisions, to help the cotton trade cycle and to benefit both farmers and traders. The price is fair for all parties, according to Ezzi.
But while some experts praised the decisions, others blamed the delay in the government reaching a permanent solution as the reason behind the deterioration of the cotton crop. Mohamed Abdel-Meguid, former director of the Cotton Research Institute, said the problem of cotton marketing is recurrent every year and the government is responsible for it. "It is unfair that farmers cultivate cotton and when the harvest time comes, they find that marketing the crop is very difficult. So farmers are not encouraged to grow cotton and the result was a drastic reduction of the total area cultivated with cotton from two million feddans 10 years ago to currently 300,000 feddans in 13 governorates," Abdel-Meguid said.
The total cotton harvest this year is 2.5 million qantars compared to 3.8 million qantars last year, according to figures of the Alexandria Cotton Exporters Association.
Egypt produces three different varieties of cotton: the extra long staple, the long staple and the medium and short staple. The extra long staple cotton has different sizes (Giza 45, Giza 70, Giza 88, and Giza 92) and represents 20 per cent of Egypt's total production.
The long staple variety, which is named Giza 86, represents 70 per cent of production and is grown in the Nile Delta.
The short and medium staple, or Giza 80 and Giza 90, represents 10 per cent of production and is grown in Upper Egypt.