China abandons failed cotton stockpiling programme

22 Jan,2014

By Lucy Hornby in Beijing

China is abandoning a stockpiling programme that has seen the nation run up an outsized hoard of cotton that it must now sell at a loss, pledging instead to switch to a subsidy system for cotton farmers this year. 

Beijing’s effort to use the state reserves system to maintain cotton plantings and thus a secure supply of raw materials for textile mills has backfired spectacularly. Higher prices meant that cotton flowed to the state reserves – which now by some estimates account for half of world cotton stocks – while denying mills the supply they needed.

The No. 1 central document, which typically lays out priorities for the agricultural sector, called for a price subsidy trial for cotton grown in Xinjiang – where it is a major product of the quasi-military Xinjiang Production and Construction Corps – and for soyabeans grown in northeast China, home to most of the nation’s soya grown for human consumption.

The absence of any reference to cotton reserves in a policy document that spoke of the continued stockpiling of wheat, rice, corn, rapeseed and sugar points to the quiet abandonment of the cotton hoarding programme. The reserves body earlier indicated that it would not buy more cotton, after purchasing 5.5m tonnes since the beginning of the 2013 harvest.

“Without the support policy, acreage in Henan and Shandong provinces will likely drop. But Beijing is not too worried if it does; with so many stocks there is no need to encourage planting,” said one analyst who asked not to be named.

China’s total cotton output last year was about 6.3m tonnes, down 7.7 per cent, the National Bureau of Statistics said on Monday. Output from Xinjiang province was unchanged at 3.5m tonnes.

In an attempt to stabilise cotton supplies and soothe restive farmers in Xinjiang, in 2011 China set a cotton price floor and started stockpiling the material. But the policy backfired by diverting raw materials from textile mills, which opted in desperation to import cotton yarn.

The soya reserves programme, which has had far less of an impact on the market, was set up a few years ago after lobbying by growers in the northeast, home to most of the large mechanised farms in the country.

China imports the vast majority of the soya it uses for cooking oil and animal feed, but requires that tofu be produced from the non-GMO soya that is grown at home. 

A representative for the Heilongjiang Soybean Industry Association said his group hoped that some sort of improved stockpiling policy would remain in place.

Additional reporting by Zhao Tianqi 

Key words: