egypt cotton document executive summary 201010_sent (1)

1

Table of Contents

! Required Transformation

! Quick Win Actions

! Mid/Long Term Measures

! Appendix

2

The current cotton crisis has put a spotlight on the sector, there are much larger opportunities that have been lost

Cotton Production Declined By 80% Over the Past 30 Years

Most Cotton is Exported Due To Lack of Value Add Capacity

Cotton Yields are 55-65% of Yields in California and China

There is No Adequate Cotton Supply for Local Industry

(Root Cause of Current Crisis)

1981 Harvest Would Be Worth EGP 11.6 bn. at Today’s Price*

Current Harvest Expected To Be Worth EGP 28.5 bn. as Fabric and EGP 74.1

bn. as Garments ****

Achieving Chinese Long Staple Yields Would Have Fetched Additional EGP

1.4 bn. for Egypt This Year**

50,000 Jobs Would Not Be At Risk Today and More Created***

* Based on 1981 production of 529,000 tons and a per cantar price of USD 1.75/lb or 1,097 EGP/Cantar ** Based on Egyptian yields of 6.93 Ca/Fd, Chinese yields of 10.4 Ca/Fd, and California yields of 12.5 Ca/F ***Al-Masry Al Youm, October 10, 2010 – 50,000 is the number of workers in 1,682 factories in El Gharbeya **** Calculated bottom up using cotton amounts and market prices for average fabric and garments made of Egyptian cotton

Egyptian Cotton Sector Issues Lost Opportunities

Less than $1 of cotton in a $200 shirt

3

2009 production was a 140 year low, China has become the largest LS cotton producer, Egypt global ELS share trending to zero

Long Term Egyptian Cotton Production Trend Per Decade + Last Season (in 1,000 Cantars)

Past 10 Years LS/ELS Cotton Global Production Share Development

EGYPT (LS/ELS)

CHINA (ELS only)

USA (ELS only)

INDIA (LS/ELS)

EGYPT (ELS ONLY)

Last Season

Sources: The Egyptian Cotton Gazette, Cotton Outlook

4

In today’s world, no industry can be taken for granted – Paraguay is an example of how a cotton industry almost disappear

Source: International Cotton Advisory Committee, Antonio Esteve Presentation – ICA Singapore 2010

Annual Cotton Production in Paraguay (over the last three decades)

1980 2010 2000 1990

94%

Dro

p

Key Issues: ➔  Lack of investment in farmer knowledge ➔  Lack of investment in seed

development ➔  More focus on soy-beans, other crops

‘000

Met

ric T

ons

Season Beginning Year

5

Supply

There are five key ‘supply’ side issues, four ‘demand’ side issues – all market players require fundamental reform

Egyptian Cotton Sector – Major Issues By Area

R&D Production Ginning

1. Unfavorable Economics (Yields, Costs)

2. Product Contamination

3. Price Volatility

4. Product Mix 5. Ginning

Market Players

Cotton Research Institute

Farmers ALCOTEXA** Traders CATGO* Ginning Companies

Downstream Industry***

Public Sector Private Sector Public and Private Sector

Demand

Domestic Trade Int’l Marketing Value Add

1. Organization 2. Marketing

3. US Subsidies

4. ‘Mismatch’

Details Available

6

Egyptian cotton needs to be repositioned as the global premium cotton – with a cost competitive way sector that can deliver it

Egyptian Cotton – Strategic Direction

!  Regain global leadership

!  Increase domestic production

!  Increase exports

!  Create jobs in farming and processing

!  Increase local value add *

National Objectives

!  Start managing the sector across the full value chain

!  Achieve world class yields comparable to the global leaders

!  Achieve adequate cost competiveness

!  Support farmers with capability building and management of price fluctuations

!  Improve contamination management

!  Position as no. 1 in global markets

!  Rebuild public sector institutions

!  Encourage the rise of stronger private sector institutions

!  Improve the domestic trading environment

Sector Strategies

* Spinning, weaving, finishing, garments, brands

7

Table of Contents




! Appendix

8

There are 10 measures that can be started immediately

Egyptian Cotton Sector – Immediate Measures

1

2

3

4

5

Increase Number of Source Countries for Imports To Ease Supply Issues

Remove The Fumigation Requirement At Origin Where Feasible (e.g. in California)

Set Up A Cotton Reserve Fund To Provide a Price Floor and Strategic Supplies

Revive The Role of The Principal Bank for Development and Agricultural Credit in the Sector (Financing, Technical Support)

Increase Requirements for Cotton Traders to Get a Stronger, More Competitive, More Strategically Focused Group

6

7

8

9

10 Establish a Higher Council for Cotton to Govern the Sector Transformation and Provide Strategic Guidance

Set Targets and Assign Clear Mandates for Contamination Management and Start a Pilot Contamination Reduction Initiative

Restrict Cotton Trading to a Set Number of Controlled Trading Rings

Establish The Legal and Operational Framework For Piloting Contract Farming for Cotton in Egypt

Launch an Incentive Package for the Development of the ‘Fine’ Spinning, Weaving, Finishing, and Garments Industry

9

1. Increase Number of Source Countries for Imports

Quick Win Actions

!  There is no other example of such a blanket ban on a large number of cotton source countries

!  On the other hand, China has managed to safely increase imports from zero to more than 2.5 million tons per year over the last decade

!  China imports cotton from more than 22 countries, including India, West Africa, and Australia

!  China is also the largest producer of Extra Long Staple cotton in the world

The Issue

!  No short staple cotton is grown in Egypt

!  Majority of local spinning capacity requires short staple

!  Cotton imports are limited to a limited number of source countries/regions*

International Experience

Recommended Measure

!  Increase cotton source countries/region

!  Develop/adjust import procedures as required to maintain quality

!  Additional source areas can include West Africa and other areas of the United States

Rationale !  The regulation adds additional strain

to the already strained local industry

!  The regulation leaves out the majority of worldwide cotton exporters

!  Specific quality requirements for imports will still be maintained

* Sudan, Syria, Greece, Uzbekistan, Turkmenistan, California and Arizona

Source Area 1,000 Tons % USA 2,221 33% India 1,406 21% Uzbekistan 788 12% Western Africa 479 7% Australia 348 5% Southern Africa 305 5% Brazil 289 4% Greece 161 2% Turkmenistan 151 2% Kazakhstan 64 1% Syria 49 1% Sudan 35 0% Others 541 8% Total 6,753 100%

Source: ICAC

2009/10 Worldwide Cotton Exports

Fully or partially banned cotton source areas

10

2. Remove The Fumigation Requirement At Origin When Feasible (e.g. in California)

!  Only Egypt and Brazil require fumigation at origin

!  China, Pakistan, and India do not require fumigation at origin, even though they are major cotton producers and also importers of cotton

The Issue

!  Cotton that is exported to Egypt needs to be fumigated at origin

!  This leads to higher costs (USD 1,000 per container) and longer lead times for imported cotton


Recommended Measure

!  Remove Double Fumigation Requirement Where Feasible (e.g. in California )

!  Review import procedures for other technical barriers for trade

Rationale

Sources: USDA, National Cotton Council, Egyptian Organization for Standardization and Quality Control

!  The objective of fumigation is to kill all insects, especially the pink bollworm and the cotton boll weevil, before the products reach Egypt

!  However, it is important to note: -  Mechanical Harvesting and

Ginning processes eliminate Boll Weevil

-  Egypt only imports cotton from areas that are boll weevil free. In the US, is has been eradicated in the 80s

-  The fumigant Methyl Bromide is being reduced worldwide and on its way to being banned

!  Like source country restrictions, this requirement can be seen as a technical barrier to trade that negatively impacts local industry

Quick Win Actions

11

3. Increase Requirements for Cotton Traders to Get a Stronger, More Competitive, Strategically Focused Group

!  There are 41 cotton merchants in the United States for a volume of around 3 million tons (around 25x the size of Egypt production)

