The "Visible Hand" Of Misplaced Cotton Policy

If we say that the cotton purchase and storage policy launched in 2011 came into being to protect the interests of cotton farmers against the backdrop of a sharp decline in cotton prices; Today, this policy, which has been implemented for nearly three years, has reached the turning point of "retreat in response to disasters".

The first is the "market robbery", that is, excessive intervention in the purchase and storage policy has led to the weakening of the market mechanism, insufficient supply of high-quality cotton, and the cotton textile enterprises have difficulty in surviving due to the high cost; The second is "gray robbery", that is, there are distorted operations in the implementation of the collection and storage policy and the supporting quota management system for imported cotton, which has spawned gray areas such as revolving cotton and quota scalping; Third, "money robbery", such a huge amount of collection and storage costs huge, daily inventory, warehouse management and other costs are hundreds of millions of losses.

According to authoritative sources, senior leaders of the country have said that "the current cotton purchase and storage policy can no longer be continued". The NDRC, the Ministry of Finance, the China Textile Industry Federation and other relevant departments are conducting research on the direct subsidy policy, which is expected to start the pilot later this year and be officially promoted next year. This means that the direct subsidy policy has entered the "pregnancy preparation period", but "how to make, how much to make, and how to ensure that subsidies are in place" need careful consideration and thorough design, and this breeding process is bound to be complex and arduous.

Misplaced "visible hand"

"At present, it is very difficult for enterprises to operate. The shortage of cotton raw materials, the pressure of bank loans, and the increase of labor costs are our biggest practical difficulties, among which the pressure of raw materials procurement is the biggest." Mr. Zhang, the head of a cotton textile enterprise in Shandong, sighed to the reporter of China Securities Daily. In a recent survey, Gao Yong, Vice President of the China Textile Industry Federation, also found that the difficulty in purchasing raw materials had caused great harm to cotton textile enterprises. "At present, 50% of the small pure cotton textile enterprises in Shandong Province from Dezhou to Heze with a capacity of less than 30000 spindles have stopped production. In Anyang, Henan Province, 50% of the small pure cotton textile enterprises also stopped production at the beginning of the year. Large enterprises that are eligible to participate in the national reserve cotton auction and can obtain the import cotton quota have a relatively good survival status."

Relevant data shows that in 2012/2013, the domestic cotton output was about 7.4 million tons, and the state collected and stored 6.5 million tons of cotton at a price of 20400 yuan/ton, accounting for about 90% of the national cotton output, which led to a serious shortage of cotton circulation in the market and an increase in domestic cotton prices. Since then, although the country has regulated the supply by releasing and storing cotton, due to the serious decline in the quality of cotton reserves, the price of dumping and storing cotton has reached about 19000 yuan/ton, which is 4000-5000 yuan/ton higher than the price of imported cotton in the same period, leading to the low willingness of cotton enterprises to auction and store cotton.

"The purchase and storage policy has raised the domestic cotton price, so that the difference between domestic and foreign cotton prices has expanded and has been high for a long time. Large enterprises can get import cotton quotas, so they can buy imported cotton at low prices, so the business situation is slightly better; while small and medium-sized enterprises are difficult to buy cotton or can only buy cotton at high prices, and the market competitiveness has declined, so they have been shut down more." Ji Hong, an analyst with Galaxy Futures, pointed out.

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

According to the regulations, quotas are prohibited from being sold privately. However, in the context of the continuous high price difference between domestic and foreign cotton and the high quality of imported cotton, domestic demand for imported cotton is large, so the import cotton quota has formed an active invisible market. Some qualified enterprises will make profits by selling quotas, and even those who survive purely by reselling quotas. Some traders smell out business opportunities and specialize in "quota brokerage". In this regard, the insiders analyzed and said: "This is actually a helpless move that the market is forced to adjust supply and demand spontaneously under the condition of supply shortage."

In addition to the quota, the "turn cotton" is also a corner of the gray zone. The so-called "round robin cotton" mainly refers to that the enterprise repacks the reserve cotton thrown out at a low price, packs it and pretends to be the new cotton of this year. Regardless of the relevant costs, the profit margin of each ton of round robin cotton is 1400 yuan based on the current collection and storage price of 20400 yuan/ton and the dumping and storage price of about 19000 yuan/ton.

