Expert Analysis of Cotton Direct Subsidy Policy Debuts This Year

According to an authoritative source, senior leaders of the country have stated that “the current policy of cotton collection and storage can no longer continue.” The relevant departments such as the National Development and Reform Commission, the Ministry of Finance, and the China Textile Industry Federation are conducting research on the direct subsidies policy and are expected to start later this year. Pilot, next year or official promotion. This means that the direct subsidy policy has entered the "pregnant period", but "how to make up, how much, and how to ensure that the subsidy is in place" requires careful consideration and thorough design. This breeding process will inevitably be complicated and difficult.

Misplaced "visible hand"

“At present, business operations are very difficult. The lack of procurement of cotton raw materials, the pressure of banks, and the increase in labor costs are all our greatest difficulties. The pressure on raw materials procurement is the greatest.” Mr. Zhang, head of a cotton textile company in Shandong, told the China Securities Journal The reporter sighed.

In a recent survey, Gao Yong, vice president of the China National Textile and Apparel Council, also found that the difficulty in purchasing raw materials has brought great harm to cotton textile companies. “At present, 50% of the small-sized cotton textile enterprises with a production capacity of 30,000 spindles or less from Shandong to Heze have ceased production. In Anyang, Henan, 50% of small-scale cotton textile enterprises have also stopped production at the beginning of the year. They are eligible to participate in the national reserve cotton auction. Large companies that can get imported cotton quotas have a relatively good living condition."

Relevant data show that in 2012/2013, the domestic cotton production was about 7.4 million tons, and the country collected and stored 6.5 million tons of cotton at a storage and storage price of 20,400 yuan/ton, which accounted for about 90% of the national cotton production. This resulted in serious shortage of cotton circulation in the market. Domestic cotton prices rose. Although afterwards, the country adjusted its supply through reserve storage, but due to the serious decline in the quality of reserve cotton, and the throwing of storage price at around 19,000 yuan/ton, compared with the imported cotton price of 4,000 to 5,000 yuan/ton over the same period, resulting in the willingness of cotton companies to take stockpiles. not tall.

"Receiving and storage policies have raised domestic cotton prices, which have widened the gap between domestic and foreign cotton prices and have been high for a long time. Large enterprises can get imported cotton quotas and thus buy imported cotton at a low price. Therefore, the operating conditions are slightly better; and it is difficult for small and medium-sized enterprises to buy cotton. Or can only buy high-priced cotton, the market decline in competitiveness, and thus shut down more." Galaxy analyst Ji Hong pointed out.

It can be seen that in the textile industry competition, the import cotton quota is the key to success. The so-called import cotton quota is an important means for the state to control the quantity of imported cotton, guarantee domestic cotton sales, and protect cotton farmers. It can be divided into two types: one is a tariff quota of 1%; and the other is an exempt tariff quota of 4 to 40% of the sliding tariff. The former is the quota of imported cotton tying in proportion to the reserve cotton (hereinafter referred to as the quota). ).

According to the regulations, quotas are prohibited from being sold privately. However, under the background that the price difference between cotton prices inside and outside China is high and the quality of imported cotton is high, the demand for domestic cotton imports is relatively large. As a result, the import cotton quota has formed an invisible market with active transactions. Some qualified companies will profit through selling quotas, even There are survivors who rely solely on reselling quotas. Some traders sniff out business opportunities and specialize in "quota brokerage." In this regard, the industry analysts said: "This is actually the market under the conditions of supply shortage, forced to adjust supply and demand voluntarily."

In addition to quotas, "Rounding Cotton" is also the corner of the gray zone. The so-called “turning cotton” mainly refers to the re-packing and packaging of reserve cotton thrown off by the company at a low price, posing as a new cotton storage for the current year, regardless of the relevant costs, at the current storage price of RMB 20,400/ton and RMB 19,000/ton. The calculation of throwing reserve price, the profit per ton of rotating cotton is at 1,400 yuan.

