An economic analysis of the world market for Egyptian cotton

Graduation date: 1985The Egyptian economy depends heavily on cotton as the major export commodity among agricultural commodities. Egypt is the largest exporter of extra long staple cotton in the world followed by Sudan and Peru. It provides about 45 percent of the world exports of extra long staple cotton. Instability in the demand and prices received for cotton result in instability in foreign exchange earnings upon which it depends for imports of other commodities. Therefore, Egyptian policy makers need to have a better understanding of the cotton market, of how the market functions, and of the factors which affect Egyptian exports. Egyptian cotton faces competition from other long staple exporting countries, mainly Sudan. The U.S. is the major producing and exporting country of short and medium staple cotton. The introduction of man-made fibers is believed to have affected the market for Egyptian cotton. The effect of variations in the income of the importing countries must be considered. In this study, a simultaneous equation model was developed in order to investigate these effects. The model consists of eight structural equations, representing the demand for and supply of export cotton for Egypt, Sudan, Peru and the U.S. The analysis is based on time series data for the period 1950-80. The results show that the export price of each country is the major factor in determining the export sales of its cotton. Demand elasticities ranged from -0.95 to -1.21. Egypt's export price affects the demand for Sudan's cotton, and Sudan's price affects the demand for Egypt's cotton. Peru's export quantities are affected by Egypt and Sudan prices more than they affect them. U.S. prices, and man-made fiber prices didn't significantly affect the demand for long staple cotton. The export supply for Egypt, Sudan and Peru is insensitive to changes in own export price