1. Cotton price will be determined by the market and government will not interfere with market price.
  2. To ensure a basic return for Xinjiang cotton growers.
  3. To balance the interest of all parties and to seek a comprehensive utilization of domestic resource for a proper handing of the relations between government and market, present and future, central administration and local government, and thus to ensure a successful enhancement of the policy reform.
  4. Xinjiang to distribute 60% of the payment based on the planted acreage in early January 2015. The remaining 40% will be paid in accordance with average payment calculated based on production.
  5. There will also be an independent payment and reporting system for ELS and colored cotton. The payment is 1.3 times the amount of upland styles.
  6. There will be a strict control of resold or non-Xinjiang supplies.

 

How will domestic and foreign cotton prices change this year?

New cotton from Xinjiang has hit the market, and the market price of seed cotton monitored by us is the pre-processing price, currently at 6.6 Yuan/kg, although there is quality inconsistency, which is equivalent to over 14000 Yuan/t for ginned cotton. The price of ginned cotton in the US futures market last week was 11800 Yuan/t, much lower than the domestic price of ginned cotton. Our initial estimate that the prices will go flat and cotton prices in the international market is unlikely to decrease significantly and the domestic cotton price might remain stable at the current level or fluctuate around 14000 Yuan/t.

 

Will the direct payment be a multiyear program?

Regarding giving subsidy to cotton growers against target price, there is a need to explain how target price works. Subsidy is the final form of representation. What’s the rationale behind the target price? The most basic is that the cotton price should be determined by the market. In this process, we determine a target price based on the growing costs plus basic earnings, resulting in the target price of 19800 Yuan/t in Xinjiang this year. The domestic cotton price is now at 14000 Yuan/t, 5800 Yuan below the target price, which is the amount of subsidy we are supposed to give to the cotton growers this year. Of course, the final market price depends upon the average price of cotton sold by cotton growers in three months of September, October and November, and the gap between target price and actual price is the amount of subsidy we are supposed to give to cotton growers. Now back to your question. This subsidy will not be given each year. When the market price is lower than the target price, the amount of difference will be given to cotton growers as subsidy, but when the former becomes larger than the latter, no subsidy will be given. This is the significant difference between the target price policy and the previous temporary stocking policy. 

 

What actions will be taken to protect the interests of cotton producers?

First, protect the basic interests of cotton growers. Our target price subsidy is based on growing costs plus basic earnings, which basic earnings are a sure thing for cotton growing. Cotton is oversupplied all over the world, driving the international market price down dramatically. In this context, the government needs to protect the interests of domestic cotton growers, which is the number one priority. Meanwhile, cotton growers are supposed to take the market risks. Target price is a guidepost, discouraging cotton growers from growing cotton when the cotton is oversupplied, or vice versa. This is the objective we are going to achieve. Second, apart from the test field in Xinjiang, main cotton-producing areas in Yangtze River and Yellow River waterbeds will see appropriate subsidy from the government, but how and how much subsidy will be given will be defined by the Ministry of Finance. Third, while implementing the target price policy, the existing agricultural subsidy policies for farmers including improved cotton seed policy will remain unchanged.

 

What about governmental purchase and reserve auction in the next year?

According to the available data and forecasts, the cotton-growing acreage in China this year is decreasing, and rough estimates are that the actual output of cotton will be around 6.5 million tons, 0.5 million tons less than that in last year. From the perspective of demand, since the cotton price is market-based after implementation of the target price reform, the linkage between international and domestic cotton markets is increased and the price difference between domestic and foreign cotton will be further reduced. As mentioned earlier, this situation will help prevent the cotton from being replaced by chemical fiber as it has happened. On the other hand, the cotton yarn import might be reduced. Therefore, we expect the domestic demand for cotton will climb up compared with the previous years. It is predicted that the next year’s demand for cotton to be about 8.5 million tons, probably more, 0.5 million tons more than that last year. In this sense, with the output of 6.5 million tons and demand of 8.5 million tons, the gap between demand and supply in China in the next year will be 2 million tons, 1 million tons more than the last year’s figure. Overall, domestic textile companies have effective demand for homegrown cotton. As mentioned earlier, worldwide, cotton is oversupplied and the cotton price remains at a low level.  
Taken together, we believe the domestic cotton market price, although lower than that in last year, is expected to remain stable within a reasonable range. In order to facilitate the cotton industry in the next year, the government has made the following arrangements:
First, Suspend the release of national cotton reserves. In order to allow for the purchase, distribution and processing of new cotton, no more cotton reserves will be released from September onwards. Before March is the peak period for cotton procurement and processing. After the completion of cotton procurement and processing, we will give considerations to the progress of purchase, processing and distribution of homegrown cotton. If domestic market sees undersupply and rapid price increase, we will release a portion of cotton reserves to meet the market demand without comprising the market operations, based on the status of cotton sales in domestic market. 
Second, Make appropriate arrangements for cotton import. Cotton import will be dealt with properly in light of the domestic market landscape next year. Apart from the issuance of tariff import quota of 0.894 million tons as we committed at the time of WTO accession to meet the cotton needs of textile companies, no more import quota will be released and domestic textile companies will be encouraged to use homegrown cotton whenever possible.
Third, make arrangements for purchase, processing and distribution of new cotton. Competent authorities, local government in cotton-producing regions, supply and marketing cooperatives and agricultural development banks are supposed to ensure proper procurement of cotton according to applicable instructions. In terms of funding in particular, Agricultural Development Bank of China has developed a plan to supply purchasing funds and works to ensure funds are supplied appropriately. 
Fourth, tighten the regulation over market and quality. Local governments and related departments governing the cotton-producing areas will intensify the efforts to crack down upon unlicensed operations, adulteration and speculation and other illegal activities by beefing up regulatory and control efforts against cotton procurement activities. Especially for circulation of seed cotton, more regulatory efforts will be made while the target price reform is being carried in Xinjiang. Regarding purchase and distribution of cotton, since this year is the starting point of target price reform, related departments are developing related contingency plans to avoid epidemic underselling problem. If the cotton price at home fell excessively to such extent that cotton growers’ interests are jeopardized, we will take necessary measures to support and guide major cotton purchasers and processors to purchase cotton in order to live up to the market expectations.  

 

Will the new policy impact textile companies?

In fact, the target price reform is intended to depart from the temporary stocking policy in more favor of textile companies, in that the government will purchase cotton at a fixed, higher-than-market price, while textile companies as cotton users will see their competitiveness jeopardized if the price difference between domestic and foreign cotton is considerable. After we implement the target price reform in place of the temporary stocking policy, the cotton price will form as a result of market supply and demand, and textile companies will judge about the prices and purchase cotton according to the operational needs and the judgment about market trends. After implementation of this target price reform, the linkage between domestic and international cotton markets will increase and the domestic-foreign price gap will be narrowed down to a reasonable level, which helps Chinese textile companies improve competitiveness, especially for export business, where export-oriented textile companies operate in a relatively fair and reasonable business environment. This is the starting point of our efforts to implement the target price reform, as well as an issue to be addressed. After we implement the target price reform, the government protects cotton growers by giving direct subsidy. This marks a change to our approach to protecting farmers’ interests.

 

 

 

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