The downward trend in the market is hard to reverse; operators must adapt to change
In recent years, China's cotton production has undergone profound changes. Affected by continuously rising labor prices, cotton production costs have continued to rise. Compared with major cotton-producing countries internationally, China's cotton production is at a disadvantageous competitive position. Although from 2011 to 2013 the state adopted a temporary purchase and storage policy, purchasing cotton at a floor price without quantity limits, which provided strong support for safeguarding cotton farmers' incomes, the domestic cotton area still showed a declining trend year by year, and because the price gap between domestic and foreign cotton was too large, the competitiveness of the domestic textile industry declined, and state reserves exceeded 10 million tons, with enormous costs.
Based on this, in 2014, the state piloted a target price policy in Xinjiang to replace the temporary purchase and storage policy, supplemented by a fixed subsidy of 2,000 yuan/ton for 9 inland provinces, in an effort to safeguard cotton farmers' reasonable incomes, stabilize cotton production, and promote the sustainable development of China's cotton industry without affecting the market.
How effective has the target price been since implementation? From the perspective of market operation, the goal that subsidies do not affect market prices has basically been achieved, while the ultimate effect of stabilizing cotton production remains to be seen. From the recent survey of cotton farmers' planting intentions in 2015 by the China Cotton Association, the trend of a sharp decline in area is basically confirmed. The area reduction in the Yangtze River cotton region and the Yellow River cotton region is above 40%, and the reduction in Xinjiang also exceeds 10%. Even so, next year's policy adjustment (a reduction in the target price) should also be a high-probability event, and within the next two to three years, the downward trend in cotton area may be difficult to fundamentally reverse.
Changes in cotton production will inevitably affect the cotton seed market. Three effects are currently visible: first, the market demand for cotton seed in inland cotton regions has decreased substantially; second, some enterprises have lost confidence in the market and are dumping goods at low prices; third, cotton farmers are delaying their seed purchasing time. Do these three points indicate that the “harsh winter” of the cotton seed market has already arrived?
In the author's view, the impact of the shrinkage of cotton planting area and regional changes on the cotton seed industry will continue, and in the coming years the situation facing the cotton seed industry will be very severe. Cotton seed enterprises must be psychologically prepared to “get through the winter.” At the same time, when the broader environment for industry development is difficult to change, cotton seed operators must adapt to change and seek opportunities within crisis. From promoting insect-resistant cotton to self-breeding and self-propagation, the reason Guoxin Seed Industry, which has focused on cotton seed operations for 30 years since its founding, has been able to continuously develop and grow is that seizing the opportunities brought by changes in the situation is a basic experience.
⟦NL> Facing this round of policy adjustment and its impact, Guoxin Seed Industry will carry out strategic adjustments in three aspects. First is to remain unwavering in confidence in doing a good job in the inland cotton seed market. Although the inland cotton area has decreased substantially, there should still be more than 15 million mu of area, with a cotton seed demand of about 10,000 tons. As long as the varieties are good and services keep up, cotton farmers' trust will be won. The current market is so cold, yet in some areas of the Yangtze River cotton region, Guoxin H318 cotton seed is still selling well or even out of stock. The fundamental reason is that the variety is good. In the future, breeding efforts must be increased, relying on varieties with market competitiveness to raise market share. Second is to vigorously develop the Xinjiang market. In the past two years, Guoxin has invested more than 100 million in Xinjiang, including building a good cotton processing plant, increasing the area of its own seed propagation farms, and cooperating to develop varieties from scientific research institutions, giving it the basic conditions to accomplish something. The state focuses on supporting the development of the Xinjiang cotton region, and it is believed that in the future Guoxin can contribute more strength to Xinjiang's cotton production. Third is to actively and steadily expand the scope of business. Fully tap Guoxin's market network and brand value in inland cotton regions, be market-oriented, and actively carry out inland corn seed and other businesses. In addition, Guoxin hopes to accomplish something in improving the international market competitiveness of China's cotton planting industry. Through cooperation with China Agricultural University, Guoxin has carried out machine-picked cotton trials inland with initial results. Coupled with full mechanization and simplified cultivation techniques, cotton planting costs have been significantly reduced, ensuring cotton farmers' basic incomes.
Only when cotton farmers have good cotton planting returns and can make money will there be cotton area, and only then will cotton seed operators have the opportunity to serve cotton farmers and develop themselves.