The mainland will next year end a 50-year-old state monopoly on cotton, lift controls on prices and allow textile firms to buy directly from farmers. The move, announced yesterday, will leave just one farm commodity, tobacco, under state control. Beijing made the historic decision to relax cotton controls because of an unprecedented glut in the market. This has caused the state distribution system to build up an inventory equal to two years' consumption and run up record losses that hit 8.7 billion yuan (about HK$8.09 billion) at the end of August. From next year, the state will stop setting a minimum purchase price for cotton. Cotton has been regarded as a strategic commodity that could not be left to the market. Previously it was feared that opening the market would lead to price fluctuations that would drive farmers out of the crop. From next year, prices will be set by the market, with farmers able to sell either to state firms, which have monopolised cotton sales and distribution since 1949, or directly to end-users of cotton, such as textile firms, officials said. 'The plan does not allow individual traders to buy and sell cotton,' one official said. 'The large users should be able to offer the best prices because they buy in bulk. But in future the traders may be able to enter the market.' Beijing has found the price-setting counter-productive. Domestic prices have been too high, encouraging farmers to plant, creating a supply glut. In mid-April, the state set the price at 650 yuan per 50 kilograms, its first cut since 1949 but still much higher than world prices. But demand has fallen because of the government's plan to destroy 10 million cotton textile spindles between this year and 2000, equal to 20 per cent of capacity. This year three million to four million spindles have been destroyed. The Asian crisis and high domestic prices mean the mainland has been unable to export its surplus. Worse, low world prices have spurred imports, 197,226 tonnes in the first 10 months of this year. 'Since 1995, the over-supply of cotton has become worse and worse,' the Market newspaper commented yesterday. Another reason for the reform is widespread corruption and misuse of funds in the state-supply system. Of 122.6 billion yuan in loans outstanding to it at the end of June, 43 billion or 35 per cent, had been used for purposes other than to purchase cotton, the Market said. 'Some people in the government are nervous about this step and fear a shortage in future,' the official said. 'There will be an adjustment in production, with areas with lower yields, like Hebei, Shandong and Henan growing less, those with average yields, like Hunan, Hubei and Jiangxi, growing the same and the highest-yielding areas in Xinjiang growing more.'