SUMMARY

1. Sugar culture was carried on in the Philippines before the arrival of the Spaniards in 1521, but modernization of the industry did not begin until 1910. The peak production of 1,598,000 short tons was reached in 1934. The normal productive capacity of modern sugar centrals in 1936 is estimated at 1,500,000 short tons.

2. In recent years Philippine sugar production increased rapidly while world production remained relatively stationary. In 1934 the Philippines supplied a little over 5 percent of total world production. 3. Because of its commanding position in Philippine export trade, sugar is of great importance to Philippine economy. Investments in the industry are estimated at $265,000,000, of which $84,000,000 is invested in centrals. American participation is confined principally to centrals, investments therein comprising 30 percent of the total. As a result of the Philippine land law, the culture of cane is carried on by thousands of independent planters and tenants; 15 percent of the Philippine population are directly dependent on the industry and 5 important provinces rely almost entirely on it for their revenue. The island of Negros is probably the area most dependent on sugar.

4. The United States duty on 96° sugar is now 1.875 cents per pound. Prior to September 3, 1934, when the trade agreement between the United States and Cuba became effective, the rate on Cuban sugar was 1.5 cents per pound. The rate on Cuban sugar is now 0.9 cent per pound and under the terms of the trade agreement will remain so as long as the quota system or its equivalent continues in force. If these limitations should be removed, the duty would automatically revert to 1.5 cents per pound.

5. Exports of Philippine sugar to the United States during the Commonwealth period will be affected by three factors: The absolute quota established under the Jones-Costigan Act (on a basis of present legislation quota control will terminate Dec. 31, 1937); the dutyfree quota provided for in the Independence Act; and the export taxes provided for by the Independence Act. In 1936 the original Jones-Costigan quota for the Philippines was nearly 129,000 tons larger than the quota established by the Independence Act. Shipments in excess of the duty-free quota are subject to the full United States duty.

6. Sugar production in continental United States has supplied less than 30 percent of continental consumption. The remainder has come almost entirely from insular possessions of the United States and from Cuba. Prior to the inauguration of the quota system, sugar prices in the United States exceeded the world price by the amount of the duty on Cuban sugar. Since the establishment of the quota system, the American price for sugar has not been directly influenced by the world price; it has exceeded the world price by not only much more than the United States duty on Cuban sugar but by more than the full duty.

7. The United States could purchase sugar from foreign suppliers at lower prices than those now paid for sugar from the Philippines. Based on 1935 prices, the "premium" which the United States paid for Philippine sugar entering under the duty-free quota, as compared

with what the cost to the United States would have been if it had purchased an equivalent amount of sugar at world prices, amounted to $43,456,000 in 1935. On a basis of existing United States duties, the annual loss in revenue to the United States Treasury resulting from the duty-free admission of Philippine sugar may be calculated to range from $36,375,000 to $17,460,000. The total "premium" paid for Philippine sugar at present exceeds the revenue foregone by the United States Treasury, because the spread between the American price for sugar and the world price is greater than the United States duty. The magnitude of the "premium" for the future will depend upon the sources of supply, the tariff rates imposed, and the relationship between the American and world prices for sugar.

8. During the last 5 years of the Commonwealth period, the export taxes which are to be imposed on exports of Philippine sugar to the United States will reduce the advantages of duty-free entry which Philippine producers now enjoy. After independence Philippine sugar entering the United States will be subject, on a basis of present legislation, to the full United States duty. Cuba, however, on a basis of present legislation, will continue to have at least a 20 percent preferential duty; moreover, it will presumably continue to have lower costs of transportation. If a system of quota control should not then be in operation in the United States, the Philippines would be able to continue producing sugar for export only if they were able to sell their product at world prices. But if a quota system, including a specific allotment for Philippine sugar, should still exist, producers in the Islands would be able to continue selling sugar in the United States provided the American price for sugar should then exceed the United States duty by an amount sufficient to cover the Philippine costs of production plus transportation charges.

3. COCONUT PRODUCTS

THE POSITION OF THE COCONUT INDUSTRY IN PHILIPPINE

ECONOMY

DEVELOPMENT OF THE PHILIPPINE COCONUT INDUSTRY

The coconut industry is one of the oldest and most important in the Islands. When Magellan first arrived in Philippine waters, Siamese junks were already engaged in the copra trade. Throughout all but the last 60 years of the Spanish regime, however, exports of coconut products-as well as other products-were strictly limited. During the latter part of the nineteenth century, the commercial growth of the soap and margarine industries of Europe gave rise to an increased world demand for copra and coconut oil. Since the crushing of copra and the preparation of the extracted oil for the manufacture of soap and margarine were principally French developments, France occupied a dominant position in the world trade in copra at that time. Between 1899 and 1903, despite the unsettled conditions which prevailed in the Islands, the Philippines increased their exports of copra over fivefold.