!  There are only a handful Pima cotton traders in the United States

!  The Australian Cotton Shipper Association has seven members (Australia exports 2-3x total Egyptian production)

!  A large number of traders remain in India and in Pakistan, but there the government takes a very active leadership role in the sector

The Issue !  Domestic trading is very

fragmented (348 registered and 40 active traders)

!  Traders have little financial strength and are short term focused

!  Controlling a large number of traders is challenging


Recommended Measure

!  ‘Raise the bar’ for traders

!  This can be easiest done through increasing the minimum capital requirement from now EGP 30,000

!  The requirement is stated in law 210/94

Rationale

Sources: US Cotton Shippers Association, Australian Cotton Shippers Association, Egyptian Cotton Laws, General Committee for Organizing Domestic Trade of Cotton

!  The 1994 trading law is lenient with respect to its requirements for becoming a trader

!  Reducing the number of traders will have the following benefits (as long as collusion can managed)

-  Financially stronger and more strategically focused traders

-  Easier to control trading /quality

-  Stronger bargaining position vs. international buyers of Egyptian cotton

!  It is important though, to ensure that a competitive market is maintained

Quick Win Actions

12

4. Restrict Cotton Trading to Controlled Trading Rings

!  All major cotton producers have either commodity exchanges that include cotton or specific cotton exchanges

!  Examples are: –  China National Cotton

Exchange –  Zhengzhou Commodities

Exchange –  New Orleans and New York

exchanges –  East India Cotton exchange –  Karachi cotton exchange

!  In areas, where there are no cotton exchanges (e.g. for US Pima), there are limited number of traders

The Issue

!  There is no operational cotton exchange in Egypt

!  Trading is not restricted to certain areas

!  Therefore, cotton trading occurs in scattered places and cannot be controlled well


Recommended Measure

!  Establish a fixed set of trading rings for domestic cotton trading

!  Restrict cotton trading in Egypt to these cotton rings

Rationale

Sources: USDA, National Cotton Council, 2006 MALR MFTI joint committee on domestic trading report (joint decree 712 for 2006)

!  Law 210 for the 1994, which organizes domestic cotton trading was issued in parallel to a law that established a cotton exchange in ‘Mina El Bassal’ (law 141/94)

!  The cotton exchange has never manage to successfully start-up and has been discontinued in 2006

!  Trading today is distributed across the cotton growing areas and is not restricted to specific places

!  This leads to a number of issues:

-  Trading controls are more challenging

-  Price transparency can be improved

!  The establishment of specific and controlled trading rings will improve the organization of domestic cotton trading

Quick Win Actions

13

5. Establish The Legal and Operational Framework For Piloting Contract Farming in Cotton

!  In India, contract farming is used for virtually all crops

!  As agricultural land is getting scarce, contract farming became the preferred way for organizing the industry

!  Farmer non-compliance starts at 10-15% and then reduces to 1-2%

!  Indian companies involved in cotton contract farming: –  Apachi Cotton Company –  Cotton Corporation of India –  Super Spinning Mills Ltd. –  Ion Exchange EnviroFarms

!  Cotton contract farming is more challenging than other crops and it has been less successful than other crops

The Issue

!  Agricultural land ownership in Egypt is fragmented

!  There are no private sector partners to support farmers

!  Farmers are suffering from large price swings and have no way to hedge


Recommended Measure

!  Establish the legal and operational framework for contract farming

!  Elements are coordination/arbitration agency, contracts, seed distribution mechanism

!  Start rolling out contract farming on a pilot basis

Rationale

Sources: Kapasindia, The Hindu Business Line, Manage, Cotton Corp of India

!  The fragmentation of Agricultural land will make changes difficult and contract farming can serve as an aggregator

!  Private sector partners can support farmers they contract with financially and technically

!  Contract farming has been rolled out successfully for sugar beet in Egypt

!  It is important to note though, that the fragmentation of ownership and the strong fluctuation in prices will provide challenges