"At present," revolving cotton "is not a common phenomenon, and it has not affected the market price of electronic disk and the national policy of buying, selling and storing." Chen Xiaoyan, an analyst of Galaxy Futures, pointed out that the country has introduced many measures to prevent "revolving cotton", including "supervision, reward reporting, and deposit reservation". "However, as long as there is profit space between the purchase and storage price and the market price, the" revolving cotton "cannot be completely eliminated."

In September this year, new cotton was about to come into the market, and the relevant departments announced that the dumping and storage of reserve cotton would stop at the end of July 2013. Dong Shuangwei, chief analyst of Capital Futures, believes that this may be to prevent the emergence of "spinning cotton", which also indicates that the country will continue to implement the policy of opening the purchase and storage of new flowers after the listing of new flowers. "If there is no effective measure to prevent the phenomenon of cotton spinning, the possibility of continued dumping and storage will be greatly reduced in the gap period from the end of July when dumping and storage stops to the end of July when new flowers are collected and stored." "In fact, textile enterprises have continuously submitted letters calling for dumping and stockpiling. It is reported that the country may adopt a compromise approach and continue to put in reserve cotton after a two-week suspension of dumping and stockpiling at the end of July. The specific situation remains to be further implemented." Chen Xiaoyan said.

Direct subsidy policy enters the "pregnancy preparation period"

　　 "The purpose of the collection and storage policy is good. Judging from the effect of the collection and storage in the past two years, the collection and storage policy has indeed played a role in protecting cotton farmers and stabilizing the planting area. However, through unlimited collection and storage for two consecutive years, the country's cumulative collection and storage has exceeded 10 million tons, which has consumed huge human, material and financial resources. This year, China's cotton inventory consumption ratio reached 140%, and cotton inventory accounts for the world's More than 50% of the ending inventory, which is rare in the world. " Galaxy Futures analyst Ji Hong said. Gao Yong, Vice President of China Textile Industry Federation, calculated the accounts for reporters. In 2011/12, 3.13 million tons were collected and stored at a price of 19800 yuan/ton, costing 61.974 billion yuan; In 2012/13, the purchase and storage price increased to 20400 yuan/ton, and the cumulative purchase and storage volume reached 6.5 million tons, costing 132.6 billion yuan. The cumulative purchase and storage volume in two years was 9.63 million tons, costing a total of 19.4574 billion yuan.

　　 "The funds collected and stored come from the loans of the Agricultural Development Bank of China, and the price difference between the collection, storage and storage is subsidized by the Ministry of Finance. The price difference between the collection, storage and storage plus the costs of storage, management, personnel, etc., the country will discount about 3000 yuan per ton of cotton, and 10 million tons will be 30 billion yuan. If we change to the direct subsidy policy, it may cost only one third or less of it to protect cotton farmers and stabilize the market 。” Gao Yong sighed.

According to authoritative sources, senior leaders of the country have said that "the current cotton storage policy can no longer be continued", and the Agricultural Development Bank of China has also said that it is difficult to support such large-scale storage and lending for a long time. At the same time, the reporter learned that the NDRC, the Ministry of Finance, the China Textile Industry Federation and other relevant departments are conducting research on the direct subsidy policy, which is expected to start the pilot in the second half of the year and be officially promoted next year. This means that the direct subsidy policy has entered the "pregnancy preparation period", but how to make the subsidy, how much to make it, and how to ensure that the subsidy is in place are all contents that need careful consideration and thorough design. The process of breeding is bound to be complex and arduous.

Dong Shuangwei, chief analyst of Capital Futures, said that before implementing the direct subsidy policy, a series of detailed problems must be solved, such as whether the basis of direct subsidy is the amount of seed cotton delivered or the planting area; What are the specific standards of subsidies; Whether the executive subject of the subsidy is a ministry or an association, or is it delegated to enterprises; How to supervise the implementation of subsidies and prevent rent-seeking as far as possible. "The cotton direct subsidy policy is expected to make the textile and clothing industry obtain cheaper raw materials, but if the direct subsidy policy is not implemented in place, and does not fundamentally protect the interests of cotton farmers and stabilize cotton production, then it may instead lead to a sharp rise and fall in cotton prices due to significant fluctuations in cotton supply. Therefore, the policy designers are very cautious." Chen Xiaoyan, an analyst with Galaxy Futures, said, As the cotton planting area is scattered and the area is unknown, how to ensure the direct subsidy to farmers is still a problem. The relevant departments have not yet formed a final opinion on whether to pay by mu or by quantity, and whether to choose a pilot project.

