China to replace cotton storage with subsidies in 2014-15

12 Mar '14

2 min read

The Government of China is likely to stop its temporary cotton purchase and storage policy and implement subsidies to farmers for the 2014-15 cotton season across the country. In fact, the Government has already implemented subsidies on a pilot basis in the Xinjiang province.

The temporary purchase and storage policy was launched in 2011 by the Chinese Government to stabilize cotton prices in the domestic market, and to protect and increase enthusiasm of farmers towards growing cotton.

However, the policy failed to achieve an effective balanced protection, as it weakened the role of self-regulatory market mechanisms, leading to a huge difference between prices of cotton in domestic and international markets.

In 2011, about 3.13 million tons or about 47 percent of China’s national output was acquired for the state reserves. In 2012, the state bought 6.5 million tons or about 90 percent of the total cotton production. The state has not only borne the cost of buying cotton, but has also paid for its storage, resulting in a heavy financial burden on the national economy.

The Government’s policy, however, benefited some ginneries as the cotton was purchased after processing for the state reserves. Cotton processing enterprises purchased raw cotton from farmers at a lower price than the price paid to them after processing by the state reserves.

Moreover, the policy destroyed the main market supply and original trade environment. The difference in price of cotton between domestic market and international market was 1000 yuan per ton in September 2011, which increased to 6000 yuan per ton in 2013, resulting in the domestic cotton prices being about 45 percent higher than the international market. This seriously affected the stable operation of China’s textile industry chain, as well as the international competitiveness of its cotton textiles.

Fibre2fashion News Desk - India

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