A SUMMARY REPORT

ON

THE MARKETING EFFICIENCY STUDY ON KEY COMMODITIES

IN SOUTHERN MINDANAO

Marketing Series: Number 09 May 2001

Republic of the Philippines Department of Agriculture Upland Development Programme in

Southern Mindanao (UDP)

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PREFACE

This is the summary report on a series of market efficiency studies conducted in the UDP-covered areas for selected commodities. The marketing efficiency of the following commodities were evaluated : Compostela Valley Cardava Coffee Durian Davao Oriental Abaca Copra Tomatoes Davao del Sur Abaca Carrots Mangoes Saranggani Chicken Corn Lacatan South Cotabato Peanuts Potatoes Swine Recommendations to improve marketing efficiency are herein offered. This report was prepared by: Jaymee Alcos Elizabeth Supangco Julianne Revilleza May 2001

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ACKNOWLEDGEMENTS Report data were gathered from a series of personal and group interviews with farmers and traders of the key commodities in Southern Mindanao. The time and effort that the respondents have placed into this study are acknowledged. For the valuable assistance extended to the researchers on the duration of this study, the following are recognized: Dr. Isabelita M. Pabuayon –Department of Agricultural Economics, UPLB Bagangga Municipal Agriculturist’s Office Bureau of Agricultural Statistics-Southern Mindanao Cabuyo-an Barangay Council Caraga Municipal Agriculturist’s Office Fiber Industry Development Authority Glan Municipal Agriculturist’s Office

Kablon Barangay Council Mabini Municipal Agriculturist’s Office

Mahan-ub Barangay Council Maitum Municipal Agriculturist’s Office Malalag Municipal Agriculturist’s Office Maragusan Municipal Agriculturist’s Office Mati Municipal Agriculturist’s Office

New La Union Barangay Council Palo 19 Barangay Council

Pamintaran Barangay Council Philippine Council for Agriculture Research and Rural Development

Pitu Barangay Council Sobrecarey Barangay Council Sufa-tubo Barangay Council Taguibo Barangay Council

Tampakan Municipal Agriculturist’s Office Tupi Municipal Agriculturist’s Office UDP-Compostela Valley UDP-Davao del Sur UDP-Davao Oriental UDP-Provincial Management Office UDP-Saranggani UDP-South Cotabato

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TABLE OF CONTENTS

Page number Preface i Acknowledgements ii Table of Contents iii Definition of Terms iv Introduction 1 Conceptual Framework 2 Research Methodology 4 Results and Discussion 7 Conclusion 27 Recommendations 30 References 32 Appendix A. The Terms of Reference for Consultancy Services-Marketing Efficiency Study

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DEFINITION OF TERMS

Cash costs - costs where actual money is involved. Cash returns - the earnings, where actual money is involved, from the

sale of the farm produce. Depreciation - the expense brought about by the wear and tear of a

piece of equipment, building or tool used in an enterprise for a given period of time.

Economies of scale - the economic concept wherein production at a larger

scale (more output) can be achieved at a lower cost. Exchange labor - the value, non-monetary in nature, of the work (in man-

days) put in by neighbors, friends or other laborers in exchange for the farmers help with similar farm activities in their respective farms.

Given away - the value, non-monetary in nature, of the farm produce given out by the farmer to others without any monetary payment.

Hired labor - the cash expense for engaging the services of farm

laborers. Home consumption - the value, non-monetary in nature, of the farm produce

consumed by the farmer and his family.

Losses/shrinkage of produce - the value, non-monetary in nature, of the damages and

spoilage sustained by the produce. Market information - basic information on prices and quantities traded of

major commodities, from all markets—assembly, wholesale and retail.

Marketing channel - the inter-organizational system composed of

interdependent institutions tasked in moving the product from production to consumption.

Marketing efficiency - the maximization of the input-output relationship where

inputs refer to resources (land, labor, capital) used in moving the products from point of consumption to the point of production and output referring to consumer satisfaction on goods and services made available in the

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market. Marketing margin - the difference in prices between the different levels of

the marketing system. Marketing - series of services performed in moving the product

from the point of production to the point of consumption.

Net farm income - returns of the use of capital and labor. The overall profit

of the farm after all the expenses, cash and non-cash, have been paid off.

Non-cash costs - costs items used in the production process wherein no

direct outlays occurred or the costs incurred are not monetary in nature.

Non-cash returns - the value, non-monetary in nature, of the farm produce

consumed by the farmer and his family or those given away.

Opportunity cost of capital - the price of foregone opportunity in the use of the

capital invested in the enterprise. It is usually pegged at the current savings interest rate.

Point of consumption - last sale of the product. Point of production - point of first sale. Profit margin - the return to the middlemen for their entrepreneurship,

the risks and the cost of money. Return on investment - measures the amount of cash that the entrepreneur gets

from the capital investment after first paying the opportunity expenses on the value of family labor and management. It also determines how much money the producer got in return for every one peso invested.

Saved for seeds - the value, non-monetary in nature, of the farm produce kept by the farmer for use as planting material in the following production cycles.

Unpaid family labor - also called own labor. The value, non-monetary in

nature, of work (valued in man-days) by the farmer and his family.

INTRODUCTION

1. The Upland Development Programme (UDP) is an integrated area development program whose overall objective is to develop a replicable methodology for sustaining the upland resource base and improving the living standards and prosperity of upland communities who derive most of their income from upland farming (UDP Global Work Plan ver.5, 1999). The programme has six (6) interdependent components, one of which is the Marketing and Enterprise Development (MED), which aims to improve upland farmers’ income through the implementation of market-led on- and off-farm enterprise. 2. One of the strategies in achieving this objective the Component is tasked to set up a market information system (AMIS) which would regularly supply farmers, traders and other marketing participants with basic information on prices and quantities traded of key commodities, from relevant markets—assembly, wholesale and retail.

3. An effective agricultural market information system is necessary to provide farmers information on the market potential of commodities planned for production. It is also needed to provide price updates on the nearest and key markets to negotiate better prices for their produce. Lastly, market information is necessary for farmers to decide to which markets they could sell their produce (Dumon, 2000).

4. On the part of the traders, market information could allow them to move produce from a surplus to a different market and make decisions about the viability of storage where technically feasible (Cunningham, Feb. 2000). 5. In line with this, a marketing efficiency study is essential in designing an AMIS. Information on the marketing decisions at each level of the marketing chain of a commodity system would be necessary in determining the extent to which marketing interventions can be implemented (Terms of Reference for a Marketing Efficiency Study of Key Commodities in Southern Mindanao, 2000). 6. This study therefore aims to assess the impact of existing marketing systems of key commodities vis-à-vis income of the farmers.

7. Specifically, the study aims to determine the levels of participants in the marketing chain of a particular commodity;

8. Determine the marketing practices involved in terms of storage, handling, pricing, delivery systems and terms of payment;

9. Deconstruct marketing margins of commodities at each level in the system to determine the percentage of consumer price that the producer receives, exclusive of production costs;

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10. Identify strengths and weaknesses of the existing marketing system of key commodities; and

11. Determine appropriate marketing interventions needed to improve economic efficiency of the key commodities.

CONCEPTUAL FRAMEWORK

12. Production is a technical process of transforming resources such as land, labor, capital and management into goods and services. This process cannot be possible without any of these factors, although each production varies depending on the amount of resource endowments used by the farmers. The production process entails a good decision of the farmer in the different aspects, which eventually affects his farm income.

13. After inducing an increase in production, a good marketing system must be at hand to facilitate the distribution of the products. 14. Marketing itself is a complex process that includes the operations, institutions and economic factors involved in the distribution of the product. Marketing involves the movement of the products from the point of production to the point of consumption after passing through various intermediaries. These market intermediaries are responsible in performing the different marketing processes such as transferring, sorting, storing and grading. The costs incurred din the marketing practices including inefficiencies and along with the profit, makes up the marketing margin. The magnitude of the marketing margin in relation to the farm price will determine the value of the different selling prices. Thus, a wider marketing margin would entail higher selling prices while the narrower marketing margin means lower prices. 15. Finally, the factors that may influence the entire marketing system are physical/climatic, legal/political, socio-cultural and economic/technical factors. Drought and typhoon are considered physical/climatic factors. Government intervention such as employment laws, wage rates, seed subsidies and taxes also affect the marketing system. Socio-cultural factors involve age, educational attainment, lifestyle, tastes and preferences, which influence the marketing practices. Economic growth, levels of investment, levels of government and non-government spending compromise the economic/technical factors. These factors could directly or indirectly affect the production and marketing system of the key commodities.

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Figure 1. Conceptual framework of the production and marketing of key commodities in Southern Mindanao.

RESEARCH METHODOLOGY Types and Sources of Data

16. The study used both primary and secondary data in analysing the marketing efficiency of key commodities in the selected project sites.

17. Primary data were also gathered through personal interviews of farmers, traders and other marketing participants of the selected key commodities with the aid of questionnaires. Four sets of questionnaires were utilized in the study, one for

PRODUCERS

FACTORS OF PRODUCTION • Land • Labor • Capital • Management

PRODUCTION

FARM PRICE

MARKETING MARGIN TRADERS • Assemblers • Assembler-Wholesalers

• Wholesaler-Retailers

• Retailers

SELLING PRICE

CONSUMERS

MARKETING COST

PROFIT MARGIN

RETURNS • Entreprenuership • Risks • Cost of money invested

INEFFICIENCIES • Losses • High marketing cost

MARKETING PRACTICES • Transferring • Sorting/Grading • Storing

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farmers, for traders, institutional buyers and for key informants or authorized personnel from different government agencies.

18. The farmers were asked about their production and marketing practices, sales, production and marketing costs of their commodities. They were also asked on available market information with emphasis on what they need to know to improve their production and marketing practices.

19. The traders were, in turn, asked about their marketing, costs, sales and the problems and constraints they have encountered in the marketing of the commodities.

20. Moreover, focused group discussions with key informants and selected farmers were conducted to probe the importance and the demand for market information in each province. This provided rapid feedback on the available market information, information dissemination strategies and the existing in the area.

21. Secondary data on the study area, the volume and value production and other pertinent data related to production and marketing of selected key commodities were obtained from several government agencies such as the Department of Agriculture (DA), Department of Trade and Industry (DTI), Bureau of Agricultural Statistics (BAS), Office of the Provincial Agriculturists (OPAs), Municipal Agricultural Office (MAOs) and the Upland Development Programme (UDP).

22. The baseline interview obtained the following information from respondents:

a. The socio-cultural characteristics of farmers and traders of key

commodities in selected provinces of Southern Mindanao; b. The production and marketing practices and strategies; c. Production and marketing costs incurred; d. Volume purchased and sold; e. Marketing margins; f. Seasonal market prices; g. Problems and constraints encountered by the producers and the traders;

h. Existing production and market information and their respective sources; and

i. Problems in production and market information dissemination. Sampling Procedure

23. The study was conducted in selected UDP area. Using the UDP agribusiness profile, each province was evaluated and the sitio/barangay with the most producers of the predetermined key commodities were chosen as the study areas. Purposive

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sampling was done in each area, and 20 to 100% of the target population were interviewed. Their respective agents, assemblers and/or buyers were then traced accordingly.

Margin of Error

24. For those commodities where the current population were determined (in this case durian, cardava and peanut) the margin of error at a 95% confidence level was determined.

Analytical Tools

25. In analysing the production and marketing of the selected commodities, the descriptive method analysis was used in describing the management practices, sources of financing, production and marketing strategies and problems of farmers and traders. In addition, flow charts were used to present the product and geographic flow of the commodities.

26. On the production side, costs and returns analysis were employed. The production costs incurred included the cost of inputs, labor, tools and equipment, farm supply, transportation, fuel and oil, tax, planting material or animal stocks, opportunity cost of capital and depreciation costs. These data, along with others, were analysed to determine the profit in relation to the returns of the farm. Net cash returns were computed by deducting the cash expenses from the total receipts. This showed the cash balance after cash costs were deducted from the cash returns.

27. The Net Farm Income (NFI) is the most important measure of profitability and efficiency on the part of farmer as the more complicated input-output efficiencies cannot be determined given the time and resource constraints of the study. The NFI is obtained by subtracting the Total Returns with the Total Costs. A positive NFI (greater than zero) would mean that the farm is profitable and efficient while a negative value NFI (less than zero) would mean that the farm is at a loss and is inefficient in both production and marketing.

28. The Return on Investment (ROI) was also used to assess the profitability of the trader’s enterprise. ROI measures the income that the trader gets from the capital investment. It also determines how much money the enterprise earns in return for every one peso invested. The ROI was computed using the formula:

ROI = Net Income / Capital Investment x 100

29. On the marketing side, the inter-organizational system composed of interdependent institutions tasked in moving the product from production to consumption, or the marketing channel, was traced for every key commodity of which marketing costs (MC), marketing margins (MM) and percentages, pricing and profit margins (PM) at every marketing level were analysed.

30. The formula of which are as follows:

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Marketing Margin (MM) = Selling Price (SP) – Buying Price (BP) MC as % of MM = Marketing Cost (MC)/MM x 100 PM as % of MM = Profit Margin (PM)/MM x 100

31. The marketing costs represent the value of the marketing practices and product loss in the market while marketing margin is the difference in prices between the selling and the buying price.

32. High marketing costs can be attributed to high wastage or losses due to poor infrastructure and management inefficiencies.

33. In the study of marketing margins, the returns and marketing costs are analysed. If the costs are high, it is possible that the enterprise performed more marketing services than usual, the enterprise suffered from excessive losses due to poor handling of produce, or other inefficiencies of the enterprise.

34. The marketing efficiency refers to the maximization of the input-output relationship, where inputs refer to resources (land, labor and capital) used in moving the products from the point of production to consumption. Output, on the other hand, refers to the consumer satisfaction on goods and services made available in the market.

35. One way of measuring the marketing efficiency is through the analysis of price (buying and selling prices) at each level. By getting the ROI of the enterprise and comparing it with the opportunity cost of capital of 8% per annum, it could be determined if the marketing activities done by the firm is more profitable than just investing the money in a bank.

36. In addition, the percent profit margin (relative to the marketing margin) was also compared with the percent marketing cost (relative to the marketing margin). If the percent profit margin is found to be higher than the percent marketing cost, the marketing activities of the trader is considered efficient.

37. Lastly, the percent share to the consumer peso of each marketing participant was also determined by getting the percentage of the marketing participant’s selling price relative to the final buying price of the consumer (in the case of traders, less their buying price). This indicates the proportion of the final buying price that goes to each marketing participant in the chain.

Limitations of the Study

38. During the interviews, it was observed that the farmers relied on their memories in recalling their past production level, income, farm tools and equipment. There were no record-keeping practices. Thus the cost and return that were analysed were only estimates. The Return on Investment (ROI) was excluded on the analysis of the farmer’s income due to the ambiguity of the values arrived at. This is mainly due

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to the fact that some factors on capital investment were not properly quantified in the study. For instance, land valuation was excluded because none of the farmers hold titles to the land that they cultivate. Land, therefore, was not considered a fixed investment in this enterprise and was merely considered as an expense through the credit of land cost (land tax if owned, rent if tenanted).

39. In the marketing aspect, the respondents interviewed were the middlemen named by the farmers. Most of them also based their answers on their memories since they do not keep records regarding their marketing operations.

40. On the analysis of the marketing efficiency on the part of the farmers, only the Net Farm Income (NFI) analysis was utilized since the available data could only allow for this kind of analysis and not the more complicated input-output efficiency analyses.

41. Lastly, the size of the commodity markets, specifically, the estimation of demand was not included in the study.

RESULTS AND DISCUSSION

Compostela Valley Cardava 42. Barangay Cabuyo-an, Mabini was identified to be the UDP area with the most cardava farmers in Compostela Valley. The marketing efficiency study on cardava in Barangay Cabuyo-an, Mabini was conducted last March 21, 2001. 43. It was established that production in the area is low, with a yield of 136 kilograms for the month of February 2001. 44. The cardava marketing system in the area has long marketing chain with four participants namely, the farmer, municipal assembler, provincial assembler and the processor. 45. All the cardava sold by the Cabuyo-an farmers were eventually sold to maruya and banana-que makers in the Mabini public market or banana chips processors in Tagum City. 46. The farmers receive a farm-gate price of P2.25 per kilogram of cardava. However, this amount is not enough to cover the farmer’s cost of production and marketing which total P3.20 per kilogram. The marketing cost, which involves the value of labor in cleaning the fruit and carrying it to the barangay center is P0.59 per kilogram.

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47. At the P2.25 per kilogram price of cardava, the farmer has a 77.5% share in processor’s peso. This means that 77.5% of the processor’s buying price goes to the farmer while the rest is shared between the municipal and provincial assembler. 48. Only 15-20% of the traders’ marketing margins are attributable to profit. This indicates that the traders earn very little profit compared to their respective marketing costs. 49. However, analysis of the ROI show that both the municipal and provincial assemblers market cardava efficiently since their ROIs were determined to be greater than the 8% opportunity cost of capital. 50. It was also determined that the processor is willing to buy the cardava from the farmers, thereby shortening the marketing chain and reducing marketing costs. The processor willing to buy the cardava from the farmers at P2.55 per kilogram if it is delivered to them and P2.35 to 2.40 per kilogram if the cardava are to be picked up from the farm. However, this is under the condition that the volume of sale is relatively large. 51. The recommendations therefore are as follows: • Increase the cardava production to lessen costs through economies of scale; • Encourage the collective marketing among farmers so that a larger volume

could be achieved to sell to the processor; and • Conduct a study on cardava production and the factors, which could lead to an

increase in production and decrease in costs. Durian 52. Barangay Cabuyo-an Mabini was identified to be the UDP area with the most number of durian farmers in Compostela Valley. The marketing efficiency study on durian in Barangay Cabuyo-an, Mabini was conducted last March 20, 2001. 53. Based on farmer interviews, it was established that most of the farmers sell the durian directly to the consumers by peddling the fruits along the National Highway. It was only in one case that a farmer sold his produce to a retailer in Sto. Tomas, Davao del Norte. This very short marketing chain gives the farmer more bargaining power on setting the price of his produce. 54. For the farmers who sold the fruits directly to the consumers, the average selling price piece is P51.72 with a marketing cost of P0.72 apiece. The selling price of the farmer who sold to the retailer, however, is P50 apiece. The marketing cost per piece for this farmer is P4.37.

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55. The NFI per piece of durian for the first type of farmer is P42.33 and P40.28 for the second farmer. The positive NFIs indicate that durian production and marketing in Barangay Cabuyo-an is very profitable and efficient. 56. On the part of the retailer, it was determined that with a profit of P4.83 per piece of durian, ROI is 76.7%. This indicates that the marketing of durian by the retailer is efficient. 57. During the course of this study, it was established that the main strength of the durian market is the fruit’s inherent rarity, which causes its relatively high demand. For Cabuyo-an durian farmers, however, the weakness is in the fact that the farmers are limited to selling the fruits in Mabini, Tagum and Sto. Tomas when they could sell the fruits at the more populated urban areas such as Davao City, where the price of durian is perceived to be higher. 58. Also, productivity was determined to be low compared to the ideal yield of 100 to 1000 fruits per tree (as established from the local Agricultural Technicians). This is due to the poor cultural and management practices aggravated by the minimal use of production inputs. 59. Based on the findings of this study, it is recommended that trainings on proper cultural practices and inputs to improve and increase production should be conducted. 60. Also, information on the prices of durian in urban areas such as Tagum, Panabo, Davao City, along with the per unit transportation cost to these areas should be regularly made available to farmers so that they would be encouraged to bring and sell their produce to other areas. Coffee 61. Barangay Pamintaran, Maragusan was identified as the UDP area with the most coffee producers in Compostela Valley. The marketing efficiency study on copra in the area was conducted last March 19, 2001. 62. Based on farmer and trader interviews, it was established that there are three (3) participants in the marketing system of coffee, namely the coffee farmer, municipal assembler and a processor. In this case, all of the coffee went to one processor, which is Nestle Phils. 63. The coffee beans are sorted immediately after being picked off the tree, after which they are delpulped, ground, dried and sacked. Another type of processing practiced by the coffee growers in Maragusan is by drying the beans first before it is hulled, ground and sacked. After sacking, the ground coffee beans are brought down from the farm to the Maragusan poblacion where they are sold to the municipal assemblers. The total marketing cost incurred by the farmer from sorting until delivery to the municipal assembler is P9.27 per kilogram.

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64. At the time of purchase, the municipal assembler tests the coffee for moisture content and percent bad grains, after which price adjustments are made to determine the corresponding buying price of the delivered coffee. The average buying price of the municipal assembler from the farmers is P27.38 per kilogram. 65. The P27.38 per kilogram selling price of the farmer gives him a P11.47 per kilogram NFI. This NFI, being greater than zero (0), indicates that coffee production and marketing Barangay Pamintaran is profitable and efficient. 66. From Maragusan poblacion, where the municipal assembler is based, the coffee is then delivered to the Sasa buying station of Nestle Philippines. There, the coffee undergoes a stricter testing and grading system where the coffee is tested for moisture content, percent bad grains, stinker and moldy grains. As with the pricing scheme of the municipal assemblers, Nestle also adjusts their buying price according to the quality of the coffee delivered to them. 67. An analysis of the municipal assembler’s marketing margin show that with a profit of P1.60 per kilogram, which is 41% of his marketing margin, the ROI is 62.64%. This high ROI indicates that the municipal assembler’s coffee-marketing activities are efficient. 68. Further analysis established that the farmer receives 88% of the buying price of Nestle Phils. This means that for every peso paid by Nestle Phils. for the coffee bought from the municipal assembler, P0.88 goes to the farmer. 69. On the matter of strengths and weakness of the coffee marketing system, it was established that the coffee farmers and traders benefit from the existence of Nestle Phils. as this processor is a sure buyer of their produce. Also, the proximity of Nestlé’s Sasa buying station has helped reduce the assembler’s transportation cost, thereby increasing his income. 70. However, the apparent dominance of Nestle leads to the reliance of the local industry’s pricing system on Nestle’s buying price. This condition is aggravated by the fact that Nestle depends on world prices so it is possible that coffee prices would still be low, if the world market prices were low, despite a relative low local supply. 71. It was also determined that the farmers do not put much importance on the grading standards of coffee, as set by the assemblers and Nestle. This leads to a lower quality coffee produced by the farmers and, consequently, reducing their income. 72. To reduce the dependence of the farmers on Nestle as their sole buyer, the farmers are encouraged to look for alternative buyers such as local processors of coffee and other coffee processors such as Consolidated Foods Corporation, Commonwealth Foods Corporation and General Milling Corporation. A study on the feasibility of selling to such alternative buyer should also be conducted to determine if it would be more profitable to sell to these buyers rather than to Nestle.

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73. Also it is recommended that training on the grading standards and requirements of Nestle should be conducted to allow farmers to produce better-quality, high-priced coffee.

Davao Oriental Copra 74. Sitio Coog, Mahan-ub, Bagangga was identified as the UDP area with the most copra producers in Davao Oriental. The marketing efficiency study on copra in the area was conducted last March 15, 2001. 75. Based on farmer and trader interviews, it was established that there are three (3) participants in the marketing system of copra, namely the copra producer, barangay assembler and a processor. In the case of Sitio Coog, all of the copra went to one processor, which is INTERCO in Mati. 76. Copra undergoes several post-harvest and processing activities from harvest as coconut until its sale as copra. First, the harvested coconuts are cracked open to obtain the meat. The meat is then dried, either by sun drying or kiln drying, until it reaches the ideal moisture content of 16%. The copra are then put into sacks and sold. 77. Some Sitio Coog farmers enter a 60-40 agreement with farm laborers such that the laborers get 60% of the net sales if they assume all the responsibility and costs from harvesting the coconuts to sacking the copra. 78. It was determined that the average farm-gate price of copra is P3.93 per kilogram. The copra is brought and sold by the farmers to the barangay assembler based in Bagangga proper, during which the transportation cost incurred is P0.86 per kilogram. The total marketing cost for the farmer, including the cost of processing the copra is P3.17 per kilogram. 79. The NFI of the copra producer was established at P-0.16. This value, being less than zero, indicates that copra production and marketing in Sitio Coog is neither profitable nor efficient. 80. An analysis of the assembler’s operations, however, shows that he is earning a profit of P0.59 per kilogram. This profit makes up 55% of his profit margin, which implies that he is getting relatively large profit considering that it is almost the same value as his costs. Further analysis show that with an ROI of 0.05%, the assembler has a high capital investment relative to his profits. It can be concluded, therefore, that the assembler is inefficient in selling copra. 81. A major weakness identified in the copra marketing system is the gradual decrease in copra world prices brought about by increasing alternative sources of oil.

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82. Another weakness that was identified during the study was the split payments made by the processor to the assembler. Since the processor only pays 70% of the buying price upon purchase and only pays the remaining 30% after two weeks, the duration of which, the copra’s moisture content is determined, it causes inefficiency in payment. This is due to the fact that the remaining 30%, if given during the time of purchase, could be used by the assembler as capital in other profitable activities. 83. As previously discussed, the major factor in the inefficiency of the copra marketing system is the price, it is recommended, therefore, that farmers should be encouraged to diversify their use of coconuts. Livelihood projects on handicraft making, the materials of which should come from the coconut, should be established. Other industries that can be instituted locally are fiber-making and charcoal production. Tomato 84. Barangay Taguibo, Mati was identified as the sole UDP area producing tomatoes. The marketing efficiency study on tomatoes in the area was conducted last March 12, 2001. 85. Based on farmer and trader interviews, it was established that the farmer and the retailers based in Mati comprise the marketing channel for tomato. 86. It was determined that farmers bring and sell the tomatoes in Mati, during which they incur a marketing cost of P0.44 per kilogram. Since they sell the tomatoes at an average price of P5.00 per kilogram, the NFI is P0.09. This value, being greater than zero, indicates that tomato production and marketing in Barangay Taguibo is both profitable and efficient. 87. On the part of the tomato retailers, it was determined that the tomatoes are retailed at an average price of P8.00 per kilogram. The retailer’s profit was further established at P2.30 per kilogram, which is 77% of his price mark up, or marketing margin. Lastly, the retailer’s 40% ROI, being greater than the 8% opportunity cost of capital, means that the retailer’s tomato marketing activities are efficient. 88. The tomato farmers, despite producing and marketing tomatoes efficiently, are faced with the threat of competition by the Maragusan tomato producers, as the tomatoes delivered from Maragusan are perceived to be cheaper. 89. Another problem in marketing tomato is the poor packaging system that the Taguibo farmers employ. The use of sacks and kaing as containers make the produce susceptible to bruising and spoilage. 90. It is recommended, therefore, that the farmer’s use improved packaging materials such as bamboo boxes and specially designed plastic bags to reduce tomato losses.

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91. Lastly, a market study on the size of the tomato market in Mati, along with the size of the Maragusan production and its destinations should be conducted to determine if the Mati market could still accommodate any increase in production on the side of the Taguibo tomato farmers. Abaca 92. Barangay Sobrecarey, Caraga was identified as the UDP area with the most abaca producers in Davao Oriental. The marketing efficiency study on abaca in the area was conducted last March 14, 2001. 93. Based on farmer and trader interviews, 3,800 kilograms of abaca was traced from the farm to the processor. It was established that the there are four participants in the abaca marketing system, namely the farmer, barangay assembler, municipal assembler and the processor. 94. The marketing practices on the part of the farmer involve peeling, stripping and drying to produce the abaca fiber. It is then graded and bundled before transported to the barangay poblacion where it is bought by the barangay assembler. The barangay assembler then brings the abaca to the municipal assembler based in Manay who then delivers and sells it to the processor in Davao City. 95. The farmer incurs an average marketing cost of 8.68 per kilogram of abaca. This cost includes all the expenses of processing the abaca and transporting it to the barangay assembler. At an average P14 selling price per kilogram of abaca, it was determined that the NFI per kilogram is P3.41. The abaca farmer’s NFI, having a value greater than zero (0), indicates that abaca production and marketing in Barangay Sobrecarey is profitable and efficient. 96. On the part of the traders, their respective marketing margins were analysed and it was determined that the P0.92 profit per kilogram of barangay assembler makes up 61% of his marketing margin. This means that the barangay assembler is able to minimize his marketing costs, which gives him a larger margin of profit. 97. The municipal assembler, on the other hand, has only a P0.17 per kilogram profit. This makes up 21% of his marketing margin, which indicates that, his marketing cost, relative to his profit, is high. 98. The traders’ respective ROIs were further analysed and it was determined that with the barangay assembler’s 14% ROI, abaca marketing on a barangay level is efficient. The Manay assembler, however, has only a 2.72% ROI which, being lower than the 8% opportunity cost of capital, indicates that his marketing activities are inefficient. 99. Aside from the abaca fiber industry’s established market, another strength identified was the presence of improved post-harvest practices and technologies.

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100. Nevertheless, this technology is not properly disseminated among the abaca farmers. Consequently, the farmers are stuck with antiquated production and post-harvest facilities and knowledge. This leads a high production and marketing cost on the part of the farmers. 101. It was also established that the farmers have inadequate knowledge on the grading classifications set by the Fiber Industry Development Authority. This results to a lower income for the farmers since they are not able to produce good quality, high priced abaca. 102. Another problem for the Sobrecarey abaca farmers is the poor condition of the Caraga Highway-Sobrecarey tertiary road. This has led the farmers to depend on the assemblers to buy their produce, as they do not have the facilities to transport the abaca themselves. 103. Lastly, it was established the farmers face production related problems such as the high production cost. In addition, it was revealed that the farms are already old, disease-infected and damaged by typhoons. 104. The recommendations offered are as follows: • Provision of post-harvest facilities to the farmers that would help them reduce

costs, thereby, increase income; • Improvement of the Caraga highway-Sobrecarey road to ease the transfer of

goods to the processing area, thus decreasing transportation costs; • Provision of proper information on the grading standards of abaca; and • Provision of training on other uses of abaca such as handicraft making, tinalak

production and the like, to increase the value of their produce.

Davao del Sur Carrot 105. The marketing efficiency study in Barangay Pitu, Malalag, identified as the UDP area with the most carrots farmers, was conducted last March 13, 2001. 106. A total of 4,230 kilograms of carrots sold for two (2) production seasons were traced from Barangay Pitu to the consumers. All of the carrots from Barangay Pitu were shipped to General Santos City and were retailed there. It was established that the marketing channel of carrot in area has four (4) participants namely, the farmer, assembler-shipper, wholesaler and the retailer.

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107. It was also established that the farmer sold the carrots at a price of P4.00 per kilogram with marketing cost of P1.67 per kilogram. The marketing cost includes the expenses incurred in cleaning, grading and packing the produce. 108. By further accounting for the production cost, it was determined that the farmers receive a Net Farm Income (NFI) of P0.70 per kilogram. This indicates that production and marketing of carrots in Barangay Pitu, Malalag is both profitable and efficient. 109. Further analysis of the marketing chain showed that the all the traders (Assembler-shipper, Wholesaler and Retailer) operate efficiently as their respective Return on Investments (ROIs) range from 12 to 18%. 110. An analysis of the consumer peso resulted in the conclusion that the carrot farmer receives 18% of the total consumer price. This means that for every peso spent by the consumer on carrots, the farmer receives P0.18. 111. One of the weaknesses or problems identified in the carrot marketing system is the poor road system in the area. 112. It was also determined that there was an absence of information on grading, price, supply and demand on the part of the farmers. This lack of information has led to the farmer’s weak bargaining power, such that he is not able to negotiate with the buyers for a higher price. 113. To resolve these problems it is recommended that the road system in the barangay should be improved to reduce the transportation costs in marketing the produce. It is also recommended that and organized market information system providing regular statistics on the price, supply and demand and the requirements for carrots in General Santos City. This information should be posted on the Barangay Bulletin board for the farmers to see. Mango 114. The marketing efficiency study of Mango in Barangay Pitu, Malalag was conducted last March 12, 2001. 115. Based on farmer interviews, it was established that there are four (4) participants in the mango marketing system in Barangay Pitu, namely, the farmer, municipal assembler-wholesaler, assembler-shipper and the retailer. 116. There are two types of farmers classified according to their marketing practices, the independent farmer (Farmer 1) who grows, harvests and sells the mango himself; and the contract-growing farmer (Farmer 2) who is in a 60-40 agreement with a contract grower. In this agreement, the farmer’s investments are land, the mango trees, cost of cultivation and maintenance of the farm while the contract grower assumes the cost of floral induction, harvesting and marketing. For this

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agreement, the farmer receives 40% of the net sales in mango while the rest goes to the contract grower. 117. The final destinations of the mangoes from Barangay Pitu are the Malalag poblacion, Digos City, Davao City and Manila. 118. It was established that, on the average, the Pitu mango farmer sells the mangoes at P18 per kilogram. By considering the marketing costs, which is P1.88 per kilogram, the Net Farm Income per kilogram of mango was determined to be P9.39 for Farmer 1 and P4.35 for Farmer 2. This indicates that mango production and marketing in Barangay Pitu, for both cases, is profitable and efficient. 119. On the part of the traders, it was established that their percent profit margins relative to their respective marketing margins range from 77% to 98%. This indicates that the profit of the traders are relatively higher then their marketing costs. 120. Further analysis of the marketing system showed that the municipal assembler-wholesaler, with an ROI of 5%, is inefficiently marketing mangoes. The assembler-shipper and the retailer, on the other hand, operate efficiently since their ROIs were established to be greater than the opportunity cost of capital. 121. The analysis of the consumer peso shows that 45% of the consumer price goes to the farmer while 28% goes to the assembler-wholesaler and 27% goes to the retailer. 122. The mango market was found to be suffering from poor post-harvest handling practices, which contribute to losses and consequently reduce the income of the farmers. Lack of knowledge and technology on the packaging of mangoes is the main concern of farmers in post-harvest handling. 123. Recommendations to improve the marketing of mango include: • The construction of a 13-kilometer road leading to Barangay Pitu, Malalag.

This is important to reduce the transportation cost and reduce losses in transportation;

• The use of proper packaging materials such as styrophore nets and boxes

rather than the existing kaing; • Trainings on proper harvesting practices, Hot Water Treatment (HWT) and

other production and cultural practices should be made readily available to farmers; and

• Regular information on prices demand and supply in different markets

(Malalag, Digos City, Davao City and Manila) should be posted on the barangay bulletin such that it is accessible to farmers.

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Abaca 124. The marketing efficiency study of abaca in Barangay Pitu, Malalag was conducted last March 12, 2001. 125. It was determined that the participants in the abaca marketing system in Barangay Pitu are the farmers, assemblers, and an assembler-shipper. 126. A monopoly, on the part of the assembler-shipper, in the buying of abaca in Davao del Sur was revealed during the course of this study. The assembler-shipper brings the abaca to Iligan City, Davao City and Manila. 127. It was also determined that the farmer sells the abaca for P20 per kilogram and incurs a cost P9.63 per kilogram in marketing the produce. This marketing cost is due to the labor-intensive processing practices, which involves peeling, stripping, drying and bundling of the abaca. 128. By considering the production and marketing costs, the NFI was determined to be P-6.12 per kilogram. The NFI, being less than zero (0), indicate that the production and marketing of abaca in the area is neither profitable nor efficient. 129. An analysis of the traders’ operations shows the assembler is operating inefficiently as his ROI is only 1.65%. The assembler-wholesaler, on the other hand, is marketing abaca efficiently since his ROI is 15.77%, which is higher than the 8% opportunity cost of capital. Also, the assembler-wholesaler was determined to be receiving a high profit of P6.92 per kilogram). 130. The study reveals that farmers are burdened with the low price of abaca. Furthermore, the existing monopoly of the assembler-shipper allows him to receive a large profit while the farmer is producing at a loss. 131. Another factor that led to the farmer’s negative profit is the high costs input and labor as abaca production is labor-intensive. 132. It is recommended, therefore, that studies on mechanization and its feasibility should be conducted to determine if the mechanization of abaca production could reduce costs of the farmer. 133. Also, it is recommended that farmers increase production such that they would be able to lessen costs through economies of scale. 134. Lastly, farmers should be given information and trained on different abaca processing activities so that they would be able to add value to their product, thereby increasing their income.