!  The recommendation is therefore to establish the framework and start testing contract farming first in certain areas

Quick Win Actions

14

6. Set Up A Cotton Reserve Fund To Provide a Price Floor and Build Strategic Supplies

!  China National Cotton Reserve Corporation –  Responsible for the

management of state cotton reserve

–  Buys and sells cotton to stabilize market prices

–  Owns and manages warehouses for owned cotton

!  India establishes Minimum Support Prices (MSP) –  MSPs are fixed on a staple

group basis –  Government agencies

purchase cotton at MSP and sell at market prices, gains or losses go to the exchequer

The Issue

!  Farmers are suffering from large price swings and have no way to hedge

!  When cotton becomes scarce internationally, local industry faces challenges to secure cotton


Recommended Measure !  Establish a strategic cotton

reserve fund

!  The cotton reserve fund announces minimum prices before the season

!  The cotton reserve buys when prices reach this level and sells again when required

Rationale

Sources: China National Cotton Reserve Corporation website Managing Cotton Price Risk in Egypt, Omneia Helmy, November 2001, India Ministry of Agriculture

!  It is not clear to what extent price fluctuations can be managed by the introduction of contract farming

!  A strategic cotton reserve fund would have two advantages –  Farmers can be supported when

prices are low though buying at the set minimum price

–  Local industry can be supported when prices are high by selling from the strategic reserve

Quick Win Actions

15

7. Revive The Role of The Principal Bank for Development and Agricultural Credit (PBDAC) in the Sector

!  There are examples for the financing roles by agricultural banks in almost all countries

!  Internationally, banks typically do not get involved in cotton production operations

!  However, the measure is recommended:

–  As the PBDAC has qualified staff and available facilities that can support the cotton sector beyond financing

–  As the reviving of the Egyptian cotton sector is a matter of national interest

The Issue

!  Issues in the cotton sector can be divided into operational and financial

!  To address the financial issues, a strong partner with the right experience is required


Recommended Measure

!  Bring the PBDAC back into the cotton sector

!  Activities can include: -  Financing of cotton reserve -  Provision of experienced

staff -  Provision of infrastructure

Rationale

Sources: Discussion with Mr. Aly Shaker, chairman of PBDAC, Review of international Agricultural Banks on the internet

!  The PBDAC is the main bank responsible for agriculture in Egypt

!  It is government owned and its mandate is to serve national interest

!  The PBDAC has liquidity of EGP 13 bn. And a loan to deposit ratio of 58%

!  It is already involved in the trading of wheat (buying 25% of Egyptian annual consumption of eight million tons)

!  PBDAC has past experience in cotton, both in financing and in operations

!  The bank also still has staff with specific capabilities related to cotton

Quick Win Actions

16

8. Launch an Incentive Package for the Development of the ‘Fine’ Spinning, Weaving, Finishing, and Garments Industry

!  In India, Ministry of Textile has set up the Technology Upgrading Fund Scheme (TUFS) to provide easy availability of finance to the textile sector including spinning, ginning and pressing units

!  Key policy measures –  Reduction of import duties

on textile machineries –  Support for the development

of partnerships between governments and small and medium enterprises

–  Conducting trainings –  Support in the development

of Indian apparel brands

The Issue !  Most of Egyptian cotton gets

exported

!  There is not enough ‘fine’ value adding capacity available

!  The value from Egyptian cotton is captured elsewhere, outside the country


Recommended Measure

!  Launch incentive and support packages to support the development of a ‘fine’ value adding industry

!  Incentives can be financial, land, or as provision of services around training and know-how development

Rationale

Sources: The Cotton Corporation of India, India Ministry of Textiles, Interview with Mr. Mohsen Gilany (Chairman Egyptian Holding Company for Textiles)

!  There is a mismatch between the cotton and the value adding industry in Egypt

!  The cotton sector: –  Produces high value long staple

cotton –  Price premiums vs. average cotton

prices are 10-30% –  Exports are used on high value

products like high end shirts

!  The value adding industry: –  Mostly focused on medium to low

value textiles –  Mostly uses short staple cotton

and coarse yarns

!  The value of finished products is up 100 times higher than the price of the cotton that was used in it

