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ChinasCottonPolicy:

NewDirectionsin2014
StephenMacDonald,USDA/ERS
USDAOutlookForum
February21,2014
Washington,DC
ChinaLeadsWorldCottonMarkets
Source:ERScalculationsbasedondatafromPS&DOnline
TheProblemforChina
Source:ERScalculationsbasedondatafromPS&DOnline,CottonOutlook,BeijingCottonOutlook.andIMF.
TheProblemfortheWorld
Source:ERScalculationsbasedondatafromUSDA/ERS,StatisticsonCotton:19201973,PS&DOnline,andUSDAestimates.
ChinasCottonPolicyShift
March2011:
Chinaannounceditstemporarystatereserve
programforcotton
Committedtopurchasedomesticcottonfiberduring
SeptemberMarchwheneverpricesfellbelow
publishedreferenceprice
Similarsupportpricespreviouslyintroducedforrice
(2004),wheat(2005),andcorn(2007)
Grainsalsoreceiveddirectsubsidies,inputsubsidies,
andbenefitedfrommechanizationsubsidies.
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CottonPrices,201113
Chinasreferenceprice:
RMB/ton 19,800 20,400
USD/ton 3,100 3,360
cents/lb 141 153
Worldprice:
cents/lb 81 111
Chinawentfroma25%pricepremium
comparedwithrestofworldtoa60%premium
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PolicyAffectingCottonIndirectly
EconomicPolicy:
Exchangerates
Environmentalregulations
Monetarypolicy
Accesstofundsforinvestment
RateofgrowthinChinasdomesticeconomy
Textiletradepolicy
Importrestrictions
ExportVATrebates
AgriculturalPolicy:
Ruralinfrastructureandsocialwelfare
Supportforalternativecrops
Risingminimumpricesforgrains
Directsubsidiesandinputsubsidiesforgrains
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PolicyDirectlyAffectingCotton
Supplementalpolicies:
Subsidiesforusingsuperiorplantingseeds
SubsidiesfortransportationofcottonfromXinjiang
Subsidizedcreditforpurchasingduringharvest
accesstocreditconditionaloncottonpriceguidelines
Fiberinspectionservices
Gincertification
Agriculturalresearch,marketinformation
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PolicyDirectlyAffectingCotton
Macrocontrol
Marketintervention:changesingovernmentownedstocks
ofcottontoinfluenceprices
Tradepolicy:annualchangesintheavailabilityofimport
quotasatpreferentialtariffs;lessfrequentchangesin
determinationofaslidingscaletariffthathasappliedto
theseimportssince2005.
ThisissimilartoChinaspolicyforotheragricultural
commodities.
Thecrucialchangein2011wasthepreseason
announcementoftheinterventionprice,anditshighlevel.
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ReserveActivity:200413
Largenetsales: 2009,2010
Largenetpurchases: 2008,201113
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CottonImportsByCategory
Policy:e.g.importsbyChinaNationalCotton
ReservesCorporation(CNCRC)
Other:importedatfull40%WTOboundtariff
Sources:USDAattache reports,industryreports,andUSDAcalculations.
