PHILIPPINE
INSTIXIYI_ FOR DEVEIOPI_NT
STUDIES
Working Paper 83-O9 /
ECONOMIC _IVES
AhD COMPARATIVEAD_
IN THE PHILIPPINE
Arse_io
corlDN
INDUSTRY
M. Ballsacan
PID$ Library
ECONOMIC INCENTIVES AND COMPAP_ATIVE ADVANTAGE IN' _HE PHILIPPINE COTTON INDUSTRY
Arsenio
M. Balimacan
INTRODUCTION
In support to develop
of the goverm_ent_s
import
ram, which paved cotton
Rationale
been importinE
given to the program
(1966-75),
able areas More
hectares
inv,!red studies
than 530,000
were
lint requirement an average
have
of the country
areas technically
with
hectares
suitable
shown
have
the country
more
to be self-sufficient
launched
of
in the early has
over a ten-year
outflow
of $30 million;
can be grown
in suit-
rate of return.
cultivation cropping
hectarage
prog-
reintroduction
been delineated
for cotton
tha_ the required
development
which_
that cotton
a profitable
objective
(i) the country
annual
of this fall into the existing
represents
cotton
agriculture 2, was formally
its cotton
and (2) research
the national
development
the way for the commercial-scale
in Philippine
1970s.
period
substitutes,
agricultural
as potential and about
systems.
of i15,000
in its raw cotton
150,000 The latter
in order
bonsumpEion.
for As
IResearch intern, Resource Systems Institute, East-West Center, Honolulu, Hawaii, and Science Research Specialist (on leave), Cotton Research and Development institute, Philippines. This paper is based on the author's MS Thesis (Balisacan, 1982) and is part of the project entitled "The Impact of Economic Policies on Philippine Agricultural Development" funded by the Philippine Institute and Development Studies and Philippine Council for Agricultural and Resources Research and Development". 2pioneering attempts to co_=_ercialize cotton cultivation in the country were made as early as pro-Second World War. However, inadequate technical know-how, coupled with managerial and acute financial problems led to the abandonment of operations.
of crop year planted
1950~g_
to cotton
beginning
in crop year
DE_ic Iss_es_
does
pr_oduction?
the p_omot_u
of cotton
respect
have a ¢ompaxative
_nd second_ domes tic
describes
and imports,
of economic
the effects
in the third section,
Historical
i.e. cotton
policies
_o
questions. trends
The firs_
in production
industry.
policies
In the
on the structure
ind.ustml is analys.e.d. Lastly,
the issue of the relative
economic
efficiency
is. co.%apreherusivelyexplored.
I_mUSTR¥
BAC_"ROL_D
Profile
era.
•and '"lompotes;_ ....,
cotton_
in domestic
de_e!oDment_
of gove_nment
cotton production
The Philippine Hispanic
is t_e domes-
of _overnmant
these
in the cotton
I.
eco-
production?
the historical
inceu_ive$
of domestic
to imported
and policies :affecting the cotton
next section_
t,._ocrucial
competitive
has the matrix
cotton
raises
advantage
This-;_a_er _attempts_ to a_S_er section
194-hectare
1974-75,
cotton with
the ¢c,_.'omy
of these have been
ju_l_ from ...a •modest . _-. '...
First:_.how economically
produced
encouraged.,
17,000 hectares
a qumttum
,
As expected_
tically
about
cotton
industry
dates .as far back
as the pre-
Throu_=hout the lan_, hOl_Sehold weaviu_ a native
fabric mad_
flourished,
ef ,cottonp wa_ a renowned
,.
export
product
Zhe gl.05e. plants
_ne
of Filipino fibers we=_
ancestors extracted
to
(,_ina omdother
from perennial_ty_e
known now today, as wild-glzowin;i"nayiv_ _otton
parts
of.
COttOn
p!181_tS.
,
3 _._iththe transfer during The
the Span&sh
cheaper
English
regime,
competed
short time, Chinese
"iompotas"
goods,
crops,
imported
ceased
grown
industry
in the country
cial scale,
started
a modest
that year.
The undertak/ng,
A post-war
the Philippine renamed
as the General
trating
operations
looked
however,
mere backyard
NLSA,
the
on a commer-
cotton cul_iva_ion
in
was cut short by the Japanese
co,ton
War_
industry Company
Corporation
Agricultural
Administra-
cultivation.
Development
began
in 1955, the latter in 1956.
prospects
of co_ton
established
a modern
and planting
with
in 1953 and
Corporation
where
of laborer8
for
Concencultivation
mechanized &_ annual
all-cotton average
of
1,000 hectares.
Results couraging.
of _he undertaking, Overall
3The produc_ plants.
became
In a
commodity
to grow cotton
100-hectare
in Mindanao
having hundreds
industry.
d uz.i_g the Second World
good, bo_h agencies
nearly
to attempt
Agricultural
This
Land Settlement
of cotton
of the N_tioual Cotton
fabrics.
by
dwindled.
era in the Philippine
_ha organization
to crumble.
manufacture
batter
varieties
of the National
of the country
began
faSrics
to be a major
in 1939 led to the revival
occupation
industry
the loca_.ly woven
and the local cotton
first agency
from Cebu to Manila
to the local weaving
the locally
The establishment tion
with
to be a sharp blow
of trade
the local
and higher-quality
mills
proved
of the center
average
consisting
unfortunately,
seeucotton3yi_d_
of fibers
were rather after
and seeds,
e_g_
picked
dis= cropping
from cotton
4 years, was o_.iy 326kg/ha, Teclmical
inadequately,
and organization_l
with
complicated
prices
textile
cost of cotton cotton
industry.
began
millers
first
of which
4986 creating
the Philippine
joint venture
with the private
development
In 1969, the Burean gran_ _romPTRi_
took special
research
which
ditions
project
terms of yield Almost a similar a vigorous
a series of
of Republic
Institute
Act
PTRI,
to promote
a the
industry.
Industry,
in_erest
Kesults
of the local
enacted
Research
gave special
the
of the increasing
throuRh
attention
variety,
of a cotton
to the development and topograFhical
of its studies
upland medium-staple
a research.
in the launching
that best fits the climatic
of the country.
16, an American
As a result,
was the passage
textile
lint
a long declining
sector, was mandated
of Plant
cotton
for the development
Textile
of the country's
a cotton variety
sixties.
who bore the Brunt
agitetated
came in
At this time,
In re.sponse_ the government
!egislations,.the
the company
industry
to soar after
to the early
imports
cotton
seventies.
in the world market
country's
within
difficulty
of operations.
and early
trend from the fifties
at 85kg/ha.
financial
conflict_
point in the Philippine
the late sixties
registered
by acute
and operational
lad to the discontinuation A turning
the lowest
showed
of con-
Deltapinee
to be the best
in
and adapatibility.
in the same year_ grant from PTRi, technical
Central
assumed
research
Luzon
State
the important
program
University,
through
role of undertaking
om cotton cultivation.