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Saranggani Chicken 135. Sitio Campao, Sufa-tubo, Glan was identified to be the UDP area with the most chicken raisers in Saranggani. The marketing efficiency study on chicken in the area was conducted last March 5, 2001. 136. Based on farmer and trader interviews, it was established that the there are three participants in the chicken marketing system, namely the farmer, assembler and the processor. 137. Mostly native chicken is raised in Sitio Campao, and the average chicken ownership per farmer is three to four heads. However, more than half of the chicken raised in the area is consumed at home. This is due to the chicken raiser’s reluctance to transport and sell the chicken because transporting live birds is troublesome. 138. For the few chicken, which are sold, however, there are two buyers--- the Sufa-tubo-based assembler or the Glan-based retailers. 139. As the buyers prefer to sell live chicken, the chicken is sold live from the farmers to the retailers. Consequently, marketing costs for all marketing participants comprise mainly of transportation expenses, ropes and cages for the chicken. 140. The farmer sells the chicken at P70 per kilogram, incurring an average marketing cost of P1.27 per kilogram in the process. This gives him a P27.97 per kilogram NFI. The chicken raiser’s NFI, being greater than zero, indicates that chicken raising and marketing in Sitio Campao is profitable and efficient. 141. On the part of the traders, it was determined that the assembler is earning a profit of P6.38 per kilogram from selling the chicken in General Santos City. Furthermore, it was established that at the assembler’s ROI of 16.75%, his marketing activities are efficient. 142. The Glan-based retailer, however, is only earning P3.04 per kilogram. Despite earning a profit, it was determined that the retailer’s ROI, at 1.93%, is lower than the 8% opportunity cost of capital. This indicates that the retailer’s capital investments are larger than his profits. This leads to the conclusion that the retailer’s marketing activities are inefficient. 143. An analysis of the consumer peso show that the chicken raisers get 40% of the final consumer price. This means that for every peso paid by the consumer for the chicken, P0.40 goes to the farmer. 144. It was also established in the study that native chicken is preferred by the consumers for its distinctive flavor.

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145. Furthermore, it was revealed that the chicken raisers have equal bargaining power with the buyers on the matter of price determination. This means that the farmers could equally bargain with the assemblers or retailers for a higher buying price. This shows efficiency in the overall pricing system in chicken. 146. Despite these advantages and strengths, chicken raising in Sitio Campao is small since few chicken raisers bother to sell their produce. During the study, chicken raisers often mentioned that they would rather eat the chicken themselves rather than bring it to the assembler or the Glan public market. This is largely due to the fact that the sitio is located far from the barangay poblacion and inaccessible to any motorized public transportation during the time of the study. 147. Another problem faced by the chicken raisers is the high losses brought about by weight loss and mortality of the animals during transport. This is aggravated by their production-related problem of high mortality during the rainy season. 148. Based on the findings of the study, it is recommended that: • An organized buying system for the assemblers should be done so that the

farmers need not travel too far to sell their produce, thereby reducing transportation costs on the part of the farmers. This would also encourage the farmers to sell their produce;

• The condition of the Sitio Campao-Glan tertiary road should be improved to

encourage farmers to market their produce. • Lastly, seminars on disease prevention and other management techniques

should be conducted to improve the technical know-how of the chicken raisers;

Corn 149. Barangay New La Union, Maitum was identified as the UDP area with the most corn farmers in Saranggani. The marketing efficiency study on corn in the area was conducted last March 7, 2001. 150. The local white corn or taniguib was established as the main variety produced in the area. 151. After harvest, corn is dried, graded, sorted and packed into sacks. Shelling of corn is rarely done as this process is found by the farmers to be tedious and expensive. The average marketing cost of the farmer, including drying to sacking, is P0.63 per kilogram. 152. Based on farmer and trader interviews, 5,960 kilograms of corn produced during the most recent cropping season of 2000 were traced from the farmers to the

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consumers and it was established that the there are three participants in the corn marketing system, namely the farmer, wholesaler-retailer and the retailer. 153. The farmers are able to sell the corn at P4.80 per kilogram, which gives them an average NFI of P2.16 per kilogram of corn. This indicates that corn production and marketing in Barangay New La Union, Maitum are profitable an efficient. 154. On the part of the traders, it was established that both the wholesaler-retailer and the retailer market corn efficiently as their respective ROIs are greater than the opportunity cost of capital. 155. On the analysis of the consumer peso, it was determined that the farmer receives 15% of the final buying price. This means that for every peso paid by the consumer for corn, only P0.15 goes to the farmer. The rest goes to either the wholesaler-retailer or the retailer. 156. Aside from the high demand for corn and its well-established market, no other strengths were identified in the marketing system. However, several problems or weaknesses were identified. For instance, the farmers have a very loose grading system and practice, such that corn is poorly graded in terms of moisture content and overall appearance. This causes a significant decrease in the price of corn, as the quality produced by farmers is very poor. 157. Also, it was established that there is an absence of drying and storage facilities, which could enable farmers to raise the value of their corn or to wait for a higher buying price of corn. 158. Another problem identified is that the distance of the area and its relative inaccessibility limits the marketing activities. This also leads to an high transportation cost on the part of the farmer. 159. Lastly, it was established that the farmers are not aware of the growing demand for yellow corn, which could possibly be more profitable for them to produce. 160. Based on the findings of this study, the following recommendations are offered: • Conduct training on the proper grading of corn, specifically, the determination

of moisture content, spotted and bad grains; • Provide drying and storage facilities to bring up the value of the farmer’s corn;

and • Provide market information on the buying prices and the respective buyers of

yellow and white corn.

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Lacatan 161. Sitio Abgang-bato, Sufa-tubo, Glan was identified to be the UDP area with the most lacatan farmers in Saranggani. The marketing efficiency study on lacatan in the area was conducted last March 7, 2001. 162. Based on farmer and trader interviews, it was established that the there are four participants in the lacatan marketing system, namely the farmer, assembler-wholesaler, wholesaler-retailer and the retailer. 163. It was determined that the end destinations of the lacatan from Sitio Agbang-bato are the Glan public market and General Santos City. 164. After harvest, the farmer cleans the bananas by wiping them with a damp cloth and packs them in sacks. It is then immediately sold to the assembler-wholesaler in Glan or General Santos City or, in cases of small volume, directly to the consumers in the barangay. The assembler-wholesaler then delivers the fruits to the stalls of the wholesaler-retailers. 165. The wholesaler-retailers wait for two days for the bananas to ripen before they sell the fruits to the consumers at the average price of P7.57 per kilogram 166. At the average selling price of P2.50 per kilogram, the farmer’s NFI was established at P1.53 per kilogram. The NFI, being greater than zero, indicates that the lacatan production and marketing in Sitio Abgang-bato are profitable and efficient. 167. Further analysis establishes that the farmer receives 22% of the final consumer price. This means that for the P7.57 paid by the consumer for a kilogram of lacatan, only 22% goes to the farmer. The rest of the consumer peso is shared between the assembler-wholesaler, wholesaler-retailer and the retailer. 168. It was determined that since the ROIs of the assembler-wholesaler and the wholesaler-retailer were lower than the opportunity cost of capital, both traders are operating inefficiently. This means that it would be more profitable for the assembler-wholesaler and the wholesaler-retailer to save their money in a bank rather than use it for trading lacatan. 169. It was established in the study that the farmers and other marketing participants have varied choices of buyers. However, this strength has led to a long marketing chain and possible competition between marketing participants. Consequently, the traders have suffered from low ROI and inefficient operations. 170. It was also established that the poor road condition of the Barangay Sufa-tubo road has led to high losses brought about by fruit bruising and spoilage. 171. On the matter of pricing, farmers are faced with the problem of low bargaining power such that they are only able to sell their lacatan at the prices dictated by the traders.

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172. Recommendations to help alleviate the problems of the lacatan farmers in Sitio Abgang-bato are as follows: • To teach the farmers on proper packaging and handling of the produce and

knowledge on the standard grading system of lacatan; • To encourage more passenger vehicles to traverse the Sufa-tubo roads to

reduce transportation costs; and

South Cotabato Peanut 173. The marketing efficiency study in Sitio Bong Lawaan, Palo 19, Tampakan, identified as the UDP area with the most peanut farmers, was conducted last March 6, 2001. 174. It was determined that the Singaporean and Imelda varieties are grown in the area. 175. Based on farmer interviews, it was established that there are three marketing participants for peanut in Sitio Bong Lawaan, namely the farmers, Barangay assembler and retailers. 176. Production in Sitio Bong Lawaan was determined to be significantly lower, at 317 kilograms per hectare, than that of the ideal yield set by the Farmers Information Technology Services (FITS) of 1,800 kilograms per hectare. 177. The peanuts harvested in Sitio Bong Lawaan are mainly sold fresh and rarely dried before selling. 178. Upon harvest, the peanuts are cleaned, by shaking out the soil and picking out stray twigs and leaves, and sacked. 179. It was established that the farmers employ different units of measure as the peanuts are measured in taro (cans) and gantas. However, farmers are still aware of the estimated weight, in kilograms, of the peanuts. 180. The sacks are then hauled by horse to the barangay poblacion where it is either sold to the barangay assembler or loaded onto a passenger jeepney and brought to General Santos City for sale to the retailers. 181. It was established that the farmers sell the peanuts to the barangay assembler at an average price of P19.20 per kilogram, while the average selling price to the General Santos retailer is P23 per kilogram. However, the marketing cost for

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transporting the peanuts to the farther General Santos City, is P1.51 per kilogram while the marketing cost to the barangay is only P1.08 per kilogram. 182. A comparison between selling to the barangay assembler and the General Santos City retailer show that it is more profitable to bring and sell the peanuts in General Santos City as the NFI in this case is P16.05 per kilogram. The NFI of farmers who sell to the barangay assembler was established at P12.68 per kilogram. On both cases, however, it was established that since the NFI is greater than zero (0), peanut production and marketing in Sitio Bong Lawaan are profitable and efficient. 183. On the part of the barangay assembler, it was determined that with his 10.6% ROI, his marketing activities are efficient. This is unlike the case of the retailer who only has a 6.41% ROI. This, being lower than the 8% opportunity cost of capital, means that it would be more profitable for the retailer to invest his money in a bank rather than use it for retailing peanuts. 184. An analysis of the consumer peso shows that the farmer gets a 64% share of the final buying price. This means that for every peso spent by the consumer on peanuts P0.64 goes to the farmer and the rest is shared by the assembler and the retailer. 185. The problems identified in the peanut marketing system are as follows: • The lack of post-harvest activities such as drying and shelling has led the

farmers to settle with selling fresh, unshelled, low-priced peanuts (compared to dried peanuts);

• Also, price was determined to be dictated by the traders, therefore, farmers do

not have much influence over the farm-gate price which makes the pricing system inefficient;

• The inaccessibility of Sitio Bong Lawaan limits the marketing activities and

increases the marketing costs of the farmers. • Lastly, peanut production in the area is significantly lower than that of the

FITS ideal yield . This can be attributed to the farmer’s lack of technical know-how on production.

186. Based on the findings of this study, the following recommendations are offered: • Encourage an informal assembly or a collective marketing of peanuts in the

area such that marketing, particularly transportation costs would be reduced; • Conduct a feasibility study on drying and shelling peanuts to determine if it

would be more profitable for the farmers to dry and shell the peanuts given the additional post-harvest costs and the demand for such products;

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• Conduct trainings on production, proper cultural and management practices of peanuts to increase production; and

• Encourage the retailers to sell the peanut wholesale and efficiently utilize their

stalls and carts by diversification. This is to reduce the retailer’s marketing costs and increase his income.

Potato 187. Sitio Glandang, Kablon, Tupi was determined as the sole potato-producing UDP area in South Cotabato. The marketing efficiency study on potato in this area was conducted last March 7, 2001. 188. It was determined that the granola cultivar is the only potato commercially grown in the area. 189. A total of 15,190 kilograms of potato harvested on February 2001 were traced from Sitio Glandang to the consumers and it was established that the only participants in marketing potato are the farmers and the retailers. 190. The end-destinations of the potatoes from Sitio Glandang are the public markets of General Santos City, Koronadal City and Surala, South Cotabato. Bulk (84.2%) of the potatoes, however, go to General Santos City. 191. It was determined that aside form selling to the retailers, the farmers engage in their own retail activities which involve peddling the two to three (2-3) sacks (140-210 kilograms) of potatoes at the pavements in the public market. This is done right after they deliver the rest of their produce to the retailer. As their own retailing activities are done only to take advantage of their one-day trip to the General Santos City Public market, they only sell a limited amount. Their selling price per kilogram is P26.88 to the retailers and P32.50 to the consumers. 192. The farmer’s NFI per kilogram was determined to be P17.06 if they sell to the retailer and P26.06 if they sell direct to consumers. The marketing cost, which includes the cost of cleaning, grading, sorting, packing and transporting the potatoes, total P1.24 per kilogram. 193. Their NFI, being greater than zero (0), indicate that potato production and marketing in Sitio Glandang is both profitable and efficient. 194. On the retailer’s side, it was determined that he is also marketing potatoes efficiently with an ROI of 62.64%. 195. An analysis of the consumer peso show that 87% of the consumer’s buying price goes to the farmer, while 13% goes to the retailer.

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196. Despite the strong and established marketing system of potato, it suffers from rapid price fluctuations brought about by the influx of potatoes from other areas. 197. Also, it was determined that potato production in Sitio Glandang is low since the average yield per hectare is only 686 kilograms while the ideal yield is 30,000 per kilogram. 198. Based on the findings, it is recommended that information on the production capacities and schedule of harvest of other potato-producing areas that supply General Santos City should be regularly made available to the Glandang farmers so that they would be able to time their harvest when there are no impending deliveries from the other areas. 199. It is also recommended that trading posts should be built to consolidate the harvests of the farmers, thereby, giving them in increased bargaining power. 200. Lastly, it is recommended that training on production and marketing of potato should be conducted to help the farmers increase their volume of production. Swine 201. The marketing efficiency study in Sitio Upper Balisan, Palo 19, Tampakan, identified as the UDP area with the most swine raisers, was conducted last March 5, 2001. 202. It was determined that native swine is the only breed raised in the area as hybrids and other breeds are not only expensive to raise, but also, do not thrive in the upland area because of the cooler climate. 203. Based on farmer interviews, a total of 13 heads of swine for five (5) swine raisers were sold in the area. It was also determined that there are two marketing participants for swine in Sitio Upper Balisan, namely the swine raisers and retailers. 204. It was established that four (4) to five (5) retailers infrequently visit the area to buy live swine. These infrequent visits bring about spot markets where farmers bring their backyard native swine to the sitio proper to be weighed using an espada (a crude weighing device) and sold to the retailers. The average price for a kilogram live-weight during such spot markets is P40. Since the swine is picked up, the farmer has no marketing costs. 205. The retailers then bring the swine to lower Tampakan, slaughter them, and immediately sell the meat at their stalls in the Tampakan and Koronadal public markets for a retail price of P44 per kilogram. 206. On some occasions, the swine raisers butcher the swine themselves and sell them to their neighbors at an average price of P55 per kilogram. Marketing costs in

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this case are the cost of slaughtering the animal and transportation, which total P0.77 per kilogram. 207. The NFI for the swine raiser who sells to the retailer is P14.21 per kilogram while the NFI of those who slaughter the animal and retail the meat is P28.44 per kilogram. The NFI for both cases, being greater than zero, indicates that swine raising and marketing in Sitio Upper Balisan, Palo 19, Tampakan is profitable and efficient. 208. An analysis on the retailer’s part show that only 20% of his marketing margin is profit. Also, it was determined that he is marketing swine inefficiently since his ROI of 3.45% is less then the 8% opportunity cost of capital. 209. It was established that the visits of the retailers are infrequent thus making the swine market in Sitio Upper Balisan unsure of a regular buyer. Competition with swine from lower Tampakan is also a problem faced by Sitio Upper Balisan swine raisers. 210. Based on the findings, an improvement of the Upper Balisan-Palo 19 and Palo19-Tampakan roads should be done to encourage buyers to visit the area and, consequently, buy swine more often. This would also facilitate and broaden the marketing activities of the swine raisers. 211. Also, a regular market day should be established. This is when swine from all Palo 19 sitios could be brought to the barangay proper and auctioned to buyers. 212. The swine raisers should also be encouraged to time their harvests or the maturity of the animals so that they could sell the swine during the months of December, May and June when prices are highest. 213. Lastly, a study on the feasibility of upgrading the stocks of native swine should be done to improve consumer acceptability and yield. CONCLUSION 214. Based on the marketing efficiency studies for all 15 key commodities, it was established that the common problems are: Market Information 215. It was then established that one of the major weakness in the key commodities marketing systems is the absence of regular information on price, demand and supply of the commodities in their respective relevant markets. Also, the marketing systems lack information on the prices offered and quantities produced by competitors. This lack of information disable the farmer in making sound decisions as to what and when they could plant, where and to whom they could sell their produce to.

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216. It was also established that most of the farmers are forced to accept the price dictated by the traders. This can be attributed to the lack of market information of the farmers as they are not aware of the price that they should be receiving. Market Structure 217. Another weakness identified is the long marketing chain for commodities. This is a result of the relatively small volume produced and sold by the farmers. This necessitates the consolidation of produce to achieve economies of scale in transportation and other marketing costs. Grading 218. It was also determined that, for most of the commodities, a lack of knowledge on the quality requirements of the buyers on the part of the farmers, has led them produce low-quality commodities. 219. Also, It was established that the farmer’s lack of knowledge on grading practices reduce his bargaining power as he does not get a corresponding price of his produce. Post-harvest Practices and Technology 220. Also, the lack of post-harvest know-how and technology cause the farmer to use antiquated post-harvest practices, which reduce productivity and are therefore considered costly. Although for some commodities like abaca and copra, technology and innovations exist, poor information dissemination and agricultural extension hinder these technologies from reaching the farmers. Packaging 221. Both the farmers and the traders are also faced with the problem of high losses brought about not only by poor road condition, but the use of poor packaging materials as well. 222. This is a major problem in the case of highly perishable commodities such as mangoes, tomatoes and bananas as the traditional packaging materials used are only sacks, kaings and worn out carton boxes. Transportation 223. Another common grievance is the poor condition of roads, which lead to their areas inaccessibility, high transportation costs and high losses on the part of the farmers and traders. During the course of this study, farmers often mention the futility of knowing where to sell to and at what price they could sell if they do not have access to transportation and other marketing facilities

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Production Techniques and Technology 224. Lastly, production-related problems also abound since none of the commodities were found to sufficiently producing according to the ideal volume of production. One factor that was determined to cause low production is the lack of knowledge on input use, cultural and management practices in production. 225. Other conclusions that were established in the study are as follows: Net Farm Income 226. Based on the farmers’ sales, production, post-harvest and marketing cost estimates, it was established that most of them have the benefit of a positive NFI. This is for the case of durian, coffee, tomato, abaca, carrot, mango, chicken, corn, lacatan, peanut, potato and swine. This indicates that the production and marketing activities for most of the key commodities, subject to this study, are profitable and efficient. 227. For the cases of cardava and copra, on the other hand, the NFIs are less than zero (0). This indicates inefficiencies in production and marketing of the two commodities. Nevertheless, the reasons for these inefficiencies differ for the two cases. 228. For cardava, the main reason for its inefficiency is the high cost of production. It was established that since production is low and the economies of scale are not achieved, the marginal cost of production is high. 229. In the case of copra, on the other hand, the main reason for it negative NFI is the inherently low price of copra. Since copra prices are based on the continually decreasing world copra prices, copra producers are more discouraged to produce copra. Return on Investment 230. On the part of the traders, it was established that most of them have efficient marketing activities since their respective ROIs were determined to be higher than the 8% opportunity cost of capital. 231. Nevertheless, some traders were found to be operating inefficiently. Most of their inefficiencies can be attributed to high costs as in the case of the copra assembler in Davao Oriental. This particular assembler was found to have high transportation and labor costs relative to his profit. 232. Another factor attributed to the marketing inefficiency of traders is their high capital investments relative to profit. A particular illustration is the case of the peanut

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retailer in General Santos City. It was established that the retailer’s investment on stall and carts were too large compared to the profit it generates. Percent Share of the Consumer Peso 233. Analyses of the consumer peso show that the percent share of the farmers range from 15% to 90.9%. This wide range is attributed to the differences in the market structures of the commodities---as the length of the marketing chain influences the share of the participant in the consumer peso. 234. In the cases of carrots and lacatan, the long marketing chain has led to the farmer’s low percent share in the consumer peso. This means that the proportion of the farmer’s selling price relative to the final buying price decreases as the carrots and lacatan move from one middleman to the other. 235. Conversely, the 90.9% percent share of the consumer peso in durian is due to the fact that most of the farmers directly sell their produce to the consumers. 236. In the case of corn, however, the farmer’s low percent share to the consumer peso of 15% is attributed to the high price mark up done by the traders. This means that bulk of the consumer price goes mostly to the trader. RECOMMENDATIONS 237. Although some recommendations are not within the responsibilities of UDP, they are nevertheless offered for other agencies to act upon. The following recommendations are herein offered: Market Information 238. Regular information on the price and the respective buyers of the commodities should be made available to the farmers. This information could be posted on the barangay bulletin boards for the farmers to see. 239. Also, information on developments such as an increase in the demand for a related product, and its corresponding price should also be regularly provided along with information on the prices offered by competitors for each commodity. Market Structure 240. To increase the farmer’s bargaining power, a collective marketing system should be encouraged so that the farmers could sell a larger volume. This would give them the leverage to demand a higher buying price from the traders. 241. A case wherein this would be most effective is for cardava where it was established that one of its weakness is the long marketing chain. A subsequent

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consolidation of the produce from the area and a trade tie-up with a processor could significantly increase the income of the farmers through a higher buying price of their produce. Grading 242. Information on the different grades and their respective qualifications should be made available to the farmers through seminars and training. During these seminars and training, the proper way of classifying and grading should also be taught to the farmers. 243. The respective institutional buyers, processors, regulating agencies and major traders of the key commodities, such as Nestle Phils. for coffee, INTERCO for copra, and FIDA for abaca, should be tapped to lead these training and seminars. These entities could prove to be cooperative as they would also benefit from this endeavor. Post-harvest Practices and Technology 244. It is also recommended that post-harvest technologies such as innovations and practices in drying, storage and processing should be properly disseminated and made available to the farmers through training and seminars. 245. Such new technologies could be sourced from FIDA, the Department of Science and Technology, the Bureau of Post-Harvest Research and Extension, institutional buyers and processors. Packaging 246. Along with developments in post-harvest technologies, new packaging materials should be made available to the farmers so that’s losses during transport could be reduced. These new packaging materials and technologies could be obtained from the same entities/agencies as those concerned in post-harvest technology. Improved packaging could also serve to lengthen the shelf-life of the produce. Transportation 247. To build or improve farm-to-market roads so that losses and transportation costs would be reduced. Improved roads would also encourage farmers to expand their marketing activities. Production Techniques and Technology 248. To conduct regular extension techniques to teach the farmers on proper production, input use, cultural practices in production, post-harvest and marketing. These information would aid the farmers to increase production and improve the quality of their produce.

31

249. For proper information dissemination strategies such as training, seminars and information dissemination drives, it is suggested that a regular Agriculture Week should be instituted in the target areas. 250. During this Agriculture Week, farmers are invited to take part in dialogues, seminars and exhibitions on new technologies and techniques in production, post-harvest and marketing. 251. This would also serve as a way of bring the farmers and traders together and facilitate their agreement on prices, schedules and terms of payment.

REFERENCES

_____. 1993. Alternative Agriculture Series, Number 14, July 1993

AGARRADO, R.E. et al. Marketing and Information Needs Assessment for Davao City. BAS-DA-USP, Davao City.

CENTER FOR FOOD AND AGRIBUSINESS-UNIVERSITY OF ASIA AND THE

PACIFIC. 2001. Corn Supply/Demand Analysis and Projections. A paper presented on the Third Mindanao Food Congress. University of Asia and the Pacific, Pasig City.

CENTER FOR FOOD AND AGRIBUSINESS-UNIVERSITY OF ASIAN AND

THE PACIFIC. 2001. Chicken Supply/Demand Analysis and Projections. A paper presented on the Third Mindanao Food Congress. University of Asia and the Pacific, Pasig City.

CORRE, S. 1996. A Market Efficiency Study for Palay/Rice in Biliran. Published

under the Small Islands Agricultural Support Services Programme. CUNNIGHAM, T. Feb 2000. Market and Enterprise Component Strategies for Upland Development.

Upland Development Programme in Southern Mindanao. CUNNIGHAM, T. Jun 2000. An Overview of the Theory and Operation of Agricultural Market

Information Services. Upland Development Programme in Southern Mindanao. DEPARTMENT OF AGRICULTURE. 2000. The DA Agribusiness Report. Quezon

City. DUMON, P. Framework for Action: Marketing and Enterprise Development

Component. Ver 2.0. UDP, Davao City. DUMON, P. 2001. Coffee Industry by Glicerio Lumagbas. A Report on the Third

Mindanao Food Congress. UDP, Davao City. FARMERS INFORMATION TECHNOLOGY SERVICES (FITS) and

SMARRDEC-DA-RFU-XI. Peanut (Arachis hypogea Linn.). FITS-SMARRDEC-DA-RFU-XI, Davao City.

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FARMERS INFORMATION TECHNOLOGY SERVICES (FITS) and

SMARRDEC-DA-RFU-XI. Potato Production. FITS-SMARRDEC-DA-RFU-XI, Davao City.

FRLD. 1995. The Potato Marketing System in Major Production and Demand Areas

in the Philippines. Published under ASAP-USAID Project. http://memory.loc.gov/frd/cs http://pcarrd/chickenprofile/ NESTLE PHILS., ___. The Nestle Guide: Growing High Quality Coffee. QUIJANO, A.M.L. 1991. Analysis of Factors Affecting the Exportation of Philippine Mango 1972-

1988. Unpublished Undergraduate Thesis, CEM, UPLB, Los Baños, Laguna. REVILLA, R.S. 1999. Production and Marketing of Sinta Papaya in Laguna. RIVERA, S.T.C. 1992. An Evaluation of the Performance of the PCIC Livestock

Insurance Program for Swine. Unpublished Undergraduate Thesis, CEM, UPLB, Laguna.

UDP 1999. The Terms of Reference for Consultancy Services-Marketing Efficiency

Study. UDP, Davao City. UPLAND DEVELOPMENT PROGRAM IN SOUTHERN MINDANAO (UDP). 1999. Global Work

Plan. Version 5. VARGAS, R.. 2001. Coconut Industry Development Program. A presentation on the

Third Mindanao Food Congress, Center for Food and Agri Business-UA&P, Pasig City.

www.agrolink.moa.my/comoditi/banana. Banana. www.americanresearchgroup.com. www.britannica.com www.k12.hi.us/~kapunaha. Mai’a. www.proscitech.com.au/trop/b.htm. Bananas and Plantains.

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Appendix A

MARKETING AND ENTERPRISE DEVELOPMENT COMPONENT

TERMS OF REFERENCE FOR CONSULTANCY SERVICES

MARKETING EFFICIENCY STUDY Introduction 1. This proposal concerns consultancy services requested by the Marketing & Enterprise Development Component in the conduct of marketing efficiency studies for fifteen (15) key commodities programme-wide. Rationale 2. The apparent deficiencies of the marketing systems in the uplands put the farmers at disadvantage point. This could be attributed to a morally loose competition among traders in the area, which consequently limits the marketing options open to the upland producers. Traditionally, aside from capital, the traders are the usual source of marketing information of the farmers--a drawback to farmers attaining bargaining power with the traders. 3. The Programme is mandated to address such apparent deficiency by making agricultural marketing information available to farmers on a regular basis. The aim is to make farmers gaining greater control of the marketing system by their ability to render marketing decisions even prior to planting and harvesting. This situation necessitates establishment of an agricultural marketing information system that would facilitate provision of information. 4. Crucial to the setting up of the system is the conduct of a marketing efficiency study that would guide the Programme in designing the system. The study seeks to delve into the intricacies at each level of the marketing chain of the commodity system to gauge the extent to which appropriate marketing interventions can be carried out to help improve the producer's income level. Objective 5. The general objective of the study is to assess the impact of existing marketing systems of key commodities vis-à-vis income of the farmers. 6. Specifically, the study aims to: • Determine the levels of participants in the marketing chain of a particular

commodity; • Determine the marketing practices involved in terms of storage, handling, pricing,

34

delivery systems, and terms of payment; • Deconstruct marketing margins of commodity at each level in the system to determine the percentage of consumer price that the producer receives, exclusive of production costs; • Identify strengths and weaknesses of the existing marketing system of key commodities; and • Determine appropriate marketing interventions needed to improve economic efficiency of the key commodities.

Scope of Services 7. The scope of services of the study will cover, but not limited to, the following: a. Provide a briefing to the PPOs and MPTs regarding the conduct of the study prior

to the actual field surveys. b. Review of secondary data. c. Conduct of interviews with key informants / authorized personnel from the

different government offices like the Department of Agriculture (DA), Department of Trade and Industry (DTI), Bureau of Agricultural Statistics (BAS), Office of the Provincial Agriculturists (OPAs) and Municipal Agriculturist Office (MAOs) other concerned local government agencies, traders and institutional buyers, market associations, and cooperatives.

d. Analysis of data. e. Recommend appropriate marketing interventions on the identified key

commodities. Expected Output 8. The following outputs are expected: a. Report of the Marketing Efficiency Study on three (3) key commodities identified per province. b. Recommendations on the scope of the planned agricultural marketing information system and other specific production and marketing interventions to undertake. Reportorial Requirements 9. The Marketing Research Consultant will be required to submit the following:

35

• Interim report on the fieldwork containing key findings and initial recommendations four (4) weeks after commencement of the field work;

• Draft final reports of individual efficiency studies and a separate draft report summarizing key findings and recommendations on the 6th week of the engagement; and • Five (5) bound copies of final reports for individual efficiency studies and a

separate final summary report on the 8th week of the engagement. Consultancy Arrangements 10. The Consultant should possess a specific expertise in conducting marketing efficiency study. 11. Prior to the conduct of the study, the Programme will provide the final list of

15 key commodities to be subjected to marketing efficiency study and initial list of names of farmers, traders and other marketing participants that will likely comprise the set of respondents. It must be noted that such names will be gathered from the MAOs, sitio profiles and results of the planned agribusiness profiling. 12. The Provincial MED Specialists and Agricultural Technicians (ATs) will assist

the Consultant in setting appointment with key respondents. They shall also provide other forms of assistance where necessary. Further, during the conduct of the study, the Programme will make arrangements for transportation and accommodation. Time Frame 13. The consultancy services shall be carried out in eight (8) weeks reckoned on the day of first actual field work scheduled on the 4th week of February to 4th week of April 2001. The study team shall commence their services upon receipt of "Notice to Proceed". Terms of Payment 14. The Consultant shall be paid according to the following schedule: 30% upon signing of the contract 15% upon submission of interim report 30% upon submission of draft reports 25% upon submission of final reports

A MARKETING EFFICIENCY STUDY ON

CARDAVA

IN BARANGAY CABUYO-AN, MABINI, COMPOSTELA VALLEY

MAY 2001

Republic of the Philippines Department of Agriculture Upland Development Programme in

Southern Mindanao (UDP)

i

PREFACE

This report is one of a series of market efficiency studies conducted in the UDP-covered areas for selected commodities. The marketing efficiency of cardava in Barangay Cabuyo-an, Compostela Valley was evaluated through the deconstruction of existing marketing margins. Recommendations to improve marketing efficiency are herein offered. This report was prepared by: Jaymee Alcos Elizabeth Supangco Julianne Revilleza May 2001

ii

ACKNOWLEDGEMENTS Report data were gathered from a series of personal and group interviews with farmers of cardava in Baranagay Cabuyo-an, Mabini, Compostela Valley, traders and processors in Mabini, Compostela Valley and Tagum City, Davao del Norte. The time and effort that the respondents have placed into this study are acknowledged. The following were the farmer- and retailer-respondents of the study: Farmers: Assemblers: Processors: Marcelino Lumarda Romy Cañada Tarcila Tablada of Edning’s Banana Pascuala Sister Eddie de la Luna Dealer James Pana Joey Lim of Tagum Commodities Corp. Pedro Granada The valuable assistance extended by the Mabini Municipal Agriculturist’s Office and the Cabuyo-an Barangay Council is also recognized.

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TABLE OF CONTENTS

Page number Preface i Acknowledgements ii Table of Contents iii Definition of Terms iv Introduction 1 Marketing System of Cardava 4 Strength and Weaknesses 9 Conclusion 10 Recommendations 10 References 11 Appendices

A. Cost and Returns per unit of cardava in Barangay Cabuyo-an Mabini

12

B. Breakdown of costs per unit of cardava in Barangay Cabuyo-an, Mabini

13

iv

DEFINITION OF TERMS Cash costs - costs where actual money is involved. Cash returns - the earnings, where actual money is involved, from the

sale of the farm produce. Depreciation - the expense brought about by the wear and tear of a

piece of equipment, building or tool used in an enterprise for a given period of time.

Economies of scale - the economic concept wherein production at a larger

scale (more output) can be achieved at a lower cost. Exchange labor - the value, non-monetary in nature, of the work (in man-

days) put in by neighbors, friends or other laborers in exchange for the farmers help with similar farm activities in their respective farms.

Hired labor - the cash expense for engaging the services of farm

laborers. Losses/shrinkage of produce - the value, non-monetary in nature, of the damages and

spoilage sustained by the produce. Market information - basic information on prices and quantities traded of

major commodities, from all markets—assembly, wholesale and retail.

Marketing channel - the inter-organizational system composed of

interdependent institutions tasked in moving the product from production to consumption.

Marketing efficiency - the maximization of the input-output relationship where

inputs refer to resources (land, labor, capital) used in moving the products from point of consumption to the point of production and output referring to consumer satisfaction on goods and services made available in the market.

Marketing margin - the difference in prices between the different levels of

the marketing system. Marketing - series of services performed in moving the product

from the point of production to the point of consumption.

v

Net farm income - returns of the use of capital and labor. The overall profit

of the farm after all the expenses, cash and non-cash, have been paid off.

Non-cash costs - costs items used in the production process wherein no

direct outlays occurred or the costs incurred are not monetary in nature.

Non-cash returns - the value, non-monetary in nature, of the farm produce

consumed by the farmer and his family or those given away.

Opportunity cost of capital - the price of foregone opportunity in the use of the

capital invested in the enterprise. It is usually pegged at the current savings interest rate.

Point of consumption - last sale of the product. Point of production - point of first sale. Profit margin - the return to the middlemen for their entrepreneurship,

the risks and the cost of money. Return on investment - measures the amount of cash that the entrepreneur gets

from the capital investment after first paying the opportunity expenses on the value of family labor and management. It also determines how much money the producer got in return for every one peso invested.

Unpaid family labor - also called own labor. The value, non-monetary in

nature, of work (valued in man-days) by the farmer and his family.

