Egypt: new hope for cotton trade . . .
On a midsummer day in the Nile Delta, near the textile town of Mehalla el-Kubra, one is apt to see fleets of imported Japanese trucks laden with green clover instead of white cotton, the raw material for the nearby mills of the Misr Spinning and Weaving Company. Of course, midsummer comes two months before the cotton harvest begins. The bolls are immature and still attached to their stalks. Yet, the absence of cotton and the profusion of clover -- or berseem, at it's called here -- give a visual impression not far from the economic reality of the Egyptian cotton industry.
Cotton is the cash crop on which a large Egyptian textile industry is based and for which Egypt obtains vital receipts in hard currency on the world market. Exports of raw Egyptian cotton rank second, albeit distantly, to Egyptian crude oil.
But given the world oil glut, Egypt's predicted oil-production peak sometime this decade, and the recent leveling off of worker remittances from abroad, cotton could soon resume much of its former glory -- especially if the government's fervent quest for more exports persists.
A problem looms, however. For Egypt, cotton is a moneymaker. For the Egyptian farmer, it's just a lot of ill-compensated work.
Egyptian extra-long-staple cotton, which many farmers are required to cultivate, is famous for long fibers that produce high-quality yarn. Developed by a French scientist in Cairo in the 1820s, long-staple cotton became Egypt's prime export during the cotton famine of the American Civil War. Later, during the colonial epoch, the British greatly expanded its cultivation.
Exported cotton created the modern Egyptian economy. Some historians maintain it also impoverished the Egyptian peasant, skewed the country's agricultural sector toward a single crop, and caused more problems than benefits.
Egyptian cotton cultivation peaked at 2.1 million acres just after World War II. Since the 1950s, and especially in the last decade, that acreage has slipped by half, despite the reclamation of more than 1.1 million additional acres of arable land from Egypt's agricultural nemesis, the desert.
Even so, Egypt's share of global long-staple cotton output remains about 45 percent. The United States is Egypt's biggest customer. But India, once a major client, stopped importing in the 1970s, when it attained self-sufficiency.
Over the last 30 years, many Egyptian acres have been switched from cotton to cereals, so as to reduce Egypt's huge grain imports, and to berseem, a change many economists deem particularly wasteful.
Berseem, an agricultural legacy of the pharaohs, is the main source of animal forage in a country with a critical dearth of tillable land, let alone pasturage.
Chemically, a natural symbiosis exists betwen the two crops. Clover grows well in the nitrogen-depleted soil vacated by cotton, and cotton thrives on the nitrogens berseem returns to the ground.
But in the economic sphere, the crops oppose each other over Egypt's complex system of agricultural pricing.
``Cotton demands a lot of work for nine months,'' says Dr. Hassan Khidr of the Egyptian Ministry of Agriculture. ``There are insects, blight, complicated irrigation, high labor costs, and so on. Two small annual harvests of berseem, which matures in five months, give farmers more money than more months of cotton.''
Dr. Khidr this year helped raise the producer price the government pays for a metric kanta (347 pounds) of raw Giza No. 45 long-staple cotton from E80 to E100 ($64 to $80). He condemns Egypt's 21-year-old agricultural pricing system as favoring a transfer of wealth from the countryside to the cities -- a key cause for Egypt's staggering rate of urban migration.
``Past policy directed farmers to grow crops not indirectly taxed through [government] producer prices,'' says Khidr. ``Thus they grow forage crops to feed the meat demanded by urban consumers.''
Although fresh red meat, for sale only three days a week here, goes for a premium, its blow to the urban pocketbooks is softened by a separate system of consumer price subsidies on everything from bread to movie tickets.
At the government supermarket/restaurant across the street from the Agriculture Ministry, a light lunch of grilled kidney, pickled vegetables, bread, and lemonade costs the US equivaent of a quarter. A pound of fresh butter -- from Europe or America -- runs $1.25. A bus ride home is only 3 cents.
``If it were purely up to international economic forces, our red meat and berseem market would collapse, because we can import meat cheaper than we can produce it,'' says Khidr. ``Yet meat is a highly protected industry.''
According to Dr. Khidr, the Egyptian government now focuses on the agricultural sector and realizes that farmers must get more out of what they produce, no matter what their crop.
But cotton presents difficult policy options, since the Egyptian economy depends on the export of raw cotton to help counter Egypt's chronic trade deficit. ``Cotton is a highly remunerative crop in terms of export revenues,'' says Khidr. ``But farmers get little of that remuneration, and the central government gets a lot.''
The latest word from the US Department of Agriculture's Foreign Agriculture Service is that an ``abundant'' world supply of cotton is causing the market price to fall. A cotton glut might force Egypt to look for new export revenues in textiles instead of raw cotton.
Since the late 1970s, Egypt has actually imported short-staple upland cotton from the United States and the Sudan to supply the state-owned and -operated Misr Spinning and Weaving mills, which were found to be producing inferior yarn from Egypt's superior cotton.
Over the last few years, however, new investment, some financed by the US Agency for International Development, has allowed the purchase of new spinning and weaving equipment.
