Supply response of cotton farmers in the Philippines

Regression results showed that cotton supply is significantly influenced by the price of cotton relative to its competing crop, weather condition and credit availability. Other variables such as the price of cotton relative to fertilizer price and wage rate do not seem to significantly affect cotton production. This can be explained by the fact that fertilizer is sometimes the in kind component of credit provided by PhilCotton hence, its price does not necessarily affect the farmers' decision on the level of fertilizer used. Also, most farmers do not apply the recommended amounts of fertilizer in their farms. On the other hand, farm labor is usually provided by the family members, thus, the wage rate is not a primary consideration in their production decision. For the significant variables affecting cotton output, the short-run and long-run elasticities are as follows: 1.58 and 2.51 for cotton to competing crop price ratio, 0.48 and 0.77 for weather and 0.67 for credit. Supply projections under various policy scenarios show that cotton production can be increased through some output and input price interventions. For example, a 25% increase in cotton price and a 0.25 % decrease in price of fertilizer, other factors held constant, would lead to a 19.39% expansion in supply relative to the 1987-1988 production level. Substantial increase in output in absolute amounts are achieved when credit is available. Thus, input price subsidy, cotton price support program and credit availability could bring about some contribution as far as increasing production is concerned but they would entail substantial budgetary support if the goal is significant reduction in important or self-sufficiency. Furthermore, other aspects of price policy must be considered to achieve the countrys' objectives for the cotton industry. For instance, the policy of liberalized importation of cotton to protect the local textile manufacturing industry leads to an unfavorable domestic price for cotton which in turn creates disincentives that limit expansion in cotton production