CARDAVA INTRODUCTION 1. The banana (Musa sapientum) is a large herbaceous plant and is a non-seasonal bearer reaching to a height of 1.5 to 3.0 meters (www.agrolink.moa.my). Its stem grows underground like the taro plant and is made up of tightly woven leaves. The banana fruit grows upside down in bunches called a hand. The hand contains fingers, which are the bananas. Approximately 5 to 8 hands will grow on a tree. The banana plant bears fruit only once, and then it is cut down. With the banana plant, planting seeds are not necessary. Before a tree is fully grown it suckers grow or sprout from the roots to replace the old stem (www.k12.hi.us/~kapunaha). 2. Bananas grow well on flat land but can tolerate slightly undulating areas. Suitable soil types are sandy clay loam, well drained with a pH greater than 4.5 and with good moisture holding capacity. The banana thrives well in the tropical climate and requires a rainfall of 1000 – 2000 centimeters a year but should not be in damp conditions for too long. The optimum temperature is 21°- 32°C (www.k12.hi.us/~kapunaha). 3. There are about 70 different varieties of banana (www.k12.hi.us/~kapunaha), and the Cardava variety was identified as a key commodity in Barangay Cabuyo-an, Mabini, Compostela Valley. 4. Since it is possible to only cut the most developed upper hands from the bunch and leaving the rest for another week (www.proscitech.com.au/trop/b.htm), the farmers can harvest cardava weekly. Once picked, bananas ripen at variable rates largely dependent on temperature. 5. The marketing efficiency study for cardava in Barangay Cabuyo-an, Mabini, Compostela Valley was conducted last March 21, 2001. Objectives 5. The main objective of the study is to assess the impact of existing marketing systems of cardava vis-à-vis income of the farmers. 6. Specifically, the study aims to determine the levels of participants in the marketing chain of cardava; 7. Determine the marketing practices involved in terms of storage, handling, pricing, delivery systems and terms of payment; 8. Determine the percentage of consumer price that the producer receives through the deconstruction of marketing margins of cardava at each level in the system, exclusive of production costs;

2

9. Identify strengths and weaknesses of the existing marketing system of cardava; and 10. Determine appropriate marketing interventions needed to improve economic efficiency of cardava in the Barangay Cabuyo-an, Mabini. Methodology 11. Upon consultation with the Municipal Agriculturist’s Office and the farmers themselves, it was determined that there are a total of 40 cardava growers in the area, 13 of whom actively tend to the cardava and market their produce. Of the 13 farmers, four (4) were interviewed for this study. 12. The farmers were asked about their production and marketing practices, volume and value of sales, production and marketing costs of durian. They were also asked on available market information with emphasis on what they need to know to improve their production and marketing practices, thereby increasing the farmers’ income. 13. The respective buyers of cardava from each farmer were then traced accordingly. 14. The traders were, in turn, asked about their marketing, costs, sales and the problems and constraints they have encountered in the marketing of cardava. 15. The marketing margins were then deconstructed and the profitability of each marketing participant’s enterprise was also analysed. In the case of the farmers, the Net Farm Income (NFI) was determined. An NFI greater than zero (0) would mean that the production and marketing activities of the cardava farm is profitable, whereas an NFI less than zero (0) would mean that the farm is at a loss. 16. On the part of the trader, the Return on Investment (ROI) was compared with the opportunity cost of capital, pegged at the existing current savings interest rate of eight percent (8%) per annum. An ROI higher than the opportunity cost of capital would mean that marketing cardava is more profitable than just saving the trader’s money in a bank, while a ROI less than the opportunity cost of capital would mean that it would be more profitable for the trader to invest his money in a bank rather than spend it on marketing cardava. 17. The percent share to the consumer peso of each marketing participant was also determined by getting the percentage of the marketing participant’s selling price (in the case of traders, less their buying price) relative to the final buying price of the consumer. This indicates the proportion of the final buying price that goes to each marketing participant for cardava.

3

18. Moreover, focused group discussions (FGDs) with key informants and selected farmers were conducted to probe into the importance and the demand for market information in each province. This provided rapid feedback on the available market information and the information dissemination strategies existing in the area. 19. Also, key informants such as the Municipal Agriculturists and the Agricultural Technicians were interviewed to obtain an overview of the local agriculture industry. Limitations and Constraints 17. During the interviews, it was observed that the farmers relied on their memories in recalling their past production level, income, farm tools and equipment. There were no record-keeping practices. Thus the cost and return that were analysed were only estimates. The Return on Investment (ROI) was excluded on the analysis of the farmer income due to the ambiguity of the values arrived at. This is mainly due to the fact that some factors on capital investment were not properly quantified in the study. For instance, land valuation was excluded because none of the farmers hold titles to the land that they cultivate. Land, therefore, was not considered a fixed investment in this enterprise and was merely considered as an expense through the credit of land cost (land tax if owned, rent if tenanted).

18. In the marketing aspect, the respondents interviewed were the middlemen named by the farmers. Most of the respondents interviewed also based their answers on their memories since they do not keep records regarding their marketing operations.

19. On the analysis of the marketing efficiency on the part of the farmers, only the Net Farm Income (NFI) analysis was utilized since the available data only allows for this kind of analysis and not the more complicated input-output efficiency analyses.

20. Lastly, the size of the cardava market, specifically, the estimation of demand was not included in the study.

Margin of Error

22. Using the population size of 13 for the farmers who actively produce and market cardava in Barangay Cabuyo-an, the margin of error was established at ± 42.44 % at a 95% confidence level. This means that there is a 95% confidence that the real values of the parameters used in this study are within 57.56 to 142.44% of the computed values established using the data from the respondents.

THE MARKETING SYSTEM OF CARDAVA Marketing Channels

22. The marketing participants involved in the cardava marketing system in Barangay Cabuyo-an are as follows: a. Farmer

A person engaged in cardava production for sustenance or commercial purposes. They usually sell their produce direct to the municipal assembler;

b. Municipal Assembler A municipal-based person or entity that sources his stocks from farmers in Mabini. He usually sells the

assembled ripe cardava to the local processor and the unripe cardava to the provincial assembler.

4

c. Provincial Assembler

A trader based in Tagum City and buys cardava from farmers and/or traders from Mabini, Maco and Tagum. He delivers and sells the assembled cardava to Tagum-based processors;

d. Processor A trader based in Mabini or Tagum City who converts the cardava into “maruya” and “banana-que,” in

the case of the Mabini processor, or banana chips in the case of the Tagum-based processor.

23. Based on farmer interviews, an estimated 136 kilograms of cardava were sold for the month of February 2001 and the following product flow was established:

Figure 1. Product flow of Cardava from Barangay Cabuyo-an, Mabini.

100% 100% 100% 100%

Selling Price(P/kg): Farmer Municipal Assembler Provincial Assembler

2.25 2.50 2.90

24. The cardava harvested in Barangay Cabuyo-an are bought and picked up by a municipal assembler. The municipal assembler then sells the cardava either to the local Mabini-based processor or to a provincial assembler who brings the assembled cardava to a processor in Tagum City.

25. The geographic flow of cardava, on the other hand, follows the following path/structure:

Figure 2. Geographical flow of cardava from Barangay Cabuyo-an, Mabini.

27. From the farmers in Barangay Cabuyo-an, the cardava are brought by the municipal assembler to his house in the Mabini poblacion and sorted. The ripe cardava are then brought to the “maruya” and “banana-que” processor based in the

BARANGAY CABUYO-AN

MABINI POBLACION

MABINI PUBLIC

MARKET

TAGUM

100%

85% 15%

FARMER MUNICIPAL ASSEMBLER

PROCESSOR CONSUMERS PROVINCIAL ASSEMBLER

5

Mabini Public Market, while the unripe bananas are picked up by the provincial assembler and brought to the processor in Tagum City.

Marketing Practices and Costs 28. At harvest, the developed hands of cardava are cut off from the bunch then picked or cleaned for stray leaves and twigs, at no cost to the farmer, before selling. The undeveloped hands are left on the bunch for later harvest and selling. 29. From the farm, the farmers carry the bananas to the barangay center where it is sold to an assembler at P2.50 per kilogram. This happens every Thursday. 30. At the barangay center, the municipal assembler loads the bananas onto a tricycle and brings them to his house in the Mabini poblacion where he segregates the ripe from unripe hands. The unripe bananas are then put into sacks, baskets or boxes to wait for the arrival of the provincial assembler’s truck. The ripe bananas, on the other hand, are brought by the municipal assembler to a “maruya” and “banana-que” processor in the Mabini Public Market. The end-buyers or consumers, in this case, are the Mabini locals. 31. Losses are very minimal since the volume of cardava handled is relatively small and, for both municipal and provincial assemblers, the cardava are sold immediately (one to two days) after purchase. Product handling is relatively appropriate thereby avoiding any undue bruising of the fruit.

32. The unripe, packed bananas are picked-up by the provincial assembler twice a week. The bananas are loaded on a 20,000-capacity truck and, along with the cardava bought from neighboring municipalities. These are then brought to a processing plant in Tagum City for banana chips production. The processor, in turn, ships the banana chips to different Asian and European countries on a regular basis. 33. Table 1 presents the costs, per kilogram, incurred by the different marketing participants in marketing cardava. Table 1. Marketing cost for different marketing levels of cardava (P/kg).

ACTIVITY FARMER ASSEMBLER

Municipal Provincial

Cleaning - na na Transportation na 0.12 0.30 Labor na - 0.02 Supplies and Materials na 0.06 - Utilities and other fees na 0.01 0.01 Non-cash costs 0.59 0.01 0.01 TOTAL 1.24 0.20 0.34

6

34. The non-cash costs incurred by the farmer include the cost of harvesting and bringing down the bananas to the barangay center. 35. Since Barangay Cabuyo-an is only two kilometers from the Mabini poblacion, the municipal assembler’s transportation expense is largely for the 0.3 liter of gasoline that his tricycle uses up for the trip to the barangay. Supplies and materials on the part of the municipal assembler include the sacks, baskets and boxes used for packing the bananas, utilities and other fees are comprised mainly of the electricity, water and business permit fees for his cardava buy-and-sell business, and the non-cash costs is for the value of his own labor and management. 36. On the part of the provincial assembler, the cost of transportation is P0.30 per kilogram since the bananas traverse a longer distance. The P0.02 labor cost is paid to the provincial assembler’s “trabahantes” or helpers, while the utilities and other fees are for the electricity, water and business permit fees for his trading activities. Similar to that of the municipal assembler’s non-cash costs, the value of the provincial assembler’s labor and management are also the main components of his non-cash costs.

Price Formation 37. The farm-gate price of cardava has been relatively stable for the last seven (7) years at a range of P2 to 2.50 per kilogram. This has led the farmers to gradually decrease their production and shift to other, more profitable endeavours. Marketing Margins 38. Shown on Table 2 are the marketing margins of the traders and the Net Farm Income of the farmer (as established in Appendix A).

Table 2. Marketing margins and the Net Farm Income for cardava at different

marketing levels.

ITEM FARMER ASSEMBLER

Municipal Provincial

Selling Price (P/kg) 2.25 2.50 2.90 Buying Price (P/kg) na 2.25 2.50 Marketing Margin (P/kg) na 0.25 0.40 Marketing Cost (P/kg) 0.59 0.20 0.34 Profit Margin (P/kg) na 0.05 0.06 Net Farm Income (NFI) (P/kg) -0.95 na na

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MC as % of MM na 80% 85% PM as % of MM na 20% 15% %ROI nil 13% 23% Opportunity Cost of Capital na 8% 8%

39. The P -0.95 Net Farm Income (NFI) of the cardava farmer, being less than zero (0), indicates that cardava production and marketing in Barangay Cabuyo-an is not profitable.

40. The total value added to the cardava per kilogram as it moves along one marketing channel to another is indicated by the marketing margin (MM).n the case of cardava, the marketing margin of the municipal assembler is P0.25 per kilogram, P0.20 (80%) and P0.05 (20%) of which are the marketing cost and profit margin, respectively. On the other hand, the provincial assembler has a P0.40 marketing comprised of 85% marketing cost and 15% profit margin. 38. To illustrate the marketing margin of the assemblers, Figure 3 shows the percentage of the marketing cost and the profit margin relative to the marketing margin.

Figure 3. Marketing margins of at different marketing levels of cardava, Barangay Cabuyo-an.

80%85%

15%20%

municipal assembler provincial assembler

profit margin

marketing cost

39. The percentage of the processor peso is indicated on Table 3 and Figure 4.

Table 3. Percentage share to the processor peso. MARKETING LEVEL SELLING PRICE (P/kg) % SHARE Farmer 2.25 77.5 Municipal Assembler 2.50 8.6 Provincial Assembler 2.90 13.8

8

Figure 4. Percentage share of the processor peso.

farmer77.6%

municipal assembler

8.6%

provincial assembler

13.8%

40. This means that 77.6%, 8.6% and 13.8% of the final buying price of P2.90 goes to the farmer, municipal assembler and provincial assembler, respectively. STRENGTH AND WEAKNESSES 41. Upon interview of the banana chips processor based in Tagum City, it was determined that there is a constant high demand for cardava for banana chips processing. This particular processor, alone, requires a maximum of 45 metric tons daily and is willing to buy the bananas at P2.55 per kilogram. Upon further consultation, it was also established that this processor is willing to pick up cardava on a large-scale basis, the volume of which can be negotiated, and bought at a marked-down price of only P2.35 to 2.40 per kilogram to cover for the transportation costs. The strength in the cardava market, therefore, is the large demand of the existing cardava processors. This means that given a sizeable increase in production, the market would still be able to absorb the produce. 42. A weakness established in the marketing system cardava, however, is the inherently low price of cardava. This is compounded by the long marketing chain. It is important to note, however, that the farmers would still be at a loss if the processor buys the bananas straight from the farmers since the production cost of cardava is already P2.48 (refer to Appendix B), and by adding the other marketing costs would total P3.21, which is already P0.81 to 0.86 higher than the buying price of the processor. OTHER KEY FINDINGS 43. Production was established at a high cost of P2.48 per kilogram. This is largely due to the farmers’ own labor brought about by frequent weeding and regular visits to the farm to see if the bananas are fruiting. Another possible reason for the relatively high production cost is that the volume of harvest is still small such that the economy of scale in the production of cardava is not achieved.

9

44. Other factors in cardava production and marketing that were determined in this study include the strong presence of the “tibagnol” disease, which causes the banana fingers to harden, thereby rendering the fruit inedible. CONCLUSION 44. An analysis of the Net Farm Income (NFI) of the farmer show that the P –0.95 per kilogram NFI of the farmer means that cardava production and marketing in Barangay Cabuyo-an is not profitable. 45. On the side of the traders, an analysis of the marketing margins of cardava as it was transferred from one marketing participant to another was done to determine which among the cost and the profit have the most share in the marketing margin (Table 2). Results show that, for both the municipal and provincial assemblers, the marketing cost makes up more than 80% of the price mark-up.

46. The return on investment was also determined to show if the enterprise of the assemblers is efficient, specifically if the sale of cardava by the assemblers is profitable and efficient. A positive ROI, this indicates a profitable marketing of banana by the assembler. By further comparing this ROI to the opportunity cost of capital and determining that it is higher, it can be concluded that the marketing of cardava, by both the municipal and provincial assembler are efficient. RECOMMENDATIONS 45. Based on the strength, weaknesses, other findings and conclusions made on the marketing of cardava in Barangay Cabuyo-an, the following recommendations are offered: • To revive the interest in cardava production in Barangay Cabuyo-an by

informing the farmers of the relatively high buying price and the willingness of a processor to pick up cardava in the area;

• To facilitate a collective marketing of all cardava harvests at regular intervals

such that a large volume is achieved. This would enable farmers to reach the economies of scale in production and increase the bargaining power of farmers in transactions;

• When the volume of production is large enough, negotiate with processors to

pick up and buy the cardava in Barangay Cabuyo-an. • Lastly, study on the production of cardava should be done to identify which

production factors lead to the low production by the farmers.

10

REFERENCES

AGARRADO, R.E. et al. Marketing and Information Needs Assessment for Davao City. BAS-DA-USP, Davao City.

CORRE, S. 1996. A Market Efficiency Study for Palay/Rice in Biliran. Published

under the Small Islands Agricultural Support Services Programme. REVILLA, R.S. 1999. Production and Marketing of Sinta Papaya in Laguna, 1998.

Unpublished Undergraduate Thesis, CEM, UPLB, Laguna. UDP 1999. The Terms of Reference for Consultancy Services-Marketing Efficiency

Study. UDP, Davao City.

www.proscitech.com.au/trop/b.htm. Bananas and Plantains. www.k12.hi.us/~kapunaha. Mai’a. www.agrolink.moa.my/comoditi/banana. Banana.

11

APPENDIX A. Cost and Returns per kilogram of Cardava in Barangay Cabuyo-an, Mabini (in pesos).

ITEM P/kg

RETURNS Cash Sales 2.25 Total Cash Returns (A) 2.25 Non-cash Total Non-cash Returns (B) - TOTAL RETURNS (C ) 2.25 COSTS Cash Hired labor 0.29 Land cost 0.76 Total Cash Costs (D) 1.05 Non-cash Unpaid family and/or exchange labor 1.91 Depreciation 0.11 Opportunity cost of capital 0.13 Total Non-cash Costs (E) 2.15 TOTAL COSTS (F) 3.20 Net Returns Above Cash Costs (C-D) 1.20 Net Farm Income (0.95)

12

APPENDIX B. Breakdown of costs per unit of cardava, Barangay Cabuyo-an, Mabini.

ITEM P/kg

I. Production Cost Land cost 0.76 Depreciation 0.11 Own labor 1.32 Hired labor 0.29 Total Production Cost 2.48 II. Marketing Cost A. Transportation 0.59 Own labor 0.59 Sub-Total 0.59 Total Marketing Cost III. Opportunity cost of capital 0.13 TOTAL COSTS 3.20

A MARKETING EFFICIENCY STUDY ON

COFFEE

IN BARANGAY PAMINTARAN, MARAGUSAN, COMPOSTELA VALLEY

MAY 2001

Republic of the Philippines Department of Agriculture Upland Development Programme in

Southern Mindanao (UDP)

i

PREFACE

This report is one of a series of market efficiency studies conducted in the UDP-covered areas for selected commodities. The marketing efficiency of coffee in Barangay Pamintaran, Maragusan, Compostela Valley was evaluated through the deconstruction of existing marketing margins. Recommendations to improve marketing efficiency are herein offered. This report was prepared by: Jaymee Alcos Elizabeth Supangco Julianne Revilleza May 2001

ii

ACKNOWLEDGEMENTS Report data were gathered from a series of personal and group interviews with farmers of coffee in Barangay Pamintaran, Maragusan and a trader in Maragusan poblacion. The time and effort that the respondents have placed into this study are acknowledged. The following were the farmer-, assembler- and institutional buyer-respondents of the study: Farmers: Assemblers: Institutional Buyer: Laurena Gaganan CMJ Marketing and Trading Nestle Philippines, Corp. Leah Patiluna Laureto Embudo Tomas Matildo Ricky Yanong of People’s Marketing Juan Rasonable Sr. Armando Escuadro of the Maragusan Juan Matildo Sr. Valley Development Cooperative Danilo Sia Feliciano Autimtico Venecia Talboc Juanito Bastida The valuable assistance extended by the Maragusan Municipal Agriculturist’s Office and the Pamintaran Barangay Council is also recognized.

iii

TABLE OF CONTENTS

Page number Preface i Acknowledgements ii Table of Contents iii Definition of Terms iv Introduction 1 Marketing System of Coffee 3 Strengths 8 Weaknesses 8 Other Key Findings 9 Conclusion 9 Recommendations 9 References 10 Appendices

A. Cost and Returns per unit of coffee in Barangay Pamintaran, Maragusan

11

B. Breakdown of costs per unit of coffee in Barangay Pamintaran, Maragusan

12

iv

DEFINITION OF TERMS Cash costs - costs where actual money is involved. Cash returns - the earnings, where actual money is involved, from the

sale of the farm produce. Depreciation - the expense brought about by the wear and tear of a piece

of equipment, building or tool used in an enterprise for a given period of time.

Exchange labor - the value, non-monetary in nature, of the work (in man-

days) put in by neighbors, friends or other laborers in exchange for the farmers help with similar farm activities in their respective farms.

Given away - the value, non-monetary in nature, of the farm produce

given out by the farmer to others without any monetary payment.

Hired labor - the cash expense for engaging the services of farm

laborers. Home consumption - the value, non-monetary in nature, of the farm produce

consumed by the farmer and his family. Losses/shrinkage of produce - the value, non-monetary in nature, of the damages and

spoilage sustained by the produce. Market information - basic information on prices and quantities traded of

major commodities, from all markets—assembly, wholesale and retail.

Marketing channel - the inter-organizational system composed of

interdependent institutions tasked in moving the product from production to consumption.

Marketing efficiency - the maximization of the input-output relationship where

inputs refer to resources (land, labor, capital) used in moving the products from point of consumption to the point of production and output referring to consumer satisfaction on goods and services made available in the market.

Marketing margin - the difference in prices between the different levels of

the marketing system.

v

Marketing - series of services performed in moving the product

from the point of production to the point of consumption.

Net farm income - returns of the use of capital and labor. The overall profit

of the farm after all the expenses, cash and non-cash, have been paid off.

Non-cash costs - costs items used in the production process wherein no

direct outlays occurred or the costs incurred are not monetary in nature.

Non-cash returns - the value, non-monetary in nature, of the farm produce

consumed by the farmer and his family or those given away.

Opportunity cost of capital - the price of foregone opportunity in the use of the

capital invested in the enterprise. It is usually pegged at the current savings interest rate.

Point of consumption - last sale of the product. Point of production - point of first sale. Profit margin - the return to the middlemen for their entrepreneurship,

the risks and the cost of money. Return on investment - measures the amount of cash that the entrepreneur gets

from the capital investment after first paying the opportunity expenses on the value of family labor and management. It also determines how much money the producer got in return for every one peso invested.

Unpaid family labor - also called own labor. The value, non-monetary in

nature, of work (valued in man-days) by the farmer and his family.

COFFEE INTRODUCTION 1. Coffee is one of the most preferred beverages in the Philippines (Nestle Phils.), particularly the Robusta variety (Coffea robusta), is used in producing instant coffee. 2. Robusta coffee has become increasingly popular due to its many advantages over the other varieties as it is more resistant to disease; it matures faster, and could produce fruit in two to three years. Furthermore, it provided multiple crops each year. Robusta flourishes at altitudes below 1000 metres and is ideal for tropical climates. 3. Robusta is the predominant variety of coffee in Barangay Pamintaran, Maragusan. Each farmer in the area has an average of 2.66 hectares planted to coffee and harvests an average of 122.13 kilograms of coffee beans per hectare every year. The Maragusan municipality is said to have the largest coffee production in the province of Compostela Valley. 4. The months of October to March cover the fruiting season for coffee in Maragusan, Compostela Valley. It is during this period that the ripe coffee berries are picked from the tree on two-week intervals for a period of four (4) months. It is also during this time, that coffee marketing takes place. 5. The marketing efficiency study for coffee in Barangay Pamintaran, Maragusan was conducted last March 19, 2001. Objectives 6. The main objective of the study is to assess the impact of existing marketing systems of coffee vis-à-vis income of the farmers. 7. Specifically, the study aims to determine the levels of participants in the marketing chain of coffee; 8. Determine the marketing practices involved in terms of storage, handling, pricing, delivery systems and terms of payment; 9. Determine the percentage of consumer price that the producer receives through the deconstruction of marketing margins of copra at each level in the system, exclusive of production costs; 10. Identify strengths and weaknesses of the existing marketing system of coffee; and 11. Determine appropriate marketing interventions needed to improve economic efficiency of coffee in Barangay Pamintaran, Maragusan.

2

Methodology 12. From the initial agribusiness profile of UDP, Barangay Pamintaran was identified to have the most coffee producers among the UDP areas in Compostela Valley. Purposive sampling was done and of the 29 identified coffee producers in the area, nine (9) or 31% come from Barangay Pamintaran. The nine (9) Pamintaran farmers were interviewed for the study. 13. The farmers were asked about their production and marketing practices, monthly volume and value of sales, production and marketing costs of coffee. They were also asked on available market information with emphasis on what they need to know to improve their production and marketing practices, thereby increasing the farmers’ income. 14. The respective buyers of coffee from each farmer were then traced accordingly. 15. The traders were, in turn, asked about their marketing, costs, volume, value of sales and the problems and constraints they have encountered in the marketing of coffee. 16. The marketing margins (MM), or the total value added to coffee per kilogram as it moves along one marketing channel to another, were then deconstructed and the profitability of each marketing participant’s enterprise was also analysed. In the case of the farmers, the Net Farm Income (NFI) was determined. An NFI greater than zero (0) would mean that the production and marketing activities of the coffee farm is profitable, whereas an NFI less than zero (0) would mean that the farm is at a loss. 17. On the part of the trader, the Return on Investment (ROI) was compared with the opportunity cost of capital, pegged at the existing current savings interest rate of eight percent (8%) per annum. An ROI higher than the opportunity cost of capital would mean that marketing coffee is more profitable than just saving the trader’s money in a bank, while a ROI less than the opportunity cost of capital would mean that it would be more profitable for the trader to invest his money in a bank rather than spend it on marketing coffee. 18. The percent share to the processor’s peso of each marketing participant was also determined by getting the percentage of the marketing participant’s selling price (in the case of traders, less their buying price) relative to the final buying price of the consumer. This indicates the proportion of the processor’s buying price that goes to each marketing participant for coffee. 19. Moreover, focused group discussions (FGDs) with key informants and selected farmers were conducted to probe into the importance and the demand for market information in each province. This provided rapid feedback on the available market information and the information dissemination strategies existing in the area.

3

20. Also, key informants such as the Municipal Agriculturists and the Agricultural Technicians were interviewed to obtain an overview of the local agriculture industry. Limitations and Constraints 21. During the interviews, it was observed that the farmers relied on their memories in recalling their past production level, income, farm tools and equipment. There were no record-keeping practices. Thus the cost and return that were analysed were only estimates. The Return on Investment (ROI) was excluded on the analysis of the farmer income due to the ambiguity of the values arrived at. This is mainly due to the fact that some factors on capital investment were not properly quantified in the study. For instance, land valuation was excluded because none of the farmers hold titles to the land that they cultivate. Land, therefore, was not considered a fixed investment in this enterprise and was merely considered as an expense through the credit of land cost (land tax if owned, rent if tenanted).

22. In the marketing aspect, the respondents interviewed were the middlemen named by the farmers. Most of who also based their answers on their memories since they do not keep records regarding their marketing operations.

23. On the analysis of the marketing efficiency on the part of the farmers, only the Net Farm Income (NFI) analysis was utilized since the available data only allow for this kind of analysis and not the more complicated input-output efficiency analyses.

24. Lastly, the size of the coffee market, specifically, the estimation of demand was not included in the study.

Margin of Error

25. Aside form the UDP Agribusiness Profile, there are no other available data on the population size of coffee producers in the area. The margin of error on the analysis, therefore, cannot be established since the formula requires not only the sample size, but the population size as well.

THE MARKETING SYSTEM OF COFFEE Marketing Channels

26. The marketing participants involved in the coffee marketing system in Barangay Pamintaran are as follows: a. Farmer

A person engaged in coffee farming for commercial purposes. They sell all of their produce to municipal assemblers based in the Maragusan poblacion;

4

b. Municipal assembler A trader based in the Maragusan poblacion and who buys coffee from the whole of Maragusan. The coffee assembled is transported through trucks to the buying station of Nestle, Phils., in Davao City. At present, there are six (6) Municipal assemblers in Maragusan, all of which sell the coffee to Nestle, Phils.

c. Nestle, Phils.

The end-buyer of the coffee beans. With buying stations in key coffee-producing areas, they purchase and assemble bulk volume of coffee in the buying stations (several of which are located in Davao) and transport it to the processing plant in Cagayan de Oro city, where the ground coffee beans would be processed into instant coffee.

27. Based on farmer interviews in the area it was determined that, of the total 2,961.25 kilograms of coffee harvested during the last planting season, 2,919 kilograms were sold by the farmers. This study traced this amount from the farm to the retailers and the following product flow was established:

Figure 1. Product flow of Coffee, Pamintaran, Maragusan. 96.4% 96.4%

100% 96.4% 96.4%

Selling price (P/kg): Farmer Assembler

27.28 31.25 28. All of the coffee sold by the farmers went to Nestle Phils., However, 3.6% of the coffee were lost during transport from the farm to the municipal assemblers. This loss is due mainly to the loose packing of the coffee beans such that some spill out from the sacks during brief 4-kilometer motorcycle or truck ride to the Maragusan poblacion. The assemblers also incur minimal losses during the transport of the coffee beans from their warehouse to the Nestle buying station. 29. Similarly, Figure 2 illustrates the geographic flow of the potato from the farm to the end marketing channel.

PRODUCER ASSEMBLER NESTLE, PHILS

3.6%

5

Figure 2. Geographical flow of Coffee, Pamintaran, Maragusan.

96.4% 96.4% 30. The farmers/producers in Barangay Pamintaran sell their produce to Maragusan poblacion-based assemblers, who, in turn, transport the assembled coffee beans to the Buying station of Nestle Phils. in Davao City.

Marketing Practices and Costs 31. The coffee berries undergo several processes before sale and, in most cases, follows two distinct processing paths. The first processing path after harvest of the coffee berries is presented below: • Sorting- the separation of the good, ripe berries from the unripe, the stinker, moldy and other adulterants. This is done during harvesting, the berries are picked and sorted simultaneously;

• Depulping-the process of pulp removal, from fresh berries, using an individual pulper;

• Manual grinding of the fresh coffee beans-using a local, indigent

grinding apparatus;

• Drying-sun-drying for 3 to 4 days or oven drying for 24 hours during the rainy season. Ideal moisture content (MC) is 14%; and

• Sacking-coffee is packed in a sack at 75 kilograms per sack

32. Another way of processing coffee beans is by reversing the order of the processes such that the beans are dried first after sorting, which usually takes one week if sun-dried. Then the dried unshelled beans are ground manually or put into a huller where the dried pulp, now called the hull, is removed. Sacking of the coffee then follows. 33. Farmers have a choice in bringing the produce to the poblacion through agents, who get a commission of P1-2 per kilogram or P75-150 per sack, or by themselves, which entails hiring transportation at a fee of P15 per sack. Either way, the coffee is loaded onto a motorcycle and brought to the poblacion, which is about 2 kilometers from the barangay center. 34. Post-harvest activities in coffee are very labor intensive. Whereas, the assemblers have merely to test the coffee for its moisture content and grade upon purchase. This is done to determine the corresponding price of the coffee) and haul

PRODUCER MARAGUSAN NESTLE, PHILS.

6

the sacked coffee either to the warehouse or to their trucks for transport to Davao City. 35. Table 1 shows the breakdown of marketing costs for coffee in Barangay Pamintaran, Maragusan. Table 1. Marketing costs for different marketing levels of coffee (P/kg).

ACTIVITY FARMER ASSEMBLER

Cleaning 0.61 na Grading/Sorting 1.65 na Drying 2.44 na Grinding 3.04 na Transportation 1.53 0.28 Labor na 0.03 Non-cash costs na 1.82 Utilities and other fees na 0.14 TOTAL 9.27 2.27

Price Formation 36. Nestle, on the other hand, base its buying price on the world price of coffee. On lean months, however, they offer a slightly higher price than in the world market so as to encourage assemblers and plantations to sell the coffee to them rather than export it to other institutional buyers overseas.

37. The buying price of Nestle, at the buying stations, ranges from P30-35 per kilogram, depending on the quality and grade of the coffee. The grades and their corresponding prices are as follows:

• M1:8-12% bad grains, stinkers, moldy grains, black and other adulterants, 14% MC (P34/kg);

• M2:13-18% bad grains, stinkers, moldy grains, black and other

adulterants, 14% MC (P31/kg) and

• M3:18-25% bad grains, stinkers, moldy grains, black and other adulterants, 14% MC (P29/kg)

7

38. Incentives or increase in the buying price are given on grains with a moisture content between 12% and 14%, while price deductions are given on grains with greater than 14% to 16% MC.

Marketing Margins

39. Presented below are the marketing margins for the assemblers and the Net Farm Income for farmers (which is shown in detail on Appendix A).

Table 2. Marketing margins and income for coffee at different marketing levels.

ITEM Farmer Assembler

Selling Price (P/kg) 27.38 31.25 Buying Price (P/kg) na 27.38 Marketing Margin (P/kg) na 3.87 Marketing Cost (P/kg) 9.27 2.27 Profit Margin (P/kg) na 1.60 Net Farm Income (NFI) (P/kg) 11.47 na MC as % of MM na 59% PM as % of MM na 41% %ROI nil 62.64% Opportunity Cost of Capital na 8%

40. The Net Farm Income (NFI) of the coffee farmer indicates that coffee production and marketing in Barangay Pamintaran is profitable.

41. Meanwhile, the marketing margin of the assembler is P3.87 per kilogram, P2.27 (59%) and P1.60 (41%) of which are the marketing cost and profit margin, respectively.

42. To illustrate the marketing margin of the assembler, Figure 3 shows the percentage of the marketing cost and the profit margin relative to the marketing margin.

8

Figure 3. Marketing margin of a coffee assembler, Barangay Pamintaran, Maragusan.

59%

41%marketing cost

profit margin

43. The percentage of the institutional buyer peso is indicated on Table 3 and illustrated in Figure 4. Table 3. Percentage share to the institutional buyer peso.

MARKETING LEVEL SELLING PRICE (P/kg) % SHARE

Farmer 27.38 88 Assembler 31.25 12

Figure 4. Percentage share of the institutional buyer peso.

farmer88%

retailer12%

44. This means that 88% and 12 percent of the final buying price (P31.25/kg) goes to the farmer and the assembler, respectively.

STRENGTHS

45. One of the strengths identified in the marketing system of coffee is the presence of a sure buyer for the coffee beans, which is, in this case, Nestle, Phils. The

9

strong presence and activity of Nestle in the coffee industry eliminates the problem of the farmers in looking for buyers.

46. This strength is compounded by the proximity of the Nestle’s Sasa buying station from Maragusan. This allows for the assemblers’ transportation costs to be minimal, thereby increasing profit.

WEAKNESSES

47. Nestle Phils., dictate the local prices of coffee. Farmers, therefore are price-dependent on Nestle, which, in turn, depends on world prices. It is possible therefore, that coffee prices would still be low despite a relative local supply deficiency if the world market price were low. 48. While the presence of Nestle Phils. is considered a strength, the price dependency of the farmers on Nestle renders the marketing system of coffee inefficient since the farmers do not have any bargaining power in terms of negotiate for a higher far-gate price of coffee. 49. Lastly, it was observed that farmers do not put much importance in grading the coffee beans and that they complain of the assemblers’ “too strict” grading system which consequently lowers the value of their coffee as the farmers produce coffee with a higher moisture content than what is required b the buyers. This indicates a grading standards deficiency between the farmers and the buyers (assemblers and Nestle). OTHER KEY FINDINGS 50. On a national scale, the country is already in a deficit situation. Nestle Phils., alone, is importing 15,000 metric tons of coffee yearly (Dumon, 2001). This importation is used to augment the local shortage of coffee beans since Nestle is only able to locally source 20,000 metric tons out of their 45,000-metric ton annual requirement. CONCLUSION 51. An analysis of the Net Farm Income (NFI) of the farmer show that the P11.47 per kilogram NFI of the farmer means that coffee production and marketing in Barangay Pamintaran, Maragusan is profitable.

10

52. On the side of the traders, an analysis of the marketing margins of coffee as it was transferred from one marketing participant to another was done to determine which among the cost and the profit have the most share in the marketing margin (Table 2). Results show that 41% of the price mark-up is attributable to profit and that the actual cost of the product is 59% of Nestle Phils.’ buying price.

53. Further ROI analysis show that since the ROI is higher than the opportunity cost of capital, the marketing activities of the assembler is efficient. RECOMMENDATIONS 54. On the matter of price dependence on Nestle, Phils., it is recommended that alternative buyers for coffee be sought. Possible buyers may be the local processors of ground coffee beans who have the local, urban-based supermarkets and coffee houses as clients. Other possible buyers are Consolidated Foods Corporation (Universal Robina Group-Great Taste and Blend 45), Commonwealth Foods Corporation (Café Puro), and General Milling Corporation (Kaffe de Oro). A feasibility study on the marketing of coffee through these channels should also be made to compare the projected Net Farm Income (NFI) with that of the existing NFI of the farmers with Nestle as the end buyer. 55. It is also recommended that trainings on proper grading and its importance should be given to farmers to resolve the grading standards deficiency between farmers, assemblers and Nestle. Specifically, knowledge on the moisture content and quality requirements of Nestle would aid the farmers in producing better-priced coffee.

11

REFERENCES

AGARRADO, R.E. et al. Marketing and Information Needs Assessment for Davao City. BAS-DA-USP, Davao City.

CORRE, S. 1996. A Market Efficiency Study for Palay/Rice in Biliran. Published

under the Small Islands Agricultural Support Services Programme. DUMON, P. 2001. The Coffee Industry by Glicerio Lumagda . A Report on the Third

Mindanao Food Congress, Butuan City. NESTLE PHILS., ___. The Nestle Guide: Growing High Quality Coffee. REVILLA, R.S. 1999. Production and Marketing of Sinta Papaya in Laguna, 1998.

Unpublished Undergraduate Thesis, CEM, UPLB, Laguna. UDP 1999. The Terms of Reference for Consultancy Services-Marketing Efficiency

Study. UDP, Davao City.

12

APPENDIX A. Cost and returns per unit of coffee in Barangay Pamintaran, Maragusan.

