Asian Competition Has Egyptian Producers Digging In For A Fight
March 31, 2009 Egypt is home to one of the oldest and richest cotton growing traditions on the planet. Cotton farming is an ancient practice in the country, which produces cotton that has become world-renowned for its quality. The industry employs over 500,000 workers on its own, and over 1 million when combined with the country’s overall textile industry — in fact, textile products represent nearly a third of Egypt’s total industrial exports, according to government figures.
But this age-old and revered industry is currently facing one of the greatest challenges of its long history. Fierce competition in international markets, particularly from the booming textile sectors of China and India, have Egypt’s industry scrambling to keep up. Exacerbating the problem are other factors, including domestic competition from other crops that currently provide more favorable returns eating into the area planted to cotton, as well as trade-related questions involving import taxes and the status of the Qualifying Industrial Zones (QIZ) which have helped keep some of Egypt’s cotton textile products artificially more competitive.
Shrinking Land, Growing Imports
Egypt’s coming crop has been confronted on all sides by competitive pressures. Internationally, the heat comes from the East, where powerhouses India and China as well as several developing Southeast Asian producers are rapidly expanding production and grappling for market share. Domestically, growers are switching from cotton to other crops where prices have been more favorable.
In light of these two factors, forecasts from Egypt’s government show a 13% decrease in cotton area and a corresponding 10% decrease in production. This is expected to result in a decrease in exports by approximately 8%, while imports are likely to see another slight increase as the local supply dries up.
Even Egypt’s hallmark of quality is facing risks. Alongside the decline in area from 246,000 hectares (Ha) to an expected 214,000 Ha in 2007/08, the highly regarded quality of the country’s famous Extra Long Staple (ELS) cotton is slipping due to the mixing of ELS varieties, most notably for the Giza 70 variety. The dropoff in ELS cotton quality has lowered export prices and led to decreased returns. The diminished quality and shrinking demand for Egyptian ELS cotton in general has helped to drive the increases in the planted areas of rice and corn at the expense of cotton, most prominently in Upper Egypt.
ELS varieties are expected to make up 20% of Egypt’s cotton crop in 2007/08, a 6% drop from the previous year. The primary ELS varieties being grown in the coming year are Giza 45, Giza 87 and Giza 88.
The rest of the country’s crop will be composed of the Long Staple (LS) varieties of Giza 80, Giza 83, Giza 85, Giza 86, Giza 89 and Giza 90. These varieties are chosen by the government, which each year specifies certain cotton varieties for each cotton-growing region, and the country’s farmers are obligated to cultivate the varieties established for their areas.
Policy Shifts
In February, Presidential Decree 39 put into effect a major reduction in import duties in Egypt for a number of articles, including fabrics, threads and garments. The effort to stem consumer price inflation and to bring Egypt into compliance with United Nations and World Trade Organization standards originally targeted a 55% cut in tariffs, but opposition from thread and fabric manufacturers who feared further increases in competitive pressure convinced the government to lower the tariff reductions to 25% for these sectors.
Under the new legislation, tariffs on fabrics dropped from 22% to 10%; on garments from 40% to 30%; and on threads from 12% to 5%. The government has allocated 150 million Egyptian Pounds (approximately $26.5 million USD) to the clothing industry to deal with increased foreign competition following the reduction in tariffs.
In addition, another challenge posed to the Egyptian textile industry may be looming if the Qualified Industrial Zone (QIZ) protocol that Egyptian manufacturers enjoy with the U.S. comes to an end (for more information, see sidebar, “QIZ Question Mark”).
Keys To Compete
Egypt, to some extent, still controls its own fate in international markets.
In addition to a competitively low cost of labor, the country’s ready access to the E.U. and ports to the Western hemisphere give it some logistic advantages over its main Asian competitors.
Since the country’s level of training and upstream sector are not strengths, there have been efforts to modernize the industry in order to become a more viable global competitor. There is still much room for improvement, but the government and the industry both recognize that to fend off global competition and maintain its present market share, modernization and development are vital.
Egypt’s biggest asset is the worldwide reputation enjoyed by its high-quality cotton. In order to take full advantage of that brand reputation, the industry needs to ensure that several things occur.
First, varieties in Egypt must be kept pure. Mixing of varieties has lowered the quality of some of Egypt’s famous ELS varieties, hurting the industry’s reputation and lowering the asking price for its products in international markets.
Second, the Egyptian cotton and textile industries are demanding better control over the nation’s cotton brand and the “100% Egyptian Cotton” logo.
The cotton and textile sectors charge that the logo is often violated and on many occasions has been applied to products which have not earned the 100% Egyptian cotton distinction. This misuse of the brand has diluted the effectiveness of the marketing effort.
While the logo is seen as a major national signature, industry leaders have complained that very little is being done at any level to protect the logo. Efforts to police the Egyptian brand are being urged by many Egyptian industry leaders.
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