Low cotton yield this year is threatening to bring the spinning and weaving industries to a halt. Niveen Wahish investigates Never a year passes by without one problem or another plaguing the cotton sector. In the past, the main problem was the low price paid to cotton farmers for their crop -- which then discouraged them from planting larger crops the following year. The problems this year are somewhat more complex. At four million qantars (1 qantar = 50kg), down from last year's yield of 5.5 million qantars, the harvest has reached a 50-year low. Only 535,000 feddans were planted last season, compared with about 740,000 feddans the season before (1 feddan = approximately 1 acre). The crop is simply insufficient to meet both local demand by spinning and weaving mills and export contracts. Local mills consume an average of four million qantars annually, while some two million qantars are exported. The problem was augmented by the fact that for the first time in decades, cotton leftover inventory is nil, having been exported to cover a shortage in international cotton production last season. Leftover cotton in the past was around 2.2 million qantars, with extra costs being incurred for storage and insurance. According to Fathi Ne'matallah, deputy chairman of the Textile Federation, storage and insurance coverage amounted to around LE70 million. With the shortage this year, some two million qantars will need to be imported. But this is not the only problem. The shortage has caused local prices to rise, which has benefited the farmers, but local spinners and weavers now have to pay more for raw material. The price per qantar of the short and medium length cotton consumed locally, for instance, has doubled to more than LE500. According to Fathi Ne'matallah, this will result in a 70 per cent increase in the cost of yarn compared with last year. Meanwhile, the price of the Long Staple (LS) and Extra Long Staple (ELS) cottons demanded by the international market hit LE1,000 per qantar. Local prices have skyrocketed because of high prices on the international market. Gerald Estur, statistician with the International Cotton Advisory Committee, explained that prices are high because of poor global LS and ELS yields. World production of extra fine cotton is estimated to reach 565,000 tons (1 ton = 20 qantars) in 2003/04, 130,000 tons less than last year. Egyptian production is dropping by 100,000 tons to an estimated 188,000 tons in 2003/04, the lowest yield since 1943/44. The production of US Pima, the equivalent of Egyptian Long Staple cotton, is expected to drop by 41 per cent to an estimated 87,000 tons, down 61,000 tons from last season. Planted area for Pima cotton fell by 32 per cent in 2003 and weather was not favourable, which explains the drop in the American yield. But high prices do not necessarily translate into a good export season. This year, in fact, exporters such as Zaki Edkawi, chairman of EDCO Cotton Export Company, are not too optimistic. He explained that unlike last year when 3.8 million qantars were exported for the first time in 10 years, this year no more than 2 million qantars will be exported because of the small yield and dearth of leftover cotton. While the devaluation of the Egyptian pound benefited Egyptian exporters and allowed them to give good discounts last year, this year is different. "US Pima cotton is taking the lead," Edkawi said, explaining that subsidies given by the US government to US Pima farmers, coupled with higher prices of local Egyptian cotton, means no discounts can be given this year. Even taking into account the extra revenue as a result of the devaluation of the Egyptian pound, the asking price for Egyptian cotton is equal to that of US cotton. Exporters, therefore, explained Edkawi, "are just breaking even and not making a profit". As for the local spinners and weavers, prices were not their only worry. Production could grind to a halt if the difference between their supply and demand is not covered by imported cotton. According to Ne'matallah, imported cotton and other raw materials such as polyester are needed immediately so that they can be mixed with the available cotton, otherwise "we will lose our chance to export if we use up the available Egyptian cotton before the imported cotton arrives." Importing is not cheaper than buying locally, but the mills have no other option. In fact, while the price of imported Short Staple cotton is almost the same as some local varieties, customs and port fees, fumigation and other expenses drive up the price. Importing cotton is not exactly uncomplicated either. A local shortage of hard currency has resulted in delays in opening credit lines, therefore delaying orders. And under decree 506 exporters were required to exchange 75 per cent of revenues obtained in hard currency for local currency. But exporters are now required to exchange 100 per cent of revenues. According to Zaki Edkawi, this decision is making things difficult for exporters. "We need to keep part of our hard currency revenues to meet commitments for extras such as packaging, insurance, marketing trips, international advertising and commissions," he said. Cotton farming is very labour intensive. The high price for the cotton crop this year does not necessarily mean that farmers will be eager to plant it next year, "not if they can get a better price for other crops", said Zaki.
