The government is experimenting with a new mechanism for companies to buy the cotton harvest from farmers in a way that guarantees the highest returns to cotton growers.
A committee including representatives of the ministries of public enterprise, agriculture, and trade and industry has been formed to oversee the new strategy and guarantee the best pricing.
Under the new system, introduced on a trial basis in the governorates of Fayoum and Beni Sweif, cotton will be sold at auction. The pricing of the harvest will be determined according to average international prices on a daily basis.
Private cotton-trading companies participating on Sunday in the first auction under the new system objected to the high price at opening of LE2,100 per qantar, a unit of measurement, according to a statement by the Ministry of Public Enterprise.
While five private companies attended the auction, only state-owned companies such as Al-Wadi Trading and Cotton Ginning, a subsidiary of the Holding Company for Cotton, Spinning and Weaving, bid in the auction due to the high opening prices.
According to the statement, the cotton was sold to the Al-Wadi Company.
The system is being piloted in the two governorates during the current harvest season from August to November. Seventeen centres operated by the Holding Company for Cotton, Spinning, and Weaving will be located in the two governorates to receive short-staple cotton from farmers directly. Packs made from a special material to protect the cotton from contamination will be available in the centres.
Only registered trading companies are permitted to take part in the auctions. Farmers will receive 70 per cent of the price on the day of the auction, while remaining amounts will be received within one week. Although the harvest season started at the beginning of August, the amount of cotton received has thus far been small, however.
“The farmers are sceptical about the new system because prices are expected to be less than last year’s procurement prices,” said Magdi Al-Sharaki, deputy chairman of the Cotton Internal Trading Committee in the Behera governorate. The majority of farmers have not delivered their cotton to the collecting centres and have preferred to see prices at the first auction, he added.
Under the old system, the government used to set a fixed price for cotton each year before the cultivation season. In 2018, the price of cotton was set at LE2,700 per qantar in the Nile Delta and LE2,500 in Upper Egypt. However, these prices were considered unfair for farmers, who complained that the cost price was higher than the selling price.
Under the new system, farmers have been told that prices will be in accordance with international prices. “But the farmers have nothing to do with international prices. They only need to get back their production costs in addition to a reasonable profit margin,” Al-Sharaki said.
Farmers in the US and Europe are highly supported by their governments to cultivate strategic crops, and it would be unfair if locally produced cotton was sold at the same price as those used internationally, he added.
“The current international price for cotton is equivalent to LE1,700 to LE1,800 per qantar,” he said.
Rabie Abdel-Tawab, a member of the Agricultural Development Cooperation in the Beni Sweif governorate, said that farmers had been suffering in recent years. “Cotton production costs increased this year to reach LE2,000 per qantar, so if prices are less than production costs, the new system will destroy cotton cultivation completely and will push farmers to stop growing it,” he explained.
He said that the initial price before bidding would be subject to ups and downs depending on the international market, which farmers in Egypt would not accept, especially if the international prices decreased. Egyptian farmers would not accept the idea that one day they would sell their cotton at one price and then they would sell it at a different price the next, he said, particularly since production costs would not change.
“Reviving the cotton industry requires the formation of a state fund. This would set a fixed price at the beginning of each harvest season, and if cotton prices decrease, farmers will still be compensated through this fund,” Abdel-Tawab said.
Another solution would be to halt cotton imports in order to increase the prices of locally produced cotton.
According to Al-Sharaki, the total land cultivated with cotton this year is estimated at 330,000 feddans. The productivity of a feddan is between five and six qantars of cotton.
To encourage farmers to cultivate cotton, last year the government promised to take the harvest at a guaranteed price of LE3,000 per qantar.
But when the harvest was collected the government did not hold to its commitment to buy the cotton from farmers at the guaranteed price, with the farmers claiming this was a violation of Article 29 of the constitution, which stipulates that the government must buy strategic crops at appropriate prices to achieve a reasonable profit margin for farmers.
*A version of this article appears in print in the 29 August, 2019 edition of Al-Ahram Weekly newpaper under the title: New Cotton Auction