Market Scene : ‘White Gold’ Turns to Dross in Government Hands : Egypt’s legendary cotton industry has fallen on hard times. Efforts to privatize it may be too little, too late.

Once, they called it Egypt’s “white gold.” It built the railroad between Alexandria and Cairo and pushed the Suez Canal through from the Mediterranean to the Red Sea. It paved Alexandria’s grand old boulevards and created a new class of Arab aristocrats who dallied in the city’s elegant tearooms.

Now, the prized Egyptian cotton that made Swiss handkerchiefs famous isn’t called gold anymore. Farmers here call it “the government crop.” The rich fields of the Nile Delta still produce the finest cotton in the world, but they’re shrinking fast, and no one knows quite what to do about it. No one, it seems, wants to grow cotton anymore--and fewer want to buy it.

Total cotton production is only a little more than half of what it was in 1980. The amount of land devoted to cotton growing has slipped from 2.5 million acres in the heyday of the 1930s to well under 915,000 acres. At a time when all-cotton fabrics are again in demand, international markets for fine Egyptian cotton are drying up. China bought 77,000 bales in 1982 and nothing last year. Nearly the same is true for Germany, Czechoslovakia, Hungary, Austria, Italy and Japan. Total exports fell from 532,000 bales in 1982 to just 40,840 in 1991. Incredibly, Egypt now imports four times more cotton than it exports.

The decline of Egypt’s prized cotton industry, and efforts now to resurrect it, is a story with variants being played out in aging state-run economies the world over. It is an old story about how revolution and production make bad business partners.

The move to privatize the cotton industry, nationalized shortly after former President Gamal Abdel Nasser took over the country in 1952, is at the heart of Egypt’s attempts--similar to those in the former Soviet Union and Eastern Europe--to dismantle the bureaucracy that has held the economy by the throat for decades.

And like economic liberalization moves elsewhere around the world, it may very well be too little, too late. Egypt has announced plans to triple cotton exports at a time when industry officials say that markets for its cotton may be lost forever.

“Really now, the whole industry has mostly a feeling of disgust,” said an official from one state cotton-trading company. “We have lost the export market because we are 10 years too late in our reforms. We are telling the world that export will now be our top priority, but people don’t believe us. We have lied too often.”

Before Nasser, hugely wealthy landowners like the languid Nessim in Lawrence Durrell’s “Alexandria Quartet” novels held nearly half the land in Egypt even though representing a mere 0.8% of the population. They worked it with an underclass of poor tenant farmers.

Nasser moved in to break up the old landholdings, giving the tenant farmers five acres apiece of their own, nationalizing the banks and most other industries and setting up the cotton industry as the centerpiece of a new, centrally planned economy.

The government told farmers how much cotton to plant a year, announced how much they would be paid for the cotton and then sold it abroad at a rich profit to finance the rest of the country. The government took over the ginning mills and set up huge textile factories. It shut down the old Alexandria cotton exchange and unilaterally declared international prices for extra-long-fiber cotton each November in Cairo.

It seemed like a good idea. If a country depends on a product as much as Egypt depended on cotton, why not make sure it is produced under optimum conditions? Choose the very best cotton-growing regions and allocate them for growing the prized Giza-45 and Giza-70 varieties. Pay farmers their production costs, plus a little extra for profit. Subsidize their costs for fertilizer, seeds and pesticides. Put the country to work at government mills, producing cheap cotton clothing for a teeming population.

Except it didn’t work out the way it was supposed to. Government prices to farmers were so low--usually less than half of what Cairo was getting for cotton on the international market--that farmers started trying to find ways around the rules.

Most allocated only their poorest land for cotton. Many planted more lucrative crops, like onions and garlic, in rows between the cotton plants. Even more delayed planting cotton until very late in the year, first harvesting several cuttings of crops like winter clover, whose prices weren’t regulated by the government. The late planting produced poorer quality cotton, and no one seemed to care. Some farmers simply risked the paltry fine for ignoring the cotton-planting mandate and planted something else.

A leading cotton industry official in Alexandria estimates that by 1990, the average Egyptian farmer with five acres of cotton could expect to earn about $692 a year profit--a fraction of what could be earned growing other crops.

Textile mills the world over continued to buy Egyptian cotton because it was the best that could be had, and the Egyptians knew it. Through the 1980s, the government raised prices for Egypt’s best varieties to more than double what American farmers were charging for U.S. pima cotton--a long-staple variety that, with recent technological advances, can produce fabrics nearly as fine as those made with Egyptian extra-long-staple. By 1989, pima was selling for $1.12 a pound and Giza-70 for $2.54.

In addition to charging well above world prices, Egypt was falling short on deliveries. Nasser, thumbing his nose at the West when it wouldn’t help build the Aswan High Dam to control the Nile’s annual flood, wanted Egypt to be self-sufficient. That meant that large quantities of premium cotton were allocated to Egypt’s domestic spinning industry, even though Egypt produced nothing more than coarse fabrics suitable for towels, T-shirts and heavy robes.

Egypt exported only what was left after domestic demand, and this meant many textile mills around the world that had contracted to deliver fabrics made of Egyptian cotton often found themselves unexpectedly with barely half of what they ordered--and unable to fulfill their contracts.

Most importers decided it simply wasn’t worth the money and trouble. Japan, for example, which bought 26,661 metric tons of Egyptian cotton in 1987, revamped its mills to use a slightly shorter-staple variety and started buying American pima and Pakistani cotton instead. Imports of Egyptian cotton fell to 7,590 metric tons in 1990.

