Commentary: China's cotton supports dominate world market
Getting a grip on the ins and outs of Chinese cotton subsidies can be challenging, but the International Cotton Advisory Committee said in a report that China’s intervention is done by using a sliding scale of import quotas to “ensure that the effective cost of imported cotton exceeds international market prices and thus boost prices paid to farmers in China.”
ICAC said the estimate of benefits resulting from government intervention in China for its producers was around $1.6 billion in 2008/09 and then rose slightly to $1.7 billion in 2009/10.
On top of that sliding scale import quotas, the Chinese government also pays growers a subsidy to use high-quality cotton seeds. In the past two seasons, China also provided subsidies for the transport of cotton from the western province of Xinjiang near Central Asia to mills in the east and south of the country where most of its textile and apparel industry is located.
China’s Finance Ministry paid about $290 million in the first half of 2011 to pay for interest on loans give for agricultural projects benefiting the cotton, grain, and vegetable oil processing industries.
The government also foots the bill for keeping over 1 million tons of cotton in China’s warehouses. Reserves are released to mills when supplies are a bit tight and to make the fiber affordable for textile companies that are already among the world’s biggest.
“China restricts the inflow of cotton so that the internal price of cotton remains higher than the international price. It allows imports (or sells out of the reserve) to domestic mills so that their domestic spinners remain cost competitive,” said Hudson.
“It is quite the balancing act trying to keep internal cotton prices to producers high enough to maintain them while keeping raw materials prices low enough so that domestic mills do not lose significant market share,” Hudson concluded.
And right now, U.S. farmers are the unwilling participants of that balancing act.