Target Price Reform Helps Restructure and Transform the Cotton Industry
In 2014, China launched a pilot reform of the cotton target price in Xinjiang, and at the same time abolished the temporary cotton stockpiling policy nationwide. How is the pilot reform progressing? What results have been achieved? What room for improvement remains in actual practice? On these questions, the reporter interviewed relevant experts from the expert group evaluating the pilot reform of the cotton target price.
The experts believe that the cotton target price reform in Xinjiang is currently progressing smoothly on the whole, that the various market entities have basically adapted to the market-based operating mechanism, and that preliminary results have been achieved, but that various parties have also reported some difficulties and problems. At present, the key is to promptly pay subsidy funds accurately to cotton growers. The next step should be, based on the overall development of China's cotton industry, to conduct a comprehensive and systematic evaluation of the cotton target price policy, and on that basis improve operational methods and simplify operational procedures, so as to actively and steadily advance the reform of the price formation mechanism for China's agricultural products.
The pilot has achieved preliminary results
The cotton market price formation mechanism has been preliminarily established. The operating conditions of cotton textile enterprises are tending to improve. Resource optimization and integration have appeared in the cotton processing sector.
“One prominent result of the cotton target price reform is that the cotton price formation mechanism has been straightened out, the coordination among seed cotton prices, lint cotton prices and international cotton prices has been noticeably strengthened, and the market awareness of various market entities has been noticeably enhanced.” said Liu Yu, associate researcher at the Institute of Policy and Management, Chinese Academy of Sciences, who believes that the cotton market price formation mechanism has been preliminarily established.
According to the introduction, when the temporary stockpiling policy was implemented in 2013, almost all lint cotton went into the state reserve, and the fluctuation range of seed cotton purchase prices was only a few mao per kg. After the reform, processing enterprises directly connected with textile enterprises, and the number of buyers and sellers in the lint cotton market was very large, approaching a fully competitive market, and lint cotton market prices began to form. Seed cotton purchase prices also fluctuated in step with local supply and demand relations and with domestic and international lint cotton futures and spot prices, and the current fluctuation range has already exceeded 1 yuan/kg. Liu Yu believes that it is commendable that under these circumstances, no large-scale holding back of sales occurred in Xinjiang, and the coordinated operating mechanism of all links in cotton purchasing and marketing is gradually adapting to the needs of the reform.
The second result of the target price reform is that the operating conditions of cotton textile enterprises are tending to improve. In 2014, cotton prices were formed by the market, and in addition the government gave cotton enterprises freight subsidies of 500 yuan/ton and 1,000 yuan/ton respectively for using Xinjiang cotton and yarn, so the cost of production raw materials for textile enterprises fell sharply, and operating conditions generally improved. Data show that from January to October 2014, fixed-asset investment in Xinjiang's textile industry increased by more than 1 times year on year, and more than 40,000 new jobs were created. According to customs data on imported cotton yarn, imports began to decline from April 2014, and the use of domestically produced cotton yarn increased.
The preliminary establishment of the market price formation mechanism promoted resource optimization and integration in the cotton processing sector. “Processing enterprises have to find buyers themselves and bear all market risks, and some uncompetitive processing enterprises gradually exit the market, which is a good thing for optimizing resource allocation.” Liu Yu said. In addition, when the Xinjiang Autonomous Region certified the qualifications of processing enterprises, it excluded some with poor credit quality, those that had defaulted on payments to farmers, and those that were not strong enough, which also promoted resource optimization and integration.
Three major problems need to be solved at present
The difficulty of paying subsidies has increased. The degree of organization of cotton transport out of Xinjiang and the risk-hedging capacity of cotton-related enterprises are relatively poor. The task of structural adjustment in traditional cotton areas is very heavy.
2014 was the first year of the target price reform pilot, and experts point out that some problems exposed during the pilot process require special attention.
First, affected by the superposition of the implementation of the new policy and cotton disaster damage, the difficulty of paying subsidies has increased.
Qin Fu, director of the Institute of Agricultural Economics and Development, Chinese Academy of Agricultural Sciences, analyzed: First, because this year's seed cotton purchase prices were low, some areas suffered reduced production due to disasters, and in addition cotton farmers in some areas held back sales, income from selling cotton decreased. Second, cotton labor costs rose, and in some areas replanting after disasters increased costs by about 200 yuan per mu; picking costs rose noticeably, and in some areas the picking cost of “second-crop cotton” and “post-frost cotton” has approached 3 yuan/kg. Third, the gap between individual selling prices and the market average price led cotton farmers to misunderstand the new policy. In addition, lint cotton sales progress was relatively slow, and ginning factories had funds tied up for a long time and faced high costs; in particular, the Xinjiang Production and Construction Corps reported slow capital recovery, which may affect the second settlement of cotton sale payments to employees.
