BEIJING: The central government will raise its purchase price for cotton this year by 3 percent, aiming to forestall a decline in domestic cotton acreage, the China Cotton Association .
Reduced acreage could prompt China, the world's largest cotton consumer, to import more of the fibre next year.
The China Cotton Association said the government would pay cotton farmers 20,400 yuan ($3,200) per tonne this year for state reserves. "The government published the price increase before the planting season starts in an effort to stabilise cotton acreage," said Cheng Jie with the China National Cotton Information Centre. "The higher price will cover some rising input costs, such as fertiliser, but not labor costs, which have jumped."
Higher planting costs mean lower returns for cotton farmers, who may reduce acreage by as much as 10 percent by the time planting starts in March.
"The (purchase) price could help, but may not change expectations of shrinking acreage," said Guo Rongmin, China business manager with Cotlook Ltd.
In a survey earlier this year, the company estimated cotton acreage to fall by 10 percent, while the Cotton Information Centre forecast a decline of 8.2 percent.
The China Cotton Research Institute (CCRI), an influential think-tank, projected an acreage decline of 6.1 percent this year in a report published last week.
China produced 6.6 million tonnes of cotton last year, according to the National Bureau of Statistics.
"Government stockpiling policy in 2011 avoided a slump in domestic cotton prices and helped lift farmer incomes but farmers still think cotton does not offer a good return," said the CCRI.
The government kicked off domestic cotton stockpiling in September last year and has so far bought 2.6 million tonnes of cotton for state reserves.
"with government supporting domestic prices, the price gap with imported cotton has been expanded and mills (with import quotas) will shift to import," said Cotlook's Guo.
Cotton imports grew 18.6 percent in 2011 to 3.36 million tonnes, largely from India and United States.
News of the price increase lifted local cotton futures to more than one-week high of 21,915 yuan per tonne.
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