Consumer-led growth is proving elusive in the rural heartlands this year. Provinces such as Hunan and Anhui, where 80 per cent of the people are peasants, are finding it hard to raise incomes of farmers and industrial workers. The prices of staple agricultural products like cotton and rice, which the state used to keep far above world market prices, are plummeting. This year Beijing withdrew its price supports for early rice and cotton and the move could trigger a collapse. Anhui already has large inventories of cotton - enough to keep its textile mills going for the next 17 months - and that is before this year's harvest is gathered. Eight per cent of Anhui's cotton stock is going mouldy outdoors. In Hebei, the monthly interest paid by farmers on storing the stockpile is 8.6 million yuan (HK$7.9 million). Under a plan to revive the state textile sector, 120,000 factory workers have been laid off to slash over-capacity. Even so, textile factories in Anhui expect to suffer group losses of 1.7 billion yuan. Demand is falling for both cotton and textiles. This is hitting hard in Hunan, where industrial growth in the first half of the year reached a 10-year low, according to the China Economic Times. Last year, Hunan failed to meet its growth target of 8.5 per cent, and the number of state-owned enterprises operating in the red increased to 356 from 330, 58 per cent of the total. Of the enterprises owned by prefecture-level governments, 72 per cent are in debt. Even profits of usually resilient township enterprises are down seven per cent in the first six months. It means tax revenues are not going to rise, nor will state employees be paid on time. Tax revenues have gone up just two per cent this year and the province is finding it hard to collect many of the unusual taxes it levies, such as the slaughter tax. Slaughter tax revenues are down because Hunan's once thriving livestock sector is in trouble. First came a drop in demand from Hong Kong for live pigs, due to the Asian financial crisis, then came an epidemic of foot-and-mouth disease. Pork prices have slumped 50 per cent over the past 18 months, and by 17 per cent this year. The price of grain has dropped an average of 10 per cent; cotton is down 12 per cent and may fall further still. Not surprisingly, average annual farm income has risen a mere 21 yuan. The Government's target is to boost peasants' income by 200 yuan by the year's end. The mainland's glut of basic agricultural commodities is actually growing, according to the State Internal Trade Bureau. It now includes fertilisers, pesticides, tea and many dried fruits. Compounding the problem of slack domestic demand, grain exports fell 41 per cent in the first six months and overall exports of agricultural products are down 2.5 per cent from the same period last year. Not surprisingly, the state has yet again announced it will cut illegal peasant taxes, with the hated slaughter tax among those being abolished. However, public complaints are not welcomed. Eight Hunan peasants who protested recently against excessive taxes have been given severe prison sentences.