Its
5 research
efforts
results
an on-farm
in Central
reintroduce
cotton
drew national
production
growing
the signing
program
in 1972.
project with
This
into farmers'
performance
attention.
and the encouraging
of a pioneering
Pangasiann,
The outstanding
with
out to be successful
led to the launching
tion Bulak", trated
turned
cropping
350, later
PD 1063, creating
the Philippine
Cotton
Corporation
central
to undertake,
production
corporation venture
attached
between
TO support launched
in the country.
to the Ministry
the government the national
in crop year 1977-78
the Philippine
government,
Reeearch
and Development
assigned
the task of stren=he_ing
in the specialized tO support cotton
areas
the national
in the shortest
The Domestic _tion. operating
Institute
Raw Cotton There
program
objectives
formally
of pilot
1978.
research
cont_io_led
sector.
operations_ the Cotton
The Institutels
and accelerating
of cotton
commercial
PCC is a joint
of PD 1432, created
in June
by
(PCC) as the
of Agriculture,
three years
by virtue
amended
A semi-government
development
after
culminated
and supervise
and the private
cotton
to
Bulak _' immediately
Decree
scale-cotton
sought
in 1973, the project
implement,
concen-
systems,
of Presidential
authority
"Opera-
operations
project
of "Operation
Thus,
called
current
efforts
and development
of attaining
in order
self-sufficiency
in
time possible. Scenario are over 20 cotton
in the country.
Over
textile
the past year,
millers
presently
the magnitude
of their
demand
is reflected
(equivalently
in the country's
referred
.important of cotton
to as raw cotton.) which
lint
represented
the
total supply before'f975. Raw cotton by inter-year (Figure
l).
i5 percent increase
imports
over the last two decades,
fluctuations, The annual
generally
average
quantity
in the ensuin_decade
in per capital
competition
or synthesis
however,
raw cotton
importation
reaching
$47 million
than
in the seventies
in 1978,
twofold
jump
Partly,
In terms
This resulted
im world
cotton
by
significant this pheno-
that developed
fibers,
trend
dropped
the c6unt%7's
and population.
cotton and man-made
a more
a declining
of imports
despite
income
menon was due to the intense
showed
though marked
between
of _mport value
rose si_ninficantly
largely
prices
fram
between
the two
decades. The observed cotton
fluctuations
imports, in the late sixties
related period_
to the textiles The textile
utilization world
inter-year
was the reason Investment crowded in 1973
firms were
(60 percent)
demands
industry's
why the Fiscal
placed
industries
and early seventies principal
because (Morales,
Policy
industry
in 1970.
The sudden
of raw can be during this
from low capacity
of low domestic 1974),
Committee
the textile
could be a_tributed
problem
then suffer_n_
primarily
for their products
in the volume
Presumably,
of the Board
in the category increase
to the deletion
and this
of
of over-
in _mportation
of the industry
from
7
the same list of congested in effect_
lifted
the restrictions
other disincentives imposed
For the past decades,
the 1971-75 vided
States
period
the US through Domestic
i).
textile
imports
originated
all cotton
industry
so during
imports
were pro-
via the agreement
between 4 government.
La_ 480 and the Philippine Though
mainly
cou_ercial-scale
cotton
was pursued
in the fifties
mentioned
the efforts
and scale were not intensive
the second
half of the seventies
al cotton development both the government period_
13.6 percent imports
produced
of the domestic
share of production
sectors.
raw cotton began supply.
almost
ties and early eighties,
During
as
as in
the nationfrom
this latter
to fill a signifi-
the proportion
0.3. percent jumped
(Table 2).
level during
this increase
sixties
full support
From a modest
of the eighties
at the same
early
eighties when
pursued with
to supply in 1975,
at the beginning
remaining
was
and the private
domestically
cant fraction
program
and early
and
product-
ion in the country earlier,
end
and equipments)
This was especially
when practically
production.
of facilities
of machineries
raw cotton
its Public
This
to 1972.
(Table
to the Philippine
by the BOI in 1972.
on expansion
(e.g., imports
on the firms prior
from the United
industries
to
With
the late seven-
in proportion
is attributed
4The iaw's primary purpose was to support American agriculture_ while at the same time assisting the economic development of friendly nations through the utilization of America_s surplus of agricultural commodities via provision of long-term credit for the purchase of such surplus crops. USDA's Counnodity Credit Corporation financed the sale and exportation of these commodities.
8 almost
entirely
period,
to domestic
registered
Interfiber man-made
an annual
competition.
or synthetic
in the cotton largely
developed
ulosics_
early seventie3, by about
markedly
that local cotton
tively
cheaper
durin8 siste_t d_ced 1972
man-made
proportion the sixties
consumptionp
(Table 3).
Local fibers
textile which
declining from76
fibers
rapidly
prices,
from
howevers
so that by the
ratio
had declined
as reflected
imports
percent
fiber
of nnn-cell
decreaead
in the increase
preferred
correspondingly
cotton
can
This may be part of
mills
Also,
a stern
fibers.
did not consistently
and seventies.
fabrics-ranging
price
fibers
and local
index
Cotton
to 1960-65.
of the country's
with a steadily
staple,
cotton
level of .imports shown earlier,
greater
2, the price
in the late sixties,
compared
the same period.
trends
of
in a new era
industries,
vis man-made
seventies.
the polyester-
during
ushered
and synthetic
price
_, US polyester
75 percent,
the reason
in Figure
i00 percent.
for man-made
of cotton vis-a world
the same
and development
and elastomer
natural
down to the early
began to increase
rate of about
the market
between
As s_w_
represented
the fifties
With
from the relative
consumption.
during
in the fifties
in apparel
The competitiveness be sleaned
growth
which_
The introduction
fibers
industry.
concentrated
competition
production
the relaabsorbed
of textile
this phenomenon content
a
fibers was con-
on locally
in 1963 to 27 percent
proin
9 The trend in relative after
world
1973.
prices
however,
changed
increase
as the price of oil_ upon which
for their raw materials though cotton cotton
prices
content
between
rose sharply
produced
fabrics
depend
this period.
about
to
as fast_
increased
Al-
the
especially
Laws and Related Measures the Cotton Industry
sector.
Corporation,
As mentioned
created
by PD 1063, is the central supervise
the country.
Since its inception,
of activities,
earlier,
in 1973 by virtue
implement,and
ranged
fibers began
synthetics
during
seem to have risen
of locally
The producing
amended
of man-made
fi%ers,
1973 and 1975.
Policies, Affecting
Cotton
Prices
of competing
authority
commercial=scale
the most
critical
sary financial
and agricultural
extension
produced
under
Seedcotton ping season
baling,
a broad
are: the select-
the provision s_r¢ices$
and marketing
of necesand the
of all cotton
price is set By PCC at the beginning are assured
of the market
duce by the PCC which
is the sole buyer
cotton.
its lending-arm
commercial
in
its program.
and farmers
PCC,
cultivation
of which
growing
ginning,
to undertake,
PCC has undertaken
areas for cotton
storing,
of PD 350, later
cotton
ion of general
puchasing,
the Philippine
through
banks,
gents production
of the croD-
for their pro-
and processor
participating
credit
of seedrural
to farmers.
and
Like
I0 other
supervised
an interest
seven cropping
ion loan ranged
cotton
or from _i_270
(Table 4)째
highest
in agricultural
The textile
which came from
United
government.
a licensing
originated
States
production
however,
- on imported
the domestically
which
the 1975-80
is one o4 the
of a similar
cotton
nature.
suplly,
the bulk
the provision
of
of the agree-
Law 480) and the Philip-
ceased
started
to the
to have a high
from imports,
Public
by
the production
During
domestic
through
Quantitative
system,
loans
In the past_
(through)its
Bank of the Philippines after
85 percent,
This agreement
domestic
is channeled
banks
loans_
production
mainly
the US
of total supply째
averaged
from _3,773
the balance
the lending
production
sector.