"Currently turning cotton around the ring" is not a universal phenomenon and has not yet affected the market price of electronic discs and the state's policy of collecting and depositing and transferring stocks." Analyst Chen Xiaoyan pointed out that the state has introduced many measures to prevent "circling cotton". These include measures such as "supervising, rewarding reports, and reserve deposits". "But as long as there is room for profit in the storage and storage prices and the market price, we cannot completely eliminate the "circling of cotton."

In September of this year, the new cotton is about to be listed, and the relevant departments announced that the reserve cotton will cease to be dumped at the end of July 2013. According to Dong Shuangwei, chief analyst of Capital Innovations, this may be to prevent the appearance of “circling around the cotton ring”, and it also shows that after the new flower market is listed, the country will continue to implement the new flower open storage policy. "After the suspension of storage from the end of July to the period before the receipt of the new flower, if there is no effective measures to prevent the phenomenon of turning cotton, the possibility of continuing to dump the stock has greatly decreased." It is reported that the state may adopt a compromise method, and after two weeks of suspending storage at the end of July, the reserve cotton will continue to be put on, and the specific situation will need to be further implemented.” Chen Xiaoyan said.

Direct supplement policy into "pregnant period"

“The policy of collecting and storing deposits is intended to be good. From the perspective of the storage and storage effects in the past two years, the collection and storage policy has indeed played a certain role in protecting cotton farmers and stabilizing planting areas. However, the country’s accumulated reserves were collected through unlimited storage for two consecutive years. More than 10 million tons consumes huge manpower, material resources and financial resources. This year's China's cotton stocks consumption ratio reached 140%, and cotton inventories accounted for more than 50% of global ending stocks. This kind of storage and storage is rare in the world.” Galaxy* * Analyst Ji Hong said. Gao Yong, vice president of the China Textile Industry Federation, wrote a report to the reporter. In 2011/12, he collected 3.13 million tons, and the closing price was 19,800 yuan/ton, costing 61.974 billion yuan; the 2012/13 closing price rose to 20,400 yuan / ton, total reserves of up to 6.5 million tons, costing 132.6 billion yuan, accumulative total reserves of 9.63 million tons in two years, a total cost of 1945.74 billion yuan.

“The funds collected for storage are from the Agricultural Development Bank**, and the difference between the collection, storage, and storage is subsidized by the Ministry of Finance. The receipt and storage of the surplus plus warehousing, management, personnel, and other expenses will cost approximately 3,000 yuan and 10 million tons for a ton of cotton. If it is to use direct subsidies, it may only need to spend one-third or less of it to achieve the purpose of protecting cotton farmers and stabilizing the market." Gao Yong sighed.

According to an authoritative source, senior leaders of the country have stated that "the current policy of cotton collection and storage can no longer continue." The Agricultural Development Bank of China also stated that it is difficult to support such a large-scale purchase, storage and lending for a long time. At the same time, the reporter learned that relevant departments such as the National Development and Reform Commission, the Ministry of Finance, and the China National Textile and Apparel Federation are conducting research on the direct subsidies policy, and they are expected to start pilot projects in the second half of the year and formally promote them next year. This means that the direct subsidy policy has entered the “pregnant period”, but how to make up for it and how much to supplement it, and how to ensure that the subsidy is in place requires careful and thoughtful design, and this gestation process is bound to be complicated and difficult.

According to Dong Shuangwei, chief analyst of First Capital, the direct supplementation policy must be solved a series of detailed issues before implementation, such as the basis for direct compensation, which is based on the amount of seed cotton or planted area; the specific standard of subsidies; A certain ministry is also an association, or is decentralized to a company; supervision over how the subsidy is enforced and how it can prevent rent-seeking behavior. “The direct cotton subsidy policy has enabled the textile and clothing industry to obtain cheaper raw materials, but if the direct subsidy policy is not put in place and does not fundamentally protect cotton farmers' interests and stabilize cotton production, it may instead cause large fluctuations in cotton supply. The policy makers are very cautious. Therefore, policy makers are very cautious.” Chen Xiaoyan, an analyst at Galaxy, said that due to the decentralized and unclear area of ​​cotton cultivation, it is still a question of how direct subsidies will guarantee subsidies to the farmers. The specifics are whether to make compensation according to the amount of compensation or whether to select the pilot point, and the relevant department has not yet formed the final opinion.

