China out with the policy document late yesterday, is the first official confirmation the policy change will come in 2014, although it does not give more specific details on timing and offers limited information on how subsidies will work. But China, the world's top buyer of raw cotton, will trial direct subsidies for farmers and will scrap its controversial scheme to stockpile the commodities this year, the government said in a policy document.

The step had been widely anticipated after several years of stockpiling failed to encourage an increase in cotton planting by farmers while also pushing domestic prices well above international markets, stimulating more imports.

Global cotton prices, which climbed around 12% in 2013, may come under pressure from the policy change as it could free up more locally grown cotton, denting China's demand for imported fibre.

Trials for the subsidy system will be tested in the far western province of Xinjiang for cotton growers. The subsidy will be based on a target price, according to the document.

The government said that it would "gradually build a system of target prices for agricultural products so that when the market price is high, low income consumers will be subsidised, while when the market price is lower than the target price, producers will be subsidised the difference, therefore guaranteeing farmers' income". It did not give further details.

China views the financial support of its 700 million farmers as crucial for both its food supply and political stability, particularly in regions with large ethnic minorities such as Xinjiang, its main cotton-producing area

Courtesty:Reuters