as stated earlier,
produce
remitting
enables
terms of raw
ton in 1981o
in turn deduct
before
rate for their
the repayment
imposed
which
into
loan ranged
per metric
seedcotton
by farmers
This practice
same year
Translated
the average
banks
period,
pines
charge째
per farmer_
PCC to the lending
between
service
carry
from _535 to _2,001
for farmers'
loan obtained
2 percent
loans
actual product-
ton in 1975 to _9_553
Payment
repayment
plus
production
the average
(lint) production,
latter.
cotton
season,
perhectare
per metric
ment
programs,
rate of I0 percent
For the past
to 22,581
credit
its effect
in 1975, the
to supply a _odest
regulation
fraction
by the government
through
was in effect - and is still presently
raw cotton. allows produced
Under
imports
the system,
the Development
of cotton by textile
mills
only
ii cntton
has been
mills'
request
and endorses
allocated
among
to import
is granted,
the application
are subjected 10 percent
to quantitative
to customs
duties
an almost
24 percent
- I0 percent
ad valorem
estimates
Recently, dustry
to domestic
cotton
exchange
, is encouraging
equipment the mbdern
in response finishes
this program,
6135 implemented mills
by allowing
program
since them
through
Starting
development
to import
equipment
of 7 years
1981_ however,
of foreizn
to_:retire old and to meet
of Incnentive
incentives
in-
in pus h-
To give effect
the provision
1979, _ives
of duty and taxes for a period gistrati_,
millers
for exports.
As
of the textile
for the generation
to tachnology
as
seed production.
The government,
the country's
desired
the BOI,
boost.
interpreted
this rate under-
and modernization
ing its export-orientation
on domestically
lint production째
however,
a considerable
and a
on imported
can be also
section_
the expansion
was given
tariff
on cotton
imports
These rates
taxes imposed
this rate
protection
the incnetive
mark-up.
implicit
raw cotton
will be shown in the next
to Central
cotton
produced
of nominal
importers
request
regulations,
Since there are no sales
'a measure
their
to open a letter of credit째
cotton.
(lint),
If the textile
DBP enters
sales tax over 25 percent
represent
mills째
of qualified
Bank, which are then authorized In addition
these=
to Act
to new textile
and machinery
free
from the date of re-
this incnetive
is tied with
12
another
government
requires
textile
policy
mills
- a rational
to export
program
at least
which
30 percent
of their
produce.
II.
STRUCTURE
Nominal
OF INCENTIVES
and Effective
commodity
seedcotton_
the estimation
ers' output
starts with
production pine
measured prices
evaluated
However,
because
imports
border
to the cotton
prices
discussed
adjusted
directly
of overall i.eo_
protection between
in an attemp
(total)
of the Philipcan be best
domestic
price
and border
chain.
difference
the border
farm-
to seedcotton
in the marketing
comparable.
between
cotton
of raw cotton
to make
The adjustment
domestic
and
procedure
is
Ao
of government
measured
favorably
to the cotton
protection
on cotton
is a mononoly
quality
production
policies,
nominal
comparison
of the marked
in Appendix
The impact
which
This total
price
and domestic
protection
industry,
a t a comparable
was correspondingly
(lint) and not
the determination
Corporation,
by direct
is raw cotton
of nominal
and to processing
Cotton
INDUSTRY
Protection
Since the tradable
nom hal protection
IN THE COTTON
polieies_
by these price
rate
notably
comparisons_
trade
and fiscal
was H as expected_
industry
as a whole
(Table 5).
averaged
28 percent
during
Total
the 1975-81
13
period.
This
(24 percent) titative
figure was somewhat based on tariff
import
restrictions
close
and indirect (quota
ever, the first estimate
(by price
used for luther
since
fails
analysis
to capture
From cotton
the effect
the total nominal
industry,
of seedcotton
estimation
method
tection
cost with ducing
ers and the t6tal,
protection
rate.
Details
in Appendix
These estimates
the 1975-81 put was,
generally_
the
the implicit PCC's
pro-
processing
cotton
pro-
was that this average and protection-
cost was added actually
to the
received
in lint equivalent,
estimation
for the
Briefly,
First,
as in the estimation
ofthe
on the
by farm-
was com-
of total nominal
procedure
are also dis-
A. revealed
production period.
farm price
price
farmers
cost of eleven major
price
and is
restriction.
by replacing
this processin_
how-
rates)
by policy
of the cost of efficient
termed
the border
(by legislated
indirectly.
assumption
the quan-
is preferred
to cotton
of two stages.
of seedcotton
pared with
seedcotton
was estimated
Second,
Given
estimate
on raw cotton,
conferred
protectinn
The implicit
lint price equivalent
cussed
the latter
processing
is a close approxiation free processing.
comparison)
was eliminated
the average
countries.
allocation)
protection
consists
to processing
taxes.
of _his form of trade
the nominal
production
to an independent
that the nominal
was negative What
averaging-
this tends
not protected,
protection 7 percent
rate on during
to show is that the producer's
i.e.,
not conferred
with
out-
incentives,
14 by price policy ducer prices
set by PCC, but rather
were pegged,
penalized.
on the average,
Domestic
7percent
below
pro-
compa-
rable world prices째 The nominal pletely
capture
structure
protection
rate measure,
the impact
of all price
in seedcotton
on output,
farmers'
which are likewise effective nominal
_incentives affected
protection
rate
production
the implicit were
rate on farmers'
In addition
also depend
by various
is a more
year period
output,
on the incentive to price
on the price
relevant
measure
policy of inputs
policy measures_
In other words,
higher
Thus,
the
than the
the effective
to these
(Table 6)째
- 12 percent,
value
of the implicit
returns
protection
rate
(domestic
inputs
used in cotton
than L the nominal
EPR averaged
factors
as a result
on tradable
protection
considered,
primary
protection
tariffs
substantially
lower than the nominal
percen_
policies
does not com-
rate.
Because
domestic
production.
h_wever,
factors
rate was generally Over the sevenioeo,
added) were
tariffs
protection
returns
to
lower by 12
on outputs
were penalized
and inputs. by the
system.
So far, no mention the government's
has been made
agricultural
agricultural
extension,
As mentioned
earlier,
credit
research
of the incentive policy
and its funding
and development,
the national
cotton
impact of
and other
development
of services.
program
has
15
had an accompnying and extension
supervised
support.
production
credit,
the extent
to which
has been offset
Only
however,
rate
pressed
sector°
during
being
only
lower
paper, value
credit.
loans and
6 percentage
Consequently,
subsidy
points
the cost of than in the non-
this subsidy,
when ex-
added,
from 2 to
ranged
on the overall
did not fully
on tradsble
rate durins
offset
inputs
under
to -9 percent
protect-
the penalty
and output,
the period
from -12 percent
the average
consideration as a result
of
subsidy.
The protection
rate would
effect
of the overvalued
change
is accounted
the protection relative
on cotton
agricultural
6 percent
impact of credit
protection
the credit
to determine
on agricultural
to be about
of free-trade
by price policy
raised
policy
between
In the present
ion to farm cotton production
effective
here
on
the 1975-81.
_he incentive
imposed,
impact of intervention
subsidy
1981)o
was about
as a proportion
5 percent
rate
had tended
(David,
in agriculture
agricultural
by price
differential
bhe seventies
and a pool of research
has been estimated
the penalty
the rest of the economy
capital
the average
by the interest
The interest
during
cr_diÂŁ_: package
domestic
itself makes
exchange.
undervaluation
of foreign
that indicated
in the foregoing
lower when
currency
for in the measure,
system
to foreign
be still
exchange.
relative
to foreign
AS mentioned
domestic
Medalla
the disincentive
currency
elsewhere, overvalued
(1979) estimated
Thus,
ex-
a 32 percent
the net EPR is less than
measure,i.e.,
an average
of-25
16
percent
during
the 1975-81
that the correction neutral
effect
on all traded
and the geDeral
cotton
production
Synthesis
on cotton
the governmet's
PCC's profit
extension
the picture
sector,
farmers
This
of
the correction
to be modified.
added
tended
does not necessary industry
value
added
in the effective recieved
It is not expected_
totally
Thus9
a part of
channeled
services. could
protection
crop in the protection-pena)%-y
scale
If the
be reasonably m_asure,
by cotton farmers bowever,
of
for agri-
was ultimately
in the form of government
by
proportion
the budget
and development_
to domestic
to be
mean,
accrued
to PCCo A considered
to the industry
the
have been penalized
to supplement
protection
a clear positive
on raw cotton,
and value
to the cotton i.e_,
and incorporated of'Dverall
policy
farmers
and research
protection
of the cotton
output
that cotton
of these servcies
quantified
have
farmers'
was apparently
down to cotton impact
ranking
and after
that despite
by price
price policy.
to the processing
the overall
has a
in the agricultural
the relative
before
has shown
that the protection
cultural
Thus,
currency
Structure
conferred
indicating
howeve9
industries
not change
analysis
protection
negative
of domestic
however_
overvaluation.
on Incentive
protection
goods
e=onomy.
would
Th_;foregoing nominal
It should be noted_
for overvaluation
sector
for currency
period.
might
that the position of agricult_:ral
17
crops will be markedly receiving
similar
the protection
altered.
government
on these
The estimated
Other
services
which
protection
rates
may likewise
on seedcotton
by price
than those on export
(Table
crops
policy
7).5
increase
respectively.
were
generally
on food crops, but higher
Durin_
rates on food and export
-3 and -15 percent,
crops are also
crops.
lower than those conferred
nal protection
agricultural
the seventies,
crops were,
Considerin_
on the average,
that export
crops,
notably
sugar and:_tohacco, are the predominant
slternativesof
farmers
in the choice
cotton-growing
for second
it may be less disheartening farmers'
output
crops ismore
since
However,
tively
new agricultural
slight
output protection
eeived
in shifting
distribution farmers' would ment
incomes
offer? program
mostly
crop
imposed
considerin_
advantage
that should
More6ver,
grown as second
crops,
policy
on export
is a rela-
systems,
a more
to export per-
there is _= income Why should
below what
as the national
targeted
the
and uncertainly
not be ignored.
substantially
to other
on cotton
that cotton
risk
areas,
penalty
of this • crop r_lative
Also, in the longer-Tun expands
by price
cropping
by greater
to a new crop.
be reduced
a nominal
in farmers
outweighed
questions
in most
to observe
the penalty
severe.
crops may be easily
crops
nomi-
areas wh_re
favorable
these
a free market cotton
develop-
food crops are
price
policy
on
5 This refers to nominal rates of protection, but as tradable inputs represent only a small proportion of production costs a_d valus of output in crop production, it is likely that the ranking of agricultural crops would be roughly similar with the use of either -_"_e-v_*_ev_e_ure of _rotection. I
18 cotton may be necessary Relative
to induce
to the manufacturing
ive Drotection
from government
the seventies,
the protection
very low.
Thus, government
signed to attract
the long-run, have
to plant
sector which
policies
policies
the burden
industry
III.
As raised
STRUCTURE
earlier,
would
the cotton
centinues
issue
was
in
increasingly
program.
OF COF]_4RATIVE ABVAN_AGE
one principal
industry
in competition
If this discrepancy
of financing
during
seem not to be de-
it may be that the government
to bear
an effect-
44 percent
on the cotton
to the cotton
industries.
cotton.
received
of about
conferred
pricing
resources
with manufacturing
farmers
IN THE
in the national
move,
J
to co_ner_ialize competitiveness cotton. economy
of domestically
Put in i_s proper benefit
i.e., would
is centered
(DRC) concept evaluated
exchange
the issue
domestic domestic
the value cost,
coefficient
is, would
for imported
the
cotton
cost of production? domeeti_
resource
of domestic used
to imported
cost
resources
in saving a unit
of
production. at the farmers'
use of comparaÂŁive
data for cotton
is the relative
as compared
on the "ex post"
via local cotton
paper made
farm survey
outweigh
opportunity
For "input-output present
per_ective,
which meanures
at social
in the country
produced
from substitutigng
the benefits
THe analysis
foreigh
cotton production
and major
input,
fields,
output
alternative
the
and financial
crops,
available
19 at the Special Studies Division, Ministry of Agriculture,
Some
description features of these surveys are shown in Table 8.
These
data wete supplemented by production statistics from the Cottm Research and Development Institute, Philippine Cotton Corporation and the Bureau of Agricultural Economics, Ministry of Agrlculture.
The !ndustry
DRC
Exluding (evaluated Table 9.
land
rent,
at market
the
prices)
for
seedcotton
the
period
production considered
are
shown in
unprecedentedlevels,
Labor and operating capital costs in 1981 the
increases
in the
sulting from increased physical labor inputs _ther market
comts
On a per-hectare basis production costs ranged _2, 131
in 1976 to _5,044 in 1981. reanched
average
former
mainly
re-
than increased
wages.
The allocati6n, of the above costs to domastic and fooeigh 6 sources is presented in Table I0 . Together with labor,cost, land rental, which was taken to be 25 percent of the valu_ of pzoductlon
6 The genral methodology followed on the allocation of costs to domestic, foreign and tax sources was that outlined in the ZEPAD Pzo_ect. BriefEy, the allocation process took into account the historical origin (source) of tradable inputs, whether they were fully or partially imported.
20 7 in tobacco growing
_ the best
areas,was
As mentioned cotton
allocated earlier,
lint and marketing
pine Cotton costs,
calculated,
ginning
costs,
cities
in contrast
the observed
annual
The ¢ountry'_ production decline
surp_i_results
fluctuation
in average
industry
was
seeds)
from total
m_inly
the seventies,
from for
of rated
can be made
marketing
capa-
cost.
Instead
decline
lint
of an expected
the study Rave
escalating
(Table 22).
marked
about
in cotton
1975 onward,
DRC generally
the general
of
rate of 67 percent
trend°
in 1978
net ginning
the value
resulted
advantage
cost from
in 1975 to _15,90/US$
rise to these results
During
comparative
resource
with
This
utilization
did not show a progressive
in domestic
_8,74/US$
and industrial
The same explanation
relative
average
from only 8 to 35 percent
to an average
in the early eighties.
its yearly
into
of the Philip-
ii, by deducting
in some years.
use ranged
of seedcotton
are monopolies
drastically4
cotton-
cost.
(ginning)
In the past,
fluctuated
in present
to domestic
processing
(agricultural
capacity
actual
fully
as shown in Table
by products
large excess
of cotton
operating
Corporation.
ginning
example
alternative
What
from gave
in average
7 A large proportion of the farm respondents used in the present study were share-tenants and /or Dart-ownerso From crop year 1975-76 to 1977-28, it was about 59 percent_ crop year 1978-79 to 1980-$I, 52 percent. For these farms, the most common pra¢t±ce was the 75-25 sharing system. (i.eo, seven-five percent of the farm produce going to the farmer cultivator and 25 percent to the landowner, the latter not sharing production costs). From this observation it was deemed_ appropriate to measure the opportunity cost of land through the pre' vailing share rent.