Egyptian officials, recognizing the beginning of the end of Egyptian cotton, announced plans over the last few months to turn the cotton industry around--in part because continued International Monetary Fund financing for Egypt depended on it.

Among the reforms: bringing export prices into line with other comparable products, raising prices to farmers to encourage production and guaranteeing that at least 500,000 bales of fine cotton--nearly a fifth of expected production--will be available for export each year, regardless of domestic demand. Coarser cotton is being imported to feed Egypt’s domestic spinning industry at barely a third of the price that Egypt can earn exporting its own varieties.

Also, officials here say the entire cotton industry will be privatized over the next three years. Government-owned cotton-trading companies and ginning and textile mills will be sold to private buyers. Farmers will be free to sell their cotton anywhere they like.

The Ministry of Agriculture, which employs a huge work force of 450,000 bureaucrats, is giving up its old role of running the nation’s farms and moving toward research, policy planning and analysis, said Deputy Agriculture Minister Hassan Hadr.

“In using the notion of central planning, like most of the Eastern Bloc nations did, we thought that this kind of management system would enable us to allocate prices more efficiently and increase production. However, the incentives for producers in a free-market system turned out to be the melody that is more in line with our nature as human beings,” Hadr said.

“We are not producers,” he said of the ministry. “Our role is to create an environment conducive to production.”

There are a lot of skeptics, even within the industry. First, with the Egyptian economy teetering on the brink of collapse, there’s the question of what to do with the thousands of workers employed at the government textile mills--nearly half the entire public-sector labor force.

Further, assuming Egypt does privatize the mills and the trading companies, who will want to buy them?

A senior official at one cotton-trading company in Alexandria said the company shows a profit on the books, but only on the books. “Who would be stupid enough to buy these companies?” the official demanded. “If you come and ask me as a top-level manager, ‘Will you buy 1,000 shares of stock of this company?’ I will tell you no. The balance sheets are fabricated. There are no profits.”

The Egyptians aren’t the only skeptical ones. Most industry officials predict it will be difficult for Egypt ever to resurrect the goose that laid the golden egg.

“They lost the Japanese market, and from my personal opinion, the possibility of gaining the market back is very little, I think,” said a commercial attache in Japan, which has been exploring the idea of growing its own cotton on Egypt’s Sinai Peninsula.

“Formerly, Egyptian cotton had an advantage over other countries,” he said. “But now Japanese companies can get the same quality of towels from cotton produced in other countries. And with its bad pricing practices, Egypt has lost the advantage.”

One Egyptian cotton industry official predicted that Egypt will probably be able to sell less than half the cotton it earmarked for export last year, and many of those in the industry with the best chance of resurrecting it are reluctant to take the chance.

“I would never again put my neck under the knife of Egyptian cotton,” declared an Alexandria woman from one of the region’s old cotton-growing families, whose farmlands were confiscated after the revolution. “Another Abdel Nasser could come along. And it would all start again.”

Spinning the Tale of Cotton

Cotton has been called the poor man’s fiber. More than 75% of the world’s people wear clothing containing cotton fiber, making it a highly valued international commodity. It is sturdy, long-wearing and suitable for many purposes.

THE PLANT

A member of the botanical genus Gossypium, the cotton plant grows to a height of 3 to 6 feet, depending on region. Bearing blossoms and seeds simultaneously, the flowers open midmorning and wither the next day. The boll, which contains the cotton fibers and seeds, forms at the base of the withering flower. It matures to the size of a golf ball and bursts upon maturity, revealing the the cotton fibers. The length and strength of the fiber determine the quality.

THE FOUR TYPES OF COTTON

Sea-island: First grown on the Sea Islands off the coast of South Carolina, it is now mostly grown in the West Indies. Sea Island is one of the most valuable and costly cottons to produce, with a staple length of 1 to 2.5 inches. It is technically, related to Egyptian cotton.

Egyptian: Egypt’s Nile Delta produces a very fine, long-staple cotton of up to 2.5 inches. Developed from stocks origination in Latin America. Egyptian cotton is least plentiful, costly and most difficult to grow, American pima cotton is a variety of Egyptian cotton.

American Upland: This cotton accounts for 90% of the world’s crop. A medium-staple fiber between 0.5 and 1.3 inches, it is raised in almost every cotton-production country.

Asiatic: Grown mainly in China, Pakistan and India. Asiatic cotton is a coarse fiber of low yield. The staple length is from 0.375 to 1 inch. It is used in inexpensive fabrics and often blended with other fibers.

FROM COTTON SEED TO SHIRT SLEEVE

The path cotton travels to finished product encompasses a wide range of processes.

After the plants are stripped of their leaves, either chemically or mechanically, harvesting machines collect the mature bolls.

The bolls are run through cotton gins to remove extraneous seeds, dirt, and lint. Invented by Eli Whitney in 1794, the cotton gin allows one person to do the work of 50 working by hand. The cotton is compressed into bales for shipment.

At the mill, the bales are put into blending and cleaning machines to open them, mix and further clean the cotton.

Picking machines separate the fibers into a long-rolled sheet, called a lap.

The next process is carding or combing which converts the laps into big, fat, soft ropes called sliver. Combing the fibers removes the short and broken fibers, called linters, and results in a stronger, more lustrous yarn.

Drawing or drafting reduces the sliver to roving, a smaller diameter structure and further straightens the fibers.

Roving is sent to the spinning machine where it is further drafted. Spinning twists the yarn to make the fivers cling together and gives it strength.

Yarns are then made into cloth by weaving or knitting.

Finishing processes are applied to yarns or finished fabrics, depending on the results desired, These processes include dyeing, bleaching, starching and other chemical processes that strengthen the fibers.