ITEM P/kg

RETURNS Cash Sales 27.38 Total Cash Returns (A) 27.38 Non-cash Home consumption 0.25 Given away 0.14 Total Non-cash Returns (B) 0.39 TOTAL RETURNS (C ) 27.77 COSTS Cash Fertilizers 0.85 Hired labor 11.37 Transportation 0.35 Land cost 0.15 Total Cash Costs (D) 12.72 Non-cash Unpaid family and/or exchange labor 0.89 Depreciation 0.40 Losses/Shrinkage of produce 1.27 Opportunity cost of capital 1.02 Total Non-cash Costs (E) 3.58 TOTAL COSTS (F) 16.30 Net Returns Above Cash Costs (C-D) 15.05 Net Farm Income 11.47

13

APPENDIX B. Breakdown of costs per unit of coffee in Barangay Pamintaran, Maragusan.

ITEM P/kg

I. Production Cost Land cost 0.15 Depreciation 0.40 Fertilizers 0.85 Own labor 0.63 Hired labor 3.98 Total Production Cost 6.01 II. Marketing Cost A. Cleaning Own labor 0.10 Hired labor 0.51 Sub-Total 0.61 B. Drying Own labor 0.13 Hired labor 2.31 Sub-Total 2.44 C. Grading/sorting Own labor 0.03 Hired labor 1.62 Sub-Total 1.65 D. Grinding Hired labor 2.78 Losses/shrinkage 0.26 Sub-Total 3.04 E. Transportation Hired labor 0.17 Transportation 0.35 Losses/shrinkage 1.01 Sub-Total 1.53 Total Marketing Cost 9.27 III. Opportunity cost of capital 1.02 TOTAL COSTS 16.30

A MARKETING EFFICIENCY STUDY ON

DURIAN

IN BARANGAY CABUYO-AN, MABINI, COMPOSTELA VALLEY

MAY 2001

Republic of the Philippines Department of Agriculture Upland Development Programme in

Southern Mindanao (UDP)

i

PREFACE This report is one of a series of market efficiency studies conducted in the UDP-covered areas for selected commodities. The marketing efficiency of durian in Barangay Cabuyo-an, Mabini, Compostela Valley was evaluated through the deconstruction of existing marketing margins. Recommendations to improve marketing efficiency are herein offered. This report was prepared by: Jaymee Alcos Elizabeth Supangco Julianne Revilleza May 2001

ii

ACKNOWLEDGEMENTS Report data were gathered from a series of personal and group interviews with farmers of durian in Barangay Cabuyo-an, Mabini, Compostela Valley and a trader in Sto. Tomas, Davao del Norte. The time and effort that the respondents have placed into this study are acknowledged. The following were the farmer- and retailer-respondents of the study: Farmers: Retailer: Maurino Lamano Paz Olaya of the Marsman Multi-purpose Cooperative Paterno Fuentes Lourdes Partosa Juanito Donillo The valuable assistance extended by the Mabini Municipal Agriculturist’s Office and the Cabuyo-an Barangay Council is also recognized.

iii

TABLE OF CONTENTS

Page number Preface i Acknowledgements ii Table of Contents iii Definition of Terms iv Introduction 1 Marketing System of Durian 4 Strength and Weakness 8 Other Key Findings 9 Conclusion 9 Recommendations 9 References 10 Appendices A. Cost and Returns per unit of Durian in

Barangay Cabuyo-an Mabini 11

B. Breakdown of costs per unit of Durian in Barangay Cabuyo-an, Mabini

12

iv

DEFINITION OF TERMS Cash costs - costs where actual money is involved. Cash returns - the earnings, where actual money is involved, from the

sale of the farm produce. Depreciation - the expense brought about by the wear and tear of a

piece of equipment, building or tool used in an enterprise for a given period of time.

Exchange labor - the value, non-monetary in nature, of the work (in man-

days) put in by neighbors, friends or other laborers in exchange for the farmers help with similar farm activities in their respective farms.

Hired labor - the cash expense for engaging the services of farm

laborers. Home consumption - the value, non-monetary in nature, of the farm produce

consumed by the farmer and his family. Losses/shrinkage of produce - the value, non-monetary in nature, of the damages and

spoilage sustained by the produce. Market information - basic information on prices and quantities traded of

major commodities, from all markets—assembly, wholesale and retail.

Marketing channel - the inter-organizational system composed of

interdependent institutions tasked in moving the product from production to consumption.

Marketing efficiency - the maximization of the input-output relationship where

inputs refer to resources (land, labor, capital) used in moving the products from point of consumption to the point of production and output referring to consumer satisfaction on goods and services made available in the market.

Marketing margin - the difference in prices between the different levels of

the marketing system. Marketing - series of services performed in moving the product

from the point of production to the point of consumption.

v

Net farm income - returns of the use of capital and labor. The overall profit of the farm after all the expenses, cash and non-cash, have been paid off.

Non-cash costs - costs items used in the production process wherein no

direct outlays occurred or the costs incurred are not monetary in nature.

Non-cash returns - the value, non-monetary in nature, of the farm produce

consumed by the farmer and his family or those given away.

Opportunity cost of capital - the price of foregone opportunity in the use of the

capital invested in the enterprise. It is usually pegged at the current savings interest rate.

Point of consumption - last sale of the product. Point of production - point of first sale. Profit margin - the return to the middlemen for their entrepreneurship,

the risks and the cost of money. Return on investment - measures the amount of cash that the entrepreneur gets

from the capital investment after first paying the opportunity expenses on the value of family labor and management. It also determines how much money the producer got in return for every one peso invested.

Unpaid family labor - also called own labor. The value, non-monetary in

nature, of work (valued in man-days) by the farmer and his family.

DURIAN INTRODUCTION 1. Durian is considered an exotic fruit and is highly in demand year-round. The peak season for this fruit is from July to October. If in season, a tree could bear a hundred to a thousand fruits depending on the age, climate, cultural practices of the farmers on the durian, and nutrition of the tree.

2. Admittedly, Durian is a low-maintenance crop, especially for native durian under indigenous management. Farmers usually only visit the fruit trees when the flowering season is about to start. Some practice smoking of the tree to induce flowering or to increase the flowers of the tree. Otherwise, most farmers wait for a few weeks before the durian season begins to check if their trees have fruit. The farmers are also reluctant to plant more durian trees since it would entail costs while the returns would not be immediate. 3. Barangay Cabuyo-an, Mabini was identified as one of the producers of Durian in Compostela Valley. In this area, mostly the native variety is grown and harvested annually. A Cabuyo-an farmer has an average of five (5) trees and average harvest of 26 fruits per tree every season, a fruit weighing about 1 kilogram each. The low production is mainly due to the relatively low investment of the farmers on durian production. They hardly apply any fertilizers on the trees nor use pesticides. 4. The marketing efficiency study for durian in Barangay Cabuyo-an, Mabini was conducted last March 20, 2001. Objectives 5. The main objective of the study is to assess the impact of existing marketing systems of durian vis-à-vis income of the farmers. 6. Specifically, the study aims to determine the levels of participants in the marketing chain of durian; 7. Determine the marketing practices involved in terms of storage, handling, pricing, delivery systems and terms of payment; 8. Determine the percentage of consumer price that the producer receives through the deconstruction of marketing margins of durian at each level in the system, exclusive of production costs; 9. Identify strengths and weaknesses of the existing marketing system of durian; and 10. Determine appropriate marketing interventions needed to improve economic efficiency of durian in Barangay Cabuyo-an, Mabini.

2

Methodology 11. From the initial agribusiness profile of UDP, it was determined that Barangay Cabuyo-an has the most durian farmers among the UDP areas of Compostela Valley. Furthermore, upon consultation with the Municipal Agriculturist’s Office and the farmers themselves, it was determined that there are a total of 27 durian farmers in Barangay Cabuyo-an, 13 of whom have productive trees and of that only five (5) farmers have harvested durian in the most recent durian season. Of the five farmers, four (4) were interviewed for the study. 12. The farmers were asked about their production and marketing practices, volume and value of sales, production and marketing costs of durian. They were also asked on available market information with emphasis on what they need to know to improve their production and marketing practices, thereby increasing the farmers’ income. 13. The respective buyers of durian from each farmer were then traced accordingly. 14. The traders were, in turn, asked about their marketing, costs, volume, value of sales and the problems and constraints they have encountered in the marketing of durian. 15. The marketing margins were then deconstructed and the profitability was of each marketing participant’s enterprise was also analysed. In the case of the farmers, the Net Farm Income (NFI) was determined. An NFI greater than zero (0) would mean that the production and marketing activities of the durian farm is profitable, whereas an NFI less than zero (0) would mean that the farm is at a loss. 16. On the part of the trader, the Return on Investment (ROI) was compared with the opportunity cost of capital, pegged at the existing current savings interest rate of eight percent (8%) per annum. A ROI higher than the opportunity cost of capital would mean that marketing durian is more profitable than just saving the trader’s money in a bank, while a ROI less than the opportunity cost of capital would mean that it would be more profitable for the trader to invest his money in a bank rather than spend it on marketing durian. 17. The percent share to the consumer peso of each marketing participant was also determined by getting the percentage of the marketing participant’s selling price (in the case of traders, less their buying price) relative to the final buying price of the consumer. This indicates the proportion of the final buying price that goes to each marketing participant for durian. 18. Moreover, focused group discussions (FGDs) with key informants and selected farmers were conducted to probe into the importance and the demand for market information in each province. This provided rapid feedback on the available market information and the information dissemination strategies existing in the area.

3

19. Also, key informants such as the Municipal Agriculturists and the Agricultural Technicians were interviewed to obtain an overview of the local agriculture industry. Limitations and Constraints

20. During the interviews, it was observed that the farmers relied on their memories in recalling their past production level, income, farm tools and equipment. There were no record-keeping practices. Thus the cost and return that were analysed were only estimates. The Return on Investment (ROI) was excluded on the analysis of the farmer income due to the ambiguity of the values arrived at. This is mainly due to the fact that some factors on capital investment were not properly quantified in the study. For instance, land valuation was excluded because none of the farmers hold titles to the land that they cultivate. Land, therefore, was not considered a fixed investment in this enterprise and was merely considered as an expense through the credit of land cost (land tax if owned, rent if tenanted).

21. In the marketing aspect, the respondents interviewed were the middlemen named by the farmers. Most of who also based their answers on their memories since they do not keep records regarding their marketing operations.

22. On the analysis of the marketing efficiency on the part of the farmers, only the Net Farm Income (NFI) analysis was utilized since the available data could only allow for this kind of analysis and not the more complicated input-output efficiency analyses.

23. On the analysis of the marketing efficiency on the part of the farmers, only the Net Farm Income (NFI) analysis was utilized since the available data could only allow for this king of analysis and not the more complicated input-output efficiency analyses.

24. Lastly, the size of the durian market, specifically, the estimation of demand was not included in the study.

Margin of Error

25. Using the population size of five (5) as the farmers who have harvested durian in the most recent production season, the margin of error was established at ±24.5% at a 95% confidence level. This means that there is a 95% confidence that the real values of the parameters used in this study are within 75.5% to 124.5% of the computed values (using the data from the respondents’ interviews).

4

THE MARKETING SYSTEM OF DURIAN Marketing Channels

26. The marketing participants involved in the durian marketing system in Barangay Cabuyo-an are as follows:

a. Farmer

A person engaged in durian cultivation for sustenance or commercial purposes. They

usually sell their produce direct to consumers or, in cases of larger quantities of harvest, to retailers; and

b. Retailers A person or entity who relies on the farmer for their supply. They usually sell durian

only when the farmer brings the produce to their place of business and are not actively and regularly in search of suppliers.

27. Based on farmer interviews, an estimated 515 pieces of durian were sold in the year 2000 and the following product flow was established:

Figure 1. Product flow of Durian from Barangay Cabuyo-an, Mabini. 90.7% 87.9% (100%) (87.9%) (96.6%)

Selling Price(P/piece): Farmer Retailer Case 1=51.72 na Case 2=50.00 55.00 28. Case 1 for the farmers are those who sell directly to the consumers while Case 2 is for the farmer who brings his produce to either Tagum City or Sto. Tomas, Davao del Norte.

29. Initially, 90.7% of the produce was brought to the retailer, while 9.3% were sold directly to the consumers. However, after accounting for the losses and shrinkages in durian (2.8% and 0.6% losses for durian sold to the retailer and direct to consumers, respectively), only 87.9% and 8.7%, respectively, were actually sold. The retailer also incurred losses. Losses are caused mainly by bruising and spoilage of the fruits that occur from the transfer of the fruits from the farm until the actual sale of the durian to the consumers.

FA RET CONSUMER

2.8% 0.6%

9.3%

5

30. The geographic flow of durian, on the other hand, follows the following path/structure:

Figure 2. Geographical flow of Durian from Barangay Cabuyo-an, Mabini.

22.3% 65.6% 8.7% 31. There is only one farmer who sells his produce to a retailer, all other durian farmers interviewed sell direct to the consumers. The volume sold by the farmer who goes to the retailer, however is 87.9% of the total durian from Barangay Cabuyo-an, Mabini. This has greatly influenced the values presented in both the product and geographic flow.

Marketing Practices and Costs

32. From harvest, the farmers clean the fruits by picking dead leaves off the spikes, tie them together or put them in baskets and bring them down by tricycle from the barangay to the National Highway. Transportation cost from the barangay center to the highway is P3 for every basket (1 basket=50 kg or 50 pieces).

33. Table 1 presents the marketing costs at the different marketing levels for durian.

Table 1. Marketing costs for different marketing levels of durian (P/piece).

ACTIVITY FARMER RETAILER

Cleaning 0.47 na Transportation 3.90 na Labor and other non-cash costs na 0.17 TOTAL 4.37 0.17

FARMER

STO.TOMAS, DAVAO DEL NORTE

TAGUM CITY

MABINI, COMPOSTELA VALLEY

6

34. In an isolated case, a farmer delivered his produce to a university canteen in Tagum and to a cooperative in Sto. Tomas, Davao del Norte for retail. Including the hauling from the farm to the barangay center and the transportation cost for the sole trader who sold his produce in Tagum and Sto. Tomas, transportation cost is an average of P3.90 per piece of durian. At the roadside, the farmers themselves retail the durian to the consumers.

35. For the trader, expenses are non-cash costs such as the labor for marketing and the overhead cost per kilogram of durian was determined to be P0.17.

Price Formation 36. Durian commands a very high price in the market. During its production or peak season, the lowest price for durian is P33 apiece. The crude grading system of small, medium, large and extra large is commonly practiced during the months of July to October. Prices during peak months are as follows:

• Small (1kg): 3 pieces for P100; • Medium (2 kg): P50/piece; • Large (3kg): P60; and • Extra Large (4-5 kg): P100

37. However, on lean months, durian is sold at an average of P40 per kilogram or P40 per piece of the small grade. 38. Note that since the Cabuyo-an farmers sell direct to the consumers, farm-gate price is the same as the consumer price. Marketing Margins 39. A comparison between the Net Farm Income (NFI) of the farmers, as established in Appendix A, for the two cases show that the profit or income of the farmer is higher when it is directly retailed to the consumers (Table 2). However, it is important to note that the volume sold directly to the consumers is considerably less than the volume sold to the retailers. The case might be different if that single farmer, who sells to the retailers, chose to sell direct to the consumers. It may be that he would bring down the price of durian or, more likely, bear more losses brought about by a longer selling period compared to a single, large-volume sale to a retailer.

7

Table 2. Marketing margins and income for durian at different marketing levels.

ITEM CASE 1 CASE 2 Farmer Farmer Retailer

Selling Price (P/piece) 51.72 50.00 55.00 Buying Price (P/piece) na na 50.00 Marketing Margin (P/piece) na na 5.00 Marketing Cost (P/piece) 0.77 4.37 0.17 Profit Margin (P/piece) na na 4.83 Net Farm Income (NFI) (P/piece) 42.33 40.28 na MC as % of MM na na 3% PM as % of MM na na 97% %ROI nil nil 76.7% Opportunity Cost of Capital na na 8%

40. The marketing margins for the retailer shown on Table 2 measures the total value added to durian as it moves along one marketing channel to the other. In this case, there is only one marketing channel after the fruit leaves the farm. The retailer with whom the Cabuyo-an farmer brings his produce marks up the durian prices by 10%. So, at a buying price of P50.00 per kilogram, the durian is retailed at P55.00 per kilogram (Table 2). The marketing margin of P5.00 covers the marketing costs of P0.17 and a profit margin of P4.83 per kilogram.

41. By dividing the profit margin with the capital investment of P6.30 per piece, the ROI was determined to be 76.7%. This means that for every peso invested by the retailer on the marketing of durian, he gets P0.767 back. This relatively high %ROI can be explained by the minimal marketing activities, compounded by the relative high demand for durian. Despite the 10% mark up in price, the consumers are still willing to buy the durian from the retailer.

42. To illustrate the marketing margin of the retailer, Figure 3 shows the percentage of the marketing cost and the profit margin relative to the marketing margin.

8

Figure 3. Marketing margin of a durian retailer, Barangay Cabuyo-an, Mabini.

3%

97%marketing cost

profit margin

43. The percentage of the consumer peso, is presented on Table 3 and Figure 4.

Table 3. Percentage share to the consumer peso.

MARKETING LEVEL SELLING PRICE (P/piece) % SHARE

Farmer 50.00 90.9 Retailer 55.00 9.1

Figure 4. Percentage share of the consumer peso.

farmer90.9%

retailer9.1%

44. This means that for every peso spent by the consumer on durian, P0.909 goes to the farmer and P0.091 to the retailer.

STRENGTH AND WEAKNESS 45. Due to durian’s rarity and perceived high demand, the farmer’s harvests are already assured of buyers’ demand for the fruit regardless of season. However, in the case of the durian farmers in Barangay Cabuyo-an, their produce are limited to and

9

could only reach as far as Mabini, Tagum and Sto. Tomas. Despite the fact that demand is higher in the more urban areas such as Davao City and Digos. OTHER KEY FINDINGS 46. It was determined from the Agricultural Technicians that durian, subject to improved cultural management and practices, could yield 100 to 1,000 fruits per tree. But since the durian trees in Barangay Cabuyo-an are poorly managed, yield is low. CONCLUSION 47. By analyzing the Net Farm Income (NFI) of the farmer and the percent return on investment of the retailer, the conclusion that durian marketing, on both farmer and retail level, is efficient. This means that investing or engaging in production and marketing of durian in the study area are profitable and efficient. 48. Although production and marketing of durian in Barangay Cabuyo-an is efficient, a marketing problem or weakness was identified. The durian market was determined to be limited to the Mabini, Tagum and Sto. Tomas areas, whereas demand would be bigger in other urban areas such as Davao City. 49. Another problem identified was the relatively low production of durian in the area, which is limited to the native variety and poor management practices. RECOMMENDATIONS 50. It is recommended, therefore, that the local government units, along with the Department of Agriculture, conduct technical training on possible ways to increase durian yield given the indigenous management of the native variety. 51. Also, it is recommended that a market expansion be facilitated, through the aid of the local government unit, by promoting the municipality as a durian producer, thereby encouraging buyers and consumers from other areas to buy from the local farmers. 52. Regular price information should also be provided to the farmers, to inform them of the prices of durian and the corresponding transportation costs to Tagum, Panabo, Nabunturan and Davao City, key urban areas where durian consumption is higher since the population there is denser.

10

REFERENCES AGARRADO, R.E. et al. Marketing and Information Needs Assessment for Davao

City. BAS-DA-USP, Davao City. CORRE, S. 1996. A Market Efficiency Study for Palay/Rice in Biliran. Published

under the Small Islands Agricultural Support Services Programme. REVILLA, R.S. 1999. Production and Marketing of Sinta Papaya in Laguna, 1998.

Unpublished Undergraduate Thesis, CEM, UPLB, Laguna. UDP. 1999. The Terms of Reference for Consultancy Services-Marketing Efficiency

Study. UDP, Davao City.

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APPENDIX A. Cost and returns per unit of Durian in Barangay Cabuyo-an, Mabini (Average for Cases 1 and 2).

ITEM P/piece

RETURNS Cash Sales 48.45 Total Cash Returns (A) 48.45 Non-cash Home consumption 2.33 Total Non-cash Returns (B) 2.33 TOTAL RETURNS (C ) 50.78 COSTS Cash Planting material - Fertilizer 1.71 Pesticide - Hired labor 1.33 Transportation 3.37 Land cost - Others Total Cash Costs (D) 6.41 Non-cash Unpaid family and/or exchange labor 1.75 Depreciation 0.54 Losses/Shrinkage of produce 0.51 Opportunity cost of capital 0.51 Others - Total Non-cash Costs (E) 3.31 TOTAL COSTS (F) 9.72 Net Returns Above Cash Costs (C-D) 44.37 Net Farm Income 41.06

12

APPENDIX B. Breakdown of costs per unit of Durian in Barangay Cabuyo-an, Mabini.

ITEM P/kg

I. Production Cost Depreciation 0.54 Fertilizers 1.71 Own labor 1.28 Hired labor 1.31 Total Production Cost 4.84 II. Marketing Cost A. Cleaning Own labor 0.47 Sub-Total 0.47 B. Transportation Cost Hired labor 0.02 Transportation 3.37 Losses/shrinkage 0.51 Sub-Total 3.90 Total Marketing Cost 4.37 III. Opportunity cost of capital 0.51 TOTAL COSTS 9.72

A MARKETING EFFICIENCY STUDY ON

ABACA

IN BARANGAY SOBRECAREY, CARAGA DAVAO ORIENTAL

MAY 2001

Republic of the Philippines Department of Agriculture Upland Development Programme in

Southern Mindanao (UDP)

i

PREFACE This report is one of a series of market efficiency studies conducted in the UDP-covered areas for selected commodities. The marketing efficiency of abaca in Barangay Sobrecarey, Caraga, Davao Oriental was evaluated through the deconstruction of existing marketing margins. Recommendations to improve marketing efficiency are herein offered. This report was prepared by: Jaymee Alcos Elizabeth Supangco Julianne Revilleza May 2001

ii

ACKNOWLEDGEMENTS Report data were gathered from a series of personal and group interviews with farmers of abaca in Barangay Sobrecarey, Caraga, Davao Oriental. The time and effort that the respondents have placed into this study are acknowledged. The following were the farmer- and retailer-respondents of the study: Farmers: Assemblers: Deguzman Diano Aniceto Pagsak Cenon Madalo Vilior Mariano Fausto Maganda Francisca Pagasak The valuable assistance extended by the Caraga Municipal Agriculturist’s Office and the Sobrecarey Barangay Council is also recognized.

iii

TABLE OF CONTENTS

Page number Preface i Acknowledgements ii Table of Contents iii Definition of Terms iv Introduction 1 Marketing System of Abaca 4 Strengths 8 Weaknesses 8 Other Key Findings 8 Conclusion 9 Recommendations 9 References 10 Appendices A. Cost and Returns per unit of abaca in

Barangay Sobrecarey, Caraga 11

B. Breakdown of costs per unit of Abaca in Barangay Sobrecarey

12

iv

DEFINITION OF TERMS Cash costs - costs where actual money is involved. Cash returns - the earnings, where actual money is involved, from the

sale of the farm produce. Depreciation - the expense brought about by the wear and tear of a

piece of equipment, building or tool used in an enterprise for a given period of time.

Exchange labor - the value, non-monetary in nature, of the work (in man-

days) put in by neighbors, friends or other laborers in exchange for the farmers help with similar farm activities in their respective farms.

Hired labor - the cash expense for engaging the services of farm

laborers. Losses/shrinkage of produce - the value, non-monetary in nature, of the damages and

spoilage sustained by the produce. Market information - basic information on prices and quantities traded of

major commodities, from all markets—assembly, wholesale and retail.

Marketing channel - the inter-organizational system composed of

interdependent institutions tasked in moving the product from production to consumption.

Marketing efficiency - the maximization of the input-output relationship where

inputs refer to resources (land, labor, capital) used in moving the products from point of consumption to the point of production and output referring to consumer satisfaction on goods and services made available in the market.

Marketing margin - the difference in prices between the different levels of

the marketing system. Marketing - series of services performed in moving the product

from the point of production to the point of consumption.

Net farm income - returns of the use of capital and labor. The overall profit

of the farm after all the expenses, cash and non-cash,

v

have been paid off. Non-cash costs - costs items used in the production process wherein no

direct outlays occurred or the costs incurred are not monetary in nature.

Non-cash returns - the value, non-monetary in nature, of the farm produce

consumed by the farmer and his family or those given away.

Opportunity cost of capital - the price of foregone opportunity in the use of the

capital invested in the enterprise. It is usually pegged at the current savings interest rate.

Point of consumption - last sale of the product. Point of production - point of first sale. Profit margin - the return to the middlemen for their entrepreneurship,

the risks and the cost of money. Return on investment - measures the amount of cash that the entrepreneur gets

from the capital investment after first paying the opportunity expenses on the value of family labor and management. It also determines how much money the producer got in return for every one peso invested.

Unpaid family labor - also called own labor. The value, non-monetary in

nature, of work (valued in man-days) by the farmer and his family.

ABACA INTRODUCTION 1. The abaca plant (Musa textilis nee) belongs to the family of Musacea and is known worldwide as Manila hemp. It is indigenous to the Philippines with the country’s favourable climatic condition and volcanic soils that are suited to its cultivation. 2. The Philippines is the world's largest source and supplier of abaca fiber for the manufacture of cordage and pulp for specialty paper manufacture. While abaca fiber has been used in cordage manufacture for many years now, fiber for pulp in specialty paper manufacture came into commercial use only in the 1930's. 3. In the Philippines, there are three regions which produce abaca in commercial quantity. These are Mindanao, Visayas and the Bicol regions. Each of these regions supply different varieties and hybrids of abaca. 4. Compared to a banana, the abaca plant has more slender stalk, narrower and pointed leaves and has more pronounced dark line on the right hand side of the upper surface of the blade. Its fruits are smaller, non-edible and contain many seeds. 5. It propagates itself through suckering, or the growing of shoots from the roots. When all the leaves have been formed from the stem, flower buds develop, at which time the plant has reached maturity and is then ready for harvest. 6. Under normal conditions, the first harvest is done from 18 to 24 months after planting. Stalks are considered mature and are harvested when the flagleaf appears. The period of good fiber recovery extend for more than one month from flagleaf to early inflorescence. 7. In the harvesting process, which involves mainly the cutting down of the plant, there are two stages, namely: Topping, the leaves of the trees to be harvested are cut at the base of the petiole with the use of a knife or sickle fastened at the end of a bamboo or wooden pole. Tumbling, the stalks that have just been topped are then tumbled down with the use of a bolo knife. The stalks are cut close to the ground. 8. Davao Oriental ranked 9th in the production of abaca in the Philippines accounting for five percent (5%) of the total production of 64,863 metric tons (DA Agribusiness Report, 2000). 9. In Barangay Sobrecary, Caraga, Davao Oriental, abaca production is one of the main agricultural activities. Farmers harvest abaca four (4) times a year with an average production of 345 kilograms per hectare in an average land holding of 2.75 hectares per farmer. 10. The marketing efficiency study for abaca in Barangay Sobrecarey, Caraga was conducted last March 14, 2001.

2

Objectives 11. The main objective of the study is to assess the impact of existing marketing systems of abaca vis-à-vis income of the farmers. 12. Specifically, the study aims to determine the levels of participants in the marketing chain of abaca; 13. Determine the marketing practices involved in terms of storage, handling, pricing, delivery systems and terms of payment; 14. Determine the percentage of consumer price that the producer receives through the deconstruction of marketing margins of abaca at each level in the system, exclusive of production costs; 15. Identify strengths and weaknesses of the existing marketing system of abaca; and 16. Determine appropriate marketing interventions needed to improve economic efficiency of abaca in Barangay Sobrecarey, Caraga. Methodology 17. From the initial agribusiness profile of UDP – Davao Oriental, 35 abaca farmers were identified; four of whom come from Barangay Sobrecarey, Caraga. Complete enumeration of the Sobrecarey abaca farmers was done for the interview. 18. The farmers were asked about their production and marketing practices, production and marketing costs of abaca. They were also asked on available market information with emphasis on what they need to know to improve their production and marketing practices, thereby increasing the farmers’ income. 19. The respective buyers of abaca from each farmer were then traced accordingly. 20. The traders were, in turn, asked about their marketing, costs, and the problems and constraints they have encountered in the marketing of abaca. 21. The marketing margins (MM), or the total value added to the abaca per kilogram as it moves along one marketing channel to another, were then deconstructed and the profitability of each marketing participant was also analysed. In the case of the farmers, the Net Farm Income (NFI) was determined. An NFI greater than zero (0) would mean that the production and marketing activities of the abaca farm is profitable, whereas an NFI less than zero (0) would mean that the farm is at a loss. 22. On the part of the trader, the Return on Investment (ROI) was compared with the opportunity cost of capital, pegged at the existing current savings interest rate of eight percent (8%) per annum. An ROI higher than the opportunity cost of capital would mean that marketing abaca is more profitable than just saving the trader’s money in a

3

bank. While an ROI less than the opportunity cost of capital would mean that it would be more profitable for the trader to invest his money in a bank rather than spend it on marketing abaca. 23. The percent share to the consumer peso of each marketing participant was also determined by getting the percentage of the marketing participant’s selling price (in the case of traders, less their buying price) relative to the final buying price of the consumer. This indicates the proportion of the final buying price that goes to each marketing participant for abaca. 24. Moreover, focused group discussions (FGDs) with key informants and selected farmers were conducted to probe into the importance and the demand for market information in each province. This provided rapid feedback on the available market information and the information dissemination strategies existing in the area. 25. Also, key informants such as the Municipal Agriculturists and the Agricultural Technicians were interviewed to obtain an overview of the local agriculture industry. Limitations and Constraints 26. Upon interview, the farmers only recalled past production level, income, farm tools and equipment used, as there were no records kept of their operations. Thus the cost and return that were analyzed were only estimates. The Return on Investment (ROI) was excluded on the analysis of the farmer’s income due to the ambiguity of the values arrived at, as some factors on capital investment were not quantified. For instance, land valuation was excluded because none of the farmers hold titles to the land that they cultivate. Land, therefore, was not considered a fixed investment in this enterprise and was merely considered as an expense through the credit of land cost (land tax if owned, rent if tenanted). 27. On the marketing aspect, the respondents interviewed were the middlemen identified by the farmers. Most of who also based their answers on their memories since they too do not keep records of their marketing operations. 28. On the analysis of the marketing efficiency of the farmers, only the Net Farm Income (NFI) analysis was utilized since the available data could only allow for this kind of analysis and not the more complicated input-output efficiency analyses.

29. Lastly, the size of the abaca market, specifically, the estimation of demand was not included in the study. Margin of Error

30. Aside form the UDP Agribusiness Profile, there are no other available data on the population size of abaca producers in the area. The margin of error on the

4

analysis, therefore, cannot be established since the formula requires not only the sample size, but the population size as well. THE MARKETING SYSTEM OF ABACA Marketing Channels

31. The marketing participants involved in the abaca marketing system in Barangay Sobrecarey, Caraga are as follows:

a. Farmer

A person engaging in the production and post-production activities such as

tuxying, stripping, drying, grading and bundling for commercial purposes.

b. Assembler A person who buys the fiber from all the farmers in the area then sells the bulk

to the processors. There are two assemblers existing in the marketing chain, the barangay assembler and the assembler from the neighbouring town of Manay. c. Processor

An institution that processes fiber into cordage, pulp, paper and fiber craft.

32. Based on farmer interviews, an estimated 3,800 kilograms of abaca from Barangay Sobrecarey, Caraga, Davao Oriental were sold in the year 2000 and the following product flow was established:

Figure 1. Product flow of abaca. 33. From the farmer, abaca is sold at an all-in scheme to the barangay assembler and is then passed to the big scale assemblers located in Manay. From there, it is sold to the processors of abaca line-products whose main consumers are the international and domestic markets (Figure 1). 34. The processors set no limit on the volume bought from the assemblers because of the high demand on the processed fiber in domestic and international markets. This increasing demand can be attributed to the discovery of other potential uses of abaca.

FARMER BARANGAY ASSEMBLER PROCESSOR

CONSUMER (INT’L MKT)

CONSUMER (DOMESTIC

MKT)

MANAY ASSEMBLER

94%

6%

5

35. Based from statistics gathered from the Fiber Industry Development Authority (FIDA), Region XI, almost 94% of the Philippine abaca production is exported while the remaining 6% is used domestically. 36. Shown below is the geographical flow of abaca.

Figure 2. Geographical flow of abaca. 37. The geographical flow for abaca moves from the barangay centre to the first assembler within the barangay. From there it is delivered to another assembler in the neighbouring town of Manay who then sells the produce to processors in Davao City (Figure 2).

Marketing Activities and Costs 38. After harvesting, numerous activities are done in abaca such as peeling, stripping, drying, grading and bundling. 39. Peeling is the method of extracting the fiber from the leaf sheaths. Entire leaf sheaths are separated from the stalk and are flattened. A specially made tuxying knife is used to make an incision through the inner and middle layer of each sheath, close to the base or butt end to facilitate the separation of these layers from the outer layer. 40. After the fiber is peeled the next step is stripping. Stripping is the method of cleaning the abaca fibers through the use of stripping knives. Handstripping method is very simple and is fully manual, but is very strenuous on the part of the stripper. The tuxy is inserted between a block and the serrated (or non-serrated) stripping knife. The fiber is pulled with force from the tip end of the tuxy. It is here where the fiber separates from the wastes. 41. All stripped fibers undergo drying before being graded. They may be sun-dried in the open or air-dried in shaded structure. 42. Due to farmers’ lack of knowledge of the grading/classification system set by FIDA, the farmers only classify the fiber in three classes according to its color. Class A for white fiber, Class B for yellow and Class C for fibers with black spots. 43. In the barangay alone, there are a few assemblers present and living to whom the farmers would sell their produce. The farmers are able to get financing from the traders that may come in the form of capital, food or other household supplies.

FARMER

BARANGAY SOBRECARY

(Assembler) DAVAO CITY

MANAY, DAVAO OR. (Assembler)

6

44. The abaca is normally transported using a motorcycle. This is due to poor road condition that can only be accessed by the motorbike especially during rainy days. The maximum capacity that the motorcycle can hold is five (5) tons, but normally the trader only loads three (3) tons. 45. From there, the abaca is brought to an assembler in the town of Manay. In the town of Manay, there are already five existing buyers of abaca. Competition here is very stiff since everyone tries to offer the best, in this case the highest price to the farmer or assembler. After reaching a minimum volume of 20,000 tons, these assemblers in the Manay poblacion sell their stocks to major abaca producers and exporters in Davao City. 46. In Davao City, abaca is graded into about 10 grades. The price received for the highest grade is approximately P30.00 per kilogram while the inferior grade is worth only P2.50 per kilogram. The buying mode of the processors is that they would pay only 70% of the total value of the delivery. They would first sort the fibers into its different grade categories, then after two weeks, the company would pay the remaining 30%. 47. Farmers incurred a high post-production cost, which resulted to the negative net farm income (Table 1). This high post-production cost can be attributed to the labor-intensive nature of abaca in the farm level. 48. Costs incurred by the assemblers are mainly the transportation cost of transferring the commodity from the farm to the processor. Table 1. Marketing costs for different marketing levels of abaca (P/kg).

ACITIVITY FARMER BARANGAY ASSEMBLER

MANAY ASSEMBLER

Peeling 1.54 na na Stripping 1.54 na na Drying 1.58 na na Bundling 1.57 na na Transportation 2.45 0.47 0.52 Labor na 0.10 0.1 Utilities and other fees na 0.01 0.01 TOTAL 8.68 0.58 0.63 Price Formation 49. In March of last year, the farm price for abaca was P22.00 per kilogram. Within a span of one year, the farm price has decreased to P15.00 per kilogram. This

7

can be attributed to the fall of abaca world price, which, in turn, is due to the entry of cheaper abaca substitutes such as rayon, kenaf and sesal. Marketing Margins 50. Shown below is the marketing margins and income for different marketing levels. Table 2. Marketing margins and income for abaca at different marketing levels.

ITEM Farmer Barangay Assembler Manay Assembler Selling Price 14.00 15.50 19.50 Buying Price na 14.00 15.50 Marketing Margin na 1.50 0.80 Marketing Cost 8.68 0.58 0.63 Profit Margin na 0.92 0.17 Net Farm Income (3.41) na na MC as % of MM na 39% 79% PM as % of MM na 61% 21% % ROI nil 14.00% 2.72% Opportunity Cost of Capital na 8% 8% 51. Results revealed that the farmer has a negative income in abaca farming (-P3.41/kg) (As shown in detail on Appendix A). On the other hand, the profit margin for barangay assembler and the Manay assembler are P0.92 and P0.17 per kilogram, respectively (Table 2). 52. Graphically, Figure 3 illustrates the marketing margins presented on Table 2.

