Egypt seeks to weave cotton renaissance

A picture taken on September 13, 2018 shows an Egyptian farmer working in a cotton field in the Egyptian Nile Delta town of Kafr el-Sheikh. (AFP)
Updated 14 October 2018

Egypt seeks to weave cotton renaissance

  • Cotton was once Egypt’s main source of wealth in the 19th century
  • Egypt’s cotton union says buyers are even demanding lower prices, without triggering any intervention by the government

CAIRO: Treading carefully among his sprawling green plants in the Nile Delta, Egyptian farmer Fatuh Khalifa fills his arms with fluffy white cotton picked by his workers.
Durable, fine and luxuriously soft, cotton sourced from Egypt has long been seen as the best on the market.
But recent years have been far from smooth for the North African country’s farmers.
“I cultivate 42 hectares (104 acres) and it’s expensive ... while the price (of cotton) is very low,” said Khalifa, who has been growing the premium long-fiber variety for over 30 years.
Profits are “meagre,” he lamented, his head shaded by his cap from the unforgiving sun on his farm in Kafr El Sheikh.
Cotton was once Egypt’s main source of wealth in the 19th century, as the Nile Delta provided fertile grounds for the crop used to make the towels, sheets and robes coveted by Europe’s burgeoning bourgeoisie.
But decades of fierce international competition has diminished returns.
Well-marketed short-fiber cotton — while lower quality than the long-fiber variety — looks good and has increasingly been used by textile giants, dealing a heavy blow to Egyptian players.
The United States and Brazil are now the world’s top cotton exporters, according to this month’s report by the US Department of Agriculture, followed by India and Australia, leaving Egypt trailing far behind.
Back in 1975, Egypt exported $540 million of cotton. By 2016, the sector’s export receipts had fallen to $90.4 million, according to the Massachusetts Institute of Technology.
The popular uprising that toppled president Hosni Mubarak in 2011 dealt a fresh blow to the cotton sector, as political and economic chaos hit production and export chains.
Egypt’s output of cotton fibers fell as low as 94,000 tons in 2013, according to the UN’s Food and Agriculture Organization, down from 510,000 tons in 1971.
Last year brought producers some respite, thanks to rising prices and higher export volumes.
But a trade spat between the US and voracious importer China has seen benchmark global cotton prices fall afresh, as traders take fright over Beijing imposing tariffs.
The commodity was trading at a shade under $0.77 per pound (0.45 kilos) in early October, after reaching $0.95 — the highest level in more than six years — in early June.
In Egypt, the price has dropped back to the minimum guaranteed by the state of some 2,700 Egyptian pounds ($150, 130 euros) per 100 kilos.
Egypt’s cotton union says buyers are even demanding lower prices, without triggering any intervention by the government.
Others offer a different diagnosis of the sector’s ills.
“The drop in prices is not in itself a bad thing,” said Ahmed El-Bosaty, CEO of Modern Nile Cotton, one of the biggest companies in the sector.
Bosaty said the major challenge is boosting productivity.
“A rise in productivity rather than prices would ensure better incomes for workers,” he said.
A cotton expert at the agriculture ministry acknowledged that modernization is key.
“Productivity is rising,” said Hisham Mosaad. But cotton enterprises must invest in mechanization, as the industry is still entirely manual, he added.
Another challenge is that few Egyptian firms make finished products.
“We produce raw cotton for direct export,” said Mohammed Sheta, director of research at the Kafr El Sheikh cotton institute.
Egypt does not have “the factories or the means allowing us to transform it into fabric,” he lamented.
The state has tried to spur activity, boosting areas under cultivation over the last four years by around 50,000 hectares, to more than 140,000 hectares.
In an experimental move, the government in September even allowed the cultivation of short-fiber cotton, but only outside the Delta region.
Experts and farmers remain skeptical, believing Egypt will struggle against foreign heavyweights in the short-fiber market segment.
But many companies see the situation as urgent.
Even though official exports of Egyptian cotton rose 6.9 percent by volume in the three months to the end of May compared to the same quarter of 2017, there was a 57.9-percent fall in consumption of Egyptian cotton at home, due to the domestic market turning to imported products.
At the high end of the value chain, designer Marie Louis Bishara runs one of the few Egyptian firms that produces high quality finished products locally for the international market.
Young men and women work side by side in her modern factory in northern Cairo, in roles ranging from overseeing looms to packing finished shirts.
Promising Egyptian quality, she has dedicated one of her lines to local long-fiber cotton.
“We try to show the world that if you want to make luxury products, you have to use extra long cotton from the Delta,” she said.
Shirts, trousers and jackets stamped “Made in Egypt” have gone from the design stage on her factory floor to grace shop shelves in France, Italy and her home country.


