Cotton subsidies decline amidst rising prices in 2013-14

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In some countries such as Brazil, India, Pakistan and Mexico, minimum support price programs were not triggered duirng 2013/14 because market prices were above the government intervention prices.

7 Sep 2014

WASHINGTON (Commodity Online): Cotton subsidies in producing regions have declined in 2013-14 to $6.5 bn from a record of $7.4 bn in 2012, according to International Cotton Advisory Committee (ICAC).

Ten countries provided subsidies in 2013-14 and the subsidies averaged 26 cents per pound, the same as in 2012-13. In some countries such as Brazil, India, Pakistan and Mexico, minimum support price programs were not triggered duirng 2013/14 because market prices were above the government intervention prices.

The share of world cotton production receiving direct government assistance, including direct payments and border protection, increased from an average of 55% between 1997/98 and 2007/08, to an estimated 84% in 2008/09. During 2009/10 through 2013/14, the share declined and averaged 47%. In 2013/14 the share of production
receiving direct assistance is estimated at 44%. Some countries provided subsidies for cotton inputs in 2013/14, especially for fertilizers, storage, transportation, classing services and other marketing costs.

The size of the China cotton reserves at the end of 2013/14 is estimated at 11.6 million tons, accounting for 149% of mill use by China in 2013/14 and 57% of world stocks.

Three seasons of implementation of this policy of rebuilding government reserves by the Chinese government provided support to domestic and international prices and helped to keep world trade buoyant. At the same time, this policy also caused mill use and the market share of cotton in China to shrink. Release of the reserves to domestic mills reduces the need for imports and limits growth in world trade.

The Chinese government announced that it would end its reserve building policy in 2014/15 and instead provide a direct subsidy to cotton producers in Xinjiang with a target price of 19,800 yuan per ton (about 146 cents perpound). Details of the implementation of the new subsidy program remain unknown at this time.

Commodity Online

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