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China prepares to ditch cotton stockpiling, wider reform looms

China prepares to ditch cotton stockpiling, wider reform looms Source:
Date: 04-09-2013
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China is preparing the ground to scrap a controversial scheme to stockpile cotton in favour of subsidising farmers, a move that could slash imports by the world's top buyer of the fibre and herald a broad shakeup of Beijing's sensitive farm policies.

Abandoning stockpiling would mark the end of a system that has distorted the market to such a degree that it has been cheaper for Chinese mills to import cotton grown abroad than to buy domestic produce.

China's top economic planning body has completed a draft plan to change to subsidies and is seeking opinion from experts and the industry, people involved in the discussions told Reuters. This could within months set in course a policy change.

With 60 per cent of world cotton stocks held in Chinese state reserves, changes to a scheme that has cost at least $33 billion so far, based on estimated payments over the last two years, could hit prices hard.

Global prices have climbed 13 per cent since the start of the year, but could reverse as Chinese mills would be able to buy more locally grown cotton freed up for the local market.

The reform could also stoke calls to shift to subsidies for growers of other commodities such as sugar and oilseeds, with China's sugar association already considering a switch.

China would continue to buy for strategic food reserves in case of emergency, however.

"All parties are working to change the (cotton) policy," said Du Min, director of the Research Center for Rural Economy at the Ministry of Agriculture.

"Farmers are not planting cotton anymore, while mills are no longer spinning (domestic) cotton. The stockpiling has to come to a stop, otherwise the whole industry chain will be ruined."

It could take several months to finalise the structure of any subsidies, which would probably be applied in the crop year that starts in September 2014.

China views the financial support of its 700 million farmers as crucial for both its food supply and political stability, particularly in regions with large ethnic minorities such as Xinjiang, its main cotton-producing area, and southern Guangxi and Yunnan, the principal sugar provinces.
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