Figure 3. Marketing margins of abaca traders.

61% 21%

39% 79%

Barangay Assembler Manay Assembler

% MC

% PM

8

53. A comparison of the two assemblers show that the Barangay Assembler’s profit is higher than that of the the Manay Assembler, relative to their marketing margins. This means that relative to the price mark up made by the two assemblers, the Barangay Assembler has made more profit than the Manay Assembler. STRENGTHS 54. The greatest strength of abaca is its established market for fiber such that the

industry is always assured of buyers. 55. Also, as abaca is an industrial commodity, post-harvest practices and

technologies, such as the creation of stripping equipment, have been developed to improve the quality of abaca.

WEAKNESSES 56. However, the marketing system is also faced with several problems that hinder

the industry’s development. One such problem or weakness is the difficulty in dissemination information on new technologies to improve abaca production such that the innovations do not reach the farmers.

57. Consequently, the farmers are stuck with antiquated production and post-

harvest facilities and know-how, which causes the marketing, particularly the post-harvest cost to increase.

58. Also, it was established that the farmers have inadequate knowledge on the

grading classifications set by FIDA. This results to a lower income since the farmers are not able to produce good-quality, high-priced abaca.

59. Lastly, the poor condition of the Caraga Highway-Sobrecarey tertiary road

has led the farmers to depend on the assemblers buy their produce as they do not have the facilities to transport the abaca themselves.

OTHER KEY FINDINGS 60. It was also determined that there is high production cost for abaca. This

resulted to the negative Net Farm Income of the farmers in Barangay Sobrecarey, Caraga (Appendix A).

61. Lastly, it was established that most of the plantations are already old, disease-

infected and damaged by typhoons.

9

CONCLUSION 62. A negative Net Farm Income in the farmer side indicate the inefficiency of

abaca production (Table 2). 63. It was also established that the ROI of the barangay assembler is higher than

the opportunity cost of capital and his percentage share of the profit margin relative to the marketing margin than the cost. It is concluded, therefore, that the barangay assembler is performing efficiently.

64. In contrast, the Manay assembler performs inefficiently due to its high

marketing cost and ROI is less than the opportunity cost of capital. This means that it is more profitable to invest in the bank than venturing in the abaca trading activity of the Manay assembler.

RECOMMENDATIONS 65. Based on the strength, weaknesses, other key findings and conclusions established in this study, the following recommendations are herein offered: • Transfer new technologies on production and processing to the farmers to

increase the value added to the commodity. It will also help to produce quality fiber at competitive cost with substitute products;

• Provision of post harvest facilities such as peeling and stripping equipment to

the farmers will greatly help them gain more income through the reduction of their post-harvest costs;

• Improve farm to market road to ease the transferring of goods to the

processing area, thus decreasing the cost of transportation; • Proper information on the grading standards in abaca should be given to the

farmers. • Other uses of abaca such as handicraft making, tinalak production, etc can be

taught in the farm level to increase the income of the farmers.

10

REFERENCES AGARRADO, R.E. et al. Marketing and Information Needs Assessment for Davao

City. BAS-DA-USP, Davao City. CORRE, S. 1996. A Market Efficiency Study for Palay/Rice in Biliran. Published

under the Small Islands Agricultural Support Services Programme. DEPARTMENT OF AGRICULTURE. 2000. The DA Agribusiness Report. Quezon

City. REVILLA, R.S. 1999. Production and Marketing of Sinta Papaya in Laguna, 1998.

Unpublished Undergraduate Thesis, CEM, UPLB, Laguna. UDP 1999. The Terms of Reference for Consultancy Services-Marketing Efficiency

Study. UDP, Davao City.

11

APPENDIX A. Cost and returns per unit of abaca in Barangay Sobrecarey, Caraga. ITEM P/kg

RETURNS Cash Sales 14.00 Total Cash Returns (A) 14.00 Non-cash Total Non-cash Returns (B) - TOTAL RETURNS (C ) 14.00 COSTS Cash Planting material 5.00 Hired labor 10.30 Transportation 0.39 Total Cash Costs (D) 15.69 Non-cash Unpaid family and/or exchange labor 0.10 Depreciation 0.27 Losses/Shrinkage of produce 0.09 Opportunity cost of capital 1.26 Total Non-cash Costs (E) 1.72 TOTAL COSTS (F) 17.41 Net Returns Above Cash Costs (C-D) (1.69) Net Farm Income (3.41)

12

APPENDIX B. Breakdown of costs per unit of abaca in Barangay Sobrecarey.

ITEM P/kg

I. Production Cost Depreciation 0.27 Own labor 0.03 Corms (Planting material) 5.00 Hired labor 2.17 Total Production Cost 7.47 II. Marketing Cost A. Peeling Own labor 0.01 Hired labor 1.53 Sub-Total 1.54 B. Stripping Own labor 0.01 Hired labor 1.53 Sub-Total 1.54 C. Drying Own labor 0.04 Hired labor 1.49 Losses/shrinkage 0.05 Sub-Total 1.58 D. Bundling Own labor 0.01 Hired labor 1.52 Losses/shrinkage 0.04 Sub-Total 1.57 E. Transportation Hired labor 2.06 Transportation 0.39 Sub-Total 2.45 Total Marketing Cost 8.68 III. Opportunity cost of capital 1.26 TOTAL COSTS 17.44

A MARKETING EFFICIENCY STUDY ON

COPRA

IN SITIO COOG, MAHAN-UB, BAGANGGA, DAVAO ORIENTAL

MAY 2001

Republic of the Philippines Department of Agriculture Upland Development Programme in

Southern Mindanao (UDP)

i

PREFACE This report is one of a series of market efficiency studies conducted in the UDP-covered areas for selected commodities. The marketing efficiency of copra in Sitio Coog, Mahan-ub, Bagangga, Davao Oriental was evaluated through the deconstruction of existing marketing margins. Recommendations to improve marketing efficiency are herein offered. This report was prepared by: Jaymee Alcos Elizabeth Supangco Julianne Revilleza May 2001

ii

ACKNOWLEDGEMENTS Report data were gathered from a series of personal and group interviews with producers of copra in Sitio Coog, Mahan-ub, Bagangga, Davao Oriental, traders and processors. The time and effort that the respondents have placed into this study are acknowledged. The following were the farmer- and trader-respondents of the study: Farmers: Assemblers: Processor: Larelyn Lagenza Uldarico Cuta Michael Ling of INTERCO Flordecita Tesiorna Erlinda Hapitan Eugenio Balug Ruisina Agbot Proserpina Obidencio Leoncito Linsag The valuable assistance extended by the Bangangga Municipal Agriculturist’s Office and the Mahan-ub Barangay Council is also recognized.

iii

TABLE OF CONTENTS

Page number Preface i Acknowledgements ii Table of Contents iii Definition of Terms iv Introduction 1 Marketing System of Copra 4 Weaknesses 9 Conclusion 9 Recommendations 9 References 10 Appendices

A. Cost and Returns per unit of Copra in Sitio Coog, Mahan-ub, Bagangga

11

B. Breakdown of costs per unit of copra in Sitio Coog, Mahan-ub, Bangangga

12

iv

DEFINITION OF TERMS

Cash costs - costs where actual money is involved. Cash returns - the earnings, where actual money is involved, from the

sale of the farm produce. Depreciation - the expense brought about by the wear and tear of a

piece of equipment, building or tool used in an enterprise for a given period of time.

Exchange labor - the value, non-monetary in nature, of the work (in man-

days) put in by neighbors, friends or other laborers in exchange for the farmers help with similar farm activities in their respective farms.

Hired labor - the cash expense for engaging the services of farm

laborers. Losses/shrinkage of produce - the value, non-monetary in nature, of the damages and

spoilage sustained by the produce. Market information - basic information on prices and quantities traded of

major commodities, from all markets—assembly, wholesale and retail.

Marketing channel - the inter-organizational system composed of

interdependent institutions tasked in moving the product from production to consumption.

Marketing efficiency - the maximization of the input-output relationship where

inputs refer to resources (land, labor, capital) used in moving the products from point of consumption to the point of production and output referring to consumer satisfaction on goods and services made available in the market.

Marketing margin - the difference in prices between the different levels of

the marketing system. Marketing - series of services performed in moving the product

from the point of production to the point of consumption.

Net farm income - returns of the use of capital and labor. The overall profit

v

of the farm after all the expenses, cash and non-cash, have been paid off.

Non-cash costs - costs items used in the production process wherein no

direct outlays occurred or the costs incurred are not monetary in nature.

Non-cash returns - the value, non-monetary in nature, of the farm produce

consumed by the farmer and his family or those given away.

Opportunity cost of capital - the price of foregone opportunity in the use of the

capital invested in the enterprise. It is usually pegged at the current savings interest rate.

Point of consumption - last sale of the product. Point of production - point of first sale. Profit margin - the return to the middlemen for their entrepreneurship,

the risks and the cost of money. Return on investment - measures the amount of cash that the entrepreneur gets

from the capital investment after first paying the opportunity expenses on the value of family labor and management. It also determines how much money the producer got in return for every one peso invested.

Unpaid family labor - also called own labor. The value, non-monetary in

nature, of work (valued in man-days) by the farmer and his family.

COPRA

INTRODUCTION 1. Copra, or the dried meat of the coconut’s (Cocos nucifera) nut, is valued as the source of coconut oil and coconut-oil cake (www.britannica.com). 2. The nuts are harvested from the tree by cutting them off with a sickle attached to a long bamboo pole or by bringing them down manually. The nuts are then husked and cracked open to expose the meat, which is roughly 50% water and 30-40% oil. About 30 nuts are needed to make 4.5 kilograms of copra. 3. The Philippines remains as the world’s second leading supplier of traditional coconut products (http://memory.loc.gov/frd/cs) and from 1993 to 1999, Mindanao produced 55% of the Philippines total copra production (Vargas, 2001). 4. Sitio Coog, Mahan-ub, Bagangga was identified as a major copra producing UDP area in Davao Oriental with three (3) copra seasons per annum, where copra farmers have an average landholding of 3.6 hectares and an average yield of 1,639 kilograms of copra per hectare in one season. 5. The marketing efficiency study for copra in Sitio Coog, Mahan-ub, Bagangga was conducted last March 15,2001. Objectives 6. The main objective of the study is to assess the impact of existing marketing systems of copra vis-à-vis income of the farmers. 7. Specifically, the study aims to determine the levels of participants in the marketing chain of copra; 8. Determine the marketing practices involved in terms of storage, handling, pricing, delivery systems and terms of payment; 9. Determine the percentage of consumer price that the producer receives through the deconstruction of marketing margins of copra at each level in the system, exclusive of production costs; 10. Identify strengths and weaknesses of the existing marketing system of copra; and 11. Determine appropriate marketing interventions needed to improve economic efficiency of copra in Sitio Coog, Mahan-ub, Bagangga.

2

Methodology 12. From the initial agribusiness profile of UDP, 11 copra producers were identified in the UDP areas of Davao Oriental. Most of those initially profiled were from different areas and only two copra producers came from the same barangay-Barangay Mahan-ub. Barangay Mahan-ub, therefore, was chosen as the area of study. 13. Upon consultation with the Municipal Agriculturist’s Office and the farmers themselves, other copra producers in the area were identified and three more copra producers were interviewed for the study. 14. The farmers were asked about their copra production, marketing practices, and marketing costs. They were also asked on available market information with emphasis on what they need to know to improve their production and marketing practices, thereby increasing income. 15. The respective buyers of copra from each farmer were then traced accordingly. 16. The traders were, in turn, asked about their marketing, costs, volume, value of sales and the problems and constraints they have encountered in the marketing of copra. 17. The marketing margins (MM), or the total value added to the copra per kilogram as it moves along one marketing channel to another, were then deconstructed and the profitability of each marketing participant’s enterprise was also analysed. In the case of the farmers, the Net Farm Income (NFI) was determined. An NFI greater than zero (0) would mean that the production and marketing activities of the copra farm is profitable, whereas an NFI less than zero (0) would mean that the farm is at a loss. 18. On the part of the trader, the Return on Investment (ROI) was compared with the opportunity cost of capital, pegged at the existing current savings interest rate of eight percent (8%) per annum. An ROI higher than the opportunity cost of capital would mean that marketing copra is more profitable than just saving the trader’s money in a bank, while a ROI less than the opportunity cost of capital would mean that it would be more profitable for the trader to invest his money in a bank rather than spend it on marketing copra. 19. The percent share to the consumer peso of each marketing participant was also determined by getting the percentage of the marketing participant’s selling price (in the case of traders, less their buying price) relative to the final buying price of the consumer. This indicates the proportion of the final buying price that goes to each marketing participant for copra.

3

20. Moreover, focused group discussions (FGDs) with key informants and selected farmers were conducted to probe into the importance and the demand for market information in each province. This provided rapid feedback on the available market information and the information dissemination strategies existing in the area. 21. Also, key informants such as the Municipal Agriculturists and the Agricultural Technicians were interviewed to obtain an overview of the local agriculture industry. Limitations and Constraints 22. During the interviews, it was observed that the farmers relied on their memories in recalling their past production level, income, farm tools and equipment. There were no record-keeping practices. Thus the cost and return that were analysed were only estimates. The Return on Investment (ROI) was excluded on the analysis of the farmer income due to the ambiguity of the values arrived at. This is mainly due to the fact that some factors on capital investment were not properly quantified in the study. For instance, land valuation was excluded because none of the farmers hold titles to the land that they cultivate. Land, therefore, was not considered a fixed investment in this enterprise and was merely considered as an expense through the credit of land cost (land tax if owned, rent if tenanted).

23. In the marketing aspect, the respondents interviewed were the middlemen named by the farmers. Most of who also based their answers on their memories since they do not keep records regarding their marketing operations.

24. On the analysis of the marketing efficiency on the part of the farmers, only the Net Farm Income (NFI) analysis was utilized since the available data could only allow for this kind of analysis and not the more complicated input-output efficiency analyses.

25. Lastly, the size of the copra market, specifically, the estimation of demand was not included in the study.

Margin of Error

26. Aside form the UDP Agribusiness Profile, there are no other available data on the population size of copra producers in the area. The margin of error on the analysis, therefore, cannot be established since the formula requires not only the sample size, but the population size as well.

4

THE MARKETING SYSTEM OF COPRA Marketing Channels

29. The marketing participants involved in the copra marketing system in Sitio Coog, Bagangga are as follows:

a. Farmer A person engaged in copra production for sustenance or commercial purposes. He

usually sells his produce to the barangay assemblers;

b. Barangay assembler A trader, based in Bagangga, who buys copra from the farmers and brings it to the

copra processor; and

c. Processor End-buyer of copra. Processes the copra into coconut oil and coconut-oil cakes and

sells these products for export.

30. Based on farmer interviews in the area, an estimated 5,900 kilograms of copra were sold for the first season of the year 2001 and the following product flow was established:

Figure 1. Product flow of Copra from Sitio Coog, Mahan-ub. 100% 100%

(100%) (100%)

Selling Price(P/kg): Farmer Barangay Assembler

3.93 5.00 31. As shown in Figure 1, from the copra producers, all copra is bought by the assemblers and sold to a processor, which in this case, is Interco in Mati. 32. Similarly, Figure 2 illustrates the geographic flow of copra from Sitio Coog, Mahan-ub. Figure 2. Geographical flow of Copra from Sitio Coog, Bagangga. 100% 100%

PRODUCER ASSEMBLER

(barangay) PROCESSOR

(100%)

PRODUCE BAGANGGA INTERCO, MATI

5

33. From the producer’s farm, the copra is brought to the sitio proper where it is bought and picked-up by the barangay assemblers. These assemblers, in turn, assemble all the copra bought from Sitio Coog and other neighboring sitios, barangays and municipalities in their warehouse in Bagangga. From Bagangga, the copra is loaded onto trucks, brought to the processing plant of Interco in Mati and sold there for processing.

Marketing Practices and Costs

34. Most of the coconut meat used for copra production come from the producers’ own coconut farms. In some cases, although none were interviewed for this study, other producers buy some coconuts from other farmers living in the upper portions of the barangay and other barangays further up since the farmers in these distant areas are reluctant to process their own copra because that would mean traversing a difficult, high sloping, extensive path carrying sackfuls of copra. Instead, they opt to sell their harvested coconuts to copra producers in the lower parts of Sitio Coog, Mahan-ub. 35. The process of making copra starts after the harvesting of nut when the nuts are husked and cracked open to reveal the meat. The meat is then scraped off from the nut and the process of drying begins. 36. There are two ways to dry copra in Sitio Coog, Mahan-ub. The first, done during sunny days, is the air- and sun-drying method where the nuts are merely exposed to the sun and air. This was the earliest, and is still the most extensively used, method of drying copra. 37. The second, more rapid process is through kiln drying where the copra is placed in a fire pit overlaid with a grid. This improvised kiln is also protected from the rain by a roof made from either woven coconut leaves or galvanized iron. This method produces better quality white copra than that of the sun-dried method. 38. Well-dried copra contains four to five percent (4-5%) moisture and 63 to 70% oil (www.britannica.com). 39. The copra is then put into sacks, each sack weighing 50 kilograms, brought to the sitio proper and sold to the barangay assembler. 40. One of the major costs incurred by the farmers is the labor cost since it is common for the farmers to enter into “60-40” contracts with hired laborers for all activities from harvest until the sacking of copra. The “60-40” agreement is a contract wherein the farmer passes on all harvest and post-harvest activities and responsibilities to the hired laborer given that the laborer gets the 60% share of the net earning from copra production. A modification in this agreement is the “50-50” agreement where the laborer agrees to split the net earning into half provided that the

6

farmer shoulders the food expenses of the laborers for the duration of the harvest and post-harvest activities. 41. Table 1 presents the summary of the marketing costs of copra for the farmers and other marketing levels. Table 1. Marketing costs for different marketing levels of copra (P/kg).

ACTIVITY FARMER ASSEMBLER

Cleaning 0.27 na Drying 1.76 na Packing 0.28 na Transportation 0.86 0.25 Labor na 0.25 Supplies and materials na 0.05 Utilities and other fees na 0.15 TOTAL 4.09 0.48

42. Within the barangay, there are two sets of traders, agents who purchase at small amounts and sell the assembled copra to the assemblers, and the barangay assemblers who sell the copra outside the barangay. 43. Although none of the farmers, interviewed for the study, had recent sales to such agents, there were anecdotal evidence established that the reason farmers sell to these traders is because they provide them with financing for food, medical supplies, and other household and personal expenses. The farmers who have debts with these agents, therefore, are bound to sell their copra to them at a P0.50 per kilogram-lower farm-gate price. 44. The barangay assembler brings the copra to Interco in the town of Mati. Interco is the biggest producer and exporter of copra oil in the province of Davao Oriental, much like Legaspi oil based in Davao City. 45. Most of the copra producers in Davao Oriental and nearby towns in the province of Surigao del Sur, bring their produce to Interco since it is the nearest major buyer of copra next to Davao City. 46. Interco’s purchasing activities include preliminary product examination where a small sample of copra is first tested of moisture content. Upon delivery, the assemblers, or any other seller, gets paid 70% of the estimated value of the delivered copra and only when the moisture content from the sample is known, about two weeks after, would the remaining 30% be paid to the seller.

7

47. At Interco, the copra are then processed into copra oil and its by-products and shipped for export.

Price Formation 48. At present, the price for copra is very low. Prices are dictated by the world market and demand. The prevailing farm-gate price for copra with 16% moisture content, in the area is pegged at a mere P4.50 per kilogram. This price has discouraged many farmers to continue copra production. In the past, farmers harvest coconut and produce copra more than three times a year, unlike at present where there is only one season of copra production per annum. 49. There are also some farmers who totally neglect their coconut trees hopefully waiting for copra prices to rise. 50. Thus, with very low copra prices, farmers venture into other forms of farming such as planting rice, corn, banana and root crops where capital turnover is more evident and the activities are relatively profitable.

Marketing Margins 51. Table 2 presents the marketing margins and Net Farm Income of the copra traders and farmer, respectively, the details of which are shown in Appendix A

Table 2. Marketing margins and income for copra at different marketing levels.

ITEM Farmer Barangay Assembler

Selling Price (P/kg) 3.93 5.00 Buying Price (P/kg) na 3.93 Marketing Margin (P/kg) na 1.07 Marketing Cost (P/kg) 0.86 0.48 Profit Margin (P/kg) na 0.59 Net Farm Income (NFI) (P/kg) (0.16) na MC as % of MM na 45% PM as % of MM na 55% %ROI nil 0.05% Opportunity Cost of Capital na 8%

52. The P –0.16 Net Farm Income (NFI) of the copra farmer, being less than zero (0), indicates that copra production and marketing in Sitio Coog, Bagangga is not profitable (Table 2).

8

53. The marketing margins (MM) are shown on Table 2. Of the P1.07 per kilogram marketing margin of the assembler, 55% accounts for the marketing costs while 45% is for profit.

54. To illustrate the marketing margin of the barangay assembler, Figure 3 shows the percentage of the marketing cost and the profit margin relative to the marketing margin.

Figure 3. Marketing margin of a copra assembler, Sitio Coog, Bagangga.

45%

55%

marketing cost

profit margin

55. On the other hand, the percentage of the processor peso, as indicated on Table 3, means that 66% and 34% of the final buying price (P5.00/kg) goes to the farmer and the assembler, respectively.

Table 3. Percentage share to the processor peso.

MARKETING LEVEL SELLING PRICE (P/piece) % SHARE

Farmer 3.93 66 Retailer 5.00 34

Figure 4. Percentage share of the processor peso.

farmer66%

assembler34%

9

WEAKNESSES

56. Although copra and its derivatives are one of the country’s top exports, the world demand for these commodities have decreased due to the presence of alternative sources of oil, which are healthier and safer. Copra prices, therefore, have been constantly decreasing.

57. Also, the duration of the two weeks allotted for determining the moisture content of the copra that the assemblers have to wait for before they get their final 30% payment, increases the inefficiency in marketing. This is due to the fact that the remaining 30% payment, if given during the actual of sale, could have been used by the assembler as capital in other profitable activities.

CONCLUSION

58. An analysis of the Net Farm Income (NFI) of the farmer show that the P –0.16 per kilogram NFI of the farmer means that copra production and marketing in Sitio Coog, Bagangga is not profitable. 59. On the side of the traders, an analysis of the marketing margins of copra as it was transferred from one marketing participant to another was done to determine which among the cost and the profit have the most share in the marketing margin (Table 2). Results show that 55% of the price mark-up is attributable to profit and that the actual cost of the product is 45% of the processor’s buying price. 60. The return on investment was also determined to show if the enterprise of the assembler is efficient, specifically if the sale of copra by the assemblers is profitable and efficient. A positive ROI, this indicates a profitable marketing of copra by the assembler. By further comparing this ROI to the opportunity cost of capital and determining that, in the case of copra marketing, it is lower, it can be concluded that the marketing of copra by the assembler, although profitable, is not efficient. This means that his profits are relatively small compared to the amount of investment he has put up in his copra-marketing activities. RECOMMENDATIONS 60. With current trend in demand and price of copra, farmers should be taught on the different and more profitable uses of coconut. The community should set up livelihood projects wherein handicrafts can be made from the leaves of the coconut, fiber (from the husk) and charcoal making.

10

REFERENCES

AGARRADO, R.E. et al. Marketing and Information Needs Assessment for Davao City. BAS-DA-USP, Davao City.

CORRE, S. 1996. A Market Efficiency Study for Palay/Rice in Biliran. Published

under the Small Islands Agricultural Support Services Programme. REVILLA, R.S. 1999. Production and Marketing of Sinta Papaya in Laguna, 1998.

Unpublished Undergraduate Thesis, CEM, UPLB, Laguna. VARGSA, R.. 2001. Coconut Industry Developmnt Program. A presentation on the

Third Mindanao Food Congress, Center for Food and Agri Business-UA&P, Pasig City.

UDP 1999. The Terms of Reference for Consultancy Services-Marketing Efficiency

Study. UDP, Davao City. www.britannica.com http://memory.loc.gov/frd/cs

11

APPENDIX A. Cost and returns per unit of Copra, Sitio Coog, Mahan-ub, Bagangga. ITEM P/kg

RETURNS Cash Sales 3.93 Total Cash Returns (A) 3.93 Non-cash Total Non-cash Returns (B) - TOTAL RETURNS (C ) 3.93 COSTS Cash Hired labor 2.61 Transportation 0.86 Land cost 0.10 Total Cash Costs (D) 3.57 Non-cash Unpaid family and/or exchange labor 0.09 Depreciation 0.09 Losses/Shrinkage of produce 0.05 Opportunity cost of capital 0.29 Total Non-cash Costs (E) 0.52 TOTAL COSTS (F) 4.09 Net Returns Above Cash Costs (C-D) 0.36 Net Farm Income (0.16)

12

APPENDIX B. Breakdown of costs per unit of copra, Sitio Coog, Mahan-ub, Bagangga.

ITEM P/kg

I. Production Cost Land cost 0.10 Depreciation 0.09 Own labor 0.03 Hired labor 0.41 Total Production Cost 0.63 II. Marketing Cost A. Cleaning/Dehusking Own labor 0.02 Hired labor 0.24 Losses/shrinkage 0.01 Sub-Total 0.27 B. Drying Own labor 0.01 Hired labor 1.73 Losses/shrinkage 0.02 Sub-Total 1.76 C. Sacking Own labor 0.03 Hired labor 0.24 Losses/shrinkage 0.01 Sub-Total 0.28 D. Transportation 0.86 Total Marketing Cost 3.17 III. Opportunity cost of capital 0.29 TOTAL COSTS 4.09

A MARKETING EFFICIENCY STUDY ON

TOMATO

IN BARANGAY TAGUIBO, MATI, DAVAO ORIENTAL

MAY 2001

Republic of the Philippines Department of Agriculture Upland Development Programme in

Southern Mindanao (UDP)

PREFACE This report is one of a series of market efficiency studies conducted in the UDP-covered areas for selected commodities. The marketing efficiency of tomato in Barangay Taguibo, Mati, Davao Oriental was evaluated through the deconstruction of existing marketing margins. Recommendations to improve marketing efficiency are herein offered. This report was prepared by: Jaymee Alcos Elizabeth Supangco Julianne Revilleza May 2001

ii

ACKNOWLEDGEMENTS Report data were gathered from a series of personal and group interviews with producers of tomato in Barangay Taguibo, Mati, Davao Oriental, traders and processors. The time and effort that the respondents have placed into this study are acknowledged. The following were the farmer- and trader-respondents of the study: Farmers: Retailers: Ernesto Tangaro Winnie Manabat Saturnino Ellos Benjamin Cayme Henriquito Pormentera Vicente Luberanes Eduardo Rosario Tita la Torre The valuable assistance extended by the Mati Municipal Agriculturist’s Office and the Taguibo Barangay Council is also recognized.

iii

TABLE OF CONTENTS

Page number Preface i Acknowledgements ii Table of Contents iii Definition of Terms iv Introduction 1 Marketing System of Tomato 3 Strengths 7 Weaknesses 7 Conclusion 8 Recommendations 8 References 9 Appendices

A. Cost and Returns per unit of tomato in Barangay Taguibo, Mati

10

B. Breakdown of costs per unit of tomato in Barangay Taguibo, Mati

11

iv

DEFINITION OF TERMS

Cash costs - costs where actual money is involved. Cash returns - the earnings, where actual money is involved, from the

sale of the farm produce. Depreciation - the expense brought about by the wear and tear of a

piece of equipment, building or tool used in an enterprise for a given period of time.

Economies of scale - the economic concept wherein production at a larger

scale (more output) can be achieved at a lower cost. Exchange labor - the value, non-monetary in nature, of the work (in man-

days) put in by neighbors, friends or other laborers in exchange for the farmers help with similar farm activities in their respective farms.

Given away - the value, non-monetary in nature, of the farm produce

given out by the farmer to others without any monetary payment.

Hired labor - the cash expense for engaging the services of farm

laborers. Home consumption - the value, non-monetary in nature, of the farm produce

consumed by the farmer and his family. Losses/shrinkage of produce - the value, non-monetary in nature, of the damages and

spoilage sustained by the produce. Market information - basic information on prices and quantities traded of

major commodities, from all markets—assembly, wholesale and retail.

Marketing channel - the inter-organizational system composed of

interdependent institutions tasked in moving the product from production to consumption.

Marketing efficiency - the maximization of the input-output relationship where

inputs refer to resources (land, labor, capital) used in moving the products from point of consumption to the point of production and output referring to consumer

v

satisfaction on goods and services made available in the market.

Marketing margin - the difference in prices between the different levels of

the marketing system. Marketing - series of services performed in moving the product

from the point of production to the point of consumption.

Net farm income - returns of the use of capital and labor. The overall profit

of the farm after all the expenses, cash and non-cash, have been paid off.

Non-cash costs - costs items used in the production process wherein no

direct outlays occurred or the costs incurred are not monetary in nature.

Non-cash returns - the value, non-monetary in nature, of the farm produce

consumed by the farmer and his family or those given away.

Opportunity cost of capital - the price of foregone opportunity in the use of the

capital invested in the enterprise. It is usually pegged at the current savings interest rate.

Point of consumption - last sale of the product. Point of production - point of first sale. Profit margin - the return to the middlemen for their entrepreneurship,

the risks and the cost of money. Return on investment - measures the amount of cash that the entrepreneur gets

from the capital investment after first paying the opportunity expenses on the value of family labor and management. It also determines how much money the producer got in return for every one peso invested.

Unpaid family labor - also called own labor. The value, non-monetary in

nature, of work (valued in man-days) by the farmer and his family.

1

TOMATO INTRODUCTION 1. Tomato (Lycopersicon esculentum mill), usually taken as a vegetable, is classified as a fruit. It is a vine-like plant that belongs to the nightshade family. Originally domesticated by the Incas of South America, the tomato plant thrives in a sunny, hot and humid environment. 2. Tomato is very versatile. It is commonly used in salads and in various dishes. It can also be made into tomato paste and further processed into tomato sauce, tomato juice and tomato catsup. Or can be used as the medium for sardines and other canned foods. 3. Mindanao has a favourable weather condition suited to tomato farming. Farmers can grow tomatoes anytime of the year, since tomato production is not seasonal in this region. 4. In Barangay Taguibo, Mati, Davao Oriental, where vegetable farming is the main activity of the farmers, tomato is one of the main produce, among other crops such as okra and sitaw. The farmers normally plant tomatoes three times in a year with an average yield of 765 kilograms per hectare. 5. Production activities include seedbed preparation, land preparation, planting/transplanting, fertilization, weed control, and finally harvesting. After two months from the time of transplanting, the tomatoes are ready for harvest. 6. The marketing efficiency study for tomatoes in Barangay Taguibo, Mati was conducted last March 12, 2001. Objectives 7. The main objective of the study is to assess the impact of existing marketing systems of tomato vis-à-vis income of the farmers. 8. Specifically, the study aims to determine the levels of participants in the marketing chain of tomato; 9. Determine the marketing practices involved in terms of storage, handling, pricing, delivery systems and terms of payment; 10. Determine the percentage of consumer price that the producer receives through the deconstruction of marketing margins of tomato at each level in the system, exclusive of production costs; 11. Identify strengths and weaknesses of the existing marketing system of tomato; and

2

12. Determine appropriate marketing interventions needed to improve economic efficiency of tomato in Barangay Taguibo, Mati. Methodology 13. From the initial agribusiness profile of UDP-Davao Oriental Barangay Taguibo, Mati was identified as the sole tomato-producing area in Davao Oriental. Purposive sampling of in Barangay Taguibo was done and seven (7) tomato farmers were interviewed. 14. The farmers were asked about their production and marketing practices, production and marketing costs of tomato. They were also asked on available market information with emphasis on what they need to know to improve their production and marketing practices, thereby increasing the farmers’ income. 15. The respective buyers of tomato from each farmer were then traced accordingly. 16. The traders were, in turn, asked about their marketing, costs, and the problems and constraints they have encountered in the marketing of tomato. 17. The marketing margins (MM), or the total value added to the tomato per kilogram as it moves along one marketing channel to another, were then deconstructed and the profitability of each marketing participant was also analysed. The Net Farm Income (NFI) of the farmers was determined. An NFI greater than zero (0) would mean that the production and marketing activities of the tomato farm is profitable, whereas an NFI less than zero (0) would mean that the farm is at a loss. 18. The Return on Investment (ROI) of the traders was compared with the opportunity cost of capital, pegged at the current savings interest rate of eight percent (8%) per annum. An ROI higher than the opportunity cost of capital would mean that marketing tomato is more profitable than just saving the trader’s money in a bank. While an ROI less than the opportunity cost of capital would mean that it would be more profitable for the trader to invest his money in a bank rather than spend it on marketing tomato. 19. The percent share to the consumer peso of each marketing participant was also determined by getting the percentage of the marketing participant’s selling price (in the case of traders, less their buying price) relative to the final buying price of the consumer. This indicates the proportion of the final buying price that goes to each marketing participant for tomato. 20. Moreover, focused group discussions (FGDs) with key informants and selected farmers were conducted to probe into the importance and the demand for market information in each province. This provided rapid feedback on the available market information and the information dissemination strategies existing in the area.

3

21. Also, key informants such as the Municipal Agriculturists and the Agricultural Technicians were interviewed to obtain an overview of the local agriculture industry. Limitations and Constraints 22. Upon interview, the farmers only recalled past production level, income, farm tools and equipment used, as there were no records kept of their operations. Thus the cost and return that were analyzed were only estimates. The Return on Investment (ROI) was excluded on the analysis of the farmer’s income due to the ambiguity of the values arrived at, as some factors on capital investment were not quantified. For instance, land valuation was excluded because none of the farmers hold titles to the land that they cultivate. Land, therefore, was not considered a fixed investment in this enterprise and was merely considered as an expense through the credit of land cost (land tax if owned, rent if tenanted).

23. On the marketing aspect, the respondents interviewed were the middlemen identified by the farmers. Most of who also based their answers on their memories since they too do not keep records of their marketing operations.

24. On the analysis of the marketing efficiency of the farmers, only the Net Farm Income (NFI) analysis was utilized since the available data could only allow for this kind of analysis and not the more complicated input-output efficiency analyses.

25. Lastly, the size of the tomato market, specifically, the estimation of demand was not included in the study.

Margin of Error

26. Aside form the UDP Agribusiness Profile, there are no other available data on the population size of tomato producers in the area. The margin of error on the analysis, therefore, cannot be established since the formula requires not only the sample size, but the population size as well.

THE MARKETING SYSTEM OF TOMATO Marketing Channels

27. The marketing participants involved in the tomato marketing system in Barangay Taguibo, Mati are as follows:

a. Farmer

A person engaged in tomato cultivation for sustenance or commercial purposes. They

sell their produce directly to retailers in the Mati Public Market; and

4

b. Retailers

Based in the Mati Public Market, a person who procures tomato from the farmers then sells it to the consumers.

28. Based on farmer interviews, an estimated 8,912 kilograms of tomatoes were sold in one cropping season and the following product flow was established:

Figure 1. Product flow of Tomato from Barangay Taguibo, Mati. 100% 93% 88% Selling Price (P/piece): Farmer Retailer

6.00 8.00

29. Figure 1 shows that the farmers directly sell their produce to the retailers. Transport of tomato from the farm to the market accounts a seven percent (7%) loss for the farmer. While an estimated five percent (5%) loss was incurred during the trade between the retailer and the consumer. 30. The produce is sold directly to the public market of Mati since the farmers cannot penetrate to the other markets such as Davao City, Compostela Valley and other nearby markets. Figure 2 illustrates the geographical flow of the produce.

Figure 2. Geographical flow of tomatoes from Barangay Taguibo, Mati. Marketing Practices and Costs 31. The main marketing activities done by the farmer is to clean, select and pack the tomatoes. On wet seasons, the tomatoes are cleaned and wiped with dry cloth. Removing tomatoes with holes or those with rotten parts, good tomatoes are then selected and packed into baskets of 70 kilograms each. 32. Since tomato is a highly perishable crop, storing is strongly discouraged. After harvesting the tomatoes in the morning, it is then disposed for sale immediately at the market in the afternoon. 33. Tomato easily rots if the packaging is poor. Thus, losses incurred during transport are attributed to poor packaging and bad farm-to-market roads.

FARMER MATI

FARMER RETAILER CONSUMER

7% 5%

5

34. The primary mode of transportation from the farm to the market is passenger jeeps plying the route. The farmers load the produce onto the jeeps themselves and sell it to their buyers in the market, the retailers. The retailers pay the farmers in cash. 35. In selling the produce, the retailers use ordinary plastics for packaging. They do not accept credits from their buyers. 36. Table 1 shows the costs and profit by each participant in the marketing chain. Table 1. Marketing costs for different marketing levels of tomatoes (P/kg).

ACTIVITY FARMER RETAILER Cleaning 0.07 na Grading/Sorting 0.09 na Packing 0.04 na Transportation 0.24 0.08 Labor na 0.03 Supplies and materials na 0.02 Utilities and other fees na 0.25 Non-cash costs na 0.32 TOTAL 0.44 0.70

37. Results show that the retailers incurred a higher cost compared to the farmers. This cost can be attributed to the high stall rentals and other overhead expenses. 38. Losses incurred are considered excessive for farmers. This can be attributed to the mishandling of the tomatoes. Tomatoes are only packed in sacks or baskets. Thus, when the baskets are stacked in the passenger jeepney, those on top crush the tomatoes below it. 39. On the other hand, losses incurred in the retail level were due to the perishable nature of the tomato. Price Formation 40. The price for tomato is highest during the months of May and June (in time for the fiesta celebrations and the start of the school), and the Christmas season in December. Retail prices during these periods usually stand at P15.00 per kilogram while on lean months at P3.00 per kilogram.

6

Marketing Margin 41. Marketing margin for the tomato retailer is shown in Table 2 and Figure 3. The Net Farm Income of the tomato farmer, as shown in detail on Appendix A, is also presented on the table below. Table 2. Marketing margins and income for tomatoes at different marketing levels.

ITEM Farmer Retailer

Selling Price 5.00 8.00 Buying Price na 5.00 Marketing Margin na 3.00 Marketing Cost 0.44 0.70 Profit Margin nil 2.30 Net Farm Income 0.09 2.30 MC as % of MM na 23% PM as % of MM na 77% % ROI nil 40% Opportunity Cost of Capital na 8%

Figure 3. Marketing margin of a tomato retailer, Barangay Taguibo, Mati.

77%

23%

Retailer

% MC

% PM

42. Marketing margin is the difference of the selling and buying price. It is also arrived at by adding the profit margin (77%) and marketing cost (23%). Note that profit margin dominates the marketing margin composition. 43. The breakdown of consumer peso is shown in Table 3 and Figure 4.

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Table 3. Percentage share of tomato prices to the consumer peso (P/kg). Marketing Participants Selling Price % Share Farmers 5.00 60 Retailer 8.00 40

Figure 4. Percentage share of tomato prices to the consumer peso.

Farmer60%

Retailer40%

44. This indicates that 60% of the retail price goes to the farmer and the remaining 40% goes to the retailer. This suggests that for every peso spent by the consumer, P0.60 is enjoyed by the farmer and remaining percentage by the retailer. STRENGTHS 45. There is a high demand for tomatoes in Mati. The market alone absorbs all tomato produce from Barangay Taguibo and some surplus from Maragusan, Compostela Valley. WEAKNESSES 46. The high influx of tomatoes from Maragusan, Compostela Valley is in competition with the Barangay Taguibo tomatoes since Maragusan tomatoes are sold at a much lower price. The Maragusan tomato traders could afford to lower their price because their productions costs are perceived to be lower brought about by the economies of scale given that there is a large production in that municipality. 47. Another problem in the marketing of tomato is the poor packaging material and practices that hasten tomato spoilage, thereby increasing losses on the part of the farmers and retailers.

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CONCLUSION 48. With a Net Farm Income of P0.09 per kilogram, it can be concluded that the farmer is earning a profit in tomato production, thus, making them efficient. 49. For the retailer, results showed that profit margin has a larger share of 77% in the marketing margin compared to that of the marketing cost at 23% making the tomato retail enterprise efficient. By comparing the ROI with the opportunity cost it could also be concluded that the retailer is operating efficiently since the ROI (40%) is greater than opportunity cost of capital (8%). RECOMMENDATIONS 50. Based on the strength, weaknesses and conclusions drawn from the study, the following recommendations are herein offered: • For the farmers and traders to increase their profit, marketing losses should be

reduced by using proper packaging materials such as bamboo containers or newly developed plastic bags such as those utilized to ship vegetables from Baguio City;

• Farmers are also encouraged to increase production to compete with the

producers from Maragusan. However a market study should be done to determine the size of the market in Mati.

• Farmer associations or cooperatives in Taguibo, Mati may also be formed so

that they could assemble and sell tomatoes in a larger scale.

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REFERENCES AGARRADO, R.E. et al. Marketing and Information Needs Assessment for Davao

City. BAS-DA-USP, Davao City. CORRE, S. 1996. A Market Efficiency Study for Palay/Rice in Biliran. Published

under the Small Islands Agricultural Support Services Programme. REVILLA, R.S. 1999. Production and Marketing of Sinta Papaya in Laguna, 1998.

Unpublished Undergraduate Thesis, CEM, UPLB, Laguna. UDP 1999. The Terms of Reference for Consultancy Services-Marketing Efficiency

Study. UDP, Davao City.

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APPENDIX A. Cost and returns per unit of tomatoes in Barangay Taguibo, Mati.

ITEM P/kg

RETURNS Cash Sales 5.00 Total Cash Returns (A) 5.00 Non-cash Home consumption 0.01 Given away 0.01 Total Non-cash Returns (B) 0.02 TOTAL RETURNS (C ) 5.02 COSTS Cash Land cost 0.23 Planting material (seeds) 0.87 Fertilizers 1.23 Pesticides 0.60 Hired labor 0.17 Transportation 0.16 Others (rope and baskets) 0.08 Total Cash Costs (D) 3.34 Non-cash Unpaid family and/or exchange labor 1.19 Depreciation 0.10 Losses/Shrinkage of produce 0.03 Opportunity cost of capital 0.27 Total Non-cash Costs (E) 1.59 TOTAL COSTS (F) 4.93 Net Returns Above Cash Costs (C-D) 1.68 Net Farm Income 0.09

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APPENDIX B. Breakdown of costs per unit of tomatoes in Barangay Taguibo, Mati.

ITEM P/kg

I. Production Cost Land cost 0.23 Depreciation 0.10 Planting material (seeds) 0.87 Fertilizers 1.23 Pesticides 0.60 Own labor 1.01 Hired labor 0.10 Others (rope and baskets) 0.08 Total Production Cost 4.22 II. Marketing Cost A. Cleaning Own labor 0.06 Losses/shrinkage 0.01 Sub-Total 0.07 B. Grading/sorting Own labor 0.08 Losses/shrinkage 0.01 Sub-Total 0.09 C. Packing Own labor 0.04 Sub-Total 0.04 D. Transportation Hired labor 0.07 Transportation 0.16 Losses/shrinkage 0.01 Sub-Total 0.24 Total Marketing Cost 0.44 III. Opportunity cost of capital 0.27 TOTAL COSTS 4.93

A MARKETING EFFICIENCY STUDY ON

ABACA

IN BARANGAY PITU, MALALAG, DAVAO DEL SUR

MAY 2001

Republic of the Philippines Department of Agriculture Upland Development Programme in

Southern Mindanao (UDP)

i

PREFACE This report is one of a series of market efficiency studies conducted in the UDP-covered areas for selected commodities. The marketing efficiency of abaca in Barangay Pitu, Malalag, Davao del Sur was evaluated through the deconstruction of existing marketing margins. Recommendations to improve marketing efficiency are herein offered. This report was prepared by: Jaymee Alcos Elizabeth Supangco Julianne Revilleza May 2001

ii

ACKNOWLEDGEMENTS Report data were gathered from a series of personal and group interviews with farmers of abaca in Barangay Pitu, Malalag, Davao del Sur. The time and effort that the respondents have placed into this study are acknowledged. The following were the farmer- and retailer-respondents of the study: Farmers: Assemblers: Assembler-shipper: Martinez Tuzan Florentino Rosario Alberto “Boy” Mante Margarito Lino Emerissa Aradani Tagawa Angos Bernardo Aranda Luis Tungon Donio Takas The valuable assistance extended by the Malalag Municipal Agriculturist’s Office and the Pitu Barangay Council is also recognized.

iii

TABLE OF CONTENTS

Page number Preface i Acknowledgements ii Table of Contents iii Definition of Terms iv Introduction 1 Marketing System of Abaca 4 Strengths and Weaknesses 8 Conclusion 8 Recommendations 9 References 10 Appendices A. Cost and Returns per unit of abaca in

Barangay Pitu, Malalag 11

B. Breakdown of costs per unit of Abaca in Barangay Pitu, Malalag

12

iv

DEFINITION OF TERMS

Cash costs - costs where actual money is involved. Cash returns - the earnings, where actual money is involved, from the

sale of the farm produce. Depreciation - the expense brought about by the wear and tear of a

piece of equipment, building or tool used in an enterprise for a given period of time.

Exchange labor - the value, non-monetary in nature, of the work (in man-

days) put in by neighbors, friends or other laborers in exchange for the farmers help with similar farm activities in their respective farms.

Hired labor - the cash expense for engaging the services of farm

laborers. Losses/shrinkage of produce - the value, non-monetary in nature, of the damages and

spoilage sustained by the produce. Market information - basic information on prices and quantities traded of

major commodities, from all markets—assembly, wholesale and retail.

Marketing channel - the inter-organizational system composed of

interdependent institutions tasked in moving the product from production to consumption.

Marketing efficiency - the maximization of the input-output relationship where

inputs refer to resources (land, labor, capital) used in moving the products from point of consumption to the point of production and output referring to consumer satisfaction on goods and services made available in the market.

Marketing margin - the difference in prices between the different levels of

the marketing system. Marketing - series of services performed in moving the product

from the point of production to the point of consumption.

v

Net farm income - returns of the use of capital and labor. The overall profit of the farm after all the expenses, cash and non-cash, have been paid off.

Non-cash costs - costs items used in the production process wherein no

direct outlays occurred or the costs incurred are not monetary in nature.

Non-cash returns - the value, non-monetary in nature, of the farm produce

consumed by the farmer and his family or those given away.

Opportunity cost of capital - the price of foregone opportunity in the use of the

capital invested in the enterprise. It is usually pegged at the current savings interest rate.

Point of consumption - last sale of the product. Point of production - point of first sale. Profit margin - the return to the middlemen for their entrepreneurship,

the risks and the cost of money. Return on investment - measures the amount of cash that the entrepreneur gets

from the capital investment after first paying the opportunity expenses on the value of family labor and management. It also determines how much money the producer got in return for every one peso invested.

Unpaid family labor - also called own labor. The value, non-monetary in

nature, of work (valued in man-days) by the farmer and his family.

ABACA

INTRODUCTION 1. The abaca plant (Musa textilis nee) of the Musacea family is known worldwide as Manila Hemp. It is indigenous to the Philippines with the country’s favourable climatic condition and volcanic soils that are suited to its cultivation. 2. The Philippines is the world's largest source and supplier of abaca fiber. It is used in the manufacture of cordage for many years now. While abaca fiber is also used for pulp in specialty paper manufacture, it only came into commercial use in the 1930's. 3. In the Philippines, there are three regions that produce abaca in commercial quantity, namely: Mindanao, Visayas and Bicol. Each of these regions supplies different varieties and hybrids of abaca. 4. Compared to a banana, the abaca plant has more slender stalk, narrower and pointed leaves and a more pronounced dark line on the right hand side of the upper surface of its blade. Its fruits are smaller, non-edible and contain many seeds. 5. It propagates itself through suckering, or the growing of shoots from the roots. When all the leaves have been formed from the stem, flower buds develop, at which time the plant has reached maturity and is then ready for harvest. 6. Under normal conditions, the first harvest is done from 18 to 24 months after planting. Stalks are considered mature and are then harvested when the flag-leaf appears. The period of good fiber recovery extend for more than one month from flag-leaf to early inflorescence. 7. Harvesting of abaca involves mainly the cutting down of the plant. There are two stages in the harvesting process, namely topping and tumbling. In topping, the leaves are cut at the base of the petiole with the use of a knife or sickle fastened at the end of a bamboo or wooden pole. While in tumbling, the topped stalks then tumbled down with the use of a bolo knife. 8. In Barangay Dalupan, Don Marcelino, abaca production has become a major agricultural activity next to coconut production. Each farmerhas an average of 1.8 hectares planted to abaca, with an average yield of 100 kilograms per harvest. 9. The marketing efficiency study for abaca in Barangay Dalupan, Don Marcelino was conducted in March 12, 2001.

2

Objectives 10. The main objective of the study is to assess the impact of existing marketing systems of abaca vis-à-vis income of the farmers. 11. Specifically, the study aims to determine the levels of participants in the marketing chain of abaca; 12. Determine the marketing practices involved in terms of storage, handling, pricing, delivery systems and terms of payment; 13. Determine the percentage of consumer price that the producer receives through the deconstruction of marketing margins of abaca at each level in the system, exclusive of production costs; 14. Identify strengths and weaknesses of the existing marketing system of abaca; and 15. Determine appropriate marketing interventions needed to improve economic efficiency of abaca in Barangay Dalupan, Don Marcelino. Methodology 16. From the initial agribusiness profile of UDP- Davao del Sur, 20 abaca farmers were identified, five of which come from Barangay Dalupan, Don Marcelino. Complete enumeration of the Dalupan abaca farmers was done for the interview. 17. The farmers were asked about their production and marketing practices, production and marketing costs of abaca. They were also asked on available market information with emphasis on how to improve their production and marketing practices to increase the farmer’s income. 18. The respective buyers of abaca from each farmer were then traced accordingly. 19. The traders were, in turn, asked about their marketing, costs, and the problems and constraints they have encountered in the marketing of abaca. 20. The marketing margins (MM), or the total value added to the abaca per kilogram as it moves along varying marketing channels, were then deconstructed and the profitability of each marketing participant was analysed. The Net Farm Income (NFI) of the farmers was determined. An NFI greater than zero (0) would mean that the production and marketing activities of the abaca farm is profitable, whereas an NFI less than zero (0) would mean that the farm is at a loss. 21. The Return on Investment (ROI) of the trader was compared with the opportunity cost of capital, pegged at the current savings interest rate. An ROI higher

3

than the opportunity cost of capital would mean that marketing abaca is more profitable than just saving the trader’s money in a bank. While an ROI less than the opportunity cost of capital would mean that it would be more profitable for the trader to invest his money in a bank rather than spend it on marketing abaca. 22. The percent share to the consumer peso of each marketing participant was also determined by getting the percentage of the marketing participant’s selling price (in the case of traders, less their buying price) against the final buying price of the consumer. This indicates the proportion of the final buying price that goes to each marketing participant for abaca. 23. Moreover, focused group discussions (FGDs) with key informants and selected farmers were conducted to probe into the importance and the demand for market information in each province. This provided rapid feedback on the available market information and the information dissemination strategies existing in the area. 24. Also, key informants such as the Municipal Agriculturists and the Agricultural Technicians were interviewed to obtain an overview of the local agriculture industry. Limitations and Constraints 25. Upon interview, it was observed that the farmers only recalled past production level, income, farm tools and equipment used as there were no records kept of their operations. Thus the cost and return that were analysed were only estimates. The Return on Investment (ROI) was excluded on the analysis of the farmer’s income due to the ambiguity of the values arrived at, as some factors on capital investment were properly quantified. For instance, land valuation was excluded because none of the farmers hold titles to the land that they cultivate. Land, therefore, was not considered a fixed investment in this enterprise and was merely considered as an expense through the credit of land cost (land tax if owned, rent if tenanted). 26. To represent the marketing activities, the respondents interviewed were the middlemen identified by the farmers. Most also based their answers on their memories since they too did not keep records of their marketing operations. 27. On the analysis of the marketing efficiency of the farmers, only the Net Farm Income (NFI) analysis was utilized since the available data could only allow for this kind of analysis and not the more complicated input-output efficiency analyses. 28. Lastly, the size of the abaca market, specifically, the estimation of demand was not included in the study. Margin of Error 29. Aside form the UDP Agribusiness Profile, there are no other available data on the population size of abaca producers in the area. The margin of error on the

4

analysis, therefore, cannot be established since the formula requires not only the sample size, but the population size as well.

MARKETING SYSTEM OF ABACA Marketing Channels 30. The marketing participants involved in the abaca commodity system in Barangay Dalupan, Don Marcelino are as follows: a. Farmer A person or entity involved in the production, post harvest and marketing of the produce to the traders. b. Assembler A person or entity who purchases the abaca produce from the farmers and sells it to the assembler-shipper. There are three assemblers found in the area. One is the barangay-assembler found in Barangay Dalupan, the other in the neighboring Barangay Nueva Villa and the third one is the municipal assembler from the Poblacion market. c. Assembler- shipper A person or entity who purchases the abaca from the assembler and ships it to the processing plants in Iligan, Manila and Davao City. Boy Mante as an assembler – shipper monopolizes the buying of abaca fibers in Davao del Sur. With the abaca-trading centre in Malita, he buys his abaca fibers at an average of P24/kg from Davao del Sur and other areas of Southern Mindanao. Mante did not divulge his selling price on the processing plants because he considers it a trade secret. 31. Abaca marketed from the producers was traced from the farms to the retailers and the product flow is established.

CONSUMER

100% 97.2 97.2 95.35%

Figure 1. Product flow of abaca, Dalupan, Don Marcelino.

FARMER PROCESSOR A-SHIPPER ASSEMBLER

5

32. The product flow of the abaca fiber begins at the producer then is passed on to the assembler, assembler-shipper and processor successively. The processor would transform the fiber then sells the finished product to local and international markets. This study however would only focus on the farmer to assembler-shipper level. 33. As shown in Figure 1, one hundred percent (100%) of farmer’s production was sold to the assembler. But, before reaching the assembler, a 2.8% loss was incurred during grading and transporting of the produce. The assembler then forwards 97.2% of the total farm produce to the assembler-shipper, incurring a marketing loss of 1.85%. Then the assemblers-shiper would transport the fiber to Malita, then direct it to the processing plants in Iligan, Davao City and Manila.

Marketing Practices and Costs 34. Upon harvesting of the pulps, hired hagoteros would strip and refine the fibers. The fibers are then hanged to sundry. Dried fibers are then classified accordingly:

§ Class A for white fibers § Class B for yellow fibers § Class C for fibers with black spots or speckles.

36. Final grading classification is done in the trading areas. 37. Farmers, who have financing tie-ups with an assembler, direct their produce to the financier. Farmers who have no tie-ups with the assembler are paid in cash. 38. Farmers transport their produce to the trading center either on foot or on a horse because poor road conditions make it inaccessible to motorized vehicles. 39. The assembler purchases an average of 100 kilogram of abaca from each farmer for P20 per kilogram then sells it for P24 per kilogram of the assembler-

DON MARCELINO MARKET

DALUPAN, DON MARCELINO

MALITA

ILIGAN

DAVAO

NUEVA VILLA, DM MANILA 19.07%

7.63%

68.65%

FARMER

Figure 2. Geographical flow of abaca.

6

shipper. The assembler performs trimming and grading of the abaca to increase profit. The assembler hires a jeep to transport his produce to the trading centre of the assembler-shipper. 40. The main participation of the assembler-shipper is to collect all the abaca from the assembler and ship it to the processing plants. 41. Table 1 summarizes the marketing costs for each market level. Table 1. Marketing costs at different levels of abaca (P/kg).

ACTIVITY FARMER ASSEMBLER ASSEMBLER-

SHIPPER Peeling 2.11 na na Stripping 2.03 na na Drying 2.34 na na Bundling 2.16 na na Transportation 1.00 0.75 1.00 Labor na 0.32 0.5 Fees and payments na 0.42 na Supplies and Materials na na 0.02 Non-Cash costs na 0.42 0.56 TOTAL 9.63 1.91 2.08 42. Results showed that the farmer incurred the highest marketing cost at P9.63 per kilogram accounting to a high post harvest activity cost. With a relatively higher transportation cost, the assembler-shipper incurred a P2.08 per kilogram marketing cost. The assembler, on one hand, only has P1.91 per kilogram marketing cost.

Price Formation 43. Local prices of fiber are dependent on the world-market prices. However, prices of abaca have become consistent and fluctuations that may occur are only minimal. 44. In Barangay Dalupan alone, abaca prices at the farmer level range from P19 per kilogram to P20 per kilogram. The assemblers on the other hand are priced at P24 per kilogram and P32 per kilogram for the assembler-shipper.

7

Marketing Margins 45. Shown below is the tabular weekly margins and Net Farm Income (NFI) for abaca at different levels. Table 2. Marketing margins and NFI for abaca at different levels.

FARMER ASSEMBLER ASSEMBLER-SHIPPER

Selling Price 20.00 23.00 32.00 Buying Price na 20.00 23.00 Marketing Margin na 3.00 9.00 Marketing Cost 9.63 1.91 2.08 Profit Margin na 1.09 6.92 Net Farm Income (NFI) (6.12) na na

MC as % of MM na 64 23 PM as % of MM na 36 77 %ROI nil 1.65% 15.77% Opportunity Cost of Capital na 8% 8% 46. This indicates that the marketing margin from the farmer to the assembler is P3.00 per kilogram, with the buying price at P20.00 per kilogram and selling price of P23.00 per kilogram (Table 2). From the assembler-shipper to the processing plant, the marketing margin is P9.00 per kilogram. 47. Graphically, Figure 3 illustrates the marketing margins of abaca.

Figure 3. Marketing margins of abaca.

23%

64%

77%36%

Assembler Assembler-shipper

%PM

%MC

8

48. Illustrated in Figure 3, the assembler-shipper obtains a higher profit margin as compared to the assembler.

STRENGTH AND WEAKNESSES 49. The greatest strength of abaca is its established market for fiber such that the industry is always assured of buyers. 50. However, one weakness identified is the existence of monopoly in the marketing structure. This limits the choices of the farmers on who to sell to. Since the farmers are forced to sell to one assembler-shipper, the assembler-shipper could dictate the buying price of abaca. 51. In addition to this weakness is low abaca prices since local prices depend on the world price. This low price discourages farmers and traders alike to venture in into abaca production and marketing.

CONCLUSION

52. Results showed that the farmer is not gaining any profit with its Net Farm Income of negative P6.12 per kilogram Appendix A). This means that the abaca farmers in Barangay Dalupan, Don Marcelino are producing inefficiently. 53. In assessing the cost efficiency at the trader level, the percentage of the marketing cost and profit margin in the marketing margin. It was determined that the assembler-shipper has a higher profit margin of 77% than the assembler with only 23%. Data showed that a higher percentage of the marketing margin for the assembler goes to the marketing cost at 64%. 54. Since the percentage of the assembler’s marketing cost is higher than that of the assembler-shipper, this signifies that the assembler has no power in increasing the selling price of his fiber. It is therefore concluded that the assembler is performing inefficiently. Moreover, the assembler-shipper is performing efficiently accounts to the low marketing cost. 55. Another way of examining the efficiency is through the ROI. Table 2 shows that the ROI of the assembler is less than 8%, while that of the assembler-shipper is greater than 8%. This verifies that the assembler is performing inefficiently and the latter is performing efficiently.

9

RECOMMENDATION 56. Results of the study show that production of abaca is costly. Studies to lessen the cost of production should also be considered such as Partial Budget analysis on mechanization of the farm. 57. Economies of scale in production should be established to reduce the cost of production. Farmers should increase their production in order to lessen the cost thus increasing its profit. 58. Transfer of technology about the processing of abaca would help the farmers gain other markets for their processed abaca. Livelihood projects should be introduced to the farmers to increase their markets thus increasing their income.

10

REFERENCES AGARRADO, R.E. et al. Marketing and Information Needs Assessment for Davao

City. BAS-DA-USP, Davao City. CUNNINGHAM, T, 2000. Commodity Profile. UDP. REVILLA, R.S. 1999. Production and Marketing of Sinta Papaya in Laguna, 1998.

Unpublished Undergraduate Thesis, CEM, UPLB, Laguna. UDP 1999. The Terms of Reference for Consultancy Services-Marketing Efficiency

Study. UDP, Davao City.

11

APPENDIX A. Cost and returns per unit of Abaca in Barangay Dalupan, Don Marcelino.

ITEM P/kilogram

RETURNS Cash Sales 20.00 Total Cash Returns (A) 20.00 Total Non-cash Returns (B) 0 TOTAL RETURNS (C ) 20.00 COSTS Cash Planting material 7.31 Land Cost 0.68 Hired Labor 13.92 Transportation 0.59 Total Cash Cost (D) 22.50 Non-cash Unpaid family and/or exchange labor 0.45 Depreciation 0.64 Losses/Shrinkage of produce 0.71 Opportunity cost of capital 1.82 Total Non-cash Costs (E) 3.62 TOTAL COSTS (F) 26.12 Net Returns Above Cash Costs (C-D) (2.50) Net Farm Income (6.12)

12

APPENDIX B. Breakdown of costs per unit of Abaca in Barangay Dalupan, Don Marcelino.

ITEM P/kg I. Production Cost Land 0.68 Depreciation 0.64 Corms 7.31 Own Labor 6.21 Hired Labor 7.33 Total Production Cost 16.17 II. Marketing Cost A. Peeling Own Labor 0.06 Hired Labor 1.64 Loses/Shrinkage 0.12 Subtotal 1.82 B. Stripping Own Labor 0.06 Hired Labor 1.63 Loses/Shrinkage 0.17 Subtotal 1.86 C. Drying Own Labor 0.06 Hired Labor 1.63 Loses/Shrinkage 0.14 Subtotal 1.83 D. Bundling Own Labor 0.06 Hired Labor 1.63 Loses/Shrinkage 0.16 Subtotal 1.85 E. Transportation Hired labor 0.06 Transportation 0.59 Losses/shrinkage 0.12 Sub-Total 0.77 Total Marketing Cost 8.13 III. Opportunity cost of capital 1.82 TOTAL COSTS 26.12

A MARKETING EFFICIENCY STUDY ON

CARROT

IN BARANGAY PITU, MALALAG, DAVAO DEL SUR

MAY 2001

Republic of the Philippines Department of Agriculture Upland Development Programme in

Southern Mindanao (UDP)

i

PREFACE This report is one of a series of market efficiency studies conducted in the UDP-covered areas for selected commodities. The marketing efficiency of carrot in Barangay Pitu, Malalag, Davao del Sur was evaluated through the deconstruction of existing marketing margins. Recommendations to improve marketing efficiency are herein offered. This report was prepared by: Jaymee Alcos Elizabeth Supangco Julianne Revilleza May 2001

ii

ACKNOWLEDGEMENTS Report data were gathered from a series of personal and group interviews with producers and traders of carrots in Barangay Pitu, Malalag, Davao del Sur. The time and effort that the respondents have placed into this study are acknowledged. The following were the farmer- and trader-respondents of the study: Farmers: Traders: Retailers: Virgilio Tampipi Henry Ludivice Rolando Delmo Danilo Alon Arman Ludivice Leonora Ruto Librado Suerte Sr. Ortega Alon Fernando Aya The valuable assistance extended by the Malalag Municipal Agriculturist’s Office and the Pitu Barangay Council is also recognized.

iii

TABLE OF CONTENTS

Page number Preface i Acknowledgements ii Table of Contents iii Definition of Terms iv Introduction 1 Marketing System of Carrot 4 Strength and Weaknesses 9 Conclusion 10 Recommendations 10 References 11 Appendices

A. Cost and Returns per unit of carrot in Barangay Pitu, Malalag

12

B. Breakdown of costs per unit of carrot in Barangay Pitu, Malalag

13

iv

DEFINITION OF TERMS Cash costs - costs where actual money is involved. Cash returns - the earnings, where actual money is involved, from the

sale of the farm produce. Depreciation - the expense brought about by the wear and tear of a

piece of equipment, building or tool used in an enterprise for a given period of time.

Economies of scale - the economic concept wherein production at a larger

scale (more output) can be achieved at a lower cost. Exchange labor - the value, non-monetary in nature, of the work (in man-

days) put in by neighbors, friends or other laborers in exchange for the farmers help with similar farm activities in their respective farms.

Given away - the value, non-monetary in nature, of the farm produce

given out by the farmer to others without any monetary payment.

Hired labor - the cash expense for engaging the services of farm

laborers. Home consumption - the value, non-monetary in nature, of the farm produce

consumed by the farmer and his family. Losses/shrinkage of produce - the value, non-monetary in nature, of the damages and

spoilage sustained by the produce. Market information - basic information on prices and quantities traded of

major commodities, from all markets—assembly, wholesale and retail.

Marketing channel - the inter-organizational system composed of

interdependent institutions tasked in moving the product from production to consumption.

Marketing efficiency - the maximization of the input-output relationship where

inputs refer to resources (land, labor, capital) used in moving the products from point of consumption to the point of production and output referring to consumer satisfaction on goods and services made available in the market.

v

Marketing margin - the difference in prices between the different levels of

the marketing system. Marketing - series of services performed in moving the product

from the point of production to the point of consumption.

Net farm income - returns of the use of capital and labor. The overall profit

of the farm after all the expenses, cash and non-cash, have been paid off.

Non-cash costs - costs items used in the production process wherein no

direct outlays occurred or the costs incurred are not monetary in nature.

Non-cash returns - the value, non-monetary in nature, of the farm produce

consumed by the farmer and his family or those given away.

Opportunity cost of capital - the price of foregone opportunity in the use of the

capital invested in the enterprise. It is usually pegged at the current savings interest rate.

Point of consumption - last sale of the product. Point of production - point of first sale. Profit margin - the return to the middlemen for their entrepreneurship,

the risks and the cost of money. Return on investment - measures the amount of cash that the entrepreneur gets

from the capital investment after first paying the opportunity expenses on the value of family labor and management. It also determines how much money the producer got in return for every one peso invested.

Saved for seeds - the value, non-monetary in nature, of the farm produce

kept by the farmer for use as planting material in the following production cycles.

Unpaid family labor - also called own labor. The value, non-monetary in

nature, of work (valued in man-days) by the farmer and his family.

CARROT INTRODUCTION 1. The carrot (Daucus carota) of the parsley family (parsley, parsnip, celery, etc.) is a cultivated-biennial plant that normally requires two growing seasons with a cool rest between them to complete its life cycle; from the planting of the seed to the maturing of the seeds. A single season will cover 60 to 90 days depending on the variety and growing conditions. 2. The carrot root not only anchors the plant, but also absorbs nutrients from the soil and acts as a storage depot for carbohydrates, especially starch and sugar. A carrot root is produced in a suitable size best for marketing. 3. Carrots grow best at temperatures between 60° and 70°F. On hot, bright, sunny days young plants may be badly injured or ruined caused by a developing high temperature at or below the soil surface. Prolonged hot weather during the later development stage of the plant may not only retard growth and depress yield, but also may cause undesirable strong flavor and coarseness in the roots. Temperatures below 50°F tend to make the roots longer, more slender, and paler in color than is typical. 4. Deep sandy loams and muck soils are most desirable for carrot culture. Such soils are among the easiest to work with. Also, it permits good development of the edible roots. In addition, silt loams are also extensively used. 5. The climate and soil condition in Barangay Pitu, Malalag meets the necessities for carrot cultivation. With an average landholding of 3.8 hectares, Barangay Pitu carrot farmers plant carrots twice a year at a two-month production cycle. Average yield for one production cycle is 220.6 kilograms per hectare of carrots. 6. Since the production cycle of carrots is relatively short, Barangay Pitu farmers are able to measure their harvests in time with the peak-buying season for carrots.

7. The marketing efficiency study for carrot in Barangay Pitu, Malalag was conducted in March 13, 2001.

Objectives 8. The main objective of the study is to assess the impact of existing marketing systems of carrot vis-à-vis income of the farmers. 9. Specifically, the study aims to determine the levels of participants in the marketing chain of carrot; 10. Determine the marketing practices involved in terms of storage, handling, pricing, delivery systems and terms of payment;

2

11. Determine the percentage of consumer price that the producer receives through the deconstruction of marketing margins of carrot at each level in the system, exclusive of production costs; 12. Identify strengths and weaknesses of the existing marketing system of carrot; and 13. Determine appropriate marketing interventions needed to improve economic efficiency of carrot in Barangay Pitu, Malalag. Methodology 14. From the initial agribusiness profile of UDP-Davao del Sur, nine (9) carrot farmers were identified; five of which come from Barangay Pitu, Malalag. Purposive sampling and complete enumeration of the Pitu carrot farmers was done for the interview. 15. The farmers were asked about their production and marketing practices, production and marketing costs of carrot. They were also asked on available market information with emphasis on what they need to know to improve their production and marketing practices, thereby increasing the farmers’ income. 16. The respective buyers of carrot from each farmer were then traced accordingly. 17. The traders were, in turn, asked about their marketing, costs, and the problems and constraints they have encountered in the marketing of carrot. 18. The marketing margins (MM), or the total value added to the carrot per kilogram as it moves along one marketing channel to another, were then deconstructed and the profitability of each marketing participant was also analysed. In the case of the farmers, the Net Farm Income (NFI) was determined. An NFI greater than zero (0) would mean that the production and marketing activities of the carrot farm is profitable, whereas an NFI less than zero (0) would mean that the farm is at a loss. 19. On the part of the trader, the Return on Investment (ROI) was compared with the opportunity cost of capital, pegged at the existing current savings interest rate of eight percent (8%) per annum. An ROI higher than the opportunity cost of capital would mean that marketing carrot is more profitable than just saving the trader’s money in a bank. While an ROI less than the opportunity cost of capital would mean that it would be more profitable for the trader to invest his money in a bank rather than spend it on marketing carrot. 20. The percent share to the consumer peso of each marketing participant was also determined by getting the percentage of the marketing participant’s selling price (in the case of traders, less their buying price) relative to the final buying price of the

3

consumer. This indicates the proportion of the final buying price that goes to each marketing participant for carrot. 21. Moreover, focused group discussions (FGDs) with key informants and selected farmers were conducted to probe into the importance and the demand for market information in each province. This provided rapid feedback on the available market information and the information dissemination strategies existing in the area. 22. Also, key informants such as the Municipal Agriculturists and the Agricultural Technicians were interviewed to obtain an overview of the local agriculture industry.

Limitations and Constraints 23. Upon interview, the farmers only recalled past production level, income, farm tools and equipment used, as there were no records kept of their operations. Thus the cost and return that were analyzed were only estimates. The Return on Investment (ROI) was excluded on the analysis of the farmer’s income due to the ambiguity of the values arrived at, as some factors on capital investment were not quantified. For instance, land valuation was excluded because none of the farmers hold titles to the land that they cultivate. Land, therefore, was not considered a fixed investment in this enterprise and was merely considered as an expense through the credit of land cost (land tax if owned, rent if tenanted). 24. On the marketing aspect, the respondents interviewed were the middlemen identified by the farmers. Most of who also based their answers on their memories since they too do not keep records of their marketing operations.

25. On the analysis of the marketing efficiency of the farmers, only the Net Farm Income (NFI) analysis was utilized since the available data could only allow for this kind of analysis and not the more complicated input-output efficiency analyses. 26. Lastly, the size of the carrot market, specifically, the estimation of demand was not included in the study.

Margin of Error

27. Aside form the UDP Agribusiness Profile, there are no other available data on the population size of carrot producers in the area. The margin of error on the analysis, therefore, cannot be established since the formula requires not only the sample size, but the population size as well.

4

MARKETING SYSTEM OF CARROT Marketing Channels

28. The marketing participants involved in the carrot commodity system in Barangay Pitu, Malalag are as follows:

a. Farmer A person engaged in crop cultivation for sustenance or commercial purposes. He sells his produce to the assembler based in JP Laurel, Sarangani; b. Assembler- shipper A trader whose primary activity is to buy the carrots delivered to them by the farmers and ship it to a wholesaler in General Santos City;

c. Wholesaler

A type of trader who specializes in the distribution of large volumes of carrots to retailers based in General Santos City; d. Retailer

Relies on wholesalers for their merchandise. Sells directly to the consumers.

29. Based on farmer interviews, an estimated 4,230 kilograms of carrots from Barangay Pitu, Malalag were sold in the year 2000 and the following product flow was established:

Figure 1. Product flow of carrot.