Quick Win Actions

17

9. Set Targets and Assign Clear Mandates for Contamination Management and Start a Pilot Contamination Reduction Initiative

!  China has one very powerful entity with law enforcement powers to control all commodities, including cotton

!  India measures: –  Storing Cotton on cemented

floor and not on mud floor –  Reducing contact with

human body –  workers to tie their hair and

wear caps –  Cleaning of the storage

premises by cotton or cloth brooms

–  Wearing hand gloves while hand-picking

–  Before bailing, passing the cotton through ultra-violet rays

–  Packing cotton bales in cotton bags rather than plastic or jute bags

The Issue

!  No central body exists for contamination management across the value chain

!  Contamination is neither measured, nor controlled, nor penalized


Recommended Measure

!  Assign clear mandates for contamination management

!  The responsible entity can be CATGO or CATGO plus MALR

!  Develop and enforce contamination targets

Rationale

Sources: USDA, National Cotton Council, International Textile Manufacturers Federation, International Customer Interviews

!  Egyptian cotton is not used for high value white textiles – 30% of the market

!  The product is subjected to a price discount due to its contamination

!  The main competitiveness advantage of US Pima vs. Egyptian cotton is its low contamination level

!  Contamination continues to erode the brand image of the product

Quick Win Actions

18

10. Establish a Higher Council for Cotton to Govern the Sector Transformation and Provide Strategic Guidance

!  India Cotton Advisory Board –  Advise government on

production, consumption and marketing of cotton

–  Acts as a liaison amongst producers, traders, and government

!  National Cotton Council of America (NCC) –  Represents the seven

segments of the textile industry (growers to textile mills)

–  Engages in data collection, research, marketing, and government lobbying

!  China Cotton Corporation –  Non-profit organization

under government control –  Oversees and coordinates

the entire value chain

The Issue

!  Each entity in the sector is focused on its specific area

!  There is nobody who can take a full value chain view

!  The effect is worsened by the fragmentation of farmland


Recommended Measure

!  Establish a Higher Council for Cotton

!  Council should provide strategic guidance on cross sector matters

!  Council should lead sector transformation

Rationale

Quick Win Actions

Sources: The Cotton Corporation of India, India Ministry of Textiles, National Cotton Council of America, China Cotton Corporation

With the current set-up: !  It is impossible to implement a coherent

sector strategy

!  Customer requirements do not filter well through the chain

!  Issues cannot be addressed with a comprehensive approach

A higher council can:

!  Lead the implementation of the required changes across the sector

!  Provide strategic leadership at key decision points (e.g. decisions around imports, cotton map)

!  Represent Egyptian cotton domestically and internationally

19

Table of Contents




! Appendix

20

In a next step, the future cotton industry of Egypt needs to be built to once again serve as a cornerstone for the economy

Egyptian Cotton Sector – Mid/Long Term Measures

R&D Production Ginning Domestic

Trade Int’l Marketing

Restructure and Increase Cotton

Research Institute Funding

Drive The Development of

Improved Agricultural Practices

Continue stalled restructuring and privatization of Ginning industry

Start Short Staple Cotton Growing Tests in Toshka

Refocus and Relaunch ‘Cotton Egypt’ Branding

Campaign

Transform ALCOTEXA into a Marketing Support

Organization

Modernize CATGO and transform it into a regulatory body for cotton*

Hire Professional Support To Review Egypt’s Options vs.

