Marketing of the 2011/12 cotton crop has been slowed by low export demand, a lack of liquidity among traders and farmers’ high price expectations relative to actual market conditions. Cotton planted area is up 40 percent and production is up 37 percent over last year. However, ALCOTEXA reports cotton export sales of only 6,854 tons this season (till October 15, 2011) versus 110,000 tons last year.
THIS REPORT CONTAINS ASSESSMENTS OF COMMODITY AND TRADE ISSUES MADE BY
USDA STAFF AND NOT NECESSARILY STATEMENTS OF OFFICIAL U.S. GOVERNMENT
GAIN Report Number:
Cotton and Products
Marketing of the 2011/12 cotton crop has been slowed by low export demand, a lack of liquidity among traders
and farmers? high price expectations relative to actual market conditions. Cotton planted area is up 40 percent
and production is up 37 percent over last year. However, ALCOTEXA reports cotton export sales of only 6,854
tons this season (till October 15, 2011) versus 110,000 tons last year. Financing of the Government of Egypt
budget deficit is soaking up liquid funds and driving up interest rates. Farmers are looking for the high prices
they received last season, but traders expect prices to drop further. In this situation, banks are also unwilling to
finance the purchase of seed cotton from farmers. Suggestions are being made about potential solutions to the
current marketing problems, some of which would be contrary to Egypt?s WTO obligations.
At the beginning of the cotton season (2011/12) the Ministry of Agriculture promised farmers a profitable price,
which motivated them to grow cotton on 525,480 feddan (221 Thousand Hectares) compared to 374,845 feddans
(157 TH) in the last year (2010/11). This year the local traders offer to purchase the local cotton at prices that are
40-50% lower than last year, which has made farmers stop selling their production while waiting for an increase in
the offered prices or for government intervention in the market.
Egypt produces three varieties of cotton: Extra Long staple- Giza 88 (comparable to pima cotton): It is cultivated
in Northern parts of the country and represents 20% of total Egypt?s production. The second variety is the Long
staple -Giza 86 (comparable to Upland cotton): it is cultivated in Delta area and represents 65% of production.
The third one is the short and medium staple varieties- Giza 80 and 90, which is cultivated in Upper Egypt and
represents (15% of production).
Total production of lint cotton in 2011/12 is expected to be 3.611 million qintars (180 TMT or 745 thousand bales),
in which 350,000 qintars (17 TMT or 72 TB) is short and medium staple varieties. Last year?s crop was estimated
at 2.637 million qintars (132 TMT or 544 TB), while the exports were 2.215 million qintars (111,000 MT or 457
TB). NOTE: (1 qintar = 99.048 lbs), (1 bale = 480 lbs).
Cotton growers had incurred large seasonal expenses due to higher rent costs, worker wages and high prices of
fertilizers, at the same time that the prices in the current season are half of last year prices. According to the
farmers, the cost of growing one hectare of cotton, including laborer wages, land cultivation, pesticides, fertilizers
etc. amounted to LE17,136. Average production is 16 to 17 qintar/hectare. (LE 5.98 = $1.00).
In general, prices of LS cotton varieties is higher than short and medium staple varieties by 15-17%, while prices
of ELS varieties are higher than short and medium staple local or imported varieties by 25-30%. Prices of ELS
cotton last season (2010/11) were about LE 1,800 -2,000/qintar. The government indicative prices for this year
(2011/12) are: LE 1300/qintar for ELS seed cotton, LE 1,200 for LS seed cotton (about 160 cent/lb), which is
higher than world price (148 cent/lb), and LE 1,100/qintar of seed cotton (145 cent/Ib) for short and medium
varieties. As the GOE no longer purchases cotton, the indicative prices have no real market impact, but do leave
farmers, who expect to receive the indicative price, very unhappy.
Farmers are still storing their production at their own facilities due to poor prices and are hoping that the GOE will
develop a marketing policy to assist them. In Upper Egypt, cotton was harvested a month ago, while in Lower
Egypt the harvest is still in full swing.
Total consumption of local spinners of cotton last year (20010/11) was about 89,000 ton, in which 53% were
imported and 46% were local cotton). Last year, the government has subsidized farmers with LE 200/qintar. The
year before (2009/10) the percentage was 65% for imported cotton against 35% for local cotton (there was no
subsidy in this year). Farmers ask for subsidy this year, but it seems that the government will not respond to their
demand. Experts say that if the government wants to subsidize cotton, it should subsidize farmer?s price, not the
Egypt has imported 1,500 tons recently from Greece at 105 cent /Ib. Currently there are offers from India to sell
cotton to Egypt at 115 cent/Ib CIF Egyptian ports.
The cotton crisis has escalated especially with the rejection of the commercial banks to finance the local trading
companies to purchase the local cotton because they expect that the international prices will decrease. The
?General Committee for Cotton Internal Trade? has submitted four scenarios to end the rigid situation in cotton
markets resulted from the liquidity shortage including:
Banning the importation of cotton for a certain period of time till the cotton stock is over.
Paying a subsidy to the local lint and textile companies in order for them to operate at full capacity.
Impose import duties on the imported lint equivalent to the difference between the local and imported lint
Enhance the commercial banks to finance cotton crop
The main Egyptian commercial governmental banks refused to finance the purchase of the locally produced
cotton this year. There are 230 private and business sector companies stand ready to purchase the cotton.
There is not enough liquidity to purchase the cotton this year. The GOE has been financing the sizeable budget
deficit with local Treasury bond issues, soaking up liquidity and driving up interest rates. The GOE is currently
paying 14% interest.
Banks need guarantees from the local traders and the exporters that cover at least 25% of the finance and they
are not sure that local mills will be able to purchase large quantities of cotton from the local traders as well as
they are not sure that the exporters will be able to sell large quantities given the considerable difference between
local prices and the international prices this year.
The Ministry of Agriculture is trying to convince Principal Bank for Development and Agricultural Credit Bank
?PBDAC? to finance the purchase of the crop, but the bank is hesitant to do so. The estimated amount needed to
finance cotton this year is LE 2.5-3 billion. Some experts say that the government should cover the price
difference and it would be tragic if peasants stopped growing cotton just because other produce might yield