Egypt’s textile industry threatened by halt on cotton imports

Tuesday’s decision by Egypt’s agriculture ministry to temporarily ban cotton imports, it says to protect domestic cotton production, is stirring fears among experts that the country’s own textile industry may end up paying the price.

The decision dictates that all imported cotton will not be allowed in the country for an indefinite period of time, excluding imports shipped before 4 July.

According to the government, it intends to protect and improve marketing for domestic cotton production, and “defend the interests of cotton producers, manufacturers and exporters”.

However, in a country where textile manufacturing is highly dependent on imported short-staple cotton, a crop rarely grown in Egypt, the decision has sparked fears of a backlash on the domestic spinning and weaving industry.

“It’s a disastrous decision that will lead to factories closing down and will negatively affect the textile sector,” Mohamed El-Morshedy, chairman of the chamber of textile industries, told Ahram Online.

El-Morshedy criticised the decree, saying that it arbitrarily creates a market for traders and then forces manufacturers to buy from them.

“How can we ban importing a type of cotton that we don’t even grow?” he asked. “It’s a raw material that we don’t have. We don’t produce small or medium-staple cotton, and these are the main raw materials used in manufacturing.”

The Egyptian long-staple cotton, which over the years has become known as “white gold”, has an international reputation for being one of the finest in the world and is used in high-quality clothing.

The luxurious cotton, however, is usually exported as raw material, due to the high expense and the difficulty of turning it into final products, while Egyptian manufacturers find it more profitable and are equipped to spin from short-staple varieties.

Egypt exported $83.8 million worth of raw cotton in 2013/14, down from $120.3 million the year prior, according to Central Bank data.

Imports of raw cotton, however, grew to $117.8 million in the same year up from $51.3 million.

The decision is in favour of the farmers, argues Cairo University agricultural economist Gamal Siam.

According to Siam, the decision will force cotton traders to buy domestic cotton at a better price, higher than the international price.

However, he too sees that it will harm a cotton textile industry highly dependent on short-staple cotton.

“The government is enforcing [Egyptian] cotton on [the factories],” he said. “The ideal solution would be for the government to provide subsidies, but the government is against all forms of subsidies. Banning imports however is very dangerous…”

Earlier this year, the government decided to end a decades-old system according to which the government guaranteed that it would buy cotton yields from farmers.

In 2014, the last year it guaranteed farmers that they would sell their crops, the government paid LE1,400 per feddan (1.038 acres), or a total of LE420 million ($58m) nationwide.

The government concluded that growing cotton, particularly the long-staple variety which has long been Egypt’s hallmark, was too costly at a time of declining demand for the crop locally and internationally.

The decision has left farmers who choose to continue to grow cotton on their own to find buyers.

Agriculture ministry spokesman Eid Hawash for his part said that the recent ban on cotton imports was influenced by “the need to protect Egyptian farmers from becoming prey”.

He explained that the decision came as there have been leftovers of locally-grown cotton that should be “prioritised” and marketed first, before bringing in new imports.

Mohamed Barghash, head of the farmers union, said that, in theory, it was a healthy decision but with limitations, as it doesn’t provide a clear mechanism to protect farmers.

“Cotton is in desperate need for a mechanism to protect the farmers from making losses,” he said. “If there is no mechanism for marketing their crop, the losses will be doubled as the government doesn’t guarantee the implementation of a fair price for cotton.”

Even with the government’s fixed price, farmers will continue to be manipulated by traders to sell at what Barghash claims is half of the fixed price.

The solution, according to Barghash, would have been for farmers to sell their cotton directly to the state-owned holding company for spinning and weaving at a fixed price, and for the holding company to then sell it on to traders.

“There needs to be a mechanism to ensure that farmers make profit and receive all their dues,” he said.

Siam also questioned why the decision was issued by the Ministry of Agriculture, and not the Ministry of Trade and Industry.

But Hawash stressed that his ministry’s decision came in coordination with “all concerned authorities,” including the Ministry of Trade and Industry.

The Ministry of Trade and Industry’s media advisor Yasser Gaber said that they had not yet been notified of the decision from the minister yet.

“The minister concerned with issuing such decision is the minister of trade,” he added.

Source : Ahram online