BEIJING, (Reuters) – China, the world’s biggest cotton consumer, has issued details of a trial subsidy programme for farmers in Xinjiang that will pave the way to replace a system of stockpiling that has roiled global prices.
Citing a government document, the China Cotton Association said that if market prices fall below a target of 19,800 yuan ($3,225) per tonne, the government will top up the difference based on farmers’ planting area and volume sold to cotton ginners.
The document gave no details on what support will be given to growers in other provinces such as Shandong and Hubei. Xinjiang produced about 55 percent of the country’s cotton crop, or 3.5 million tonnes, in 2013.
The government has bought local crops at above-market prices for three years, driving up China’s state stockpiles to more than half of global inventory.
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Its hoarding of the fibre supported international prices but the approaching end to the scheme combined with an expected bumper U.S. crop sent prices on ICE to a near-five-year low in August.
Cotton futures in China have fallen nearly 15 percent this year amid concerns that the end of the stockpiling programme means prices in the 2014/15 marketing year would slump on the back of ample supply and weak demand.
Months of uncertainty about the policy has also caused imports to slump. China’s cotton imports stood at 1.67 million tonnes in first seven months of 2014, down 39 percent from a year ago.
A separate notice from the ministry of agriculture said that the market price will be based on average selling prices in Xinjiang during the months of September to November.
Use of an average price will give farmers an incentive to produce higher quality cotton, said the ministry, as those growers who can sell their fibre at a higher price will receive the same subsidy as those producing lower quality cotton.
Industry participants are still concerned about a possible lack of demand for locally grown fibre. Under the previous system, the government bought up the bulk of the domestic crop for its state reserves. (1 US dollar = 6.1385 Chinese yuan)