China set to test loans, subsidies to support farmers

China is set to test using loans and subsidies to support farmers from next year, a senior government official said, indicating a shift away from a controversial scheme to stockpile agricultural commodities.

Reduced reliance on stockpiling, which has pushed domestic prices way above international markets, would be welcomed by local firms such as sugar and cotton mills that have had to shell out more for raw materials. But it would also weigh on global markets that have been buoyed by Chinese stockpiling.

“China has already started to tackle the pricing mechanism for agricultural commodities,” said Zhao Lihua, a director at the economy and trade division of the National Development and Reform Commission (NDRC).

“We hope to establish a support system made up of subsidies, loans, insurance and stockpiling together,” he added in a speech last week at a sugar conference in the southwestern city of Kunming.

China has stockpiled crops including sugar, cotton, soy and corn for several years, paying above-market prices to help its farmers.

The cotton stockpiler is paying 20,400 yuan (US$3,300) per tonne of fibre this year, around double global prices.

But in driving up domestic prices, the policy has fuelled a surge in cheaper imports, benefiting overseas suppliers rather than the local market.

China is estimated to have imported around two million tonnes of sugar at the full 50 per cent import duty in the 2012-13 year, thanks to price premiums close to US$400 per tonne between domestic and international prices.

This has helped support an oversupplied global sugar market, which saw prices fall to a three-year low in July.

NDRC, the planning body that sets economic policies, has already sought industry comment on proposals to overhaul cotton stockpiling.

“The earlier methods were rather simplistic,” said Zhao, according to a transcript of his speech published late on Friday by an industry website, ChinaSugarMarket.com.

The new support policies have not yet been decided but will be tested out on some products from next year, he said, without giving further details.

— Reporting for Reuters by Dominique Patton in Beijing.

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