Huge oversupply forces state to dismantle price controls on cotton

The mainland will next year end a 50-year-old state monopoly on cotton, lift controls on prices and allow textile firms to buy directly from farmers.

The move, announced yesterday, will leave just one farm commodity, tobacco, under state control.

Beijing made the historic decision to relax cotton controls because of an unprecedented glut in the market. This has caused the state distribution system to build up an inventory equal to two years' consumption and run up record losses that hit 8.7 billion yuan (about HK$8.09 billion) at the end of August.

From next year, the state will stop setting a minimum purchase price for cotton. Cotton has been regarded as a strategic commodity that could not be left to the market. Previously it was feared that opening the market would lead to price fluctuations that would drive farmers out of the crop.

From next year, prices will be set by the market, with farmers able to sell either to state firms, which have monopolised cotton sales and distribution since 1949, or directly to end-users of cotton, such as textile firms, officials said.

'The plan does not allow individual traders to buy and sell cotton,' one official said.

'The large users should be able to offer the best prices because they buy in bulk. But in future the traders may be able to enter the market.' Beijing has found the price-setting counter-productive. Domestic prices have been too high, encouraging farmers to plant, creating a supply glut.