US Subsidies

1 6 5 4 2

3 7

8

* An operational role can be maintained as long as CATGO can provide what the market needs at competitive rates

21

1. Restructure Cotton Research Institute (CRI) and increase its funding

!  India achieved a rapid increase in yields through focused R&D, introduction of Bt cotton, and improved management practices

!  There are three important R&D entities in India today, covering all areas from research to farming

!  In the United States, one of the main reasons for founding ‘Supima’ in 1954 was the development of private sector R&D

!  Private companies are active in cotton seed R&D in Argentina, Brazil, Colombia, Greece, India, Indonesia, Israel, Uganda, and the United States

The Issue !  Egypt cotton yields declining

as opposed to global cotton and local agricultural yields

!  Current variants more than 10 years old

!  Link between R&D and farming /markets can be strengthened


Recommended Measure !  Increase CRI funding to EGP

10-15 million per year

!  Restructure institute to improve efficiency, and integrate better with farming and markets

!  Encourage private sector participation

Rationale

!  Research & Development is a cornerstone for any business

!  The current budget of the institute is less than EGP 1 million

!  EGP 15-20 million is <1% of usual annual cotton sales (even less for this year)

!  At the moment, the cotton research institute does not work with clear, market driven objectives

!  There is no sufficient integration with agriculture

!  In addition, there is no participation by the private sector in cotton seed R&D (as opposed to other crops)

!  All this is especially important given the competition that cotton is facing from other natural or man-made fibers

Sources: India Ministry of Trade, India Ministry of Agriculture, India Ministry of Textiles, ICAC , Cotton Outlook, Interviews

Mid/Long Term Measures

22

2. Drive The Development of Improved Agricultural Practices

!  India’s Technology Mission develops water, nutrient, and pest management practices

!  India’s Central Institute for Cotton Research develops optimal farming/cropping systems per zone

!  India’s Technology Mission on Cotton average budget over the last four years was USD 14 million (one of three large research institutions)

!  United States Cotton Incorporated focuses on the research on raw cotton production

The Issue !  Egyptian cotton farming

practices are not optimal (e.g. cotton often planted too late, surface instead of drip irrigation is used)

!  Harvesting is very expensive

!  Farmers do not receive adequate technical support


Recommended Measure

!  Reinforce development of agricultural practices

!  Improve training for farmers

!  Invest in improved tools (e.g. for drip irrigation)

!  Increase funding to EGP 10-15 million

Rationale

!  Like R&D, agricultural practices are a cornerstone for the entire sector

!  Current agricultural practices negatively influence quality, yields, and costs

!  Changing climatic and soil conditions require changes in agricultural practices

!  The fragmentation of agricultural land makes it impossible for farmers to develop optimized practices themselves

!  Funding of EGP 10-15 million represents <1% of cotton sales, which together with seed R&D spending would bring total R&D spending in the sector to < 2%

Sources: India Ministry of Trade, India Ministry of Agriculture, India Ministry of Textiles, Cotton Incorporated


23

3. Start Short Staple Cotton Growing Tests in Toshka

!  The following countries produce short- and long staple cotton: –  United States –  China –  India –  Israel –  Former USSR

The Issue

!  Domestic spinning industry mainly uses short staple cotton

!  There is no domestic supply of short staple cotton

!  As the ongoing crisis shows, this can


Recommended Measure

!  Start testing domestic growing of short staple cotton

!  Toshka can be an ideal area for this

Rationale

!  The local spinning industry requires a stable source of short staple supply

!  Imports can be an important source, but local growing will increase security

!  Toshka is far enough to avoid variant mixing

!  Toshka can support mechanized harvesting

!  Domestic growing tests in upper Egypt in the 80s showed promising results (2x Egyptian long staple yields)


Sources: ICAC, Egypt Cotton Research Center

24

4. Continue stalled restructuring and privatization of Ginning industry

!  India is addressing the modernization of its Ginning industry through the Technology Mission of Cotton

!  In the United States, the Cotton Ginning Research Laboratory is developing High Speed Roller Gins that will reduce ginning/lint cotton costs

The Issue

!  The average age of ginning equipment is > 100 years

!  Only 30% of capacity has been privatized

!  Modern technology is lacking

!  There is overcapacity


Recommended Measure

!  Develop a future vision for the Egyptian ginning industry

!  Restart the stalled privatization of the industry

!  Close excess public sector capacity

Rationale

!  Ginning is the connection between cotton production and markets. A strong ginning sector is essential