Direct supplementation is not the ultimate goal. “There are many imperfections in the current cotton policy. We advocate direct subsidies, just to break the current system, and hope to achieve more marketization. However, direct subsidies are not the best regulatory policy. Gao Yong, vice president of the China Textile Industry Federation, said that only by going out of the small-peasant economy-style planting model and realizing scale, mechanization and industrialization, improving the quality of cotton, and strengthening the international competitiveness of enterprises is the fundamental solution to the cotton issue. road.

At present, Xinjiang Corps has started large-scale use of mechanical picking, which has significantly increased the efficiency of cotton cultivation and reduced production costs. At present, Xinjiang's cotton production accounts for 50-60% of the country's cotton production. Therefore, Xinjiang is the best pilot for the direct supplemental policy, and it is also the experimental field and pioneer of the future cotton industry development model.

Chen Jing, an analyst at China Securities, believes that direct supplementation is not the best solution. For example, the developed countries in the United States are more inclined to solve market problems by using market methods, such as using financial derivatives such as ** and options to evade price fluctuation risks. It is a good substitute for the original subsidy policy adopted to protect the interests of farmers.

From the point of view of industrial development, cotton spinning companies have to embark on the current predicament. Chen Jing believes that on the one hand, the textile industry must improve its own survival and competitiveness, and can no longer fix the industry in the low threshold of the previous two years and the price war situation. On the basis of guaranteeing quality, we should increase R&D and brand establishment and training; on the other hand, we must have a sense of risk control and can use financial instruments to avoid certain market risks.

“As a labor-intensive industry, cotton spinning enterprises have played a significant role in China’s economic growth and export earnings for many years. However, at the time of the transformation and upgrading of China’s economic development, cotton spinning companies are in a relatively sunset industry, and should be based on structural industry adjustments. , Encourage mergers and reorganizations, eliminate outdated production capacity, and increase brand added value.At the same time, learn from the advanced experience of European and American markets, conduct certain risk control and management of raw materials, and look for alternatives to raw materials to adapt to the company's products. The market's price discovery and hedging functions effectively reduce the cost of raw material costs and inventory declines, and lock in the company's expected profits, said Dong Shuangwei, chief analyst of First Capital.

"Marketing measures should be adopted to solve the problems faced by the cotton industry as far as possible." Dong Shuangwei suggested that the policy factors in recent years have caused the high cost of cotton used by domestic cotton spinning companies. The relevant departments should create marketization and fairness for enterprises in the future. a competitive environment. On this basis, cotton spinning enterprises should adapt to the objective requirements of China's economic transformation and upgrading, and take the initiative to improve their own product competitiveness and brand added value and upgrade them.

Gao Yong, Vice President of China National Textile and Apparel Council: Direct subsidies help to break the cotton industry's dilemma. At the beginning of implementation, the cotton purchasing and storage policy did play an active role in supporting the market; but as the policy continues to be implemented, it has a wide range of purchasing and storage. With the continuous increase, the supply of cotton in the market is in short supply, which has not reached the goal of benefiting the cotton farmers, and has also hurt the textile companies’ operating aspirations. In response, Gao Yong, deputy chairman of the China National Textile and Apparel Council, said: “Only the implementation of direct subsidies for cotton farmers can break the existing cotton industry's predicament. At present, the competent authorities are studying the details of the policy, and the next step may be piloting. It may be promoted in the future. Xinjiang is one of our recommended pilot areas.” China Securities Journal: At present, the reserve cotton transaction is quite deserted. As of July 16th, the accumulated total listing volume was 12,137,004.91 tons, and the accumulated turnover was 2,989.331453 tons. Only 24.63%. What is the cause of this?

Gao Yong: There are three reasons. First, the stock price is too high, about 19,000 yuan / ton, causing the overall volume was light. The recent rebound in trading volume is due to the fact that most of the cotton put in reserve is Xinjiang cotton and imported cotton, which is of better quality and is welcomed by enterprises.

