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China continues to explore payment of direct subsidies to cotton farmers

China continues to explore payment of direct subsidies to cotton farmers Source:
Date: 27-07-2013
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A senior official from the China National Textile and Apparel Council (CNTAC) indicated on July 22, that the organisation will complete within the next couple of months a review into ways which government can most effectively provide direct subsidies to cotton farmers. The review was commissioned by the National Development and Reform Commission, China’s powerful economic planning body.
The research is expected to result in a policy proposal, with subsidies initially being paid in the Xingjiang Autonomous Region next year – over half the domestic crop is grown in Xinjiang.
Direct subsidies are expected to replace the controversial state reserve policy, through which Beijing has procured huge quantities of domestic cotton since 2011 at prices substantially above international parity rates, as well as purchasing imported supplies. China is estimated to hold around over 10 million tonnes of cotton, or close to 58% of record global stocks. Senior officials have recently spoken of the market distortions created state reserve stockpiling, which has seen many domestic spinners struggle for survival, unable to compete with international rivals with access to cotton at much cheaper levels. Chinese cotton consumption has fallen by more than a quarter during the past three seasons, according to USDA estimates.
The cotton state reserve policy over the past three years is estimated to have cost the government around 200 billion yuan and left the state struggling to find sufficient warehousing space to accommodate stocks. Decision-makers are now seeking a more sustainable solution to supporting cotton farmers, encouraging plantings to the strategically important crop and boosting the economies of some of the country’s poorest areas.
The study by CNTAC is expected to address the following issues:
1.    Should any subsidy be based on planted area or production?
2.    How will the subsidy be distributed?
3.    How to prevent fraudulent subsidy claims?
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