Egypt’s luxury cotton is hanging on by a thread

Market News

Egypt’s luxury cotton is hanging on by a thread

Egypt came uncomfortably close to losing the main variety of its long-staple luxury cotton last year – a recent chapter in a long history of government interfering in the market when it shouldn’t and not interfering when it should. The Giza-86 variety of cotton is renowned throughout the world, with its long fibres being spun into fine yarns and top-end fabrics. It took hold in Egypt thanks to the country’s long, hot and rainless summers and relative isolation – where specialised varieties can grow without the risk of cross-pollination by cheaper strains.

Traditionally, Egypt grows eight cotton varieties. Each is grown in separate regions, with a carefully controlled system to make sure they remain uncontaminated by other varieties. Giza-86 has long formed the bulk of the crop, but other even finer varieties, including Giza 45, 87 and 92, have catered to more expensive niche markets.

Each variety had its own specific gins to ensure that the seeds extracted from the raw cotton remained pure. In the final years of the Mubarak regime, however, people came up with a clever way to make more money. They would fool inspectors by packing the middle of large containers with cheap common cotton, then place premium varieties at each end to make them believe the whole cargo deserved the higher price that better cotton commanded.

The result was that the seed extracted at the gins was mixed with inferior seed. When an inventory was made a year ago, it was discovered that so much seed had been corrupted the country only had enough pure Giza-86 to plant 50,000 feddans (21,000 hectares).

The rest of the total 250,000 feddans that Egypt earmarked for cotton for the 2015 planting season, which began in March, were instead sowed with common varieties. So far, it seems the project to rescue Giza-86 has been up to 90% successful, and the country now has enough for the entire March 2016 planting, says Mr Elbosaty.

That, however, will depend on how well the government handles the logistics. So far, the signals have not been good. In January 2015, the government announced it would no longer subsidise the cotton crop, only to backtrack a few months later. It has now guaranteed a purchase price of 1,400 pounds per qintar (157kg) for the newly rescued Giza-86 seed cotton, which on the open market would have fetched about 800 pounds (Dh373).

It then offered to pay almost as much for common cotton, which was fetching 600 to 700 pounds on the open market. By buying cotton at such a huge loss, the government seems to have lost track of the game plan, which is to earn revenue for both farmers and the country – not to preserve an interesting relic from the country’s economic history.

Now the state-owned cotton holding company that buys the cotton wants to turn around and sell the Giza-86 to private traders at 1,520 pounds per qintar, a premium of 120 pounds over the inflated price it has promised farmers. So far the finance ministry has not yet passed enough funds to the holding company to pay for this year’s purchases, meaning many farmers have yet to be paid for their cotton, says Mr Elbosaty. By mid-December, farmers had delivered only 600,000 qintars to state gins out of an expected harvest of 1.2 million qintars. Normally, the cotton harvest is fully delivered by the end of the year.

Some farmers, despairing of collecting from the government, have sold about 200,000 qintars to private gins at a discount. Because of this year’s near government monopoly over cotton purchases, some of the country’s 240 licensed traders are likely to go bankrupt. In the meantime, the government seems to be trying to drive up domestic cotton prices by restricting cotton imports. It has made it harder for importers to get licences from the Egyptian quarantine office, says Mr Elbosaty. Using quarantine to limit cotton imports is considered a trade barrier under World Trade Organization regulations, and a clear form of government intervention.

The agriculture minister might unleash a handful of its estimated 890,000 employees to work on improving the yields of its premium cotton varieties. Other countries have been racing ahead, with America extracting yields equivalent to 15 to 16 qintars per feddan for its long-staple Pima variety, and Israel as much as 18 qintars. In Egypt, the yield is a mere 5.5 to 6.0 qintars.