!  While the quality of the actual ginning is not an issue, there are often issues related to the entire process:

–  Limited ability to detect foreign particles automatically and thereby reduce contamination

–  Additional contamination being introduced (oil, grease) through mishandling and antiquated machinery

–  The baling process can also be improved. Due to the different sizes of local and export bales, lint cotton needs to be repackaged for export if the original gin cannot press export ready bales


Sources: India Ministry of Textiles, Field Visits, International Textile Manufacturers Federation

25

5. Modernize CATGO and transform it into a regulatory body for cotton – a maintain an operational role only if economic

!  HVI classification is becoming the international standard (vs. Egypt, where only 10% of the crop is classified via HVI)

!  Most cotton production countries do not have their own arbitration entity, but use the International Cotton Association in Liverpool

!  The Chinese General Administration for Quality Supervision and Inspection and Quarantine is responsible for quality management of goods in China, including cotton and has law enforcement authorities

The Issue

!  CATGO has a monopoly on local arbitration and testing

!  Its size has not been adjusted to the reduction in market size

!  Technology used is outdated !  Services are ‘pushed’ and

costs are simply rolled over


Recommended Measure

!  Restructure and modernize CATGO to optimally fulfill its regulatory functions

!  Add law enforcement functions to CATGO

!  Move the operational functions of CATGO to the private sector

Rationale

CATGO as a Regulator: !  CATGO has an important regulatory

role for the Egyptian cotton sector !  However, there are a number of

issues with this, for example: -  Lack of funding for getting the

required equipment (e.g. HVI) -  No mandate for contamination

management -  No law enforcement mandate

CATGO as an Operator: !  It is suboptimal to have services

‘pushed’ onto users by a monopoly !  The cost should be paid according to

value and not simply as a ‘per cantar’ roll-over as it currently is the case

!  Some CATGO services were seen as optional by a ministerial committee

!  Private sector can perform some of CATGO services

Sources: CATGO interviews, joint 2006 MALR MFTI committee report (based on ministerial decree number 712 of 20006)


26

6. Refocus and Relaunch ‘Cotton Egypt’ Branding Campaign

!  Supima has risen to become one of the most recognized cotton brands in the world

!  The United States has several umbrella and sub-brands for cotton

!  Branding is fully supported by cotton producers

!  There is a strong legal monitoring system in place for Supima

!  Supima has as an objective that marketing promises are kept by the quality of the product

The Issue

!  There is no evidence that the ‘Egypt Cotton’ branding campaign has been successful

!  There are a number of shortcomings that become evident when comparing it for example to ‘Supima’


Recommended Measure

!  Launch sub-brands per cotton variant

!  Increase legal controls on logo usage

!  Reintroduce commercial in addition to technical names

!  Build campaign on customer insights

Rationale

•  It is important to note that important improvements to the campaign are underway, however some issues remain:

!  The ‘Egyptian Cotton’ logo is an umbrella brand only

!  There is no equivalent to sub-brands like ‘Supima’, or ‘Cotton Natural’

!  Giza 86, 88, etc. are technical names that cannot be used as brands like for example Supima or Upland

!  Branding efforts do not seem to be based on in depth customer/consumer understanding

!  Branding efforts are being conducted without integration with supply end of the chain – “promises are not kept”


Sources: Supima, Cotton Egypt

27

7. Transform ALCOTEXA into a Marketing Support Organization

!  In the United States, Cotton Council International represents cotton with more than 60 offices worldwide

!  None of the major cotton exporters has an export associations that is governed by a specific law

!  Most cotton exporters around the world use standard contracts from the International Cotton Association in Liverpool

!  The ICA can also assume arbitration responsibilities

!  The bylaws of the ICA are not defined by any laws

The Issue

!  ALCOTEXA is governed based on the law 211 for the year 1994

!  The organization is export transaction focused (e.g. arbitration)

