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Chinese government is procuring many million tons of cotton from farmers—5 million tons to be precise—and according to analysts, would cover cotton deficit of the nation for six years when added to the exi..

02 Nov 2012

By Rakesh Neelakandan
Politics in a broad sense is not the least beneficial on any front. Nothing could be farther from the truth in case of cotton politics too.

Chinese government is procuring many million tons of cotton from farmers—5 million tons to be precise—and according to analysts, would cover cotton deficit of the nation for six years when added to the existing piles of 4 million metric tons.

Storage issues apart, China, one of the biggest consumers of cotton, would thus prevent any chance of competitive cotton entering its territtory through this massive hoarding exercises.

USDA says that China would import 11 million bales of cotton, down 55 percent from last year, as its inventories jump.

This invariably is a pre-emptive strike by the Chinese government. The cotton sector there employs hundreds of thousands of farmers and if they are to lose their livelihoods to surplus cotton production, that would set the cotton piles on fire, in other words, would politically cripple China as agitations begin.

It is no secret that China outspends its defence budget to maintain internal security and order.

The massive purchase of cotton has significance especially in an era of leadership transition in China where Xi Jinping is expected to takeover the Presidency of the nation from Hu Jintao. Smooth transitions are a sure way to consolidate power as far as the Party leadership is concerned and in an ambience of political instability could literally threaten the very thrones of centralised governance.

“As long as China maintains this regime to subsidize cotton farmers, the world will be prone to overproduction,” Joe Nicosia head of Allenberg Cotton Co said to Bloomberg News. “Can you imagine a world without China importing any cotton for six years? They hold all the cards.”

Cotton has dipped 68% from record highs in 2011 as farmers across the globe increased production in anticipation of higher profits.

“Outside of China the world has 13.9 million bales of surplus,” said Nicosia, who is also executive vice president of Louis Dreyfus Commodities BV. “How much of this surplus China decides to absorb will determine the cotton market’s direction.” he said to Bloomberg.

Add to this, the production and consumption of man-made fibers and the clear picture emerges. Cotton may well lose its price battle.


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