100% 99% 98.5% 98.5%

30. One hundred percent of the carrots is sold by the farmers to the assembler-shipper and is then transported to the wholesaler in General Santos City. However, the assembler-shipper suffered a 1% loss due to bruising and spoilage of carrots during transport. The retailer then purchases the carrots from the wholesaler. However, the retailer loses 0.5% of his merchandise to bruising and spoilage during the transport from the wholesaler.

WHOLESALER FARMER RETAILER ASSEMBLER-SHIPPER

CONSUMER

1% 0.5%

5

31. Figure 2 shows the geographical flow of the carrots. From the farm in Barangay Pitu, Malalag the carrots were brought to JP Laurel and the end destination was General Santos City.

Figure 2. Geographical flow of carrot.

98.5% Marketing Practices and Costs

32. After harvest, the carrots are then rid off soil residues by washing. The carrots are graded and packed in sacks according to grade.

33. Based on the size of the carrots, grading classifications are set by the traders. However, there is neither specific description nor standards for the grades since grading is done crudely through eyeball estimate. The classification of carrots are as follows: Big (B), Medium (M), Small (S), Good Reject (GRJ) and Last Reject (LRJ).

34. Due to its perishable nature, carrots are sold immediately right after harvest. Majority of the farmers deliver their produce to the assembler-wholesaler in JP Laurel. The carrots are transported by motorcycle, through a badly maintained tertiary mountain path to JP Laurel. They are then paid in cash for the sale of the carrots. The average price received by the farmers for the carrots was P4.00/kg.

35. The assembler-wholesaler then immediately ships the carrots to General Santos City. Upon delivery to the wholesaler in General Santos City, the assembler wholesaler, is paid in cash at an average selling price of P11.00 per kilogram of carrots.

36. At the wholesaler’s stall, retailers buy the carrots, on a cash basis, at an average price of P16.60 per kilogram. The retailer then transports the carrot to his stall in the General Santos City Public Market.

37. Lastly, the retailer sells the carrots to the consumer on a per gram or kilogram basis, at an average price of P22.00 per kilogram.

PRODUCER JP LAUREL GENERAL SANTOS

6

38. Table 1 summarizes the marketing costs for each level.

Table 1. Marketing costs for different marketing levels of carrot (P/kg).

ACTIVITY FARMER ASSEMBLER-SHIPPER

WHOLESALER RETAILER

Cleaning 0.33 na na na Packing 0.22 nil nil nil Transportation 1.12 0.33 0 0.08 Labor na 0.38 0.06 0.26 Supplies and materials

na 0.33 0.19 0.77

Fees and payments na 0.42 0.02 0.04 Non-cash costs na 0.26 0.89 0.36 TOTAL 1.67 1.72 1.16 1.51

39. It shows that the farmer has a high marketing cost of P1.67 per kilogram. This can be attributed to the high transportation cost from the farm to the assembler-shipper in JP Laurel. Marketing cost for assembler-shipper is at P1.72 per kilogram.

Price Formation

40. Price plays an important role in the carrot production. Programming of production depends on the previous prices. Farmers observed that in the months of June and December price tends to rise. With the two-month production cycle, farmers would plant two months before June and December.

41. Prices during the months of June and December are high because of the high demand for carrot. June is the start of the classes while December is the Christmas season.

42. Farmers also noted that the prices in August were relatively lower because of the high supply in the market. Table 2 shows the previous prices for carrots according to grade.

7

Table 2. Farm-gate prices of carrots by grade in Barangay Pitu, Malalag (P/kg).

GRADE MONTH

June August December Big (B) 20.00 5.00 20.00 Medium (M) 17.50 4.00 17.50 Small (S) 14.50 3.00 14.5 Good Reject (GRJ) 8.00 2.00 8.00 Last Reject (LRJ) 6.00 1.00 6.00

Marketing Margins

43. Table 3 shows the marketing margins of the different traders and the income of the farmers. Details on the Net Farm Income are established on Appendix A.

Table 3. Marketing margins and income for carrots at different marketing levels.

ITEM FARMER ASSEMBLER-SHIPPER

WHOLESALER RETAILER

Selling price (P/kg) 4.00 11.00 16.60 22.00 Buying price (P/kg) na 4.00 11.00 16.60 Marketing Margin (P/kg) na 7.00 5.60 5.40 Marketing Cost (P/kg) 1.67 1.72 1.16 1.51 Profit Margin (P/kg) na 5.28 4.44 3.89 Net Farm Income (P/kg) 0.70 na na na MC as % of MM na 25% 21% 28% PM as % of MM na 75% 79% 72% %ROI nil 18% 12% 18% Opportunity cost of capital

na 8% 8% 8%

44. The P0.70 per kilogram Net Farm Income (NFI) of the farmer, as indicated on Table 3 show that the production and marketing of carrots in Barangay Pitu Malalag is profitable.

45. For the traders, the marketing margin as shown in Table 2 measures the total value added to the carrot as it goes through one intermediary to another. The components of the marketing margin of carrot are the costs and profit.

8

46. Different channels have different marketing margins. The marketing margin from the producer to the assembler-shipper is P7.00 per kilogram, from assembler-shipper to the wholesaler-P5.60 per kilogram and from the wholesaler to the retailer-P5.40 per kilogram. Results showed that assembler-wholesaler posted the highest margin. While cost is highest for the assembler-shipper and lowest for the wholesaler. In terms of profit, wholesaler posted the highest profit margin. This result could be attributed to the low investment cost on the part of the wholesaler.

47. The marketing profit as percentage to the marketing margin is higher as compared to the percentage marketing cost, as shown on Figure 3.

Figure 3. Marketing margins of carrots traders.

Assembler-shipper Wholesaler Retailer

profit margin

marketing cost

25%

75%

72%

28%

72%

28%

48. For the breakdown of the consumer peso, Table 3 is presented.

Table 3. Percentage share of carrot prices to the consumer peso.

Marketing Participants Selling Price (P/kg) % Share

Farmers 4.00 18 Assembler-shipper 11.00 32 Wholesaler 16.60 25 Retailer 22.00 25

9

49. Results show that the Assembler-shipper gets the largest percentage share (32%) out of the consumer price while the 25% of it goes to the wholesaler and the other 25% to the retailer. The remaining 18.2 % goes to the farmers. These results showed that farmer’s pricing has the lowest effect on the consumer price (Table 3). 50. Figure 4 illustrates the graphical percentage share of the carrot price to the consumer peso.

Figure 4. Percentage share of carrot prices to the consumer peso.

Farmers12%

Wholesaler25%

Retailer25%

Assembler-shipper

38%

STRENGTH AND WEAKNESSES

51. The strength of the marketing system of carrot is that it is well established such that each participant has a well-defined role in the marketing chain. 52. However, weaknesses such as the poor road system in the area contributes to the high transportation cost and losses. 53. Also, farmers also cited the problem on insufficient price, supply, grading and demand information. This results to a weak bargaining power of the farmers to the traders as the trader dictates the price and classification/grading of the produce.

10

CONCLUSION

54. The farmer is earning a Net Farm Income of P0.70 per kilogram (Appendix A), concluding that carrot farming is profitable. However, carrot farmers in Barangay Pitu, Malalag has no bargaining power over the price since the assembler-shipper dictates the price, returning a lesser profit to the farmer.

55. The return on investment of the traders as is greater than the opportunity cost of capital means that they are efficiently performing in the market. In addition, marketing profit is much higher than the marketing cost leaning the business to the efficient side.

RECOMMENDATIONS

56. The following recommendations are herein offered:

• Improved infrastructure and road system for efficient movement of products

from farm to market. Construct a farm to market road from Barangay Pitu, Malalag to JP Laurel.

• The need for organized market information on price, grading, demand and

supply. A daily information on these from different markets should be posted on the barangay bulletin board to help the farmer in their decision making on production and marketing (when to produce and where to market).

• Form cooperatives or farmers group to help in the capital formation, bulk

selling and price monitoring to increase the bargaining power of the farmers.

11

REFERENCES

AGARRADO, R.E. et al. Marketing and Information Needs Assessment for Davao City. BAS-DA-USP, Davao City. CORRE, S. 1996. A Market Efficiency Study for Palay/Rice in Biliran. Published under the Small Islands Agricultural Support Services Programme. REVILLA, R.S. 1999. Production and Marketing of Sinta Papaya in Laguna, 1998. Unpublished Undergraduate Thesis, CEM, UPLB, Laguna. UDP 1999. The Terms of Reference for Consultancy Services-Marketing Efficiency Study. UDP, Davao City.

_____. 1993. Alternative Agriculture Series, Number 14, July 1993

12

APPENDIX A. Cost and returns per unit of carrots in Barangay Pitu, Malalag.

ITEM P/kg

RETURNS Cash Sales 4.00 Total Cash Returns (A) 4.00 Non-cash Home consumption 0.01 Given away 0.01 Total Non-cash Returns (B) 0.02 TOTAL RETURNS (C ) 4.02 COSTS Cash Seeds 0.38 Hired labor 0.94 Transportation 1.00 Total Cash Costs (D) 2.32 Non-cash Unpaid family and/or exchange labor 0.35 Depreciation 0.27 Losses/Shrinkage of produce 0.19 Opportunity cost of capital 0.19 Total Non-cash Costs (E) 1.00 TOTAL COSTS (F) 3.32 Net Returns Above Cash Costs (C-D) 1.70 Net Farm Income 0.70

13

APPENDIX B. Breakdown of costs per unit of carrots in Barangay

Pitu, Malalag.

ITEM P/kg I. Production Cost Seeds 0.38 Depreciation 0.27 Own labor 0.30 Hired labor 0.51 Total Production Cost 1.46 II. Marketing Cost A. Cleaning Own labor 0.03 Hired labor 0.18 Losses/shrinkage 0.12 Sub-Total 0.33 B. Packing Own labor 0.02 Hired labor 0.18 Losses/shrinkage 0.02 Sub-Total 0.22 C. Transportation Hired labor 0.07 Transportation 1.00 Losses/shrinkage 0.05 Sub-Total 1.12 Total Marketing Cost 1.67 III. Opportunity cost of capital 0.19 TOTAL COSTS 3.32

A MARKETING EFFICIENCY STUDY ON

MANGO

IN BARANGAY PITU, MALALAG, DAVAO DEL SUR

MAY 2001

Republic of the Philippines Department of Agriculture Upland Development Programme in

Southern Mindanao (UDP)

i

PREFACE This report is one of a series of market efficiency studies conducted in the UDP-covered areas for selected commodities. The marketing efficiency of mango in Barangay Pitu, Malalag was evaluated through the deconstruction of the marketing margins. Recommendation to improve marketing efficiency is herein provided. This report was prepared by: Jaymee Alcos Elizabeth Supangco Julianne Revilleza May 2001

ii

ACKNOWLEDGEMENTS Report data were gathered from a series of personal and group interviews with farmers and traders of mango in Barangay Pitu, Malalag. The time and effort that the respondents have placed into this study is acknowledged. The following were the respondents of the study: Farmers: Traders: Retailers:

Bartolome Nieves Ireneo Lopez Chelito Medes Julian Retardo Joselito Lanosa Victoriano Laputan Alberto Monroid Hermogenes Billones Jr. Leo Retificar Leonardo Peñol The valuable assistance extended by the Malalag Municipal Agriculturist’s Office and the Pitu Barangay Council is also recognized.

iii

TABLE OF CONTENTS

Page number Preface i Acknowledgements ii Table of Contents iii Definition of Terms iv Introduction 1 Marketing System of Mango 4 Strengths and Weaknesses 12 Conclusion 12 Recommendations 13 References 14 Appendices A. Cost and Returns per unit of Mango in

Barangay Pitu, Malalag 15

B. Breakdown of costs per unit of Mango in Barangay Pitu, Malalag

16

iv

DEFINITION OF TERMS Cash costs - costs where actual money is involved. Cash returns - the earnings, where actual money is involved, from the

sale of the farm produce. Depreciation - the expense brought about by the wear and tear of a

piece of equipment, building or tool used in an enterprise for a given period of time.

Exchange labor - the value, non-monetary in nature, of the work (in man-

days) put in by neighbors, friends or other laborers in exchange for the farmers help with similar farm activities in their respective farms.

Given away - the value, non-monetary in nature, of the farm produce

given out by the farmer to others without any monetary payment.

Hired labor - the cash expense for engaging the services of farm

laborers. Home consumption - the value, non-monetary in nature, of the farm produce

consumed by the farmer and his family. Losses/shrinkage of produce - the value, non-monetary in nature, of the damages and

spoilage sustained by the produce. Market information - basic information on prices and quantities traded of

major commodities, from all markets—assembly, wholesale and retail.

Marketing channel - the inter-organizational system composed of

interdependent institutions tasked in moving the product from production to consumption.

Marketing efficiency - the maximization of the input-output relationship where

inputs refer to resources (land, labor, capital) used in moving the products from point of consumption to the point of production and output referring to consumer satisfaction on goods and services made available in the market.

Marketing margin - the difference in prices between the different levels of

the marketing system.

v

Marketing - series of services performed in moving the product

from the point of production to the point of consumption.

Net farm income - returns of the use of capital and labor. The overall profit

of the farm after all the expenses, cash and non-cash, have been paid off.

Non-cash costs - costs items used in the production process wherein no

direct outlays occurred or the costs incurred are not monetary in nature.

Non-cash returns - the value, non-monetary in nature, of the farm produce

consumed by the farmer and his family or those given away.

Opportunity cost of capital - the price of foregone opportunity in the use of the

capital invested in the enterprise. It is usually pegged at the current savings interest rate.

Point of consumption - last sale of the product. Point of production - point of first sale. Profit margin - the return to the middlemen for their entrepreneurship,

the risks and the cost of money. Return on investment - measures the amount of cash that the entrepreneur gets

from the capital investment after first paying the opportunity expenses on the value of family labor and management. It also determines how much money the producer got in return for every one peso invested.

Unpaid family labor - also called own labor. The value, non-monetary in

nature, of work (valued in man-days) by the farmer and his family.

1

MANGO

INTRODUCTION 1. Mango (Mangifera indica Linn.) is the most popular indigenous fruit crop in the Philippines. It is a yellowish pear-shaped fruit with a thin rind, typically 7 cm in diameter and 12 cm in length. Fibrous and with a sub-acid juicy pulp and hard-flattened central seed, it has a tangy flavor. 2. Ripe mango is normally taken fresh and sometimes processed into jams, candies or dehydrated mango, ice cream flavoring, pickle mix, mango scoops, tid-bits and chunks. It can also be made into beverages like mango juice, puree and wine. Green mango, on the other hand, can be used in salads, pickled, and served as an appetizer or as a fermented fruit or juice drink. 3. The Philippines has several distinct varieties of mango namely Mango Cebu or Carabao, Pico, Duldul, Señora and Puhulan. The Mango Cebu, more commonly known as the Manila Super Mango is considered as the best variety for fresh fruit export because of its perfect blend of sweetness and sourness. 4. Mango production is predominant in Barangay Pitu, Malalag, each farmer having 5 to 10 mango trees covering on average an area of 0.5 hectares. For a farmer in Barangay Pitu the average yield per hectare of mango is 604.4 kilograms. Three types of mangoes are produced in the area, namely, Class A Carabao “Cebu”, Class B Carabao and Batuta. 5. Mangoes are usually harvested immediately upon maturity in order to prolong its shelf life and avoid pest infestation and rotting during transport. 6. Farmers harvest mango during the months of April to June and November to December. Volume of production is highest on months of June and December. However, production declines in the months of August to October and from January to February. 7. The marketing efficiency study for mango in Barangay Pitu, Malalag was conducted in March 13, 2001.

Objectives 8. The main objective of the study is to assess the impact of existing marketing systems of mango vis-à-vis income of the farmers. 9. Specifically, the study aims to determine the levels of participants in the marketing chain of mango;

2

10. Determine the marketing practices involved in terms of storage, handling, pricing, delivery systems and terms of payment; 11. Determine the percentage of consumer price that the producer receives through the deconstruction of marketing margins of mango at each level in the system, exclusive of production costs; 12. Identify strengths and weaknesses of the existing marketing system of mango; and 13. Determine appropriate marketing interventions needed to improve economic efficiency of mango in Barangay Pitu, Malalag.

Methodology 14. From the initial agribusiness profile of UDP – Davao del Sur, 12 mango farmers were identified; six of who come from Barangay Pitu, Malalag. Complete enumeration of the Barangay Pitu mango farmers was done for the interview. 15. The farmers were asked about their production and marketing practices, production and marketing costs of mango. They were also asked on available market information with emphasis on what they need to know to improve their production and marketing practices, thereby increasing the farmers’ income. 16. The respective buyers of mango from each farmer were then traced accordingly. 17. The traders were, in turn, asked about their marketing, costs, and the problems and constraints they have encountered in the marketing of mango. 18. The marketing margins (MM), or the total value added to the mango per kilogram as it moves along one marketing channel to another, were then deconstructed and the profitability of each marketing participant was also analysed. In the case of the farmers, the Net Farm Income (NFI) was determined. An NFI greater than zero (0) would mean that the production and marketing activities of the mango farm is profitable, whereas an NFI less than zero (0) would mean that the farm is at a loss. 19. On the part of the trader, the Return on Investment (ROI) was compared with the opportunity cost of capital, pegged at the existing current savings interest rate of eight percent (8%). An ROI higher than the opportunity cost of capital would mean that marketing mango is more profitable than just saving the trader’s money in a bank. While an ROI less than the opportunity cost of capital would mean that it would be more profitable for the trader to invest his money in a bank rather than spend it on marketing mango.

3

20. The percent share to the consumer peso of each marketing participant was also determined by getting the percentage of the marketing participant’s selling price (in the case of traders, less their buying price) relative to the final buying price of the consumer. This indicates the proportion of the final buying price that goes to each marketing participant for mango. 21. Moreover, focused group discussions (FGDs) with key informants and selected farmers were conducted to probe into the importance and the demand for market information in each province. This provided rapid feedback on the available market information and the information dissemination strategies existing in the area. 22. Also, key informants such as the Municipal Agriculturists and the Agricultural Technicians were interviewed to obtain an overview of the local agriculture industry.

Limitations and Constraints 23. Upon interview, the farmers only recalled their past production level, income, farm tools and equipment used, as there were no records kept of their operations. Thus the cost and return that were analyzed were only estimates. The Return on Investment (ROI) was excluded on the analysis of the farmer’s income due to the ambiguity of the values arrived at, as some factors on capital investment were not quantified. For instance, land valuation was excluded because none of the farmers hold titles to the land that they cultivate. Land, therefore, was not considered a fixed investment in this enterprise and was merely considered as an expense through the credit of land cost (land tax if owned, rent if tenanted). 24. For the marketing aspect, the respondents interviewed were the middlemen identified by the farmers. Most of who also based their answers on their memories since they too do not keep records of their marketing operations. 25. On the analysis of the marketing efficiency of the farmers, only the Net Farm Income (NFI) analysis was utilized since the available data could only allow for this kind of analysis and not the more complicated input-output efficiency analyses. 26. Lastly, the size of the mango market, specifically, the estimation of demand was not included in the study.

Margin of Error

27. Aside form the UDP Agribusiness Profile, there are no other available data on the population size of mango producers in the area. The margin of error on the analysis, therefore, cannot be established since the formula requires not only the sample size, but the population size as well.

4

MARKETING SYSTEM OF MANGO

Marketing Channels

28. The marketing participants involved in the mango commodity system in Barangay Pitu, Malalag are as follows: a. Farmer The first type of farmer is the farmer/lessee who does not have any financing/marketing/contract-growing arrangements with any trading entities/individuals. The farmer solely assumes all production activities including marketing of the produce. The second type of farmer is one who engages in a contract growing arrangement for a contract grower. In this arrangement, the farmer’s investments are land, mango tree, cultivation, cleaning and maintenance of the farm. The contract grower assumes the responsibility of the farm from floral induction, harvesting and marketing to the assembler-wholesaler. The sharing scheme follows the 60-40 ratio, where 60% of the sales go to the contract-grower and 40% to the farmer. b. Municipal Assembler- Wholesaler Assembler-wholesalers based in Malalag Market bought the mangoes from the Barangay Pitu mango farmers. Mangoes are assembled in the trading area and brought to the Assembler-shippers and retailers. The mango does not stay long with the assembler-wholesaler. It is sold immediately to Assembler-shipper in Davao City or Retailers in Digos City and Malalag. c. Assembler- Shipper The assembler-shipper plays an important role in transporting the mango to different areas like Manila and Cebu. The assembler shipper only ships the quality Cebu mango with an average weight of 200 grams and higher. They usually ship the produce by plane while some by boat. They would prefer to ship it by plane due to the perishable nature of the commodity. d. Retailer Retailer transfers the goods to the consumer. The location of the retailers is in the market areas of Malalag, Digos City, Davao City and Manila. 29. Mango marketed from the producers was traced from the farms to the retailers and the product flow is established.

5

Figure 1. Product Flow of Mango in Barangay Pitu, Malalag. 100% 49.4% 43.4% 89% Selling Price (P/kg):

Farmer Assembler-Wholesaler Assembler-Shipper Retailer Case 1: 18.00 20.00 35.00 na Case 2: 18.00 20.00 nil 27.50 30. After the contract-grower, along with the farmer, sell 100% of the mangoes to the assembler-wholesaler. The assembler-wholesaler, in turn, sells 49.4% of the mangoes to the assembler-shipper who then transports it to Davao City and Manila. The rest (47.6%) of the mangoes are then sold to the retailers. 31. The figure also illustrates the losses incurred in the different marketing levels. Assembler-shipper posted the highest loss of 6%. This can be attributed to poor packaging materials used in transporting the product. At the assembler-wholesaler level loss is at 3% and 2% at the retailer level. 32. Figure 2 illustrates the geographical flow of mango. For the first channel (Case 1), the assembler-wholesaler based in Malalag passed the mango to the assembler-shipper in Davao City, then mango is shipped to Manila. On the other hand, in the second channel (Case 2), the assembler-wholesaler based in Malalag pass on the mango to the retailers in Davao City, Digos City and Malalag.

Figure 2. Geographical flow of mango from Barangay Pitu, Malalag.

FARMER

ASSEMBLER WHOLESALER

ASSEMBLER-SHIPPER

RETAILER CONSUMER

PITU, MALALAG MALALAG DAVAO CITY MANILA

CASE 1

47.6%

3% 6% 2%

CONTRACT-GROWER

6

Marketing Practices and Costs 33. The mango farmer's main marketing activity is to package the mango in a kaing basket, right after harvest. Storing is not practiced in the farm. 34. The traders set grading classifications. Commonly used grading classification is based on the weight of the mangoes. The grading weight classification is as follows:

a. Minimum of 200 grams b. Minimum of 150 grams c. All-in class.

33. The farmers and contract-growers prefer to sell to traders with a high buying price which was determined to be an average of P18 per kilogram. The farmers and contract-growers are pain in cash upon purchase of the mangoes. 34. The assembler wholesaler then delivers the mango to the assembler-shipper and retailer. The usual payment scheme was cash on delivery. Again, due to the perishability of the product, mango is sold right away to the next chain. 35. Although the mangoes are graded by the contract-grower immediately upon harvest, the retailer grades the mangoes again. This is done to make sure that the mangoes are properly graded. 36. Table 1 summarizes the marketing costs for every marketing level. Table 1. Marketing cost for different marketing levels of mango.

MARKETING PRACTICES

Farmer Assembler-wholesaler Assembler-shipper Retailer

Harvesting 0.31 na na na Cleaning 0.59 na na na Packing 0.77 na na na

PITU, MALALAG

MALALAG

DAVAO CITY

DIGOS CITY

MALALAG

CASE 2

7

Transportation 0.21 0.68 10.6 0.2 Labor na 0.33 1.2 na Supplies and Materials na 0.32 0.18 0.39 Fees and payments na na 0.64 0.04 Non-Cash costs na 0.64 0.02 1.67 TOTAL 1.88 1.97 12.64 2.3 37. It shows that assembler-shipper has the largest marketing cost at P12.64/kg. This is due to excessive cost of transporting the produce to Manila. Marketing cost for farmer is at P1.88/kg, assembler-wholesaler at P1.97/kg and retailer at P2.30/kg.

Price Formation 38. Price plays an important role in the decision making of the farmers. It is the basis of their production decision. 39. In Barangay Pitu, Malalag farm gate price is highly sensitive to the fluctuations in the supply of mango. For the pervious year, there was an abundant supply of mango in the months of November, December and from April to June. Consequently, it was during these months when farm prices were pegged at lower levels (Table 2). Table 2. Price mapping of mango in Barangay Pitu, Malalag (P/kg).

MONTHS MANGO CLASS

Aug-Sept-Oct November December January Class A "Cebu" Carabao 27.50 19.00 15.50 18.50 Class B Carabao 12.50 7.00 4.50 11.00 Batuta 11.50 7.00 4.50 11.00 40. During the months of August to October, and from January till February prices were at its peak levels as a result of depressed volume of production. 41. The movements of the seasonal price indices in the province of Davao del Sur justify the prices given by the farmers.

8

Figure 3. Seasonal farm and retail price indices for Carabao green mango, Davao del Sur.

0.8

0.85

0.9

0.95

1

1.05

1.1

1.15

JANUARY FEBRUARY MARCH APRIL MAY JUNE JULY AUGUST SEPTEMBER OCTOBER NOVEMBER DECEMBER

MONTHS

SI

Retail Price

Farm Price

Source: BAS Davao del Sur 42. Seasonal price indices are used as indicators of the seasonal variations of mango prices. Seasonal price variations follow a more or less uniform pattern within the year. Prices conform to this pattern over a period of time. As seen in Figure 6, farm gate price exhibited greater price variations as compared to retail price. This may be due to greater fluctuations in supply at the farm level causing prices to behave accordingly. Seasonal price index in September suggests that prices are higher by 15% compared to the price in the average month. In the same manner, the seasonal price index in June suggests that prices are typically set lower by 12% than that in the average month. 43. Meanwhile, retail prices show less fluctuation. This means that retail prices are stable in the whole year period. This observation can be attributed by the steady supply of mango in the retail markets. This is because other farms are able to harvest during off-season by using the flower induction technology.

Marketing Margins 44. Table below illustrates the marketing margins and the Net Farm Income (as established in Appendix A) for the two cases of the different marketing levels.

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Table 3. Marketing margins and income for mango at different marketing levels.

FARMER 1 FARMER 2 ASSEMBLER

WHOLESALER ASSEMBLER

SHIPPER RETAILER

Case 1 Selling Price 18.00 18.00 20.00 35.00 nil Buying Price na na 18.00 20.00 nil Marketing Margin na na 2.00 15.00 nil Marketing Cost 1.88 1.88 1.97 12.64 nil Profit Margin na na 0.03 2.36 nil Net Farm Income (NFI) 9.39 4.35 na na na MC as % of MM na na 99% 84% nil PM as % of MM na na 2% 16% nil %ROI nil nil 5% 17% nil

Opportunity Cost of Capital na na 8% 8% na Case 2 Selling Price 18.00 18.00 20.00 nil 27.50 Buying Price na na 18.00 nil 24.50 Marketing Margin na na 2.00 nil 3.00 Marketing Cost 1.88 1.88 1.97 nil 2.30 Profit Margin na na 0.03 nil 0.70 Net Farm Income (NFI) 9.39 4.35 na na na MC as % of MM na na 99% nil 77% PM as % of MM na na 2% nil 23% %ROI nil nil 5% nil 18%

Opportunity Cost of Capital* na na 8% na 8%

45. Case 1 illustrates that an assembler-shipper posted the highest cost at P12.64/kg due to the large transportation cost. The assembler wholesaler, on the other hand, has a marketing margin of P2/kg only. 46. In Case 2, results showed that the assembler-wholesaler has marketing margin of P2.00/kg while the retailer has a P3.00 per kilogram marketing margin. Marketing margin is mainly composed of marketing cost. 47. The composition of the marketing margin is shown in Figure 3 and Figure 4.

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Figure 4. Case 1 Marketing Margins of Barangay Pitu, Malalag Mango.

2% 16%

98% 84%

Assembler-wholesaler Assembler-shipper

% MC

% PM

Figure 5. Case 2 Marketing Margins of Barangay Pitu, Malalag Mango.

2% 23%

77%98%

Assembler-wholesaler Retailer

% MC

% PM

48. For Case 1 (Figure 4), the marketing margin from the farmer to the assembler-wholesaler is composed of 2% profit margin and 98% marketing cost. Meanwhile, marketing margin from assembler-wholesaler to assembler-shipper is composed of 84% MC and 16% profit margin. 49. With the same composition from farm to assembler-wholesaler, case 2 (Figure 5) shows that the marketing margin for assembler-wholesaler to retailer is composed of 77% marketing cost and 23% profit margin. 50. In comparison, the profit margin for the retailer posted the highest. While the lowest is at the assembler-wholesaler level. The retailer has the lowest marketing cost and the wholesaler the highest.

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51. Table 4 and Figure 6 analyzes the composition of the consumer price. Table 4. Percentage share of mango prices to the consumer peso (for Case 1 only). Marketing Participants Selling Price (P/kg) % Share Farmers 18.00 45.0 Assembler-wholesaler 20.00 27.7 Retailer 27.50 27.2 Figure 6. Percentage share of Mango Prices to the Consumer Peso.

Farmers45%

Assembler-wholesaler28%

Retailer27%

52. The breakdown of the consumer peso indicates that 45% of the final price is attributed to farmer price, 28% goes to the assembler-wholesaler and the other 27% to the retailer.

STRENGTHS AND WEAKNESSES 53. The strength in the marketing of mango is the well-established marketing system. Results showed that the role of each participant in the marketing chain is well defined. 54. High demand for mango also adds to its strength. These factors make the marketing system more competitive. 55. However, poor post harvest handling practices contributes to its weaknesses. The farmer’s lack of knowledge and technology become the major problem in the system.

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56. Wrong packaging practice (kaing packaging) which produces bruises lessen the marketability of the produce to the consumer.

CONCLUSION 57. The Net Farm Income (NFI) of Farmer 1 is P9.39/kg and Farmer 2 (with contract arrangement) the NFI is P4.35/kg. This illustrates that the farmer with no contract arrangement has a higher net income as compared to the farmer with contract arrangement. Results also revealed that for the two cases the farmers are gaining profit which puts the farmer in the efficient side of production. 58. Marketing efficiency for each level is analyzed. Looking at the cost structure we could say that the level posting the lowest percentage of marketing cost performs efficiently. In Table 2, retailer has the lowest marketing cost with only 30.67%, while the assembler-wholesaler and assembler-shipper posted a high percent marketing cost at 99% and 84%, respectively. 59. Based on these results, we could say that while the retailer is performing efficiently, the assembler-wholesaler and assembler-shipper are performing inefficiently. 60. Using the ROI as the measure of efficiency, assembler-shipper and retailer having a greater ROI (17%) for the assembler-shipper, and 18% for the retailer) than the opportunity cost of capital are performing efficiently. This means that it is more profitable for the assembler-shipper and retailer to invest on the agricultural business than putting their money in the bank. 61. In contrast to this result, the assembler-wholesaler is performing inefficiently because the ROI is less than the opportunity cost of capital (8%). 62. Lastly, It was determined that farmers have a 45% share of the consumer’s final buying price. This means that for every peso paid by the consumer, P0.45 goes to the farmer. RECOMMENDATIONS 62. Improve farm to market roads in Barangay Pitu, Malalag. Construction of 13 km road is very important to reduce transportation cost and to maintain the quality of the product from the farm to the market. This will maintain the marketability of the produce.

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63. In maintaining the marketability of mango, right packaging techniques are also important. Styrophore net like those in the apple can be use. Boxes will be most appropriate to use than the kaing. 64. For the farmers to be competitive, technology transfer should be made readily available. Training on correct harvesting, Hot Water Treatment (HWT) and other beneficial production and marketing activities should also be encouraged. 65. Day to day information on prices, demand and supply in different markets should be made available to the farmers. It can be posted on the barangay bulletin board accessible to the farmers.

14

REFERENCES AGARRADO, R.E. et al. Marketing and Information Needs Assessment for Davao

City. BAS-DA-USP, Davao City. CUNNINGHAM, T, 2000. Mango Market Report. UDP. REVILLA, R.S. 1999. Production and Marketing of Sinta Papaya in Laguna, 1998.

Unpublished Undergraduate Thesis, CEM, UPLB, Laguna. UDP 1999. The Terms of Reference for Consultancy Services-Marketing Efficiency

Study. UDP, Davao City.

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APPENDIX A. Cost and returns per unit of mango in Barangay Pitu, Malalag.

ITEM P/kg

RETURNS Cash Sales 18.00 Total Cash Returns (A) 18.00 Non-cash Consumed 0.09 Given away 0.09 Total Non-cash Returns (B) 0.18 TOTAL RETURNS (C ) 18.18 COSTS Cash Land cost 0.33 Seeds 0.72 Fertilizers 2.41 Pesticides 0.23 Hired labor 0.34 Flower inducer 0.65 Transportation 0.03 Total Cash Costs (D) 4.71 Non-cash Unpaid family and/or exchange labor 0.62 Depreciation 0.42 Losses/Shrinkage of produce 1.76 Opportunity cost of capital 0.46 Total Non-cash Costs (E) 3.26 TOTAL COSTS (F) 7.97 Net Returns Above Cash Costs (C-D) 13.47 Net Farm Income 10.21

16

APPENDIX B. Breakdown of costs per unit of mango in Barangay Pitu, Malalag.

ITEM P/kg

I. Production Cost Land cost 0.33 Depreciation 0.42 Seeds 0.72 Fertilizers 2.41 Pesticides 0.23 Own labor 0.62 Hired labor 0.25 Total Production Cost II. Marketing Cost A. Cleaning Hired labor 0.04 Losses/shrinkage 0.55 Sub-Total 0.59 B. Ripening Hired labor 0.01 Losses/shrinkage 0.30 Sub-Total 0.31 C. Packing Hired labor 0.04 Losses/shrinkage 0.73 Sub-Total 0.77 D. Transportation Transportation 0.03 Losses/shrinkage 0.18 Sub-Total 0.21 Total Marketing Cost 1.88 III. Opportunity cost of capital 0.46 TOTAL COSTS 7.97

A MARKETING EFFICIENCY STUDY ON

CHICKEN

IN SITIO CAMPAO, SUFA-TUBO,GLAN, SARANGGANI

MAY 2001

Republic of the Philippines Department of Agriculture Upland Development Programme in

Southern Mindanao (UDP)

i

PREFACE This report is one of a series of market efficiency studies conducted in the UDP-covered areas for selected commodities. The marketing efficiency of chicken in Sitio Campao, Sufa-tubo, Glan, Saranggani was evaluated through the deconstruction of existing marketing margins. Recommendations to improve marketing efficiency are herein offered. This report was prepared by: Jaymee Alcos Elizabeth Supangco Julianne Revilleza May 2001

ii

ACKNOWLEDGEMENTS Report data were gathered from a series of personal and group interviews with farmers and traders of chicken in Sitio Campao, Sufa-tubo, Glan, Saranggani. The time and effort that the respondents have placed into this study are acknowledged. The following were the swine raisers- and retailer-respondents of the study: Chicken raisers: Assembler: Retailer: Jobito Lariosa Carmela Idalo Arelina Gino Hipolito Cabadilla Mildred Orola Larry Mamat Antonio Mesa The valuable assistance extended by the Glan Municipal Agriculturist’s Office and the Sufa-tubo Barangay Council is also recognized.

iii

TABLE OF CONTENTS

Page number Preface i Acknowledgements ii Table of Contents iii Definition of Terms iv Introduction 1 Marketing System of Chicken 4 Strengths 8 Weaknesses 9 Other Key Findings 9 Conclusion 9 Recommendations 9 References 11 Appendices

A. Cost and Returns per unit of chicken in Sitio Campao, Sufa-tubo

12

B. Breakdown of costs per unit of chicken in Sitio Campao, Sufa-tubo

13

iv

DEFINITION OF TERMS Cash costs - costs where actual money is involved. Cash returns - the earnings, where actual money is involved, from the

sale of the farm produce. Depreciation - the expense brought about by the wear and tear of a

piece of equipment, building or tool used in an enterprise for a given period of time.

Exchange labor - the value, non-monetary in nature, of the work (in man-

days) put in by neighbors, friends or other laborers in exchange for the farmers help with similar farm activities in their respective farms.