21
raw cotton yield the co=ton
in the survey data
program
equivalently,
was first
from 0_37/ha
introduced,
from 1.0 mr/ha
in 1975, when
to 0.24 mr/ha
to 0.66 mr/ha
in !:978 (or
of seedcotton,
respect-
8 ively). '
This
alone had largely
contributed
ion cost per unit of raw cottonproduced to 1978o 9 however, though
with
the shadow
the DRCs, except
only slightly,
sources amount
Compared
so used in cotton of domestic
domestic
}_wever,
of the industry
during
the last two years
showed
industry
change
rate, clearly
position
DRCs
product-
from 1975
exchange,
still relatively
was
lower,
of domestic
re-
less than the average
to earn
one dollar
(the
exchange). better
picture
of the relative
in saving a unit of foreign considered.
falling
a strong
below
low DRCs
during
effiappeared
the study
the shadow ex-
comparative
in raw cotton production.
the relatively
exchange
At this time,
substantially
indicating
for the country
above case,
of foreign
that the value
required
an apparently
ciency
price
production
resources
cost of foreign
in the country
for 1978, were
indicating
to spiralling
advantage As in the
this period were
8Coincldentally or not, this was also the general trend in the actual national performance of the cotton development program. From a seedcotton yield of 1.24 mr/ha in 1975, the average dropped to 0.54 mt/ha in 1978. From hereon to 1980, average yield showed a reversal trend reaching 0째97 mr/ha in 1980 but subsequently declined to 0,72 mr/ha the following year째 91t should be apparent that the drastic increase in DRC in 1978 was also partly contributed by an almost twofold jump in ginning and marketing costs incurred by PCC relative to that in the previous year.
22
largely
explained
estimated hectare
from
basis
earlier,
by comparatively
the survey data. increased
increase
1980 and 1981 was enough
unit production world market
The Seedcotton
in the industry
wise
What
advantage
DRCs over
because
in ton
This low per-
by more
favorable
the last
two years
price actually
it has been
contributed
is a measure
seedcotton
value,
indirectly.
by cotton
the state did likeadvan-
comparative
the influence
and marketing째
market
was estimated
that
of actual
is not tradable_
was estimated
that
to the change
comparative
that is free from
world
stated
and marketing
on overall
in processing
received
of comparative
it should be apparent
production
of seedcotton
Though
in processing
(observed)
production
border value
years_
during
largely
influence
cost parameters
not have an actual
cotton
time,
therefore
in seedcotton
However_
seedcotton
yield
or inefficiency
is needed
of changing
as shown
cost per metric
reinforced
production.
exert a consSderable
tage_
years
DRC does not give a clear picture
in seedcotton
of efficiency
on a per-
raw cotton yield
from previous
(CIF) of raw cotton
in seedcotton
fluctuations
from previous
in average
strongly
costs
yield
DRC
The industry advantage
levels
raw cotton
production
to push production
cost was
price
Though
significantly
the remarkable
of lint to comparable
high average
and thus,
does
the DRC in First,
the implicit
by deflating
the seed-
farmers
the nominal
with
23
protection
rate as estimated
the DRC in seedcotton try case. cotton
production
The results_
DRCs were
in seedcotton processing.
shown
generally
that the generally
in the preceeeding
higher
production
was calculated
in Table
lower DRCs
were
DRCs
than
DRCs.
To evaluate ions implicit structure
the sensitivity
in the calculation
cf inputs and output_
elasticities
for the different
an elasticity
represents
a given percent
change
held
The results
constant째
Table 14o
DRCs were
an attempt parameters째 ch_ng_
were highly
to yield
and implicit
the seedcotton
the same nmgnitude yield
yield
examination.
to calculate defined,
respect
all other
are summarized
to
factors in
to the opportunity and insecticide border
influences
as that of the implicit
is given a further
in the price
parameter_
insensitive
it
to the assumpt-
in DRC with
fertilizer_
Since
DRCs
As commonly
of the exercise
average
be higher
was made
capital,
output.
would
and to changes
in a specified
relatively
to those
less efficient
of seedcotton
costa of land, labor_ sensitive
compared
production_
in processing
a percent
implying
in effect a weighted
and seedcotton
that the DRCs
that seed-
DRCs_
due to relatively
would be expected the industry
13_ indicated
in the industry
in processing
Then
as in the indus-
than industry
Since the inudstry was
of implicit
section째
but
price of
the DRC in exactly
border
price,
only
24
Except
for some years_
the base estimates
were much above
This was apparently gave more
the national
true in 1980 and 1981 when
average
these yield
quate irrigation_ properly
seedcotton
than 1o5 mr/ha of seedcotton,
the national However,
average
follwed,
yield levels
seedcotton
annually
from Mindanaoo
could have
mum seedcotton seedcotton
average
yield째
the survey data
or 88 percent during
used in
higher
the same period_
attainable
in areas
ade-
if the recommended
technology
yield
1o5 to over
ranging
as demonstrated
in each province
from
than
by model
and to more
is
cotton recent
5 mr/ grow-
data
i0
To show the range the country
are easily
Moreover,
ha are not all farfetched, ers selected
of 0째8 mr/ha
yields
yields
production
of seedcotton
yield
a comparative
advantages
were
estimated_ !I
cost per hectare
levels within critical
which mini-
In this exercise, was assumed
constant
average as
lOFor crop year 1981-82, Mindanao farmers accounting for 5 percent of national production obtained an average yield of 1o5 mr/ha compared to Luzon (38% of production) and Visayas (11% production) farmers with 0.8 and 0째9 mt/ha yields, respectively째 llcritical minimum seedcotton yield is defined as that yield level at which the ratio of DRC to shadow exchange rate (SER) equals to unity, Joe., the country nether losses nor gains in domestic cotton production. Seedcotton yield below the critical minimum would mean a loss to the society, local production being more costly than importation, or vice versa.
25
given in the farm survey results, 1975
in Figure
to 1979 were
cotton more
presented
yileds
and as used in the base estimates째 3, showed that while
generally
estimated
close
estimated
critical
were about
advantage
minimum
20 percent
the national
cotton
respectively_ in cotton
seedcotton
lower
stage of the industry's
The paper has explicitly conferred
try, the farmers the Philippine
closed
efficiency
cotton
foreign
research
by
program째
set by
It also disadvantage
the industryVs
in
relative
for the economy. giving
and development the cotton
indus-
implementing
a comparative
exchange
conferred
the _avorable
on the cotten
the nations'
PCC has been
sion as a way of enhancing Part of the protection
policies
underscoring
Since its inception, focus on cotton
targeted
at the self-sufficiency
development
exhibited
productiOn_
in ssving
levels
even by those policies
Corporation,
that the country
local cotton
for the last two years
shown that despite
were penalized
arm of the national
Incidentally_
REMARKS
by government
Cotton
to
development,
CONCLUDING
protection
seed-
to decrease
production.
