Cotton Industry Situationer, Crop Year 2004/05
After suffering from dwindling production over the past decade, the Philippine cotton industry is once again upbeat as prospects for positive business opportunities continue to manifest. CY 2004/05 brought new optimism for the industry, as a new cotton program, aptly titled "The Philippine Cotton Industry Road Map", was put into action.
Highlighted in the Road Map is the ever-important role of the private-sector in paving the way for the growth, stability and progress of the industry. In fact, development theories have always emphasized the pivotal role of the private sector in building-up the national economy in a sustainable and efficient way. The road map adhered to this principle, with strategies that focus on: 1) industry restructuring - aimed at organizing key industry segments to resolve problems associated with asymmetric information and inefficiencies, 2) industry build-up - focused on developing a sizeable production base to increase the relevance and contribution of the industry to the national economy, and 3) industry promotion — with the objective of moving the Philippine Cotton Industry towards the international front.
Milestones
Modest outputs have been attained in line with the Cotton Road Map. These achievements, however, are crucial in building up the foundation for the new program, and in reshaping the industry towards our vision of a private-led cotton industry. Initially, we have:
- Organized the private sector in an effort to harmonize production, processing and marketing operations, to encourage private sector investments and promote the equitable distribution of gains among stakeholders. Specifically, four private cotton integrators were formed (1 in Luzon, 1 in Visayas and 2 in Mindanao) to carry out production operations and provide the necessary support services to cotton farmers, while the Primatex Fibre Corporation, an established international cotton merchant, acts as the national merchandizing entity.
- In line with the Philippine Government´s streamlining program, we prepared the Cotton Development Administration (CODA) rationalization plan to make operations and government provision of services such as R&D, extension, policy support, and information support more efficient and effective.
- Established nucleus cotton production areas, which shall serve as our production base. Area clustering was introduced to enhance provision of support services.
- Worked-out an expanded production credit for cotton with the Quedan Rural Credit and Guarantee Corp. (QUEDANCOR), a government financing institution. This crop year, PhP 21 million (US$ 381,818) was released to the cotton program.
- Changed our extension approach adopting the Food and Agriculture Organization (FAO) scheme of utilizing participatory and experiential learning through the Farmer Field Schools (FFS). Specifically, training of Cotton Development Specialists (government technicians), as well as private technicians and farmer leaders is continuously being undertaken.
- Initiated a collaborative undertaking with the Transgenic Biocentury Corp. of China on the testing and possible commercialization of Bt cotton in the country.
Production Performance
Despite the relatively small size of the domestic cotton industry, cotton is still considered as an important high-value crop in the Philippines providing income, employment, and export opportunities, as well as quality raw materials for our dollar-earning domestic textile industry.
During CY 2004/2005, the cotton sector is estimated to have contributed PhP 115 million (US$ 2 M) to the national economy (58% increase from the previous year). Primary factor for this growth is the expansion of cotton areas reaching about 5,000 ha (153% increase from last season). In fact, over the last 9 years, this season posted the highest performance in terms of area coverage. Attractive prices, credit availability and strong private sector presence are the major factors identified to have caused the renewal of the interest of farmers to engage in cotton cultivation amidst competition from other dry-season and highly supported traditional agricultural commodities. About 4,000 farmers participated in the cotton program this year, 117% increase from the last season´s figures. Most cotton farmers are small land-holders with farm sizes ranging from 0.5 ha to 3.0 ha (Figure 1).
Cotton is cultivated in the three major islands of the country, Luzon, Visayas and Mindanao. During the past 10 years however, production activity is concentrated in Mindanao where it has endured less competition from other crops. For CY 2004/05 about 88% of the cotton areas are found in the island, while Visayas and Luzon shared 8% and 4% of the total area, respectively. Among all these areas though, cotton is deemed most suitable in Luzon which explains the relatively high yields in the area. Apart from the very favorable agro-climatic conditions, only Luzon is irrigated, while Visayas and Mindanao are rainfed areas.
Despite the increase in the area, productivity suffered a decline posting an average farm yield of 0.99 MT seedcotton per hectare (0.38 MT lint), 19% less than the previous year (Figure 2). Highest average yield was attained in Luzon with 1,130 kg per ha (430 kg lint), followed by Visayas at 860 kg per hectare (327 kg lint) and Mindanao at 850 kg per ha (323 kg lint). Nevertheless, some farmers in Luzon have attained very high productivity almost triple that of the national average.
Some of the problems that adversely affected productivity are the inadequate rainfall, high pest pressure, delayed release of production loans, and inadequate technical knowledge of farmers. The latter two factors affected the application of production inputs and led farmers to deviate from technological recommendations resulting to poor plant stand and uncontrolled pests.
Prices
One of the main determinants of the growth of the sector this season is the favorable local market conditions. High world market prices during the 1st quarter of 2004 resonated in the domestic market as middlemen provided generous commitments to cotton producers during the start of the season. Specifically, seedcotton pegged a price of as high as PhP 23.00 per kg (US$ 0.42) in Luzon, and PhP 19.00 (US$ 0.33) in Visayas and Mindanao. Previously, prices were pegged at PhP 20.00 (US$ 0.36) in Luzon, PhP 17.00 (US$ 0.31) in Visayas, and only PhP 16.00 (US$ 0.29) in Mindanao. The variability of prices across islands is attributed mainly to the differences in marketing cost, an important component of which is transportation. Since textile mills are situated in Manila, Luzon cotton growers enjoy proximity advantage allowing the produce to be transported cheaper than Visayas and Mindanao.
As the year progressed however, world lint price nose-dived starting the second quarter of 2004. Domestic lint price is estimated to be equal to the landed cost of imported cotton since imported lint still holds the majority share of domestic supply. Further, since no price support is extended by the government, domestic prices are primarily market-determined. Specifically, average domestic price of lint was estimated at about PhP 69.00 per kg (US$ 1.25) a large decline from the previous years average of about PhP 94.00 per kg (US$ 1.74).