China announces it will scrap cotton purchase mechanism soon

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China plans to discontinue its cotton and soybean purchasing and storage mechanism soon and offer direct subsidies to farmers instead, according to reports in the Chinese media. Finance Minister Lou Jiwei said that the Chinese government will begin trials soon for the introduction of subsidies for farmers, but he didn't give a definite timescale for the change in policy.

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In 2008 and 2011, the Chinese government introduced a policy for both soybean and cotton prices to ensure a fair income for farmers. However, fixed cotton purchase prices have created a gap between international and domestic prices and pushed the government to reserve more cotton every year.

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Cotton prices have increased about 12 percent on the world market this year. Both the market and farmers appear likely to welcome the end of the purchasing and storage mechanism at some point.

China purchased and preserved 10 million metric tons of cotton over the past two years, about 60 percent of international stocks.

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