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UPDATE 1-China says to scrap cotton, soybean stockpiling in 2014

Sunday, 19 Jan 2014 | 10:28 PM ET

* Move had been widely expected

* But document offers first confirmation will come this year

* Does not give specific details on timing

* To maintain stockpiling for rapeseed, corn, sugar

(Adds detail, background)

BEIJING, Jan 20 (Reuters) - China, the world's top buyer of raw cotton and soy, will this year scrap its controversial scheme to stockpile the commodities and will trial direct subsidies for farmers instead, the government said in a policy document.

The document, published late on Sunday, 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.

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

Global cotton prices, which climbed around 12 percent 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.

China's soy purchases are expected to be less affected by the move as most crushers in coastal regions are largely dependent on imports.

Trials for the subsidy system for soybeans will be rolled out in the north-east and Inner Mongolia, while it 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 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.

The government said it would maintain stockpiling for rapeseed, corn and sugar, as well as continuing to offer a minimum purchase price for wheat and rice.

Some industry participants had also expected changes to sugar and rapeseed stockpiling.

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, and southern Guangxi and Yunnan, the principal sugar provinces.

Details of the policy change were published in the "number one document", issued every January by the Central Committee of the Chinese Communist Party. The paper sets the country's policy priorities for the year, and has focused on rural matters every year since 2003.

(Reporting By Dominique Patton; Editing by Joseph Radford)