Cotton tenders across Egypt have come to a halt over the past three weeks, with cotton traders ceasing purchases discouraged by a delivery price set by the government at LE12,000 per qintar for Lower Egyptian cotton and LE10,000 per qintar for Upper Egyptian cotton at a time when the global price of Egyptian cotton has fallen to LE8,500 per qintar.

Mustafa Emara, spokesman for the Cotton Institute, an industry body, said the delivery price was mandatory for the government to purchase the cotton crop from farmers. If the market price exceeds the guaranteed price, farmers are free to sell their crop on the open market. However, should the price fall below the guaranteed threshold, the government is obligated to buy cotton from farmers at the guaranteed price.

The fixing of the delivery price for cotton follows discussions in a committee comprising representatives from the ministries of agriculture, finance, and industry, the Cotton Exporters Union, the Traders Committee, and the Chambers of Commerce. It is meant to incentivise farmers to cultivate cotton, a strategic crop that holds a comparative advantage for Egyptian agriculture and retains a strong reputation in global markets.

According to the Ministry of Agriculture, 2024 saw a 32 per cent increase in areas cultivated with cotton across Egypt. Some two million qintars of cotton are expected to be produced by the end of the harvest season, and this will be added to the cotton stock from the previous year, estimated at 400,000 qintars, according to the General Committee for the Regulation of the Cotton Trade in the Domestic Sector.

In early 2024, the committee set the delivery price in the range of LE10,000 and LE12,000 per qintar. However, over the last three months, with intensifying global competition, cotton prices, including those of Egyptian cotton, have decreased, setting the international selling price at LE8,500 per qintar.

This is a reversal compared to last year, which saw a significant rise in prices, surpassing the delivery price which the government had set at LE5,500. The price reached LE8,700 on the international markets, which explains the farmers’ increased interest in expanding cotton cultivation in 2024.

The 2023 season saw some tenders closing at LE15,000, according to a source at the Ministry of Agriculture, who added that since early 2024 the competition between Egyptian and US cotton has become fiercer, with US cotton satisfying a substantial portion of global demand and contributing to the decline in the price of Egyptian cotton on the international market.

Emara noted that the starting price for cotton tenders is determined by either the delivery price or the prevailing international price, with the higher of the two dictating the price at which tenders begin. In the current case, the delivery price is the higher, and as a result all tenders must start at this price.

Four auctions have been held so far, two in Lower Egypt and two in Upper Egypt, resulting in the sale of 300,000 qintars of cotton, with the highest sale price reaching LE50 above the guaranteed price.

However, following these three additional tenders were held in which traders refused to participate, citing concerns over marketing the cotton internationally due to the gap between the local delivery price and the international price.

If this situation persists, the government will be obligated to purchase cotton from farmers at the previously announced guaranteed price, he added.

Since 2015, the government has been aiming to revive Egyptian cotton, preserving original strains known worldwide as producing medium and long-staple cotton.

The country produces seven types of cotton, each cultivated in specific areas. Hybridisation, or the mixing of Egyptian cotton with non-Egyptian varieties, is prohibited, as some native Egyptian varieties have been at risk of disappearing as a result.

According to a source in the Ministry of the Public Business Sector, the Federation of Exporters and Traders has submitted complaints to the government, urging its intervention to resolve the ongoing crisis.

The federation has put forward two proposals, the first suggesting opening sales chains between traders and farmers to negotiate prices freely. However, this will be difficult to approve because it could be unfair for farmers, who will have to sell cotton below cost price, discouraging them from cultivating it in the future.

The second proposal recommends that traders purchase cotton from farmers at the guaranteed price, with the government compensating traders for the price difference between the international price and the guaranteed price, estimated at LE1,500 per qintar.

According to Emara, the traders advocate purchasing cotton at the international price, with the government covering the gap between the two prices. They argue that this will ease the financial burden on the government.

If the latter were to purchase the entire year’s production, estimated at two million qintars, the cost would be around LE20 billion. However, if traders buy the cotton and are compensated for the price difference, the cost to the government will decrease to LE4 billion.

Demand for Egyptian cotton from local factories remains weak. Spinning and weaving factories, both public and private, prefer to rely on imported cotton for more than 80 per cent of their needs due to its lower cost, leading to greater economic returns despite its lower quality.

Emara said the country’s farmers are under pressure due to delays in selling their cotton. They may be forced to sell at prices lower than the delivery price in a parallel market to meet their immediate financial needs, especially as they face mounting obligations and the looming threat of rain during the winter season, which could damage the crop and result in further losses.

Hussein Abu Saddam, head of the Farmers Syndicate, warned that if the government fails to uphold its commitment to pay the guaranteed price for Egypt’s cotton, it risks provoking a crisis between the farmers and the government, one that may be difficult for the latter to resolve.

* A version of this article appears in print in the 5 December, 2024 edition of Al-Ahram Weekly