Managing Cotton Price Risk in Egypt

Abstract:
This paper discusses alternative policy options for dealing with the large variability in world cotton prices. It also evaluates the current price guarantee scheme in Egypt in terms of its impact on farmers, traders, the treasury and the economy at large. It concludes that Egypt is better off at this stage continuing with and reforming the current system. Shifting to direct income support programs or market-based hedging solutions requires sophisticated markets and institutional setup, which do not currently exist. However, to make the current system more efficient, the study suggests the creation of a single, independent organization to deal with all aspects of the cotton sector. It also recommends linking seed cotton guarantee prices to world cotton prices to minimize overproduction at times of low world demand. As for marketing, the paper suggests that the allocation of rings be based on explicit and competitive criteria, as well as the gradual privatization of the public sector cotton trading companies.