Second, the degree of organization of cotton transport out of Xinjiang and the risk-hedging capacity of cotton-related enterprises are relatively poor. In previous years, more than 80% of Xinjiang cotton had to be transported to the interior each year, and the railway department directly connected with China National Cotton Reserve Corporation; after the reform, ginning factories sold cotton directly to the market in a scattered way, and railway capacity was very difficult to organize and coordinate. From the perspective of the cotton futures and spot markets, domestic enterprises are quite insufficient in using futures to effectively manage risk, and futures trading is fairly speculative.
Third, the task of structural adjustment in traditional cotton areas is very heavy. “The market price monitored in the Xinjiang pilot is the average price for the whole of Xinjiang, while the sub-optimal cotton area in northern Xinjiang, due to low seed cotton unit yield and poor quality, sells at below the average level. At the same time, cotton farmers in inland cotton areas receive a subsidy of 2,000 yuan per ton, and cotton farmers directly face market risks and the problem of adjusting their planting structure.” said Gao Liangliang, associate researcher at the Rural Development Institute, Chinese Academy of Social Sciences, who believes that how to both ensure a smooth transition between old and new policies and old and new systems, ensure that the cotton area in traditional cotton areas does not shrink too quickly or too greatly and that cotton farmers' incomes do not slide rapidly, and at the same time steadily advance the optimization and adjustment of the agricultural structure and promote stable growth of farmers' incomes, requires in-depth study.
Comprehensive measures are needed to advance the target price reform
Pay subsidy funds to cotton farmers as soon as possible. Promote the transport and sale of Xinjiang cotton outside the region. Study comprehensive measures to upgrade the cotton industry. Continue to do a good job in policy publicity and explanation as well as in policy summary and evaluation.
At present, the cotton target price reform pilot has entered the key stage of subsidy payment. Qin Fu said: “The key is to pay subsidy funds accurately to cotton growers.” Pilot areas should do a good job in three aspects: First, make preparations for subsidy distribution, focusing on verifying data such as cotton delivery volumes, to ensure that after central subsidy funds are in place they are paid accurately at the fastest speed. Second, properly handle the attribution of subsidies for transferred land and the issue of second payment for cotton sale payments, complete adjustments to planting certificates as soon as possible, and ensure that subsidies are paid to actual growers; the Corps should carefully sort out the situation of second payment for cotton sale payments to ensure that the two payments are made promptly and in full. Third, use subsidy funds in a coordinated way; when calculating subsidy amounts for prefectures and states, it is necessary to comprehensively consider factors such as market prices, production costs, disaster damage, and the three pilot models in the Aksu region.
Measures should be taken to promote the transport and sale of Xinjiang cotton outside the region. Continue to strengthen market regulation and public opinion guidance, guide textile enterprises to increase purchases of domestically produced cotton, and improve the degree of organization of cotton transport out of Xinjiang. Relevant departments should strengthen supervision of the cotton futures market, encourage cotton processing and operating enterprises to hedge through the futures market, and improve the industrial relevance of the cotton futures market and the benign interaction between the futures and spot markets.
Study comprehensive measures to upgrade the cotton industry. “Relying only on the target price is not enough to improve the competitiveness of Xinjiang cotton. If policy insurance, infrastructure investment, and scientific and technological research and application cannot keep up, it will be very difficult to make the Xinjiang cotton industry bigger and stronger; in particular, without policies and measures encouraging enterprises in links such as printing and dyeing to cluster and develop in Xinjiang, it will be very difficult for Xinjiang to share in the industrial profits from raw material production to finished garment sales.” Liu Yu believes that Xinjiang and the interior should be coordinated, and the establishment of a complete cotton textile industry integrating production, processing and sales should be studied, supporting the development of Xinjiang's cotton textile industry according to the principle of differentiation. At the same time, machine-picked cotton should be vigorously developed, the transformation of cotton production and operation methods should be advanced, and the cotton production and marketing data information system should be improved.
Continue to do a good job in policy publicity and explanation. Cotton areas in Xinjiang should focus their publicity on the gap between individual selling prices and monitored market prices as well as on the subsidy method for the second settlement of cotton sale payments by Corps farms, while inland cotton areas should guide cotton farmers to adapt to market changes and actively adjust their planting structure.
Experts also suggest doing a good job in policy summary and evaluation. Through government-level work summaries and independent evaluation commissioned from third parties, and based on the overall development of China's cotton industry, a comprehensive and systematic evaluation of the cotton target price policy should be conducted.