Cotton target price reform launched, Agricultural Development Bank provides 60 billion yuan to ensure money is ready when cotton arrives

To support the cotton target price reform, this year the Agricultural Development Bank of China proposed for the first time a differentiated strategy for Xinjiang and the inland regions, making Xinjiang the focus of credit support, preparing 60 billion yuan in funds and continuing to add more according to purchasing needs, ensuring purchasing enterprises do not “run short”

In November in Xinjiang, snow has already begun to fall. As the country's largest commercial cotton production area, in previous years at this time Xinjiang's cotton purchasing work was basically finished, but this year the cotton purchasing work is only just past the halfway point. A reporter's investigation found that although the degree of mechanization in harvesting is increasing, this season's cotton suffered reduced yields and late ripening due to natural disasters, and coupled with falling international cotton prices, cotton farmers are watching and holding back sales, while enterprises are also relatively cautious in purchasing.

“We are waiting for rice to put in the pot, but the purchasing speed is a bit slow.” said Hu Xiaolun, chairman of Yikang Group in Shaya County, Xinjiang, “This year the Agricultural Development Bank of China gave us a credit line of 1 billion yuan to help us purchase cotton, but at present not many cotton farmers have come to deliver goods; everyone is waiting and watching.”

At present, Xinjiang's price of more than 6 yuan per kilogram of seed cotton converts to about 14,000 yuan per ton of lint cotton, still quite far from the target price reform's 19,800 yuan per ton of cotton. Cotton farmers hope prices can rise a bit more in the near term, but in fact the price decline caused by a bumper international cotton harvest has already been transmitted here, and a price increase is very difficult.

It is understood that this year is the first year of the cotton target price reform. The previous government “market-supporting purchasing” model has been completely changed; prices will be decided by the market, and the price difference will be subsidized by the government. This year, the state will no longer set a minimum purchase price, but instead, based on planting area and with 19,800 yuan per ton as the target price, will set a collection price according to the average market transaction price from September to November. Assuming 14,000 yuan per ton, the price difference below the target price (that is, 5,800 yuan per ton) will be directly subsidized by the government to cotton farmers.

As the main supplier of cotton purchasing funds, the Agricultural Development Bank of China has played a particularly prominent role this year. “Last year many commercial banks were still willing to lend, but this year everything depends on the support of the Agricultural Development Bank of China. Before purchasing began, 200 million yuan in seed funds had already been put in place, ensuring the normal launch of the early work.” said Li Cheng, general manager of the Cotton and Hemp Company of the First Division of the Xinjiang Production and Construction Corps. Because subsidy funds are only issued after purchasing ends, ensuring that money is “ready and waiting for cotton” during this year's purchasing stage is even more critical.

In order to support the cotton target price reform, and also considering that Xinjiang is the main cotton production area, this year the Agricultural Development Bank of China proposed for the first time a differentiated strategy for Xinjiang and the inland regions, making Xinjiang the focus of credit support, fully guaranteeing the supply of funds for Xinjiang cotton purchasing, and promoting the smooth implementation of the target price reform. At the same time, considering that relevant market entities need a process to become familiar with the new policy environment, and in order to fulfill the duties of a policy bank and guarantee the supply of purchasing funds, the Agricultural Development Bank of China set a bottom line for purchasing, namely that among enterprises with accounts and loans at the Agricultural Development Bank of China, there must be no phenomenon of issuing “IOUs” for cotton purchasing, and no systemic credit risk may occur.

“Under the new situation, cotton purchasing still has a very large demand for funds. To ensure smooth purchasing, the Agricultural Development Bank of China has prepared 60 billion yuan in funds, and will continue to add more according to purchasing needs, ensuring that purchasing enterprises supported by the Agricultural Development Bank of China do not ‘run short’.” said a relevant person in charge of the Agricultural Development Bank of China.

In order to improve the efficiency of supplying cotton purchasing funds while also taking into account credit risk prevention and control, the Agricultural Development Bank of China selected a group of high-quality enterprises as important carriers to support purchasing, and scientifically arranged purchasing fund supply outlets. Taking Xinjiang as an example, this year the Xinjiang Branch of the Agricultural Development Bank of China actively contacted departments such as the autonomous region's Development and Reform Commission, making obtaining the autonomous region's cotton target price subsidy authorization qualification a precondition. It has already recognized 238 enterprises with loan qualifications and 560 ginning factories, with a processing capacity of about 4.5 million tons, basically able to meet Xinjiang's cotton processing needs and ensuring no blank spots in the layout of cotton purchasing outlets.

“Excluding factors such as weather, judging from our bank's current cotton purchasing situation, cotton purchasing, processing, scheduled warehousing, public inspection and other aspects are progressing smoothly. The overall trial work has gotten off to a good start, is operating normally and in an orderly manner, and has already achieved preliminary results.” According to Ding Xingui, deputy head of the Xinjiang Branch of the Agricultural Development Bank of China, as of October 24 this year, the Xinjiang Branch of the Agricultural Development Bank of China had cumulatively issued 19.532 billion yuan in 2014 cotton purchasing loans to 222 enterprises, supporting the purchase of 1.17 million tons of lint cotton.