Economic Impacts of Import Substitution Policy: A Case Study of Cotton Crop
Abstract: Egyptian Association of Agricultural Economics, Vol. 28, No. 3, 2018, P: 1355-1364.
Expansion in cotton production is one of the main goals Egypt seeks to attain to raise national income from both the agricultural and industrial sectors. The Ministry of Agriculture and Land Reclamation designed a plan to gradually increase cotton planted areas to reach 500 thousand acres by 2019. The current research tried to assess the impacts of expanding cotton production in areas cut from rice production given the fact that, unlike corn, cotton is a salinity tolerant crop, and to compute the procurement price that encourages farmers expand in cotton cultivated areas. To achieve its objectives, the research applied three approaches to calculate procurement prices and estimated supply response function to assess procurement price's impact on cotton planted area for the agricultural season 2017/2018.
Findings revealed that cotton area declined to as low as 131.7 thousand acres in 2016 compared to 520 thousand acres in 2011 due to low procurement prices set by MOALR, a situation that led to low farm income, which made cotton farmers shift to cultivating competing crops like rice and corn, resulting in negative impacts on the textile and clothes industry, and the balance of trade.
Procurement prices estimated using the first two methods reached LE 1805 and 17244 per ton, respectively, while those estimated using the third method reach LE 17608/ton in case cotton is cultivated instead of rice, and LE 16610/ton in case cotton is cultivated instead of corn. The estimated supply response function revealed a statistically significant negative relationship between cotton planted area and lagged farmgate price, which the research attributed to the continuous decline in areas under cotton over the study period, except for the year 2016, due to the very modest increase in farmgate price that failed to match the growing increase in production cost. However, results revealed a radical change in the Government's pricing policy during 2016, where procurement price per ton of cotton has been sharply increased from LE7043 as average of the period 2011-2015 to a high of LE17266 in 2016, up by LE10223.5, to encourage farmers grow the crop, a measure that led to increasing net revenue to LE 8333 per feddan in 2016, which made it profitable to grow the crop. Assessing the impacts of increasing area under cotton on import substitution thus the balance of trade revealed that expanding cotton planted area to 500 thousand tons shall contribute to reducing deficit in the balance of trade by US$1.4 billion, equivalent to LE 25 billion per annum.
Based on the achieved results, the research offered a set of recommendations including activating contract farming to overcome volatility in cotton prices; promoting coordination between concerned ministries to set and announce a proper procurement price sufficiently enough before cultivation season, in addition to developing the textile industries to rely more on Long and Extra Long Staple cotton to reduce imports of short staple cotton in order to save hard currency, and to increase hard currency earnings via increasing exports of the highly demanded textiles and clothes made of Long and Extra Staple Egyptian cotton in foreign countries. Another important recommendation is to ask such entities engaged in the field of agricultural machinery to design a harvester suitable for Extra Long Staple cotton grown in Egypt to reduce cotton harvesting cost, where foreign harvesters proved inefficient in harvesting Egyptian cotton.
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Publication year 2018
Pages 1355-1364
Availability location https://meae.journals.ekb.eg/article_112197_287a04dfcabdf147aaf0be75cc01ffcf.pdf
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serial title المجلة المصرية للاقتصاد الزراعي
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Publication Type Journal
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