The soap and margarine industry in the United States developed considerably in the years following American occupation of the Philippines and hence gave added impetus to the production of coconuts in the Islands. At the outbreak of the World War the Philippines were supplying approximately one-fourth of all the copra entering into world trade. The copra-crushing industry had not as yet developed in the Islands, and so the export of coconut products was almost entirely in the form of copra.

The demand for copra and coconut oil was greatly stimulated during the World War period. The prices of all oils and fats rose to extremely high levels, but the price of coconut oil, along with palmkernel oil, rose somewhat more than the prices of the others. (Coconut oil has a high glycerin content and is therefore in demand for the production of explosives.) The Philippines at that time not only expanded the acreage devoted to coconut palms, but also began to develop a coconut-oil export industry. Because of the scarcity of shipping during the war, it was more economical to export the coconut oil than the more bulky copra. At first only a few large mills and a number of small ones began to crush copra for export but by the termination of the war there were over 40 sizable establishments in operation.

The cessation of hostilities was followed shortly by a world-wide depression, in consequence of which the demand for both oil and its byproduct, copra cake, declined sharply. Most of the oil mills had been capitalized on the basis of the high prices of oil, and the high costs of equipment, which prevailed during the war. Moreover, too many mills had entered the field, and most of them employed highly inefficient milling methods. By 1920 every coconut-oil mill in the Islands, with possibly one exception, was forced into liquidation.

1 Coconut oil was first produced on a commercial scale in the Islands as early as 1906 The exports of oil, however, did not assume important proportions until 1914.

Most of the mills closed down and the remainder modernized their equipment. At present there are seven major firms (operating eight plants) engaged in the production of coconut oil for export. There are also 10 small mills which crush oil for local consumption. The survival of the copra-crushing industry in the Philippines on an export basis was made possible largely because of the protection afforded by the United States Tariff Act of 1922, which imposed a duty of 2 cents per pound on coconut oil.2 on coconut oil. This duty has served practically to exclude imports from all sources other than the Philippines.

Table 19 illustrates the marked growth in the Philippine coconut industry from 1899 to 1934. The combined tonnage of the major coconut products exported increased over fortyfold during this interval. The acreage devoted to coconut production advanced without setback from 1913 to 1934, progressing most rapidly between 1916 and 1923. By 1935 more land was devoted to the cultivation of coconut palms than to any other agricultural staple in the Islands except rice.

TABLE 19.-The growth of the Philippine coconut industry, 1899--1935

2 The Emergency Tariff Act of 1921 imposed a duty of 20 cents per gallon on coconut oil.

PHILIPPINE PARTICIPATION IN WORLD TRADE IN COCONUT PRODUCTS

The major portion of world trade in coconut products is in copra and coconut oil. During the decade 1925-34, total world trade in the 2 products increased from the equivalent to 579,977 metric tons of oil in 1925 to 947,001 tons in 1934, or by over 63 percent. During this same period, the Philippines increased their exports from 193,137 tons to 363,151 tons, or by 88 percent. In 1923, they supplied 33 percent of the world trade in copra and coconut oil combined; in 1934, they supplied 38 percent; and for the 10-year period, they supplied on an average of 34 percent. The other major suppliers were the Netherlands Indies, Malaya, and Ceylon. The minor suppliers were the South Sea Islands, Cochinchina, and the Malabar Coast. The participation of each of these in the world trade during this period is shown in table 20.

With the exception of the Philippines, all of the above-mentioned areas shipped either the total or the major portion of their exports in the form of copra rather than coconut oil. The Philippines, during the decade under consideration, shipped 54 percent of their combined exports in the form of oil, whereas the remaining world suppliers in the aggregate shipped 17 percent in this form. The dissimilarity in the proportions of oil shipped in these cases is to be attributed primarily to the fact that only the Philippines had access to a large, protected market for coconut oil.

3 The coconut oil equivalent of copra is here calculated on the basis that 1 ton of copra equals 0.63 ton of coconut oil.