OIC and D-8 are Expected to solve Egypt’s Cotton Marketing Problem

Istanbul, Turkey | December 04, 2007 by D-8 Secretariat

More than a month has passed since the cotton crop was harvested, but farmers are complaining that the crop is still piled up high in their houses and barns. The government, following a free market approach to agriculture, announced it was not obliged to buy the crop from the farmers. The agricultural cooperatives, affiliated to the state-run Principal Bank for Development and Agriculture (PBDA) say they have no budget to buy the cotton crop. On the other hand, cotton dealers including spinning and weaving companies have refused to buy the crop, preferring to import cheaper cotton from India and Sudan, reports the Egyptian Al-Ahram weekly.

The result was a huge drop in local cotton prices from LE1,100 per qantar last year to LE400 per qantar this season. Cotton is a product which can not be used by farmers, unlike wheat or rice. To be stored, the crop needs large areas which are not available to most farmers.

Farmers, who have usually depended on the government to buy their crop regardless of price or quality, have resorted to the media to threaten that they will not grow cotton any more. In response to farmers’ complaints, Amin Abaza, minister of agriculture and land reclamation announced that the government has allocated LE3 million to the Principal Bank for Development and Agricultural (PBDA) to buy the cotton crop from farmers.

The ministerial decision ordered agricultural cooperatives to buy the cotton from producers, and to pay them 80 per cent of the price immediately. Minister Abaza announced that the aim of the decision is to put an end to the problems faced by farmers in five governorates namely Sharqiya, Daqahliya, Damietta, Kafr Al-Sheikh and Gharbiya. Agricultural cooperatives are currently buying the harvest from farmers but at a low price ranging between LE400 and LE500 per qantar which is unsatisfactory to farmers when compared to last year’s price of LE1,100 per qantar.

However, cotton experts believe that the government’s intervention is not a sustainable solution to the problem which occurs each time the cotton crop is harvested. Hussein Mohamed Hegazi, chairman of the agricultural production and land reclamation committee at the Shura Council told Al-Ahram Weekly that the minister’s decision is only temporary and that cotton marketing is in urgent need of a clear strategy. Besides, the agricultural cooperatives law, issued in the 1970s, needs to be amended.

Hegazi presented a memo to the Shura Council offering a new strategy to market the crop which aims at supporting farmers’ rights. “The government should support cotton farmers to keep the Egyptian cotton competitiveness in international markets.” said Hegazi.

The Ministry of Agriculture, according to Hegazi, should apply a system in which it has a clear contract with farmers that guarantees marketing their product in order to encourage them to grow such strategic corp. Moreover, the establishment of a Prices Stabilisation Fund is necessary to compensate farmers when crop prices fall.

Experts say that the annual recurrence of this problem leads to a series of other problems. Hegazi explained: “When cotton prices reached LE1,100 per qantar last year, more farmers wanted to grow cotton last year. Now that prices have dropped, farmers are expected to refrain from growing cotton next year.

The same case applies to wheat, Hegazi added. Due to the increase of international wheat prices this year, more farmers are growing wheat, which will negatively affect other corps.

Nader Noureddin, a professor of agricultural resources at Cairo University said there are many reasons behind the cotton marketing problem. The first is that the Ministry of Agriculture refuses to participate in cotton marketing process claiming that the ministry is an authority for production not for marketing. Noureddin added that the Ministry of Industry and Trade permitted importing cotton from different countries such as Sudan and India, so cotton dealers were inclined to import cotton which is less in price and quality than the Egyptian cotton. The result was that local needs of cotton was almost covered by imported cotton. In addition, Egyptian cotton was not sufficiently promoted in international markets, he added.

According to Noureddin, although the World Trade Organisation gives governments the right to protect its local product when it is negatively affected by imports, the government does not take any action to protect the cotton harvest or farmers’ rights.

“The government should not permit importing cotton unless local production is sold out, in order to protect farmers’ rights,” says Noureddin.

Moreover, experts are against the cancellation of the Egyptian cotton bourse few months ago, which they say has a clearly negative impact on cotton prices. Noureddin explained that being a strategic product, cotton needs a bourse to stabilise its prices according to international prices and guarantees farmers’ rights. “It is unfair that farmers faced big losses this season,” Noureddin said, “agricultural policy should be reconsidered in accordance with the international prices of agricultural products.”

D-8 Organization is expressing concern over this issue, and calls for all related parties to pay a focused efforts to bring the best solution to this problem. D-8 Secretary General, Dipo Alam, said that the organization will examine this issue along with the results and recomendations of the Cotton Investment Forum of OIC last month, in the D-8 Working Group Industry meeting. “The strengthening of economic and commercial relations between the D-8 member countries, especially in cotton sector, is gradually becomes a must if we are going to provide valuable improvements for our member countries,”
he said.

Dipo Alam said that D-8 expects that through a focused efforts in the Working Group Industry meeting, experts can also raise concrete proposals which are likely to create enabling conditions for boosting the existing industrial capacities and infrastructures, promoting foreign direct investments and developing industrial, financial, commercial and technical partnership among the D-8 member countries.

To read the Final Report (PDF) of the Forum on Enhancement and Promotion of Trade and Investment in Cotton Sector among OIC Member Countries, in Istanbul, Turkey, 12-13 November 2007, please click here. (Right-click your mouse, and choose “Save Target As..”)

Photosource: the Cotton Investment Forum.

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