Hot on the heels of an international wheat shortage, the world cotton market is facing a similar supply crisis due to adverse weather conditions. The resulting record prices are a boon for Egypt’s dwindling cotton farmers, but have thrown the domestic textile industry, which relies nearly exclusively on cotton imports, into turmoil.
India, the world’s second largest cotton exporter, instituted export controls in May, triggering a price rise which was further exacerbated by flooding in China, the world’s leading producer; Pakistan, the fourth largest supplier, was also affected. By December, cotton prices had reached an all-time high of more than $1.68 per pound, a near 80 percent hike on prices earlier in the year.
Normally accounting for around 40 percent of the world’s cotton production, China’s production is expected to fall 17 million bales below scheduled output in the 2010-2011 season. Also the world’s leading user of cotton, the Asian nation is now looking to purchase up to 20 million bales on the international market to meet demand from its large textile industry.
This supply shake-up has naturally spread to the rest of the world — in Egypt, cotton farmers are counting their blessings while local textile manufacturers are relying on the state for assistance. To head off a crisis, the Egyptian government has exempted imported yarn from customs duties, while increasing subsidies for manufacturers using local raw materials by 50 percent. In addition, 280 million Egyptian pounds ($48.2 million) in aid money has been dispersed to spinning and weaving factories.
Egyptian cotton has been a household name since the 19th century, when it was first exported around the world for use in bedding and haute couture. Its high quality long-staple cotton is still a niche market for Egypt, but it is the domestic textile industry, which requires cheaper cotton, that the government has opted to support.
Bringing in around $2.13 billion in 2009, textile exports are a major revenue earner for Egypt and account for around a quarter of total exports. Cotton was subsidized until the 1990s, with production peaking at 529,000 tons in the 1980-1981 season. The state scaled back its support of the industry, liberalizing sales in 1994 and removing protectionist tariffs in 2004, and production reached a low of 109,000 tons in 2008-2009.
But with the global shortages, cotton is suddenly enjoying another day in the sun. After witnessing an uptick in prices, farmers increased the share of land dedicated to the crop at the beginning of 2010. An April report on cotton production in Egypt by the United States Department of Agriculture’s Foreign Agriculture Service predicted: “In 2010-2011, cotton area is expected to total about 160,000 hectares, or about a 34 percent increase [over] the area planted in 2009-2010.”
The gambit looks to be paying off: the Alexandria Cotton Exporters’ Association reported in January that its cotton contracts were $344.39 million for 2010-2011, compared to $117.3 million at the same time the previous year. Moreover, ongoing floods in Australia, another major cotton exporter, are a strong sign that prices will remain high for the remainder of the season.
For Egyptian textile exporters, however, the cotton crisis could not have come at a worse time, having recently started to make inroads to the US and European Union textile markets where they face stiff competition from Chinese products. With China prepared to shoulder the high costs of cotton in a time of international shortage, Egypt’s government may need to take extra measures to protect its breadwinning industry.