!  There is a lack of marketing support for Egyptian cotton


Recommended Measure

!  Transform ALCOTEXA into a marketing support organization (see rationale)

!  Association bylaws to be be defined by its members

!  Standardize export processes

Rationale

!  There are a number of marketing support activities that are not properly performed today: –  Market data gathering and sharing –  Development of customer (needs)

understanding –  Branding –  Marketing

!  The bylaws a market facing entity governed are better defined by its members as the main stakeholders

!  There is no clear reason for maintain specific contract formats for Egyptian cotton exports


Sources: International Cotton Association, ALCOTEXA law, Interviews

28

8. Hire Professional Support To Review Egypt’s Options vs. US Subsidies

!  Triggered by a case brought forward by Brazil, ‘step 2’ was ruled as ‘not consistent with WTO commitments’ of the US in 2004

!  In 2010, the US agreed to compensation measures, including a $147.3 million annual fund to provide technical assistance and capacity-building for Brazil’s cotton sector

The Issue

!  Pima cotton users are provided with financial subsidies when prices are low

!  This is comparable to the US ‘step 2’ program, which was ruled against by the WTO

!  Egypt’s options are not clear


Recommended Measure

!  Hire professional legal support to receive an opinion on how to proceed with regards to this matter

Rationale

!  There are a number of things that are similar between the US support for Pima and the ‘step 2’ program that was ruled against by the WTO

!  However, the Pima case is more difficult to resolve than Upland due to the small volume and price fluctuations of ELS, in addition to the weaker negotiating position of Egypt

!  At the moment, efforts to address this have only been made by internal resources of the MFTI, without resorting to external professional support

!  Resolving this issue, can be of substantial benefit for Egypt since the United States is the largest exporter of long staple cotton in the world and Egypt is the second largest


Sources: WTO, US Congressional Research Services, USDA

29

Table of Contents




! Appendix

30

Interviews Conducted

!  Ministry of Trade & Investment: –  Minister Rachid Mohamed Rachid –  Dr. Samiha Fawzy (First Undersecretary) –  Mr. Sayed Abul Omsan (Advisor to the Minister) –  Mr. Mohamed A. Ibrahim (2nd Undersecretary) –  Miss Shaimaa Serag (Senior Economist) –  Mr. Ali Mohamed Ali (Head of Cotton Sector)

!  Ministry of Agriculture and Land Reclamation: –  N/A

!  Principal Bank for Development and Agricultural Credit –  Mr. Aly Shaker (Chairman)

!  Cotton Testing and Arbitration General Organization (CATGO) –  Eng. Tharwat M. El Miniawy (Chairman) –  Dr. Mahmoud El Bagoury General Manager

!  Egyptian Holding Company for Textiles –  Eng. Mohsen El Gilany - Chairman

!  ALCOTEXA –  Mrs. Wissam Elsayed Abd (General Manager)

!  Egyptian Organization for Standardization and Quality Control –  Dr. Hany Barakat (Chairman)

!  Egypt Cotton Research Institute –  Dr. Mohamed Abdelsalam (Former Vice-Chair)) –  Dr. Mohamed Abdelrahman (Head of Spinning

Division) !  Federation of Egyptian Textiles

–  Mr. Mohsen Al Morshedy (Chairman) !  Export council for agricultural exports

–  Mr. Sherif El Beltagy (Chairman) !  Trading companies:

–  Mr. Mohsen Abd Elatif (GM Modern Nile Cotton Company)

–  Mr. Ayman Nassar (GM Nassco, Setcore Spinning and Weaving)

–  Mr. Medhat El Alfy (GM Nassco Trading) !  Cotton customers

–  Mr. Silvio Albini (largest fine shirting fabric manufacturer in Europe)

–  Mr. Mohamed Eshra (CEO of Eshratex) –  Mr. M. I. El Messiri (MD Garment and Terry Towel

Industrial Company) –  Mr. Wassef Sawaf (General Manager, Canaren)

Appendix

egypt cotton document executive summary 201010_sent (1)

Documents