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Ethiopia Ban on Cotton Exports Lifted

13 July 2012
USDA Foreign Agricultural Service

ETHIOPIA - In April 2012 the Government of Ethiopia lifted a ban it had imposed in October 2010 on the export of cotton. The ban was imposed because of the government’s desire to expand domestic textile production, and its assumption that textile growth would lead to an impending shortage in the supply of cotton.

However, measures employed by the government over the past one and one-half years have succeeded in increasing cotton production levels, while at the same time outside competition led to a contraction in the domestic textile industry and a consequent drop in domestic cotton demand. Because of the excess supply of cotton, the ban was officially lifted, but the cumbersome approval process put into place has resulted in very few actual exports.

Exports banned in 2010 due to short supply

The Ethiopian government banned exports of raw cotton in October 2010, despite the much-needed hard currency that these exports brought in. The ban was imposed because of high international cotton prices and because the government anticipated an increased demand from the local textile and garment industry. To compensate cotton growers, the government promised that cotton would be sold in local market at international prices, adjusted for freight and transportation costs.

A team of government institutions, comprising the Ministry of Agriculture, the Ministry of Trade (MOT), and the Ethiopian Textile Industry Development Institute (ETIDI), set the local selling price, and promised to review this price on a quarterly basis to ensure consistency with international prices. Originally set at 42.78 Birr ($3.21) per kilogram in November 2010, the price was raised to 57 Birr ($3.43) in February 2011. Following a significant decline in world prices, the government removed the price cap on cotton in August 2011.

Government allows export of raw cotton

Ethiopian cotton production has increased considerably since the introduction of government incentives mentioned above. However, rather than expanding domestic textile production, as the government expected, Ethiopian textile companies in fact contracted somewhat, due to increasing competition from textiles from other countries, especially China.

With large stocks of raw cotton carried over from last year, the local textile industry has bought so far only 22,000 tons of raw cotton in the first three-quarters of this marketing year, substantially lower than available local production.

Because of this, after months of lobbying by cotton growers, the government lifted the ban on cotton exports, effective April 2012. The MOA, the National Bank of Ethiopia (NBE), and ETIDI continue to monitor the trade, to ensure that Ethiopian export prices of cotton are not less than the prevailing international market price.

Furthermore, in order to export, cotton exporters must first get permission from three separate government agencies (MOA, MOT, and NBE). This burdensome procedure has discouraged exporters, with the result that very little cotton has been exported despite the lifting of the ban, and cotton growers continue to complain about the situation.

TheCropSite News Desk



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