yields
program
have
from
yields,
for the country
than the average
development
estimates
minimum
in 1980 and 1981 would
than 45 and 40 percent,
lose its comparative
to critical
The
a considerable
and agricultural
industry's
by government
exten-
performance째 policies
on PCCVs
26
processing budget
and marketing
operations
for these activities째
activities
are ultimately
be also noted
ram tohold rative
its modest
ion the industry
exploit
growth
In this way, advantage
crops
protection
may need
to compete
in the market째
One qualifying
expansion
stated
factors
of economic choice
stabilizes
production.
in the longer-run, withdrawn
and allow
to trathis
the crop
While
that there
is an economic
ground
for cotton
agriculture,
promotion
income
of policy
concentration
implications
and non-agricultural in policy
in
or penalization.
distribution,
and the.socio-political
considered
it
the study does not suggest
is the only consideration
like employment,
are obviously
cotton
fully
here째
to the agricultural
society,
can better
to be stressed
efficiency
power
the country
that are more
of the crop with respect
the choice of crop for agricultural Other
policies
should be
needs
in Philippine
that economic
it is impe-
policies
in domestic
to be gradually
points
cotton prog-
of the total protect-
from government price
it should
is necessarily
years,
if not all,
competititveness
alternative
was explicitly
incentive
the
that these
of farmers,
pace of recent
by instituting
its comparative
ditional
of this
proportion,
to farmers.
As the relative
it can be viewed
for the benefit
is receiving
to farmers
favorable
to supplement
In the short run, for the national
that a larger
shifted
While
that the incidence
a long run one째
is used
sectors
decisions.
of the of the
27 REFERENCES
Balassa, B. and Associates° 1971, Developing Countries° Baltimore Press°
The Structure of Protection in and London: The John Hopkins
Ba_isacan, AoMo 1982. Economic Incentives and Comparative Advantage in Philippine Agriculture: the Case of the National Cotton Development Program. Unpublished MoS. thesis, University of the Philippines at Los Ba_os, AD_ilo Bruno9 Mo 1972. Domestic Resource Cost and Effective Protection_ Clarification and Synthesis. Jou=nal of Political Economy 80(i)_ 16-33o David, C.C. 1981o Credit and Price Policies in Philippine ture. Unpublished paper, CDEM9 UP at _os Ba_os.
A_ricul-
David, C.Co and AoM. Balisacano 1981. An Analysis of Fertilizer Policies in the Philippines. Paper presented at the workdshop on the Re-Direction of Fertilizer Research, Tropical Palace_ Metro Manila,
October
26. 218o
Medalla, EoM. 1979o E_ti_a't_the Shadow Exchange Rate under Alternative Policy AssumptlonSo In Baustita, Power and Ass_eiates ,_f_t:s. Industrial Promotion Policies in the Philippines. Medalla, EoM. and J.H. Power° H979, Estimating Implicit Tariffs and Nominal Rates of Protection. In Bautista, Powwer and Associates. Industrial Promotion Policies in the Philippines. Philippine Institute for Development Studies. Morales, EoLo 1974o The Prospects of the Cotton Industry in the Philippines° A research study presented to the UP ProEram in Development Economies° PaBe_ J., Jr., and D. S tryker. 1981o Methodology for Estimating Comparative Costs and Incnetiveso in Pearson eto_alo Rice in West Africa° Stanford: Stanford University Press, Pearson, S,Ro 1976. Net Social Profitability, Domestic Resource Cost_ and Effective Rate of Protection. Journal of Development Studies 12:321-33. Philippine
Cotton
Corporation.
Annual
Reports,
1975-1980.
Philippine Cotton Program°
Corporation°
1977.
National
Cotton
Development
Philippine Cotton Corporation. 1980. A Proposal for the Cotton Industry Development Program in the Philippines. Philippine
Cotton
Corporation°
1981o
The Textile
Industry
Survey.
28
Table
I_
Country
Sources
of raw cotton
of Origin
196365
(lint) imports,
1966_ 70
Percent
United
States
1971 _75
1963-80.
197680
of total quantity
73.6
75°3
99,0
79.0
Mexico
15.1
15o6
0°4
3,4
Brazil
5.5
0.7
0°3
0.i
Nicaragua
2°3
Io_I
a
2°5
Guatemala
0.5
1.5
-
1.7
0.2
0.4
0_3
a
Sudan
0.I
0°9
-
0.2
Pakistan
-
-
-
3°5
Israel
-
-
-
2.5
USSR
-
-
-
1o6
India
0.3
a
-
I.I
Others
2_4
3°7
-
4.4
I00.0
I00.0
United Ara_
Republic
Total
Source of basic
aLess
data_
I00o0
i00.0
Foreign Trade Statistics of the Philippine, National Census and Statistics Office.
than 0oi _ercent.
2o Table 2.
Domestic production supply 1975-81
Year
of raw cotton
Production
(lint) and share
Proportion
_o total
to Total
(rot)
1975 1976 1977 1978 1979
97 176 437 619 802
0째3 0.6 2.1 1o7 3.1
1980 1981
2,6031 4,594 D
8째2 13o6 b
-4
Source=
Production
aTotal
suppl_
_ata
from Philippine
is defined
Cotton
Cornorationo
as import plus produetion_
bEstimate. Table
3.
Cotton
content
in locally
produced
Year
fabri4s,
Cotton
(z) 1963 1964 1965 1966 1967 1968 1969 1970 1971 1972 1973 1974 1975 1976 197Z 1978 1979 1980 1981
Source:
76 65 62 65 51 50 40 43 32 27 53 44 51 35 41 39 38 39 36
Philippine
Cotton
Corporation.
1963-81o
Content
Supply a
30
Table 4_
Year
Loans granted for the cotton program, 1975-81
Total Loan (_I000)
supervised
Average Farmer
financing
Loan Per
Hectare
(_)
credit
(_)
Metric of raw ton cotton
(_)
Repayment Rate
(_)
1975
366
851
1,887
3,773
98
1976
19336
928
1,641
7,591
75
1977
3,565
635
1,270
8,158
73
1978
4,675
535
1,478
7_552
77
1979
5,979
995
1,946
7,455
80
1980
15,988
1,161
2,132
5,796
91
1981
43,887
2,001
2,581
9,553
noa.
Source:
Philippine
Cotton
Corporation.
31 Table 5o
Trends in farm price, ex-warehouse price ,border Drice, and nominal protection rates on the cotton industry , 1975-81
Farm Price In seed_ In lint Cotton equivalent b
Domestic Ex-Warehouse Price c
Border d Price
Nominal Protection Rate e
Total Nominal Prote_tion Rate _'
(_/mt)
(_/mt)
(_/mt)
(_/mt)
( % )
( % )
1975
3,500
10,549
13,000
11,431
-8
14
1976
3,850
11,315
13,000
11,297
0
15
1977
4,000
11,771
15,000
13,641
-14
i0
1978
4,000
11,811
15,000
11,166
6
34
1979
4_000
Ii_85i
16,500
ii_854
0
39
1980
4,400
12,982
19_000
13,313
-2
43
1981
4,450
13,167
18,150
15,121
i_13
20
Year
Weighted
average,
Legislated
aprice
1975-81
g
-7
28
rate h
24
actually
received
by farmers.
bLint price equivalent of seedcotton price plus efficient cost of converting seedc_tton to cotton lint and marketing the product computed as shown in ADpendix Ao CSelling price of cotton Cotton Corporation. d
lint to textile millers
by the Philippine
Average CIF Value for imported raw cotton (lint)_ adjusted quality differential domestically produced and imported raw cotton.
for
e
Percentage price, f
difference
of farm price
Percentage price째
difference
of domestic
(in lint equivalent)
ex-warehouse
price
to border
to border
g W_ighted
by total raw cotton production
in each year_
h Based on existing tariff rates for imported valorem and a 10% sales tax over 25% mark-upo
raw cotton:
10% ad
i
32 Table
6.