Direct compensation is not the ultimate goal

"There are many imperfections in the current cotton policy. We advocate the direct subsidy policy just to break the current system and hope to achieve more marketization. However, the direct subsidy policy is not the best regulation policy." Gao Yong, vice president of the China Textile Industry Federation, said that only by going out of the small-scale peasant economy planting mode to achieve large-scale The fundamental way to solve the cotton problem is to develop mechanization and industrialization, improve cotton quality and enhance the international competitiveness of enterprises.

At present, Xinjiang Production and Construction Corps has begun to use mechanical picking on a large scale, which has significantly improved the efficiency of cotton planting and reduced production costs. At present, Xinjiang's cotton output accounts for 50-60% of the national cotton output. Therefore, Xinjiang is not only the best pilot of direct subsidy policy, but also the pilot field and pioneer of future cotton industry development model.

Chen Jing, an analyst of CSI Futures, also believes that direct subsidy is not the best solution. Foreign developed countries, such as the United States, prefer to solve market problems by market means, such as using financial derivatives such as futures and options to avoid price fluctuation risks, which is a good substitute for the original subsidy policy to protect farmers' interests.

From the perspective of industrial development, cotton textile enterprises should get out of the current predicament. Chen Jing believes that, on the one hand, the textile industry should improve its own survival and competitiveness, instead of setting the industry at a low threshold and fighting a price war in the previous two years, it should increase research and development, brand building and cultivation on the basis of quality assurance; On the other hand, we should have a sense of risk control, and we can use financial instruments to avoid certain market risks.

　　 "As a labor-intensive industry, cotton textile enterprises have played a huge role in China's economic growth and export earnings for many years, but at the time of transformation and upgrading of China's economic development, cotton textile enterprises are in a relatively sunset industry. Thereafter, based on structural industry adjustment, we should encourage and restructure, eliminate backward production capacity, and improve brand added value. At the same time, we should learn from the advanced European and American markets Experience, to carry out certain risk control and management on raw materials. In addition to finding substitutes for raw materials suitable for the company's products, we should also use the price discovery and hedging functions of the cotton futures market to effectively reduce the cost of raw materials and the loss of inventory decline, and lock in the expected profits of the enterprise. " Dong Shuangwei, chief analyst of Capital Futures, said.

"We should try our best to solve the problems faced by the cotton industry with market-oriented means." Dong Shuangwei suggested that in recent years, policy factors have to some extent led to the plight of high cotton costs for domestic cotton spinning enterprises. In the future, relevant departments should create a market-oriented and fair competitive environment for enterprises. On this basis, cotton textile enterprises should adapt to the objective requirements of China's economic transformation and upgrading, actively improve their product competitiveness and brand added value, and upgrade.

Gao Yong, Vice President of China Textile Industry Federation: Direct subsidy policy helps to break the dilemma of cotton industry

At the beginning of the implementation of the cotton storage policy, it really played a positive role in supporting the city; However, with the continued implementation of the policy, and the increasing breadth of purchase and storage, the market is short of cotton supply, which has not reached the goal of benefiting cotton farmers, but also hurt the business aspirations of textile enterprises. In this regard, Gao Yong, vice president of the China Textile Industry Federation, said, "Only by implementing the direct subsidy policy for cotton farmers can we break the existing dilemma of the cotton industry. At present, the competent department is studying the details of the policy, and the next step may be the pilot, which may be promoted a year later. Xinjiang is one of the pilot areas we recommend." China Securities News: At present, the transaction of reserve cotton is quite cold, As of July 16, the total cumulative listing volume was 12137004.91 tons, the total cumulative transaction volume was 2989331.453 tons, and the total transaction ratio was only 24.63%. What is the reason?

Gao Yong: There are three reasons. First, the deposit price is too high, about 19000 yuan/ton, resulting in a light overall transaction. Recently, the turnover has picked up, because most of the stored cotton is Xinjiang cotton and imported cotton, which is of good quality and popular with enterprises.