HP rejects Xerox takeover bid, says open to acquiring Xerox instead

Updated 35 min 18 sec ago

HP rejects Xerox takeover bid, says open to acquiring Xerox instead

  • In rejecting Xerox's $33.5 billion cash-and-stock acquisition offer, HP said the offer “significantly” undervalued the personal computer maker
  • Xerox made the offer for HP on Nov. 5 after resolving its dispute with its joint venture partner Fujifilm Holdings Corp.
NEW YORK: HP Inc. said on Sunday it was open to exploring a bid for US printer maker Xerox Corp. after rebuffing a $33.5 billion cash-and-stock acquisition offer from the latter as “significantly” undervaluing the personal computer maker.
Xerox made the offer for HP, a company more than three times its size, on Nov. 5, after it resolved a dispute with its joint venture partner Fujifilm Holdings Corp. that represented billions of dollars in potential liabilities.
Responding to Xerox’s offer on Sunday, HP said in a statement that it would saddle the combined company with “outsized debt” and was not in the best interest of its shareholders.
However, HP left the door open for a deal that would involve it becoming the acquirer of Xerox, stating that it recognized the potential benefits of consolidation.
“With substantive engagement from Xerox management and access to diligence information on Xerox, we believe that we can quickly evaluate the merits of a potential transaction,” HP said in its statement.
The move puts pressure on Xerox to open its books to HP. Xerox did not immediately respond on Sunday to a request for comment on whether it will engage with HP in negotiations as the potential acquisition target, rather than the acquirer.
HP on Sunday published Xerox CEO John Visentin’s Nov. 5 offer letter to HP, in which he stated that his company was “prepared to devote all necessary resources to finalize our due diligence on an accelerated basis.”
Activist investor Carl Icahn, who took over Xerox’s board last year together with fellow billionaire businessman Darwin Deason, said in an interview with the Wall Street Journal last week that he was not set on a particular structure for a deal with HP, as long as a combination is achieved. Icahn has also amassed a 4% stake in HP.
Xerox had offered HP shareholders $22 per share that included $17 in cash and 0.137 Xerox shares for each HP share, according to the Nov. 5 letter. The offer would have resulted in HP shareholders owning about 48% of the combined company. HP shares ended trading on Friday at $20.18.
Many analysts have said there is merit in the companies combining to better cope with a stagnating printing market, but some cited challenges to integration, given their different offerings and pricing models.
Xerox scrapped its $6.1 billion deal to merge with Fujifilm last year under pressure from Icahn and Deason.
Xerox announced earlier this month it would sell its 25% stake in the joint venture for $2.3 billion. Fujifilm also agreed to drop a lawsuit against Xerox, which it was pursuing following their failed merger.

Test for new HP CEO
In 2011 as the centerpiece of its unsuccessful pivot to software. Little over a year later, it wrote off $8.8 billion, $5 billion of which it put down to accounting improprieties, misrepresentation and disclosure failures.
More recently, HP has been struggling with its printer business segment recently, with the division’s third-quarter revenue dropping 5% on-year. It has announced a cost-saving program worth more than $1 billion that could result in its shedding about 16% of its workforce, or about 9,000 employees, over the next few years.
Xerox’s stock has rallied under Visentin, who took over last year as CEO. However, HP said on Sunday that a decline in Xerox’s revenue since June 2018 from $10.2 billion to $9.2 “raises significant questions” regarding the trajectory of Xerox’s business and future prospects.