Year
Estimates of effective production, 1975-810
protection
rates
Effective
Ratio
Protection Rate
Subsidy to FreeTRade Value Added
on cotton
of Credit
(%)
Effective
tection Rate with Credit Subsidy
1975
-14
.02
1976
- 4
.05
i
1977
-21
째04
-17
1978
1
째05
6
1979
-4
째04
0
1980
-6
.03
-3
1981
-19
_04
Weighted 1975-81 a
Pro-
(%)
-12
-5
average_ -12
-9
a
Weighted
by total
raw cotton
production
in each year째
33
Table
7o
Comparison of protection rates on cotton vis-a-vis other crops and between the cotton industry and the manufacturing sector, 1970s and early 1980so
Item
Protection
Cotton industry a Seedcotton
Total nominal protection rate 28 Nominal protection rate -7 Effective protection rate -12 Effective protection rate with
b Food
credit Nominal
Crops
Measure
subsidy protection
Percent
-9 rate
Rice Corn
3 3
Other food crops
0
b Export
crops
Nominal
Sugar Copra Other export Manufacturing
a Includes
protection
rate -21 -24 -4
crops
se_tor c
Effective
seed cotton
protection
production
rate
44
and processing.
bBased on price comparisen between domestic and border prices as estimated in David, C_C. " Impact of Price Intervention Policies on Agricultural Incentives in the Philippines," paper presented at the Second Western Pacific Food Trade Workshop Kartika Chandia Hotel, Jakarta, August 22-23,1982. CBased on legislated rates as shown in Tan_ No "The Structure of Protection and Resource Flows in the Philippines _, in Bautista, R. Jo Power and Associates_ Industrial PromOtion Policies in the Philippines_, Philippine Institute for Development Studies, 1979o
..... _Tabie 8.
Some--de_scriptivJ:f_eatur-_-_ SSD_'_-_IMa of the
Title
* farm surveys
on co--6_n_d'_l
Crop Year Covered
Area Covered
Io Comparative Input, Output, and Finannial Data for Virginia _..:Tobacco,.Pelay,Mongo, Corn and Cotton
1974-75
llocos
2oComparative Input, Output and Financial Data for Palay, Corn, Mongo, Virginia Tobacco and Cotton
1975-76
3. Comparative Input, Output and Financial Data for Mongo, Cotton pa!ay, Virginia Tobacco andCorn 4. Comparative Input, Output and Financial Data for Cotton, Corn Palay, Mongo, Virginal Tobacco, and Burley Tobhcco
_,
.
Total Number of Farm Respondsnt For all crops For cotton
a Reg on
300
60
llocos Region
515
i00
1976-77
.llocos Region
500
180
1977-78
llocos
554
91
515
304
Region
5o Comparative Input, Output and Financial Data for Cotton, Palay Burley Tabacco, Virginia Tobacco_._ ans Native Tobacco 1978-79
llocos Region, Tarlac, Nueva Ecija
6. Comparative Input, Output and Financial Bata for Cotton, Palay, Burely Tobacco, Virginia Tobacco, and Native Tobacco
1979-80
llocos Region Tarlac, Nueva Ecija, and Cagayan
426
183
1980-81
llocos Region
-
201
7. Cost Involved
in the Domestic
Production of Agri-based Substitutes- Cotton
Import
_5"
*aSpe, ei_l_: ,ff._di.es.,._'S_:%..-.M_i/_Lrr_._..og Includes
the
pr_ineesof
Ilocos
._-gi__.._ Norte,
Ilecos
,.... . . Sur,
La
Union,
and
-
Pangasinan,
35 ]able 9.
Year
Average
costs of
Labora Cost
seed_otton
CapitalbService Cost
production,
llocos Region*,
Operating Capit_ Cost c
1975-81
Interest on Pre-_arvest Cost
Other. Costs e
Total
Besos per Hectare
]975
I_013
240
1,178
139
41
29611
]976
789
308
892
109
33
2,131
1977
1,207
609
876
135
44
2987]
1978
934
518
-"'."729
115
36
2,332
1979
1,274
614
724
125
61
2,798
19[_0
19253
683
1,239
212 "
75
3,462
1째81
1,987
949
1,628
304
176
59044
"
* Except for 1979 and 1980 which
alncludes
hired
labor costs
blncludes
depreciation
Clncludes
fertilizer,
also
include
and imputed
and interest insecticides
v_lues
containers,
Ecija9
Tarlac
of operator9
cost of fixed
capital
and Cagayano
family and exchange
assets
other
labor.
than lando
and seeds째
dAt 15% per .annnm_ app_rtio_ed..as.origi_ale Unclides
Nueva
food for hired
cost._7'._%for._6.month_.._-.
and exchange
labom_
and tranpportation
costs째
36 Table
I0.
Source
of
Domestic
and foreign
Cost
cost in seedcotton
1975
1976
production,
Ilocos Region _, 1975-81.
1977
1978
1979
1980
1981
Domestic Lan_ rent Labor cost Capital service cost Ope_ating capital cost ,-_u_res_ on_preha_vest cost Oth_:r costs
1,4!5 1.013 211 350
735 789 274 287
1,169 1,207 446 247
I,_46 934 342 247
988 1,274 419 247
1,695 1,253 442 369
1,241 1,987 544 462
139 41
I_9 33
135 44
115 36
125 61
212 75
304 176
3,169
2,227
3,24_
3,120
3,114
4,046
4,714
Capital service cost Operating capital cost
22 661
25 485
120 499
130 387
146 387
179 701
300 938
Su_-total
683
510
619
517
533
880
1,238
3,852
2,737
3_867
3,637
3,647
4,926
5,952
Sub-total
Foreign
Totml Iomsstic
and
Foreign
costs
eExcept
for 1979 and 1980 which
also include
Nueva
Ecija,
Tarlac
and Cagayan.
37 Table
11.
Estimates
of ginning
Item
GinnYng
in cotton
production,
Philippines.
1975-81.
1975
1976
1977
1978
1979
1980
1981
4,480 d
5,442
4,511
5,298
4,993
2,159
3,570 d
2,280q 2,200 d
3,182 1,630
2,745 1,766
1,643 3,655
2,271 2,722
1,255 904
d 1,760_ 1,RIO e
1,936
1,434
1,554
3,216
2,395
795
1,592
Foreign
220
163
177
365
272
90
181
Tax
44
33
35
73
54
18
36
883
1,670
2,345
440
486
Cost
Total ggnning
cost a
Less: V_lue of ginning b_-products Net ginting cost All¢cated
to:
Domestic
Mm-keti_g
Sourc_
and _.erketing costs
Cost c
of basic data:
790d
PCC Financial
Statements.
aApproximated cost of converting seedcotton to cotton lint. labor, manufacturing overhaed, and administrative charges. blncludes materials. Clncludes
value of industrial
picking
dEstima_e.,,_.
up seedcotton
460 d
seeds
from
exported
to Japan
Includes
and agricultural
the farm to ginnery
expenses
seeds
and transportation
for direct
for planting
cotton
lint to textilemillers.
Table
12.