Second, the quality of cotton harvested in the 2012/13 cotton season is too poor. Because this year is an open harvest, many cotton is shoddy. In addition, due to the large quantity of cotton collected and stored, it is difficult for the inspection department to carefully identify, and all cotton collected is put into storage, resulting in a decline in the overall quality of cotton. In general, the quality of Xinjiang cotton and imported cotton is good, and most of Xinjiang cotton is stored in warehouses in Xinjiang and neighboring Xinjiang provinces. Therefore, enterprises will decide whether to buy cotton according to the geographical location of the warehouse where the reserve cotton is located.

Third, enterprise capital. Recently, the operating efficiency of textile enterprises has been low, and the working capital is insufficient. At the same time, bank loans have also been tightened, so it is only necessary to buy as much as you need. It is impossible to buy enough inventory in advance for several months as before.

China Securities News: Why are the purchase and storage prices abnormally high? What is the living condition of textile enterprises at present?

Gao Yong: In 2011/12, the consumption of cotton in China and India increased significantly, driving up the world's cotton price, which was up to 32000-33000 yuan/ton. At that time, the international cotton price was the same as the domestic cotton price. However, since the end of 2011, the cotton price has started to plummet, falling to about 26000 yuan/ton. Many enterprises, including textile enterprises, have reported to the relevant departments that they hope the country can introduce policies to support the market. Therefore, the purchase and storage policy came into being, and the cotton price at that time was basically stable at about 20000 yuan/ton. As a result, the domestic cotton price has stabilized, but the international cotton price has continued to decline, once falling below 13000 yuan/ton. For the most part of last year, the difference between domestic and foreign prices has remained around 6000 yuan/ton.

It can be said that the initial purchase and storage policy came into being in response to market requirements and played a positive role in stabilizing domestic cotton prices. However, after the domestic cotton price stabilized, there was a large price difference between the domestic cotton price and the foreign cotton price. In addition, the purchase and storage policy in 2012/13 continued to be implemented. The price rose from 19800 yuan to 20400 yuan, and the purchase and storage were open, almost all of the 6 million tons of cotton output in 2012/13 were collected and stored.

After the price of domestic cotton rose, the price difference between domestic and foreign prices further increased, which led to China's cotton price higher than the yarn price in the international market, making China become a net importer of yarn from a yarn exporter. From the perspective of the industrial chain, a large number of imported cotton yarns have led to a large number of shutdowns of spinning enterprises at the front end of the industrial chain. In other words, the current situation of the textile industry is to preserve the entire industrial chain at the expense of the spinning enterprises at the front end.

China Securities News: What is your attitude towards whether to replace the purchase and storage policy with the direct subsidy policy at present, and whether to implement the direct subsidy policy in the 2013/14 cotton season?

Gao Yong: China's existing cotton policies, whether they are import cotton quotas, sliding allowance taxes or collection, release and storage, are all based on protecting the interests of cotton farmers. However, a series of policies have been implemented for many years, resulting in some drawbacks: on the one hand, the interests of cotton farmers have not been effectively protected, and the lint processed by processing enterprises rather than seed cotton is collected and stored, and most of the benefits are obtained from the intermediate links between embossing plants and cotton marketing enterprises; On the other hand, textile enterprises have suffered great damage due to the high cost of raw materials. Therefore, we were the first to propose the direct subsidy policy to the central government for cotton farmers. Only by implementing direct subsidy can the existing cotton dilemma be broken.

In addition to the above reasons, it is also very difficult to continue to collect and store funds. The 2013/14 cotton season has determined to continue to collect and store. If the same amount of 6 million tons is collected and stored as the previous year, plus the original inventory will reach 14 million tons, such a large inventory is a disaster. First, there is no place to store, and second, where the collection and storage funds come from, it is difficult for the relevant banks to continue to support such large-scale collection and storage in terms of funds.

However, the direct subsidy policy should be implemented at the earliest one year later. At present, the competent department is studying the details of the policy, and the next step may be a pilot project, which may be promoted one year later. Xinjiang is one of the hot pilot areas recommended by us.

Of course, direct compensation may also have disadvantages, which does not mean that direct compensation is the best way. We advocate direct subsidy purely to break through the current cotton system, so that cotton farmers can receive direct subsidies from the state. After the realization of direct subsidy, the labor productivity of the cotton industry will ultimately be improved. The current small-scale peasant economy cotton planting industry must develop towards large-scale and mechanized production, so that China's cotton industry can be competitive.