Saturday, February 7, 2009

Anhui, Hubei Farmers Abandon Cotton

The global economic crisis is having its most serious impact on the textile-cotton supply chain in China. Declining sales at the Wal-Mart and Bed, Bath, and Beyond down the street are being felt by cotton farmers in China. Down on the farm it looks like the combination of poor returns from cotton and support prices for grain will lead to plunging cotton area in China this year.

One China cotton exchange writer reports on a spring festival visit to his home village in one of the major cotton producing areas of Anhui Province. Farmers told him that returns from cotton plunged due to a double-whammy of declining prices and yields over the last two years. Moreover, fertilizer prices rose, further reducing net profits.

Farmers he talked to said the price they receive for seed cotton fell from 3.6 yuan per jin (1 jin = 500g) in 2006 to 3.05 yuan in 2007 and just 2 yuan this year. The provincial authorities claim the cotton price was raised to 2.45 yuan, but the farmers say most of them actually get only 2 yuan. Apparently, the 2.45 yuan price comes from state-owned purchasing stations and mills, but the farmers say that it has been common practice recently for these guys to contract out their purchasing functions to private middlemen. The government has little control over the cotton price.

Farmers also said that yields declined 100 kg/mu each of the last two years. Yields in this area peaked at 600 jin/mu (15 mu = 1 hectare = 2.47 acres) in 2006, and fell to 500 jin in 2007 and about 400 jin for most farmers this year.

The cost of fertilizer went up over 200 yuan per mu. Pesticide also went up, while cotton seed got cheaper. Based on the decline in yields and prices, gross income from cotton fell by 725 yuan per mu. Adding the rising cost of fertilizer cuts the profits by 925 yuan.

Rice is now more profitable than cotton (and you can grow multiple crops of rice on a single plot in this area). Rice brought a net return of about 1200 yuan/mu compared to 800 yuan/mu for cotton.

The government set a support price for early indica and japonica rice in this area. Moreover, farmers get a subsidy for grain (although the author notes that farmers in this area get the subsidy whether they plant rice or not.) A lot of the farmers are reportedly planning to switch some of their fields from cotton to rice this year.

Another article from the No.1 textile net reports on a visit to Hubei Province. A farmer named Liu standing on the doorstep of his house points to a field with many stalks still bearing their cotton and says it's not worth harvesting cotton because he would lose money on it. He's decided this year the white (cotton) field will become a water field (rice paddy). Farmer Liu plants 30 mu of rice and 8 mu of cotton. He plans to switch half of his cotton land to rice paddy.

The "white to water field" seems to be a general trend. A January survey of 16 provinces by the China Academy of Agricultural Sciences estimates that cotton planting will decrease by as much as 20.9% this year. At the same time, various planting intention surveys indicate that grain area will go up in 2009. In Hubei, for example, farmers' planned cotton acreage is projected to fall 13% in 2009 while grain area is projected to go up 3.2%. Rice area in Hubei is projected to go up 4.1%. Grain production set a record in 2008 and area looks set to rise even further, partly at the expense of cotton.

No comments: