AN ANALYSIS OF TRENDS IN RAW COTTON PRODUCTION, 1971-72 TO 1986-87

Peter Vidler Department Of Transport And Communications, Canberra

Contributed Paper to the 33rd Annual Conference of the Australian Agricultural Economics Society

Christchu~ch, February 7-9, 1989

r.:iI04P5713 1. Introduction Cotton growing became established, in Queensland in the second half of the la$t century and wa$ .associated witb the development of many areas of souther.n and central QueeO$land, particularly the Dawson and Call ide Valleys. However, as in New South Wales, it '.,. was ·no.1: until the ear.J.y 19:60' s that the industry became established on a viable and economic basis. Cotton is grown in Queensland in foursepara'ce regions., These are the st George region, Emera14, :"iloela and on the in the Ceoil Plains region. Despite the rapid growth of the industry there has not been any analysis of the supply of Queenslanc\ cotton. This paper will examine regional trends in raw cotton production in Queensland from 1968~69 to 198.6-87. There is some brief general background on the Queensland indastry in saction 2 and a description of regional production in section 3. There is a brief general discusslion of regional supply a"~ the results of an analysis' of supply in the S.t George and Emerald regions in section 4. There is a conclusion in section 5. 2. Background Cotton growing first became established in Queensland in the 1860's when disruptions to American production caused by the American Civil War (1861-1.865) caused the world price of cotton to rise sharply. By 1870, there was an area of 14,647 acres under cotton in Queensland. However, with the return to normal price levels following the cessation of the American Civil War, the tndustry declined rapidly and in each year from 1876 to 1920 less than 1,000 acres were planted. The payment of guaranteed prices at various times caused area planted to rise. A guaranteed price in the early 1920's brought the area planted to over 40,000 acres in the period 1923-1925. Area planted fluctuated in the intervening years but by 1949 it was less than 3,000 acres. The introduction of a guaranteed price in 1951 resulted in area planted rising to 37,000 acres by 1960-61. However, total area planted declined to be just over 12,000 acres by 1968-69. From the late 1960's, production in Queensland fluctuated but slowly increased from 3.8 kilotonnes in 1968-69 to S.3 kilo tonnes in 1977-78. From the 1980's production increased strongly from 19.3 kilotonnes in 1979-80 to 31.3 kilotonnes in 1986-87. It is forecast to be 64 kilotonnes in 1987-88.

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3,.. 'RegidnalCotton Production' lJhile' 'cott;onbas, "been grown in QUEtensland .f.or many years, 'until the ~eu;ly 1~96.of,scottQnptoduction ,was predominantly a d~y"landQP~tat.i.on. undertak.~nmainly in the 'cQasta1.r iver valleys.

b\lring the 1960's the CQns.. truqtiono~ .l~rgewat'erstorage$ Ie.a to 'tile incre,asing spread of' irrigation. and production b~camere-oriented.tQ inl~ndri;V'~rva11eyswith irx j:ga tion facIlities. a~1914, .tbe crop.grown under itrigat.1()n in O.ueens'landwas approxiltta.tely 9,6' petcent Qf the total area pl~nted in the state. The int:roductiQI\ of ir,rigation resulted in a fall in area planted :put yield's increased considerably. For example, record, production of 6. 6milli'oll kilograms was achieved in }.971-72 from only 6, 900 hectares planted. I}'he mai.n production areas are now the St Geo.rgedistrict in south. west Queens'land, the Dawson-Callide valleys, the Emera·ld.~egion in , the Central Darling Downs and the Lockyer Valley. The area sown t.o cotton by shire is shown in Table 1. As can be seen the. largest ,incr,eases in area planted since the early 1970's have occurre.din the Balonne Shire ~lhich cOvers the St George area, the Emerald Shire and the which includes the Dawson and Callide Valleys. However, it is i.nteresting that since the beginning of the 1980s the area planted to cot t.on has increased in the Waggamba Shi re whi.ch is centred on the Queensland-New South Wales border town of GQondiw·indi. The yields of cotton obtained in the main producing shires of Queensland and for Queensland as a whole are shown in Table 2. Yields have steadily increased since the early 1910's. Yields are above the State average in the main producing shires such as Balonne, Emerald, Waggamba and Wambo. In other shires in the Darling Downs and Central Queensland yields are lower than the Stat.e aQerage. Cotton is pt=oduced as part of a mix of activities on farm enterprises and other cropping activities will also be undertaken. The types of other cropping activity will vary with the particular region but will include winter cereals an4 other summer crops such as sorghum and soybeans. When moCJelling regional cotton area it is necessary to take into account the main crop substitution relationships. An indication of tbe relative magnitude of the cropping activit.ies in. the St George and Emerald irr igation distr iets 1s gained from Tables 3 and 4. It is apparent that in both areas cotton growing is the main activity because the area planted to cotton has increased steadily since the mid-1970s while the area planted to other crops has declined, or at .bestremained stable.

·CII04PS713 TABLE 1

COTTON AREA PLANTED BV S~IRE!, gUEEtlSLANO z 1911-72 TO 1986,..87

Year Area (ha)

Balonne Banana Emerald Waggamba Wambo Milmerran Queensland

1971-72 1475 2004 651 1090 6899 1972-73 2361 2525 409 1110 8008 1973-74 2908 1887 41 1142 7105 1974-75 3130 1948 493 745 7386 1975-76 2742 1815 760 166 5966 1976 ... 17 3642 2546 2775 55 652 10286 1977-78 3634 2794 1879 519 976 10977 1978 .. 79 4165 3964 3268 802 975 14442 1919-80 5767 5190 5604 713 1065 1295 20550 1980 .. 81 6024 4816 7390 268 1447 1890 24182 1981-82 7273 5149 7211 150 2043 2577 28809 1982-83 7314 2968 5517 1183 2811 2844 26805

1983-84 8373 4497 6892 1431 ~ 34$2 3303 32903 1984-85 9905 8624 13986 1800 4507 4154 51895 1985-86 9243 7042 8907 2698 3804 3700 41230 1986-87 7967 5823 5710 2372 3052 2108 30996

Source: ABS. Crops and Pastures : Queensland. Cat No 7321.3, various issues.

CII04P5713 TABLE 2

corfON YIELD BY SHIRE, ~EENSLANDo 1971-12 TO 1986-87 KG/HA}

Year Shire Queensland

Balonne Banana Emerald Waggamba Wambo

1911-12 1261 942 251 963 1912-73 953 482 95 600 1913-7ll 1159 559 927 1974-75 1003 878 23 866 1915-76 967 822 489 836 1976-77 931 698 492 1263 750 1977-78 1216 819 860 1178 990 1978 ... 79 1076 931 1064 1021 977 1979-80 1194 637 1045 173 1142 963 1980-81 1206 707 771 837 1254 932 1981-82 1191 715 796 647 1116 945 1982-83 1370 1062 947 1361 887 1067 1983-84 1189 1061 1507 1145 1245 1172 1984-85 1502 770 895 1222 1093 1001 1985-86 1243 1011 1457 1725 1246 1238 1986-87 1439 990 1360 1601 1620 1298

Source: ABS, Crops and Pastures, Queensland, Cat No. 7321.3, Various Issues.

CII04P5113 TABLE "3 STGEORGE' IRRIGATION DISTRICT ..... AREAS GFSELECTEO' CROPS , , .

Y\.!o.r Cotton Soybeans Wheat -~ --- ha ha. ha 1975.. 16 21"/9 2314 385 1976 .... 17 3596 3016 506 1977-18 3719 3016 334

1918~79 4127 2964 675 1919-80 5679 20(J7 244 1980-81 5902 954 233 1981,..82 6955 539 585 1982-83 6845 857 1451 1983-84 7267 1213 493 1984-85 7653 745 415 1985-86 7840 824 200 1986-87 7225 1165 220

Source: Queensland Water Resources Commission. Annual Report. various issues.

crI04P5113 TABLE 4

EMERALD IRRIGATION AREA -'AREA~ ,PLANTED To'. SELECTED. CROPS ., ...... , ... - , .....

YeAr Crag Cotton Soybea.ns Wheat

ha h~ ha 1974 ... 75 441 244 721 1975-76 675 748 1916-77 912 36 1144 1977-78 2531 1049 943 1978 .. 79 3700 1650 837 1979-80 5385 1288 931 1980-81 7314 1391 1029 1981-82 7352 2167 1800 1982-83 5264 3115 5180 1983-84 6646 2017 4064 1984-85 10,262 1149 2151 1985-86 8,492 1501 853

Source: Queensland Water Resources Conrnission, Annual Report, various issues.

CII04P5113 4,. Area. Response in the St. George and Emer~,l.g ~,r'i.9atioll Ar~as

a~Q~U$e. Qf data constraint.s, area response equations have only b~ene$timate.d ,in this paper fort'he St Gecu::geandEtn.erald Ir~i9ation districts. ,Data ,pn the area, planted to Qo.tton in these dlstrl,cts was derived f~onlthe Annqal R~PQrts of the Queensland. Watet Resources CQnunission. How~ver, this publicat.iondoes not give dlsaggregated dat~ :on c:r()pping in irrigation ~~ea$' for th.e eat;"ly 1970 '.S. CQtt.onarea ,in. Queensland is influenced largely by tbe market price of ·eottQn since thetEl is no Government price support scheme and alao. by the availClbiliby of irrigation water. Other cropping actiV'.itie$are undeti:aken in the f;otton proclucing regions ana it would be expected. that some ctOP substitution would take place. An indication of the malnctopping alternatives in the st. George and EInetald irrigation, dis·,tr ictE$ is gained from Table 3 and 4. From the steady increase in cotton area harvpsted in both re9ion$, and tbe static or declining areas of otherctop.$, i twould appear that crop substit.ution is not strong. How.eve.r ,for the St. George area,sQybeans appears to be the maln alternative cropping activity and in the Eme,rald area wheat would appear to be the main alternative actlvi t.y. The equation for cotton area for both areas uses as explanatory variables the lagged average pt'ice paid by the Cotton Marketing Board, the dependent variable lagged by one year to account for partial adjustment and, given the development in irrigation infrastructure and the impact this has had on area planted, a time trend variable to approximate the growth in infrastructure. Both equations also inolude variables to model alternative cropping activities. For the St. George area soybeans is taken to be the main alternative cropping activity a.nd a soybean price, lagged one year, is included. For the Emerald area wheat is taken to be the main alternative and a wheat export price variable, lagged one year, is included in the equation. The results of the estimation are shown in TabJe 5. The results can be conside~ed to be broadly acceptable alt.hough the coefficients of the soybean price variable in the St. George equation and the wheat exports price variable in the Emerald equation are not significant. Equations with better $tatistical qualities could be obtained by dropping the soybean and wheat price variable. However, these variables are included in an at.tempt to model regional production systems. A study

CII04iJ5113 Table 5 ESTIMATION. RESULTS (t ratioe$ in parentheses)

------~------st George SGA = 84141:83 + 0.74 SGA.,+ 22 •. 22 CPG ... - 6.57 SJ3V., (0.86) (S.51) (1.37) (-0.66) R :; 0.90 F(3/7) = 31.4 b= -0.81

Emerald EMA = -3475.2 + 0.76 EMA... + 6.3.62 CPG... - 18.22 WllT-c (-1.64) (3.76) (3.al) (-0.81) R = 0.89 F(3/7) = 28.5 h = -1.08

Where: SGA = cotton area harvested in the St. George irrigation area in hectares SMA = cotton area harvested in the Emerald irrigation area in hectares CPG = average pr ice paid to cotton growers, in Quee.nsland in cents per kilogram SBV = average unit value of soybean production in Australia in $ per tonne WHT = average unit wheat export return in $ per tonne.

CII04P5113 ofp'jot' :CI'QP' "Q.re~g,e 'tesponGe tnthe, US lWalke,t: and P~nn, ,1915;) leave~ alt;e;·na,tive'orQPvatiabl~s in an ;eqUation, even thQtlgl1: they, hgve low t val.ueS. Surpt).$lnglY.tthewat:ftrand trend \tarlables were not sati$f~ctoty., Tnf,!·wai:et variables entered the equatiotlswibh tbe wrong sign. ~nd were not s.ignificant. The trend variable entered the St. George area equations with the correct sign but: entered the Emerald area equation wlth the incorrect sign but i.n both equations it was insignificant. This contrasts with the study by Mues and Simmons (1988) where the trend variable was significant. Estimates of the elasticities of supply derived from the above equations, calculated at the means, are shown in Table 6, together with some other. Australian estimates for the purpose of comparison.

TABLE 6 COTTON PRICE ELASTICITY ESTIMATES

Region Short. run Long run

St ... George 0.46 1.76 Emerald 1.49 6.18 Australia (a) 0.59 2.46

(a) Derived by roues and Simmons (1988). The elasticity estimate for the St. George region is within the same order of magnitude as the estimate by Hues and Simmons (1988). However, the estimate for the Emerald region is very much higher and implies that cotton ptoduction (assumlng that area harvested can be regarded as a proxy for production) is elastio even in the short run. While it is expeoted that Australian production will be responsive to price changes because of 8the absence of any government price support and the availability of production alternatives « (Hues and Sbnmons, 1988, plO) there is no exaplanation for the calculated elasticity in the Emerald region being so hiqu.

'j. £,onclusions The few studies of Australian cotton supply whiCh have been undertaken to date have been at either the nat-ional or s.tate level. This paper, however, has attempted to analyse the supply response of irrigated

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cotton at the regional level in Queensland. For rea.sons of data av.ailability, and the desire to Cltffer·entiate between irrigated and dry~land cotton, area respon$e equations have only been estimated for theSt George and emerald irrigation regions. However, this type of anallsis can be quite useful in policy; analysis of the cotton industry. The industry expanded rapidly in the 19705 and an im.portant issu.e is whether there is any potential for further expansion. At tbe recent: National Agricultural Outlook Conference in Canberra, the Chairman of the Cotton Mar.k.et.ing Board noted that while irrigatea cotton production would continue to expand, if prices rose significantly there would be an "'undreamed of expansion" of rain-grown cotton.

There are a number of avenuas for further work. ~he first would be to extend the analysis by obtaining Qi'ta on irrigated cotton areas for other regions of Queensland. A more extensive data collection task would be required for this. The availability of a set of accurate empirical estimates of regional cotton area response functions would allow simulation studies of the effect of increa$es in cotton prices on the growth of cotton areas. This would permit mere accurate long term planning by industry than relianre on the more optimi.stic but untested growth scenari os.

CII04PS713 REFERENCES

Mues, c.. f'nd Simntons, P. (1988), The effects of US f·arm policy on Australian cotton revenues, Paper presented to the 32rd Annual Conference of the Australian Agricultural Economics S:lciety, Melbourne, February. Walker, R.L. and Penn, J.B. (1975), 'An examination of major crop acreage response, Southern Journal of Agricultural Econom.ics, 7(1), 5·5-61.

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