While high cotton prices are finally giving farmers a break, they threaten disaster for textiles producers Increased demand from some countries such as China, coupled with smaller crops in cotton producing countries such as Pakistan, have resulted in an unprecedented increase in international prices of cotton yarns. The increase has had a negative impact on the local textiles industry, including spinning and weaving factories, as well as companies producing ready-made garments. Although Egypt is a cotton producer, the local textiles industry relies on imports for 60 per cent of its needs of short and medium staple cotton mostly from Greece and Sudan. The reason for importing is that the main products produced are cheaper items such as T-shirts which require coarser yarns, rather than the finer ones made from the Egyptian cotton. For the expanding local textiles industry that has taken off dramatically in recent years, high prices are a setback threatening its competitiveness in the international markets. Textiles manufacturers complained that cotton prices have reached three times their average price in the course of one year, causing serious damage to their industries. "Due to unprecedented high cotton prices, the value chain of a product is up so the final price of a piece has more than doubled. The problem is that consumers cannot tolerate the increase of the cost price," says Mohamed Qassem, chairman of garments exporter World Trading. According to Qassem, the cotton price hikes are destabilising industries worldwide, but the impact of the damage varies from one country to another. He adds that producers around the world are unable to fulfil contracts and are renegotiating prices. The owner of a large textiles company, who preferred to remain anonymous, agreed with Qassem that soaring prices are causing huge losses to the industry, with products becoming uncompetitive, labour moving out of the sector and the banks refusing to finance unstable textiles projects. "The problem is exacerbated by the fact that textiles are not basic products for consumers compared to food commodities for example," the businessman said. "So consumers can stop buying clothes for a year or more if they cannot afford the high prices," he added. The negative impact is equally serious for manufacturers who produce for local markets, who complain that consumers cannot afford the increased prices, and those who produce for export, since their products are no longer able to compete in the international markets. The situation is worse in smaller companies as some factories have shut down. To lighten the impact on the textiles industry, the government has lifted customs duties on imported yarns until the end of next March and increased export subsidies by 50 per cent for producers who use local yarns. Textiles manufacturers said the measures taken by the government are good signs, but they did not solve the problem. Qassem argues the government's move "theoretically supports the sector but on the ground it does nothing." Other manufacturers believe there are many ways the government can support the industry. The government should also help provide trained labour by introducing technical education and training programmes which fulfil the industry needs. "While Egypt suffers from unemployment, I am sad to say that I hired foreign workers at high salaries, simply because they are better trained than Egyptian workers," said one businessman, who asked not to be named. Moreover, the businessman said, the government should raise export subsidies from 10 to 30 per cent to enable Egyptian products to compete in international markets. However, Qassem disagrees, arguing that raising subsidies is not a sustainable solution for the textiles sector.
