CAIRO (Reuters)- After the rice harvest each autumn, Egyptians take a deep breath and brace for the "black cloud," a thick layer of smog from burning rice straw that spreads across Cairo and the Nile valley for several weeks.

Environmentalists blame the burning of agricultural "waste," mostly rice straw, for the pall of smoke that turns the capital's already noxious air into an even more toxic mix.

Farmers produce about 30 million tonnes of what they see as waste each year. What they burn is responsible for 42 percent of autumnal air pollution, the environmentalists say.

Rice straw has plenty of potential uses, experts contend.

The challenge for Egypt, struggling to revive an economy hit by an uprising that ousted Hosni Mubarak, is to develop the cost-effective technologies needed to convert the straw into pulp for paper, fertilizer, active carbon or natural fiber plastic composites -- and to convince farmers not to burn it.

"Developed countries don't even have that term in their dictionary. There is no such thing as waste, anything they produce they use," Galal Nawwar, head of the chemical industries research division of Egypt's National Research Center, said.

Nawwar and other Egyptian scientists and environmentalists say farmers who burn rice straw are squandering a commodity that could generate as much as 300 Egyptian pounds ($50.25) a tonne.

But in a nation where many farms are based on small holdings and cultivation techniques that have changed little in decades or even centuries, farmers burn around 4 million tonnes of rice straw every season, emitting 80,000 tonnes of carbon dioxide.

The impact is most acute in Cairo, one of the world's most polluted cities, with a population of up to 17 million.

The sprawling capital of the most populous Arab country stretches along the Nile, hemmed in by high ground on either side. As a result, pollutants are trapped in a layer that hangs just 25 meters (80 feet) above the ground.

Farmers, eager to get rid of the straw to free up space for winter crops, are unaware of its value.

"Burning the rice straw is not good for us either, but I have to burn it anyway, there is no other solution," said Mohamed Sabah, a farmer from Kafr el-Sheikh in the Nile Delta who plants around 70 feddans of rice every year.

GETTING THE MESSAGE ACROSS

Egyptian scientists have been using rice straw in pilot projects to produce a variety of materials from pulp for paper production to active carbon for use in water filters.

The Environment Ministry has tried to contain the pollution blight over the past decade by collecting rice straw from some farms for 45 pounds a tonne. This year, it contracted one state and two private firms to collect, press and bale the rice straw.

But many small farmers set their straw ablaze as usual.

"We are surrounded here in our mill by rice fields and most farmers are still burning their rice straw," said Mostafa el-Salteesy who owns a rice mill in Kafr el-Sheikh.

"There was an announcement in the newspaper a few days ago for a company saying it would collect the rice straw but this is something very new," Salteesy said.

The rice straw gathered is mainly used to make fertilizers. But critics say this is unsustainable because pressing and baling the straw costs more than the fertilizers produced.

Amr Helal, a board member of the Egyptian Chamber of Industry and Engineering, said every two tonnes of rice straw made about 1 tonne of fertilizer, costing 300 pounds per tonne. Yet every tonne of fertilizer is sold for about 150 pounds.

The government provides a 90-pound subsidy for each tonne of rice straw the companies collect and press.

"Industries can't be built on subsidies because if you remove the subsidy the industry will collapse," said Helal, who is involved in several projects to deal with rice waste.

In one project funded by the European Union, Helal and his research partners have studied turning rice straw into active carbon and natural fiber plastic composites, which have a range of potentially profitable industrial uses.

Active carbon is used in waste water management, sugar refining and paint industries. Natural fiber plastic composites are used to make furniture, marine decking and consumer goods.

CREATING AN INDUSTRY

"The total active carbon market in Egypt may be in the range of 5,000 to 10,000 metric tonnes and there is not one single factory in the Middle East producing this material," Helal said.

One tonne of active carbon imported from China sells for around $1,500. One tonne of rice straw can be used to produce around half a tonne of active carbon.

"It is very good money we are talking about," Helal said.

The project, a joint effort with the National Research Center, the German Institute of Polymer Technology and the Universite Henri Poincare Nancy of France, has finished a pilot phase. Helal's firm, Kaha for Environmental and Agricultural Projects, is now studying options to turn it into an industry.

"The difficult part is not the money, as we will find funding, but the technology and the know-how," Helal said.

Another project makes pulp for paper from rice straw, but avoids generating the pollutants typical of other processes. The new technique has been patented and will be launched in January.

"This new technology gives me zero waste," said Nawwar, who headed the EU-funded research project that produces about 5 tonnes of pulp a day from rice straw.

"While we were doing this pilot project, we were sending the pulp to foreign companies and a Belgian company saw our product and was so impressed they said they were ready to buy all of Egypt's production," Nawwar said.

The pilot unit cost 3 million pounds but Nawwar said new units would now cost about 1.5 million pounds.

"We could generate as many as 10,000 jobs if this unit was replicated as each unit employs around 10 people and we would need to process 3 million tonnes to satisfy pulp demand," Nawwar said. "We could wipe out this black cloud completely."

Egypt needs around 100,000 tonnes of pulp per year.

Delivering these projects with the economy in turmoil is no easy task. Mubarak's overthrow scared off investors. Egypt's new military rulers have had to focus on pressing problems such as a wave of strikes and managing the shift to civilian rule.

Still, Helal remains confident in his projects, arguing: "The most profitable investment is to invest in science." ($1 = 5.969 Egyptian Pounds)

(Editing by Edmund Blair and Alistair Lyon)