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GuidelinesforNewPolicy:Goals
Toplevel(strategic)
Maintainsomecapacityfordomesticcottonproduction
Augmentthewellbeingofruralresidentsandcompanies
EnsuretheeconomicstabilityofXinjiang
ReturnagreatershareofChinascottonspinningsectorto
profitability
Secondtier(process)
Reducereservestockstoanoptimallevel
Limitfrictionwithtradingpartnersandcompetitors
Efficientuseofresourceswhileimplementingpolicy
Limitthemonetarylossesassociatedwithreserve
management
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OutlineofNewPolicy
Chinaspolicymakersacknowledgecurrentpolicyis
unsustainable
Changesin2014willbestepstowards:
Lessdistortionaryproducersupport
Lessgenerousproducersupport
SignificantlymoresupportforXinjiangthanelsewhere
Reservestocksrisingtrendreversing
Changesin2014willnotbedramatic:
Gradualismandexperimentationhavebeenhallmarkof
Chinasreformoverlast40years
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ProductionPolicyin2014
XinjiangUighurAutonomousRegion
pilotprogramoftargetpricebaseddirect
subsidies
targetpricereportedlyabout19,500RMB/ton
5percentbelow2013referenceprice
Otherprovinces(YellowandYangtzeRivergrowingareas)
excludedfrompilotprogram
harvestpricewillbedeterminedbyinteractionof
marketforcesandreservemanagement
indicationsthatfarmersexpect15,000RMB/ton
25percentbelow2013referenceprice
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ImportPolicyin2014
Slidingscalequota(SSQ)
quotalevelclosetobutabove200513minimumof3
millionbales(thirdconsecutiveannualdecline)
SSQtariffslittlechanged
Policyimports
littleexpectedin2013or2014,comparedwithmore
than3millionbalesannuallyin2011and2012
Otherimports
TRQlevelunchanged(894,000tonsat1%tariff)
outofquotatariffremainsat40%
noadditionalimpedimentstooutofquotaimports
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ReserveManagementPolicyin2014
Reservepurchaseswilloccurduringharvest
Declineinreservesalespriceswillcontinue
2012price=19,300RMB/ton
2013price=18,300RMB/tontodate
reviewisexpectedafterMarch
2014priceforeseennear15,000RMB/ton
USDAexpects80cent/lb worldprice
17,000RMB=40%tariffpaidequivalent
13,000RMB=typicaldomesticequivalentbefore2011
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PolicymakersAreConstrained
Pursuingsomepolicygoalsprecludes
achievingothers
Scenario:
Goals:reducestocksatminimalcost
Policies:highreservesalepriceandlowimport
quotas
Result:largereductioninimportquotadrives
worldpricedown;Chinaconsumptiondeclines,
fulltariffimportsrise,andstockchangeslimited
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FulltariffImportsRiseWith:
FallingWorldPriceorRisingReserveSalesPrice
Fulltariffimports1millionbalesin2013
Source:ERSsimulationsbasedondatafromChinaCustoms,CottonOutlook,BeijingCottonOutlook,International
MonetaryFund,andUSDAestimates
ChinaConsumptionFallsWith:
FallingChinaimportsandFixedReserveSalesPrice
Endingstockslittlechangedasfallingconsumptioncan
offsetlowerimports
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Source:ERScalculationsbasedondatafromPS&DOnline,CottonOutlook,andBeijingCottonOutlook.
Endingstockchangeswillvarywith
importsandreservesaleprices
.
Reservesalepricereductionspotentiallycostly
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Source:ERSsimulationsbasedondatafromChinaCustoms,CottonOutlook,BeijingCottonOutlook,International
MonetaryFund,PS&DOnline,andUSDAestimates
PolicyChoicesforChinain2014
Tradeoffsbetweentextileindustryand
farmers
Tradeoffsbetweenfinanciallossonreserve
salesandpersistenceofhighstocks
Tradeoffsbetweenreducingstocksby
constrainingimportsorreducingreservesale
prices
Howtoapplyexperiencetoinevitablefurther
changesinfutureyears
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Contributionstotheinsightsandinformationinthis
presentationhavecomefrom:HunterColby(USDA/WAOB),
FredGale(USDA/ERS),JamesJohnson(USDA/FAS),Leslie
Meyer(USDA/ERS),IgnacioPerez(OECD/TAD),CarolSkelly
(USDA/WAOB),RalphSeeley(USDA/ERS).
Acknowledgements:
Formoreinformationoncotton:
EconomicResearchService
http://www.ers.usda.gov/topics/crops/cottonwool.aspx
ForeignAgriculturalService
http://www.fas.usda.gov/commodities/cotton
FormoreinformationonChina:
EconomicResearchService
http://www.ers.usda.gov/topics/internationalmarketstrade/countries
regions/china.aspx
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