Egyptian-made clothing woven from Egyptian cotton is now for sale under various brand names in Western Europe and the US, in addition to Egypt's traditional markets in Eastern Europe and the Arab countries.
Whatever Egypt's future cotton policy, the country must first contend with the problems of this year's harvest.
In July, according to the semiofficial newspaper al-Ahram, Egypt's projected 1985 production of 480,000 tons of cotton lint was in peril from rural labor shortages, caused by low wages; the improper installment of new irrigation drainage equipment; inadequate crop dusting; and a serious increase in both cotton wilt and pink bollworm infestation. . . . but a wish for revision in US aid
Local wags often say development assistance to countries like Egypt is actually a transfer of wealth ``from poor people in rich countries to rich people in poor ones.''
That, of course, is an oversimplification of what happens to the more than $1 billion Egypt receives in nonmilitary aid from the United States each year -- much of which returns to the US private economic sector to pay for US goods and services.
Yet much of the foreign aid managed by the US Agency for International Development (AID) makes its way to rich US corporations rather than to small businesses.
``In my discussions with American businessmen,'' says Leroy Shannon, sales manager of a Coldwater, Ohio, livestock equipment manufacturer, ``we agree that 80 percent of the American work force is employed by small firms -- not your General Motors and General Electric. Yet US AID programs are tailor-made for the big corporations, not small businesses.''
Mr. Shannon, a member of an Ohio foreign trade delegation that visited Egypt and other African countries this summer, says he was pleased with the help provided by various American embassies. But he sees serious obstacles to his company's ability to compete for the large contracts tendered by AID.
His broader concern is that the economic benefit America draws from the foreign aid budget accrues mainly to big corporations.
Herbert Byers, president of a medium-size drill-manufacturing company in Zanesville, Ohio, agrees. ``AID really prefers to work with the giant companies. The money is committed in parcels too large to help me. At home, many small businesses are excluded from competing. And in receiving countries, the equipment supplied through AID is often too technologically sophisticated, or just too exorbitant, to be used effectively.''
Aside from his faith in smaller scale, labor-intensive drilling technology, which his company produces along with more advanced systems, Mr. Byers is also sold on the economic benefit African countries could gain from encouraging small business. ``Smaller scale development projects would help small-scale entrepreneurs in these countries get started,'' he says.
On an earlier stop in Cameroun, however, Shannon failed to obtain AID financing for a woman who wanted to import his company's products to supply that nation's small poultry farmers. The reason, he was told by AID, was that administrative costs for the project would be too high.
In Cairo, an AID source says the agency is rarely interested in funding projects of less than $100,000, because the administration of small projects costs more than their benefits. Byers heard a similar refrain, but he argues: ``If any project is going to work right, the administrative costs are always there. You can't avoid them.''
Egypt is the second-largest recipient of US nonmilitary economic assistance, after Israel. Over the last decade, it has obtained more than $10.6 billion.
In fiscal year 1985, the Egyptian Economic Support Fund came to $815 million, plus another $225 million in concessionary credits for American wheat and flour. As of Aug. 1, $630 million had been committed to specific development projects.
By law, all capital goods, equipment, and services procurred through AID must come from the US. Only a complex waiver process may void this stipulation. AID contract officers in Cairo and Washington draw up project tenders for American bidders, which are advertised in the Commerce Department's Business Daily.
With large funds available, Egyptian AID-sponsored projects have tended to rival the works of the pharaohs. Currently, $129 million is going toward rehabilitating the entire Cairo sewage system, $198 million toward a new waste-water treatment plant for Alexandria, and several more millions for irrigation and drainage works.
Big infrastructure projects often necessitate industrial and managerial concentration. Thus, large contracts are tendered, and large companies are the successful bidders.
Of course, subcontracting helps to spread the wealth through the American economy. One AID source said the agency has ``weaned'' the Egyptians away from some European heavy-equipment producers through the requirements for American goods. And, according to another AID source in Cairo, the 1984 Gray Amendment to the foreign aid bill, with which the agency still complies, reserves 10 percent of all AID tenders for small and ``socially disadvantaged'' American businesses.
But to companies like those of Byers and Shannon, problems in exporting to developing countries have more to do with undercapitalization and reluctance to risk large sums on overseas offices. In the case of the Egyptian market, such representation is advisable: ``Nothing much is going to happen on a 48-hour trade mission,'' says one veteran American businessman here. ``You need to be on the ground in Cairo.''
Export help may be on the way for small and medium-size American businesses -- at least for those based in Ohio. One goal of the Ohio-African '85 trade mission was to study locations for that state's next international-trade field office.
William Sykes, Ohio's director of administrative services and the leader of the mission, says Cairo and Lagos, Nigeria, are the front-runners for a new state office to complement Ohio's existing bureaus in Brussels and Tokyo.
According to Steve North, Middle East trade specialist in Ohio's Department of Development, the state's foreign trade offices concentrate on locating export opportunities for Ohio companies having only 100 to 600 employees. In other words, small businesses.