AN ANALYSIS OF TRENDS IN QUEENSLAND 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

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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 Darling Downs 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' pet cent 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 Central Queensland, 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 Shire of Banana 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.

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TABLE 1

COTTON AREA PLANTED BV S~IRE!, gUEEtlSLANOz 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.

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Year

1911-12

1912-73

1913-7ll

1974-75

1915-76

1976-77

1977-78

1978 ... 79

1979-80

1980-81

1981-82

1982-83

1983-84

1984-85

1985-86

1986-87

TABLE 2

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

Shire Queensland

Balonne Banana Emerald Waggamba Wambo

1261 942 251 963

953 482 95 600

1159 559 927

1003 878 23 866

967 822 489 836

931 698 492 1263 750

1216 819 860 1178 990

1076 931 1064 1021 977

1194 637 1045 173 1142 963

1206 707 771 837 1254 932

1191 715 796 647 1116 945

1370 1062 947 1361 887 1067

1189 1061 1507 1145 1245 1172

1502 770 895 1222 1093 1001

1243 1011 1457 1725 1246 1238

1439 990 1360 1601 1620 1298

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

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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.

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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.

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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

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Table 5

ESTIMATION. RESULTS

(t ratioe$ in parentheses)

--------------~--------------------------------------st George

SGA = 84141:83 + (0.86)

0.74 SGA.,+ 22 •. 22 CPG ... - 6.57 SJ3V., (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:

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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.

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

St ... George Emerald Australia (a)

Short. run

0.46 1.49 0.59

(a) Derived by roues and Simmons (1988).

Long run

1.76 6.18 2.46

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.

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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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