China scrapping its contentious cotton stockpiling policy this year has moved to direct subsidies for farmers. Under this policy, the farmers can sell cotton at market prices and will receive subsidies from the government if market prices fall below the target price. Also cotton target price for 2014 is being set making it convenient for farmers to sell cotton in market.

Economic planning body of China on Saturday has gone ahead to set cotton target for 2014 at 19,800 Yuan ($3,200) per tonne for cotton. The decision to set target price was taken based on production cost and basic returns, the National Development and Reform Commission said.

The stockpiling policy pushed up domestic cotton prices much higher than global prices, making it cheaper for Chinese mills to import cotton grown abroad than to buy domestic produce.

According to the latest report of the Economist Intelligence Unit (EIU), cotton consumption growth will remain relatively firm in Asia this fiscal year, while its global consumption will increase a bit in 2014-15,

Further, they expect the new policy to have an impact on demand in the medium term, but not to affect their current demand forecasts.