Summary
of
domestic
resource
Average Yield Lint a (rot/ha)
_roduction (Fha)
Ginning b (_/mt)
1975
0.37
3,169
1976
0.26
1977
components
in
lint
production,
Ilocos
Region*,
Marketing (F/mr)
Average CIF Value c (US$/mt)
1,936
790
683
220
1,577
8.74
0.90
2,227
1,434
883
510
163
1,518
8.83
0.89
0.28
3,248
1,554
1,670
619
177
1,843
9.73
0.98
1978
0.24
3,120
3,216
2,435
517
365
1,515
15.90
1.61
1979
0.31
3,114
2,395
440
533
272
1,606
9.64
0.97
1980
0.58
4,046
795
486
880
90
1,773
5.30
0.53
1981
0.57
4,714
1,592
460
1,238
181
1,914
6.39
0.60
Weighted
Average,
7.22
0.71
abased
1975-81 d
for 1979 and 1980 which on a recavery
by-products
CAdjusted
for quality
dweighted
by total raw cotton
of domestic
include
Nueva
Ecija,
Tarlac
and Cagayan.
rate of 37% of seedcotton.
bNet of value of ginning
eRatio
also
Domestic Resource Cost ( _/US$
1975-81.
Cost',-.:/_ Ginning _ (_/ha)
_Except
Cost
cotton
v 'Foreign ._.__, Production (F/ha
Year
Domestic
cost
differenÂŁ_al
resource
(industrial between
production
and agricultural
domestically
produced
in each year,
cost to shadow
exchange
rate.
seeds). and
imported
cotton
lint.
Comparative Advantage
39 Table
13.
Summary
of domestic
resource
cost tom ponents
in seedcotton
production,
llocos Region _,
1975-81.
Seedcotton Yield (mr/ha)
Production Cost Domestic Foreign (P/ha) (P/ha)
Implicit Border Value a (US$/mt)
Dome=tic Resource _/US $)
1975
1.00
3,169
683
525
7.36
0.76
1976
0.71
2,227
510
517
7.46
0.75
1977
0.75
3,248
619
628
8.38
0.84
1978
0.66
3,120
517
512
11.65
1979
0.85
3,114
533
542
8.02
0.81
1980
1.57
4,046
880
598
4.92
0.49
1981
1.55
4,714
1,238
647
5.57
0.53
Weighted
average,
6.19
0.61
Year
*Except
1975-81 c
for 1979 and 1980 which
aseedcotton exchange
price
deflated
also include
by nominal
Nueva
protection
Tarlac
CWei_hted
by total
resource
seedcotton
cost to shadow exchange
production
in each year.
and Cagayan.
on seedcotton,
rate. bThe ratio of domestic
Advantage
1.I8
Ecija,
rate
Comparativ-
_st
rate.
converted
at official
40 Table 14.
Elasticity of DRC coefficient llocesRegion* 1975-81,
in seedcotton
production
with
respect
to stated
perameter,
Parameter Land rent
Labor
year
cost
Capital service
cost
Fertilizer cost
Insecticide cost
Implicit border price
Year
1975
0.395
0.268
0.022
0,058
0o129
-1,255
-1,255
1976
0o331
0째356
0.136
0.135
0o177
-1.213
-1.213
1977
0.422
0.4B_
0,240
0,128
0.220
-1.141
-1.141
1978
0.479
0o314
0.444
0,107
O.169
-io231
-I,231
1979
0,266
0.358
0.133
0,.47
0.045
-1,222
-1.222
1980
0o501
0,392
0.219
0.176
0.178
-1.048
-1.048
1981
0째284
0째443
0,179
0.128
0.139
-I.150
-I.150
*Except
for 1979 and 1980 which
also include
Nueva
Ecija, Tarlac
and Cagayan,
41
42
44
APPENDIX
ESTIMATION
This note presents estimation
OF BORDER
comparable,
AND FARM PRICE
the details
of appropriation
this adjustments
A
was done
border
of the adjustment and domestic
to make domestic
ioe._ to net out the price
and border
prices
due to quality
Any wedge between
solely
to price-distorting
Withou_
marked
production, millers
the domestic
price
CIF converted
was not so during tic production were mostly
of lint grades: middling
staple
ion relative
Thus, toborder
quality
To correct
between
medium
to imports
whiEh
a noticeable
imports
and
can then be
policies. and local
price,
rate.
represamted
However,
This was also middling
were mostly
higher
to textile
While
(about 86 percent),
were mostly
price
directly domestic
in the study.
(60 percent).
this domes-
imports
tru in terms and strict
low and strict
on domestic
price of import was presumably
product-
due to the
of the former. for this discrepancy,
adjusted
upward.
was taken as the average
border
The general
price
ratio
prices were
adjustment
(1976-81)
Clearly,
between
sold by PCC
exchange
staple
prices.
prices
imports
toborder
considered
local production
in contract
low middling.
pondingly
the p_miod
between
govermemt
¢omparabl_:
was mostly
short
differential
of raw cotton
at official
producer
the two prices
difference
should be directly
by average
higher
quality
done in the
and border
difference
local production. attricbuted
OF FARM COTTON
corres-
factor)l_14)
of two American
45
lint
grades_
The
former
Memhis was
productlon_
price
this
or
than is not
paper_
for
both
processing
(ginning)
was
then
quote.
Since
cotton
cost
could
effects that
farmers not
be
existed
that cient
this
used
and
in Appendix
since
with
io
of
the
cost
In
seedcotton
price
was
The the
and
in
the
added
average The
processing.
The
of
processing the
inefficiency to replac_
processing
approximation
to
policies
included
was
implicit
chain
cost
PCC_s
alternative
and
government
study_
and
it
marketing
government
to
to
producer
by
apparently
conferred
countries.
protection-free Table
lint.
of processing
conferred
this
a close
that
tradable,
tradable
domestic
point
more
is not
to price-distorting was
concern
protection
was
comparable_
a comparable
in processing.
average
of
between
the
cotton-produclng
that
wedge
was
major
to
Any
however,
local
involved
_ output
cost.
in above_
i".
of
prices
equivalent
at
cost
border
farmers
comparable
protection
processing
and
Since
net
PCC's
quality
price
as
of whatever
the
M
imports째
farm
to be
to
lint
problem, the
of
Orleans/Texas
its
measured
The
tD_t
above.
of
and
comparable
prices
attributed_
policies.
to
terms
1-1/16"
between
directly
in
prices
to
that
translated
border
SM
less
latter,
comparison
complication its
more
the
Price
Terr.
cost
of
eleven
assumption the
estimates
cost are
was
of
effi-
su_n_marized
46
Appendix
Table i.
Estimates 1975-81.
Item
of farm price
of raw cotton
(lin),
1975
1976
1977
1978
1979
1980
1981
cotton
3.50
3.85
4.00
4.00
4.00
4.40
4.45
Price equivalent in cotton lint a
9.46
10.40
10.81
i0o8%
10.8]
11.89
12.03
Plus: . _rocessxng marketing
1.09
0.91
0.96
1.00
1.04
1.09
1.14
10.55
11.31
11.77
11.81
11.85
12.98
13.17
Price received by farmers for seed-
. ano b costs
Farm price of raw ¢otto_
Source of basic data:
abased
Philippine Cotton Corporation World Cotton Statistics
on a recovery
rate of 37%°
bAverage of eleven major cotton-producing countries. This rep= resents the approximated cost of protection-free and efficient processing (ginning) and marketing.