Second, the quality of cotton collected in the 2012/13 cotton season was poor. Because this year is open storage, many cotton shoddy. And because too much storage and storage, the inspection department is difficult to carefully screened, all received cotton storage, resulting in the decline in the overall quality of cotton. In general, Xinjiang cotton and imported cotton are of good quality. Xinjiang cotton is mostly stored in warehouses in Xinjiang and neighboring Xinjiang provinces, so companies buying cotton will determine whether or not to purchase based on the location of the warehouse where the cotton is stored.

Third, corporate funding issues. The recent downturn in the business efficiency of textile companies has led to a lack of liquidity, and at the same time banks have also tightened up. They can only buy as much as they need, and it is impossible to buy enough inventory for months before.

China Securities Journal: Why is the storage price soaring? How is the current status of textile companies?

Gao Yong: In 2011/12, the use of cotton in China and India increased substantially, pushing up the price of cotton around the world, reaching a maximum of 32,000-33,000 yuan/ton. At that time, the international cotton price was the same as domestic prices. However, since the end of 2011, the price of cotton began to plummet, and fell to around 26,000 yuan/ton. Many enterprises, including textile companies, responded to the relevant departments and hoped that the country would introduce policies to support the market. Therefore, the policy of storage and storage came into being. At that time, the price of cotton was basically stable at around 20,000 yuan/ton. As a result, domestic cotton prices have been stable, but international cotton prices have continued to fall, falling below 13,000 yuan per ton. In the past half year, the domestic and international spreads remained at around 6,000 yuan per ton.

It can be said that the initial purchase and storage policy was born in response to market demands and played a positive role in stabilizing domestic cotton prices. However, after the domestic cotton price stabilized, the domestic cotton price and the foreign cotton price produced a relatively large spread. Together with the 2012/13 purchase and storage policy, the price was raised from 19,800 yuan to 20,400 yuan, and it was open to storage. , Almost more than 600 million tons of cotton production in 2012/13 were all collected.

After the domestic cotton price rises, the spread between domestic and foreign countries has further increased, resulting in higher cotton prices in China than in the international market, making China's yarn exporter a yarn net importer. From the perspective of the industry chain, the large number of imported cotton yarns has caused a large number of spinning companies in the front end of the industrial chain to shut down. In other words, the current situation of the textile industry is to sacrifice the front-end spinning companies to preserve the entire industrial chain.

China Securities Journal: What kind of attitude do you have in place of whether you have replaced the policy with the direct supplement policy? Will the direct subsidies be implemented for the 2013/14 cotton season?

Gao Yong: China's existing cotton policy, whether it is imported cotton quotas, sliding tariffs, or revenue collection and storage, is based on protecting the interests of cotton farmers. However, there have been some drawbacks in the implementation of a series of policies over the years: On the one hand, the interests of cotton farmers have not been effectively protected, and the cash income of processing enterprises has been processed instead of seed cotton, and most of the benefits have been transferred from embossed plants to cotton marketing companies. The intermediate link was obtained; on the other hand, textile companies were greatly damaged by the high cost of raw materials. Therefore, we first proposed the implementation of the direct subsidies policy to the central government and directly supplemented cotton farmers. Only with direct subsidies can the existing cotton plight be broken.

In addition to the above reasons, from the perspective of funding, it is also very difficult to continue to store and store. In the 2013/14 cotton season, it has been determined that we must continue to store and store. If we take the same amount of 6 million tons as the previous year, plus the original inventory will reach about 14 million tons, such a large inventory will be a disaster, and it will be nowhere. Storage, and second, where the funds for storage and storage come from, it is difficult for the relevant banks to continue to support such large-scale storage and storage.

However, the direct supplementation policy must be implemented as early as one year later. Currently, the competent authority is studying the details of the policy, and the next step may be to conduct trials, which may be promoted one year later. Xinjiang is one of the hottest areas we recommend.

Of course, direct subsidies may also have drawbacks, not that direct subsidies are the best way. We advocate direct subsidies, purely to break through the current cotton system, so that cotton farmers directly get the state's subsidies. After direct subsidies are achieved, the labor productivity of the cotton industry will eventually need to be increased. The current small-scale peasant economy-style cotton growing industry must be developed in the direction of large-scale and mechanized production, making China's cotton industry competitive.