China: NDRC looking to alternatives to cotton reserve scheme

Market News

China: NDRC looking to alternatives to cotton reserve scheme

Fierce pressure from China’s textile industry, a massive financial bill for the 10-million ton cotton stockpile, and the lowest cotton acreage in a decade, is pushing the Chinese government to reconsider it cotton stockpiling scheme.

China’s top economic planning body – National Development & Reform Commission (NDRC) has completed a draft plan to change to subsidies for its farmers, and is seeking opinion from experts and the industry. The new scheme could probably start in September 2014, experts estimate.

NDRC has proposed a target purchase price, an idea first touted in a 2008 government food security plan. The Chinese government will supplement farmers' incomes if market prices dropped below a reference price, similar to a policy long-applied in the United States.

The scrapping of the cotton reserve building scheme by China, the largest cotton consumer in the world, would make available almost 60% of world cotton stocks to the market, and prices could be hit hard. "A one million-ton release could crush prices to as low as 30 cents," said a U.S. trader.

Subsidizing farmers directly instead of purchasing at a high minimum price would allow domestic cotton prices to fall close to the current international level of roughly 13,000 yuan per ton, said industry analysts. That compares to prices as high as 20,790 yuan per ton offered by the state reserves.

Global cotton prices have climbed 13% since the start of the year.