Whether China will continue with the cotton subsidy this year is unknown. However, farmers hope it continues. They feel if there is no subsidy, it won't be possible for them to grow cotton. Each year, authorities set a target price for cotton and pay farmers the difference if the market price falls short. Rising labor costs, bad weather and a lack of water to irrigate the crop have turned the 2016-2017 harvest into a particularly hard one.
Even with the subsidy, it is hard for farmers to make a living. After deducting labor cost for the cotton pickers, farmers hardly make a profit. The subsidy regime was established as a three-year pilot scheme in 2014-2015. In that year, the government needed to replace a disastrous price support program, which had been introduced with the aim of stabilizing the world market. As farmers sold their cotton to state reserves for more than the market price, China's textile mills imported cheaper cotton from abroad, leaving the government with a stockpile that peaked at 11 million tons. So the government opted for a direct subsidy to farmers instead.
It’s estimated that the subsidy costs Chinese government $4 billion in direct payments to cotton farmers in 2014-2015 alone. In addition, hundreds of millions of dollars are spent each year in subsidies for high quality seeds, and for transporting the crop from China's far northwest to the mills and factories in the east.