Farm product prices grew significantly last month over a year ago. A continuous surge in cotton prices has forced some textile companies to the edge of bankruptcy.

China's cotton prices surged 44.8 percent in January from the same period last year, leading all farm products nationwide, the National Bureau of Statistics reported Monday.

In the period, prices of rice rose 16.2 percent and corn jumped 22.8 percent.

The Chinese Lunar New Year holidays helped boost food consumption, the report said.

Prices of cucumber and pork, for instance, rose 5.3 percent and 24.8 percent respectively.

The rise in the cotton price could be attributed mainly to over-heated investment in the textile industry last year, business insiders said.

"The textile industry is less dependent on technology and thus has a lower entry threshold," said Guo Changsheng, analyst of China Southern Securities Co Ltd.

"All those with distribution channels tried to seize a stake in the market. That caused over-heated investment last year."

China is the world's largest exporter of textile products. But Guo said the status is meaningless because of the industry's narrow profit margin, which makes it hard for small players to survive.

Average gross profit margin of China's textile industry is estimated at 10 percent annually.

"The profit margin of some small textile companies is only 2 to 3 percent," Guo said. "It's hard for them to survive when manufacturing costs rise."

Spending on cotton accounts for about 70 percent of the manufacturing cost of the textile companies.

Big price rises threaten to drive some textile companies from the industry. The higher cotton prices have caused a chain reaction in the clothing manufacturing and sales sectors.

According to He Renqian, sales representative of Shanghai Silk Group Co Ltd, the wholesale prices of cotton clothes increased at least 15 percent from the same period last year.

(Shanghai Daily February 17, 2004)