Given away - the value, non-monetary in nature, of the farm produce

given out by the farmer to others without any monetary payment.

Hired labor - the cash expense for engaging the services of farm

laborers. Home consumption - the value, non-monetary in nature, of the farm produce

consumed by the farmer and his family. Losses/shrinkage of produce - the value, non-monetary in nature, of the damages and

spoilage sustained by the produce. Market information - basic information on prices and quantities traded of

major commodities, from all markets—assembly, wholesale and retail.

Marketing channel - the inter-organizational system composed of

interdependent institutions tasked in moving the product from production to consumption.

Marketing efficiency - the maximization of the input-output relationship where

inputs refer to resources (land, labor, capital) used in moving the products from point of consumption to the point of production and output referring to consumer satisfaction on goods and services made available in the market.

Marketing margin - the difference in prices between the different levels of

the marketing system.

v

Marketing - series of services performed in moving the product

from the point of production to the point of consumption.

Net farm income - returns of the use of capital and labor. The overall profit

of the farm after all the expenses, cash and non-cash, have been paid off.

Non-cash costs - costs items used in the production process wherein no

direct outlays occurred or the costs incurred are not monetary in nature.

Non-cash returns - the value, non-monetary in nature, of the farm produce

consumed by the farmer and his family or those given away.

Opportunity cost of capital - the price of foregone opportunity in the use of the

capital invested in the enterprise. It is usually pegged at the current savings interest rate.

Point of consumption - last sale of the product. Point of production - point of first sale. Profit margin - the return to the middlemen for their entrepreneurship,

the risks and the cost of money. Return on investment - measures the amount of cash that the entrepreneur gets

from the capital investment after first paying the opportunity expenses on the value of family labor and management. It also determines how much money the producer got in return for every one peso invested.

Unpaid family labor - also called own labor. The value, non-monetary in

nature, of work (valued in man-days) by the farmer and his family.

CHICKEN INTRODUCTION 1. Poultry is one of the world’s major sources of meat. 2. In the Philippine economy, the livestock and poultry sector is a major growth contributor to the agricultural sector and in the mid-1990s the domestic chicken industry went through a massive growth in terms of production. 3. However starting in 1996, the poultry industry faced a very difficult time. Substantial losses were incurred because of aggressive expansions, coupled with rising cost of grains and other feed materials, aggravated by the soft demand for poultry products. Even now that the poultry producers have trimmed down growth to more moderate levels, the industry is faced with an even greater challenge - global competition. The industry producers will not only be competing among themselves, but with the world poultry producers (http://pcarrd/chickenprofile/). 4. Currently, Mindanao supply is 24.1% of the total chicken production in the Philippines (University of Asia and the Pacific, 2001). Of this 32.1% is of the boiler variety, 9.1% is of the layer variety and 58.8% of the native breed. 5. The per capita consumption for chicken in the Philippines is currently 6.6 kilograms and is increasing at a relatively steady rate (Center for Food and Agribusiness-University of Asia and the Pacific, 2001). 6. In Sitio Campao, Sufa-tubo, Glan, Saranggani backyard native chicken raising is one of the prevalent agricultural activities in the area. The average chicken ownership per farmer, at any given time, is 3 to 4 heads including pallets and chicks. The average weight of a mature chicken is 1.2 kilograms. 7. Chicken production in the area, however, is mainly for household consumption as only 45% of all the chickens raised in the area are sold. 8. The marketing efficiency study for chicken in Sitio Campao, Sufa-tubo, Glan, Saranggani was conducted in March 5, 2001.

Objectives 9. The main objective of the study is to assess the impact of existing marketing systems of chicken vis-à-vis income of the farmers. 10. Specifically, the study aims to determine the levels of participants in the

marketing chain of chicken; 11. Determine the marketing practices involved in terms of storage, handling,

pricing, delivery systems and terms of payment;

2

12. Determine the percentage of consumer price that the producer receives through the deconstruction of marketing margins of chicken at each level in the system, exclusive of production costs;

13. Identify strengths and weaknesses of the existing marketing system of

chicken; and 14. Determine appropriate marketing interventions needed to improve economic

efficiency of chicken in Sitio Campao, Barangay Sufa-tubo, and Glan. Methodology 15. From the initial agribusiness profile of UDP-Saranggani, a total of 12 chicken farmers were identified; five (5) of who come from Sitio Campao, Sufa-tubo, Glan. Complete enumeration was done for the interview. 16. The farmers were asked about their production and marketing practices, production and marketing costs of chicken. They were also asked on available market information with emphasis on what they need to know to improve their production and marketing practices, thereby increasing the farmers’ income. 17. The respective buyers of chicken from each farmer were then traced accordingly. 18. The traders were, in turn, asked about their marketing, costs, and the problems and constraints they have encountered in the marketing of chicken. 19. The marketing margins (MM), or the total value added to the chicken per kilogram as it moves along one marketing channel to another, were then deconstructed and the profitability of each marketing participant was also analysed. In the case of the farmers, the Net Farm Income (NFI) was determined. An NFI greater than zero (0) would mean that the production and marketing activities of the chicken raising is profitable, whereas an NFI less than zero (0) would mean that the chicken raising is at a loss. 20. On the part of the trader, the Return on Investment (ROI) was compared with the opportunity cost of capital, pegged at the existing current savings interest rate of eight percent (8%) per annum. An ROI higher than the opportunity cost of capital would mean that marketing chicken is more profitable than just saving the trader’s money in a bank. While an ROI less than the opportunity cost of capital would mean that it would be more profitable for the trader to invest his money in a bank rather than spend it on marketing chicken. 21. The percent share to the consumer peso of each marketing participant was also determined by getting the percentage of the marketing participant’s selling price relative to the final buying price of the consumer. This indicates the proportion of the final buying price that goes to each marketing participant for chicken.

3

22. Moreover, focused group discussions (FGDs) with key informants and selected farmers were conducted to probe into the importance and the demand for market information in each province. This provided rapid feedback on the available market information and the information dissemination strategies existing in the area. 23. Also, key informants such as the Municipal Agriculturists and the Agricultural Technicians were interviewed to obtain an overview of the local agriculture industry.

Limitations and Constraints 24. Upon interview, the farmers only recalled their past production level, income, tools and equipment used, as there were no records kept of their operations. Thus the cost and return that were analyzed were only estimates. The Return on Investment (ROI) was excluded on the analysis of the farmer’s income due to the ambiguity of the values arrived at, as some factors on capital investment were not quantified. For instance, land valuation was excluded because none of the farmers hold titles to the land that they cultivate. Land, therefore, was not considered a fixed investment in this enterprise and was merely considered as an expense through the credit of land cost (land tax if owned, rent if tenanted). 25. For the marketing aspect, the respondents interviewed were the middlemen identified by the farmers. Most of who also based their answers on their memories since they too do not keep records of their marketing operations. 26. On the analysis of the marketing efficiency of the farmers, only the Net Farm Income (NFI) analysis was utilized since the available data could only allow for this kind of analysis and not the more complicated input-output efficiency analyses. 27. Lastly, the size of the chicken market, specifically, the estimation of demand was not included in the study. Margin of Error

28. Aside form the UDP Agribusiness Profile, there are no other available data on

the population size of chicken raisers in the area. The margin of error on the analysis, therefore, cannot be established since the formula requires not only the sample size, but the population size as well.

4

MARKETING SYSTEM OF CHICKEN

Marketing Channels 29. The marketing participants involved in the chicken commodity system in Sitio Campao, Sufa-tubo, Glan are as follows: a. Farmer

A person engaged in backyard native chicken production. b. Assembler

A trader engaged in buying the native chicken in the barangay then transports it in the market place. c. Retailer

A trader engaged in selling the native chicken on a per head basis. 30. Based on farmer interviews in the area, it was established that a total of 233 heads or 279.6 kilograms live-weight of chicken were raised in Sitio Campao, Sufa-tubo in the year 2000, Fifty-five percent (55%) of which were for home consumption. The remaining 106 heads (127.2 kilograms) were sold. Below is the product flow of chicken form Sitio Campao, Sufa-tubo, Glan.

Figure 1. Product flow of chicken from Sitio Campao, Sufa-tubo, Glan. 31. Based on the above figure, 58.7% of all the chicken sold go to assembler and 42.2% go to the retailer. 32. Similarly, the geographical movement of the chicken was also traced and is presented on Figure 2.

FARMER ASSEMBLER RETAILER CONSUMER 58.7%

42.2%

5

Figure 2. Geographical flow of chicken. 33. The main market for native chicken is at Glan Public Market where 75% of the marketable surplus is sold. The consumers in General Santos City purchase the remaining 25% of the chicken from Sitio Campao. 34. Due to poor road system in the area, there are no other means of transporting the chicken except on foot or by horse. Majority of the farmers prefer to sell their livestock to the assembler inside the barangay (Case 1). However, some farmers who prefer to directly sell their chicken to the retailer would go to the Glan public market and sell the native chicken to the retailers there (Case 2).

Marketing Practices and Costs 35. When the native chicken reaches five months and reaches an average weight of 1.2 kilograms per head, it is caught, tied by the feet and brought to the assembler (Case 1) or to the retailers in Glan (Case 2). 36. For case 2, upon reaching the Barangay Poblacion, which is approximately two kilometres from the Sitio, the chicken is loaded onto a passenger jeep bound for the Glan Public Market. The fare is pegged at P20.00 per person regardless of the quantity of chicken transported. 37. Upon reaching Glan, the chicken raisers are approached by jamboleros who lead them to retailers. These jamboleros receive an undetermined commission from the retailers for every sale that they refer to the retailer. This commission would have otherwise gone to the farmer, but was instead given to the jambolero. 38. For Case 1, on the other hand, the chicken is brought to the assembler based in Barangay Sufa-tubo and from there, the assemblers bring the chicken to General Santos City, which is 45 kilometers from the Barangay Poblacion. 39. The main cost in marketing chicken is the transportation cost. This cost is borne by either the assembler (Case 1) or the farmer (Case 2). Table 1 presents the marketing costs of chicken at each marketing level.

FARMER

POBLACION, GLAN

GENERAL SANTOS CITY

74.9%

25.1%

6

Table 1. Marketing costs for different marketing levels of chicken (P/kg).

CASE 1 CASE 2 Farmer Assembler Farmer Retailer

ACTIVITY

Transportation 0.19 3.33 0.19 nil

Supplies and materials nil 0.29 nil 0.29

Non-cash costs 1.08 nil 1.08 nil TOTAL 1.27 3.62 1.27 0.29

Case 1 represents the movement of chicken from farmer to assembler. Case 2 represents the movement of chicken from farmer to retailer. 39. Costs on the retailer’s side is allocated for the supplies and materials such as the rope and baskets used in tying the chicken as most of it is sold live to the consumers.

Price Formation 40. Prices for native chicken are high during the months of May and June (for the town fiesta’s and opening of classes), and December for the Christmas season. In Glan, farm gate prices during these months range from P70.00 to P75.00 per kilogram while the retail prices are at P80.00 to P85.00. During regular months, native chicken can be sold at P65.00 per head at farm-gate.

Marketing Margins

41. Table 2 illustrates presents the Net Farm Income of the farmer (as shown in detail on Appendix A) and the marketing margins for the assembler and the retailer.

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Table 2. Marketing margins and income for chicken at different marketing levels.

ITEM Farmer Assembler Retailer (Case 1) (Case 2) Selling Price 70.00 80.00 75.00 Buying Price nil 70.00 70.00 Marketing Margin nil 10.00 5.00 Marketing Cost 1.27 3.62 1.96 Profit Margin na 6.38 3.04 Net Farm Income 27.97 nil nil

MC as % of MM na 36% 39% PM as % of MM na 64% 61% % ROI na 16.75% 1.93% Opportunity Cost of Capital na 8% 8% 42. Table 2 shows that the chicken raiser, earning a Net Farm Income of P27.97 per kilogram, means that his chicken production and marketing activities are profitable, thereby efficient. 43. The marketing margins for each participant in the trading of native chicken were also identified. Each level in the marketing channel receives a large profit for every kilogram of chicken they sell. Their profit margin is above 60% of their identified marketing margin. 44. Graphically, the marketing costs and profit of the assembler and retailer relative to their marketing margins are presented on Figure 3.

Figure 3. Marketing margins

36% 39%

64% 61%

Assembler Retailer

%PM

%MC

8

45. The breakdown of Consumer Peso for Case 2 is presented on Table 3. Table 3. Percentage share prices to the consumer peso.

MARKETING PARTICIPANTS SELLING PRICE

(P/kg) % SHARE

Farmer 70 40 Retailer 75 60

46. Graphically, the percent share of the consumer peso is presented on Figure 4.

Figure 4. Percentage share of prices to the consumer peso.

Farmer 40%

Retailer60%

47. This shows that 60% of the retail price goes to the retailer and 40% goes to the farmer. This suggests that for every peso spent by the consumer, the retailer receives P0.60 while the P 0.40 goes to the farmer. STRENGTHS 48. In the market, native chicken is preferred because of its distinctive taste. Farmers and traders claim that native chicken has high demand in the market since the consumers prefer this to the hybrids. 49. Farmers have an equal bargaining power over the price of chicken. This means that the buying price of the chicken is negotiated between the farmer and the buyer. This allows the farmer to adjust his selling price such that his production and marketing costs, along with the profits, can be compensated for by the buying price.

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WEAKNESSES 50. From the total production, more than half of the chickens produced were consumed by the farmers rather than being sold to traders. This is largely due to the fact that the chicken raisers are discouraged by the distance and, consequently, the high transportation cost in marketing the chicken. During the study, it was often mentioned by the farmers that they would rather eat the chicken than bring it to the assembler or the Glan public market. 51. Another weakness in the marketing of chicken is the relatively high losses brought about by the weight loss and mortality during transport of the animals from the Sitio to Glan or General Santos City. As shown on Appendix A and B, the average value of the losses sustained by the farmers in transporting the chicken is P1.08 per kilogram. 52. Lastly, the presence of jamboleros reduce the income of the chicken raisers as the income which would have otherwise gone to the chicken raiser is shared with the jambolero as commission. OTHER KEY FINDINGS 52. It was also determined that there is a high mortality rate of 90% in raising native chicken. This is especially true during the rainy season when the animals are prone to diseases. This is further aggravated by the fact that farmers lack technical know-how in preventing this occurrence. CONCLUSION 53. In determining the efficiency of the farmers, the Net Farm Income was evaluated and it was established that with a P27.97/kg NFI, the farmer is producing profitably and efficiently. 54. On the part of the traders, the marketing margins were analysed and compared with the eight percent (8%) opportunity cost of capital. It was determined that the assembler, with a 16.75% ROI, is operating efficiently. The retailer, on the other hand, is not marketing chicken efficiently since his ROI is only 1.93% (Table 2).

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RECOMMENDATIONS 55. Based on the findings of this study, the following recommendations are offered: • Conduct seminars on disease prevention and other management techniques in poultry to improve the technical know-how, thereby production of the chicken raisers; • Establish an organized buying system for the assemblers such that the farmers need not travel too far to sell their produce. It may be that the assemblers could be encouraged to visit Sitio Campao regularly to purchase the birds; and • Lastly, improvement on the condition of the Sitio Campao to Glan proper tertiary road should be done, as this is the major hindrance in the marketing of chicken.

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REFERENCES

AGARRADO, R.E. et al. Marketing and Information Needs Assessment for Davao City. BAS-DA-USP, Davao City.

CORRE, S. 1996. A Market Efficiency Study for Palay/Rice in Biliran. Published

under the Small Islands Agricultural Support Services Programme. REVILLA, R.S. 1999. Production and Marketing of Sinta Papaya in Laguna, 1998.

Unpublished Undergraduate Thesis, CEM, UPLB, Laguna.

UDP 1999. The Terms of Reference for Consultancy Services-Marketing Efficiency Study. UDP, Davao City.

CENTER FOR FOOD AND AGRIBUSINESS-UNIVERSITY OF ASIAN AND

THE PACIFIC. 2001. Chicken Supply/Demand Analysis and Projections. A paper presented on the Third Mindanao Food Congress. University of Asia and the Pacific, Pasig City.

http://pcarrd/chickenprofile/

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APPENDIX A. Cost and returns per unit of chicken in Sitio Campao, Sufa-tubo.

ITEM P/kg

RETURNS Cash Sales 33.95 Total Cash Returns (A) 33.95 Non-cash Home consumption 33.53 Given away 2.09 Total Non-cash Returns (B) 35.62 TOTAL RETURNS (C ) 70.00 COSTS Cash Animal stocks 4.33 Feeds (corn) 17.77 Transportation 0.19 Total Cash Costs (D) 22.29 Non-cash Unpaid family and/or exchange labor 9.54 Improvised feeds 8.63 Losses/Shrinkage of produce 1.08 Opportunity cost of capital 0.49 Total Non-cash Costs (E) 19.74 TOTAL COSTS (F) 42.03 Net Returns Above Cash Costs (C-D) 47.71 Net Farm Income 27.97

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APPENDIX B. Breakdown of costs per unit of chicken in Sitio Campao, Sufa-tubo.

ITEM P/kg

I. Production Cost Animal stocks 4.33 Feeds (corn) 17.77 Improvised feeds 8.63 Own labor 9.54 Total Production Cost 40.27 II. Marketing Cost A. Transportation Transportation 0.19 Losses/shrinkage 1.08 Total Marketing Cost 1.67 III. Opportunity cost of capital 0.49 TOTAL COSTS 42.03

A MARKETING EFFICIENCY STUDY ON

CORN

IN BARANGAY NEW LA UNION, MAITUM, SARANGGANI

MAY 2001

Republic of the Philippines Department of Agriculture Upland Development Programme in

Southern Mindanao (UDP)

ii

PREFACE This report is one of a series of market efficiency studies conducted in the UDP-covered areas for selected commodities. The marketing efficiency of corn in Barangay New La Union, Maitum, Saranggani was evaluated through the deconstruction of existing marketing margins. Recommendations to improve marketing efficiency are herein offered. This report was prepared by: Jaymee Alcos Elizabeth Supangco Julianne Revilleza May 2001

iii

ACKNOWLEDGEMENTS Report data were gathered from a series of personal and group interviews with producers and traders of corn in Barangay New La Union, Maitum, Saranggani. The time and effort that the respondents have placed into this study are acknowledged. The following were the farmer- and trader-respondents of the study: Farmers: Retailer: Wholesaler-retailer: Mateo Kilam Levelyn Doctor Jimmy Cornel Benjamin Ilow Eddie Soldabilio Crisencio Yama Dawin Calunsing The valuable assistance extended by the Maitum Municipal Agriculturist’s Office and the New La Union Barangay Council is also recognized.

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TABLE OF CONTENTS

Page number Preface i Acknowledgements ii Table of Contents iii Definition of Terms iv Introduction 1 Marketing System of Corn 4 Strengths and Weaknesses 9 Other Key Findings 9 Conclusion 10 Recommendations 10 References 11 Appendices

A. Cost and Returns per unit of corn in Barangay New La Union, Maitum

12

B. Breakdown of costs per unit of corn in Barangay New La Union, Maitum

13

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DEFINITION OF TERMS

Cash costs - costs where actual money is involved. Cash returns - the earnings, where actual money is involved, from the

sale of the farm produce. Depreciation - the expense brought about by the wear and tear of a

piece of equipment, building or tool used in an enterprise for a given period of time.

Exchange labor - the value, non-monetary in nature, of the work (in man-

days) put in by neighbors, friends or other laborers in exchange for the farmers help with similar farm activities in their respective farms.

Hired labor - the cash expense for engaging the services of farm

laborers. Losses/shrinkage of produce - the value, non-monetary in nature, of the damages and

spoilage sustained by the produce. Market information - basic information on prices and quantities traded of

major commodities, from all markets—assembly, wholesale and retail.

Marketing channel - the inter-organizational system composed of

interdependent institutions tasked in moving the product from production to consumption.

Marketing efficiency - the maximization of the input-output relationship where

inputs refer to resources (land, labor, capital) used in moving the products from point of consumption to the point of production and output referring to consumer satisfaction on goods and services made available in the market.

Marketing margin - the difference in prices between the different levels of

the marketing system. Marketing - series of services performed in moving the product

from the point of production to the point of consumption.

Net farm income - returns of the use of capital and labor. The overall profit

vi

of the farm after all the expenses, cash and non-cash, have been paid off.

Non-cash costs - costs items used in the production process wherein no

direct outlays occurred or the costs incurred are not monetary in nature.

Non-cash returns - the value, non-monetary in nature, of the farm produce

consumed by the farmer and his family or those given away.

Opportunity cost of capital - the price of foregone opportunity in the use of the

capital invested in the enterprise. It is usually pegged at the current savings interest rate.

Point of consumption - last sale of the product. Point of production - point of first sale. Profit margin - the return to the middlemen for their entrepreneurship,

the risks and the cost of money. Return on investment - measures the amount of cash that the entrepreneur gets

from the capital investment after first paying the opportunity expenses on the value of family labor and management. It also determines how much money the producer got in return for every one peso invested.

Unpaid family labor - also called own labor. The value, non-monetary in

nature, of work (valued in man-days) by the farmer and his family.

CORN

INTRODUCTION 1. Corn (Zea mays) is the one of the major crops produced in the Philippines after rice. There are two general types of corns in the Philippines, white corn and yellow corn. White corn is the staple food of around 20% Filipinos living in the Visayas and Mindanao regions. Yellow corn is the major input for the livestock industry, which now comprises about 70% of the total corn production. Most obviously, yellow corn production is now a major source of income for producers in Mindanao. 2. There is a steady growth of the yellow corn industry that resulted from the increasing demand for feed corn for poultry and livestock industries. On the other hand, the demand for food corn has not grown substantially due to substitutes like bread, noodles, and rice. 3. The Mindanao region accounts for 60% of the total national production with an average yield of 1.62 metric tons per hectare. Fifty-two percent of the total production in 1999 is composed of white corn while the other 48% is yellow corn (BAS, 1999). A study on the Corn Supply/Demand Analysis by the University of Asia and the Pacific cited that Mindanao is considered self sufficient in corn with over 1.6 million metric tons available for other regions. In Mindanao, corn is planted twice a year, from March to April and September to October. 4. The white corn variety or taniguib is grown in Barangay New La Union, Maitum, with a 2.57 hectare landholding on average per farmer. And the average production of Taniguib corn in the area is 463.8 kilograms per hectare.. 5. The marketing efficiency study for corn in Barangay New La Union, Maitum, Saranggani was conducted last March 7, 2001. Objectives 6. The main objective of the study is to assess the impact of existing marketing systems of corn vis-à-vis income of the farmers. 7. Specifically, the study aims to determine the levels of participants in the marketing chain of corn; 8. Determine the marketing practices involved in terms of storage, handling, pricing, delivery systems and terms of payment; 9. Determine the percentage of consumer price that the producer receives through the deconstruction of marketing margins of corn at each level in the system, exclusive of production costs;

2

10. Identify strengths and weaknesses of the existing marketing system of corn; and 11. Determine appropriate marketing interventions needed to improve economic efficiency of corn in Barangay New La Union, Maitum . Methodology 12. From the initial agribusiness profile of UDP-Saranggani, 18 corn farmers were identified; five of which come from Barangay New La Union, Maitum. Complete enumeration of the New La Union corn farmers was done for the interview. 13. The farmers were asked about their production and marketing practices, production and marketing costs of corn. They were also asked on available market information with emphasis on what they need to know to improve their production and marketing practices, thereby increasing the farmers’ income. 14. The respective buyers of corn from each farmer were then traced accordingly. 15. The traders were, in turn, asked about their marketing, costs, and the problems and constraints they have encountered in the marketing of corn. 16. The marketing margins (MM), or the total value added to the corn per kilogram as it moves along one marketing channel to another, were then deconstructed and the profitability of each marketing participant was also analysed. In the case of the farmers, the Net Farm Income (NFI) was determined. An NFI greater than zero (0) would mean that the production and marketing activities of the corn farm is profitable, whereas an NFI less than zero (0) would mean that the farm is at a loss. 17. On the part of the trader, the Return on Investment (ROI) was compared with the opportunity cost of capital, pegged at the existing current savings interest rate of eight percent (8%) per annum. An ROI higher than the opportunity cost of capital would mean that marketing corn is more profitable than just saving the trader’s money in a bank. While an ROI less than the opportunity cost of capital would mean that it would be more profitable for the trader to invest his money in a bank rather than spend it on marketing corn. 18. The percent share to the consumer peso of each marketing participant was also determined by getting the percentage of the marketing participant’s selling price (in the case of traders, less their buying price) relative to the final buying price of the consumer. This indicates the proportion of the final buying price that goes to each marketing participant for corn.

3

19. Moreover, focused group discussions (FGDs) with key informants and selected farmers were conducted to probe into the importance and the demand for market information in each province. This provided rapid feedback on the available market information and the information dissemination strategies existing in the area. 20. Also, key informants such as the Municipal Agriculturists and the Agricultural Technicians were interviewed to obtain an overview of the local agriculture industry. Limitations and Constraints 21. Upon interview, the farmers only recalled past production level, income, farm tools and equipment used, as there were no records kept of their operations. Thus the cost and return that were analyzed were only estimates. The Return on Investment (ROI) was excluded on the analysis of the farmer’s income due to the ambiguity of the values arrived at, as some factors on capital investment were not quantified. For instance, land valuation was excluded because none of the farmers hold titles to the land that they cultivate. Land, therefore, was not considered a fixed investment in this enterprise and was merely considered as an expense through the credit of land cost (land tax if owned, rent if tenanted). 22. On the marketing aspect, the respondents interviewed were the middlemen identified by the farmers. Most also based their answers on their memories since they too do not keep records of their marketing operations. 23. On the analysis of the marketing efficiency of the farmers, only the Net Farm Income (NFI) analysis was utilized since the available data could only allow for this kind of analysis and not the more complicated input-output efficiency analyses. 24. Lastly, the size of the corn market, specifically, the estimation of demand was not included in the study. Margin of Error

25. Aside form the UDP Agribusiness Profile, there are no other available data on the population size of corn producers in the area. The margin of error on the analysis, therefore, cannot be established since the formula requires not only the sample size, but the population size as well.

4

MARKETING SYSTEM OF CORN Marketing Channels 26. The marketing participants involved in the corn commodity system in Barangay New La Union, Maitum are as follows. a. Farmer

One who engages in the production and post harvest activities of corn.

b. Wholesale-retailer

One who procures harvested corn either shelled or in cob from the farmers

consumer. c. Retailer

One who engages in the selling of corn directly to the consumer. 27. Based on farmer interviews, an estimated 5,960 kilograms of corn were sold for most recent cropping season of 2000. The following product flow was established:

Figure 1. Product flow of corn from Barangay La Union, Maitum, Saranggani. 79.4% 20.57% 28. Figure 1 shows that farmers in Barangay New La Union either sell their produce to the retailer or to the wholesaler-retailer.

Figure 2. Geographical flow of corn. 20.57% 79.4 %

FARMER

WHOLESALER- RETAILER

-

RETAILER CONSUMER

PRODUCER

MAITUM, SARANGGANI

GENERAL SANTOS

5

29. Figure 2 describes the geographical flow of corn from the barangay. It is delivered to only two areas, the town proper of Maitum or to General Santos City. Marketing Practices and Costs 30. In the farm, farmers perform post-harvest activities such as drying, grading/sorting, shelling and packing. From the group of farmers interviewed, there were only a few who shell corn. 31. Farmers dry the grain before it is milled to prolong the shelf life of the corn grains. After drying, shelling is done, although most of the farmers prefer not to shell the corn because of the additional cost of shelling and the absence of drying facilities in the area. 32. After the corn is dried or shelled, farmers would sort the corn using the visual method where ocular examination of the corn is done to determine of it is spotted. Farmers also employ the feel method where it involves the determination of the wetness and dryness of the corn, then wet corns are set apart for drying. 33. Bagging is done after the corn is graded. The corn or the grits are packed in the sacks, each weighing 50 kilograms, it is then transported to the wholesaler-retailer or retailer. 34. There is no problem in transporting the produce in the trading centers. The farmers would use the passenger jeepney in transporting the produce. 35. After delivering the produce the farmer is paid in cash by the wholesaler- retailer or retailer. 36. Marketing cost at different levels is shown on Table 1.

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Table 1. Marketing costs for different marketing levels of copra (P/kg).

ACTIVITY

FARMER WHOLESALER-

RETAILER RETAILER

Grading/Sorting 0.10 na na

Packing 0.15 na na

Transportation 0.38 0.40 0.40 Labor na 0.08 0.06 Fees and Payments na 0.05 0.01 Packaging Materials na 0.02 0.01 Non-cash cost na 0.01 0.16 TOTAL 0.63 0.56 0.64 37. Transportation cost is high at different levels as this makes up almost 65% of the marketing cost. Price Formation 38. Price trends for corn are well defined, as high prices fall on lean months and low prices on peak months. White corn, being the commodity for human consumption, has generally been priced higher than the yellow corn. 39. Despite Mindanao’s sufficiency in corn, the price of corn increases throughout the years primarily because of a growing gap between demand and supply on a national scale brought about by a faster growth in demand compared to the relatively slow growth in production. 40. In Barangay New La Union, corn prices have been stable for the past years. This can be attributed to the steady supply in the area. However, prices differ because of the grade and quality of the produce. Dry corn has a higher price compared to the semi-wet corn. Corns with spots have lower prices as compared to the smooth white corn. Marketing Margins 41. Shown on Table 2 are the marketing margins for corn at the different marketing levels. Included in the table is the Net Farm Income of the farmer which is presented in detail on Appendix A.

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Table 2. Marketing margins and income for corn at different marketing levels.

ITEM Farmer Wholesaler-retailer Retailer (Case 1) (Case 2)

Selling Price 4.80 8.20 8.00 Buying Price na 4.80 4.80 Marketing Margin na 3.40 3.20 Marketing Cost 0.63 0.56 0.63 Profit Margin na 2.84 2.57 Net Farm Income 2.16 Na na MC as % of MM na 16% 20% PM as % of MM na 84% 80% % ROI na 12.6% 40.8% Opportunity Cost of Capital na 8% 8% Note: Case 1 represents the movement of corn from farmer to wholesaler-retailer. Case 2 represents the movement of corn from farmer to retailer. 42. The marketing margins for each participant in the trading of corn were determined. Each level in the marketing channel enjoys large profit for every kilogram of produce they sell. For the wholesaler-retailer 84% of his margin is profit and 16% is the marketing cost. Retailer, on the other hand, has a relatively lower share of profit margin (80%) as 20% his price mark-up goes to the cost of marketing corn. 43. Graphically, the marketing margins are illustrated below.

Figure 3. Marketing margins

16% 20%

84% 80%

Wholesale-retailer (Case 1) Retailer (Case 2)

%PM

%MC

8

44. Table 3 shows the percentage breakdown of retail price to the consumer peso. Table 3. Percentage share prices to the consumer peso.

MARKETING PARTICIPANTS SELLING PRICE (P/kg) % SHARE

Case 1 Farmer 4.80 14.5% Wholesaler-retailer 8.20 85% Case 2 Farmer 4.80 14.9% Retailer 8.00 8%

45. Case 1 and Case 2 have the same percentage share to the consumer peso. Wholesaler- retailer and retailer have a 85 % share while the farmer has a 15% share. 46. The graphical presentation of the percentage share of the consumer peso for both cases are shown below.

Figure 4. Percentage share prices to the consumer peso (Case 1).

Farmer15%

Wholesaler-retailer

85%

9

Figure 5. Percentage share prices to the consumer peso (Case 2).

Farmer15%

Retailer85%

STRENGTHS AND WEAKNESSES

47. Aside from the high demand of corn and the well-established marketing system, no other market-related strengths were determined in the study. Problems and weaknesses, however, abound. 48. In the case of corn, problems on the grading standards are often encountered by the farmers. Although the ideal moisture content of corn is 14%, moisture content determination is done arbitrarily by feel of the grains. Also, the buyers’ requirements on the percent adulteration is unknown to the farmers. 49. Another weakness in the corn marketing system is the absence of drying and storage facilities in the area. The farmers, therefore, rarely dry corn. Consequently, the quality of grains sold by the farmers is substandard. 50. Lastly, the corn farmers’ access to other markets/buyers is hindered by the distance of the area which leads to high transportation costs.

OTHER KEY FINDINGS

51. It was also determined that Barangay New La Union corn farmers are unaware of the growing demand for yellow corn, thus, corn production in the area is still predominantly of the white variety.

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CONCLUSION

52. To determine the efficiency of the farmers, the Net Farm Income is evaluated. Table 2 shows that for every kilogram of corn sold to the traders the farmer gain a net income of P2.16. In this, we could say that the farmers are performing efficiently. 53. In evaluating the efficiency of the traders, ROI and cost structure are examined. The wholesaler-retailer with an ROI of 12.6% greater than the opportunity cost of capital (8%) is determined to be performing efficiently. In addition, results showed that the wholesaler-retailer’ marketing cost of P0.56 per kilogram is much lower than the profit margin of P2.84 per kilogram also implying efficiency in marketing. 54. Similarly, the retailers’ marketing activities were determined to be efficient since his ROI is higher than the opportunity cost of capital and the marketing cost is significantly low relative to the marketing margin.

RECOMMENDATIONS 55. Based on the findings and conclusions established in this study, the following recommendations are offered: • Trainings and information drives on the grading standards of corn should be

conducted to enlighten the farmers on the classification of corn and requirements of the buyers;

• Drying and storage facilities should be built to enable farmers to dry and/or

store corn, as both these practices allow the farmers to receive a higher farm-gate price; and

• To improve the farmers’ market knowledge on corn, market information on

the buying prices of yellow and white corn should be made available along with information on the corresponding buyers of each variety.

11

REFERENCES AGARRADO, R.E. et al. Marketing and Information Needs Assessment for Davao

City. BAS-DA-USP, Davao City. CORRE, S. 1996. A Market Efficiency Study for Palay/Rice in Biliran. Published

under the Small Islands Agricultural Support Services Programme. REVILLA, R.S. 1999. Production and Marketing of Sinta Papaya in Laguna, 1998.

Unpublished Undergraduate Thesis, CEM, UPLB, Laguna. CENTER FOR FOOD AND AGRIBUSINESS-UNIVERSITY OF ASIA AND THE

PACIFIC. 2001. Corn Supply/Demand Analysis and Projections. A presentation on the Third Mindanao Food Congress, UA&P, Pasig City.

UDP 1999. The Terms of Reference for Consultancy Services-Marketing Efficiency

Study. UDP, Davao City. www.britannica.com http://memory.loc.gov/frd/cs

12

APPENDIX A. Cost and returns per unit of corn in Barangay New La Union, Maitum.

ITEM P/kg

RETURNS Cash Sales 4.80 Total Cash Returns (A) 4.80 Non-cash Total Non-cash Returns (B) - TOTAL RETURNS (C ) 4.80 COSTS Cash Seeds 0.70 Fertilizers 0.36 Hired labor 0.13 Transportation 0.38 Land cost 0.10 Total Cash Costs (D) 1.67 Non-cash Unpaid family and/or exchange labor 0.68 Depreciation 0.10 Losses/Shrinkage of produce 0.03 Others 0.03 Opportunity cost of capital 0.13 Total Non-cash Costs (E) 0.97 TOTAL COSTS (F) 2.64 Net Returns Above Cash Costs (C-D) 3.13 Net Farm Income 2.16

13

APPENDIX B. Breakdown of costs per unit of corn in Barangay New La Union,

Maitum

ITEM P/kg I. Production Cost Land cost 0.10 Depreciation 0.10 Seeds 0.70 Fertilizers 0.36 Own labor 0.50 Hired labor 0.09 Others 0.03 Total Production Cost 1.88 II. Marketing Cost A. Grading Own labor 0.05 Hired labor 0.04 Losses/shrinkage 0.01 Sub-Total 0.10 B. Packing Own labor 0.13 Losses/shrinkage 0.02 Sub-Total 0.15 C. Transportation 0.38 Total Marketing Cost 0.63 III. Opportunity cost of capital 0.13 TOTAL COSTS 2.64

A MARKETING EFFICIENCY STUDY ON

LACATAN

IN SITIO ABGANG-BATO, SUFA-TUBO, GLAN, SARANGGANI

MAY 2001

Republic of the Philippines Department of Agriculture Upland Development Programme in

Southern Mindanao (UDP)

i

PREFACE This report is one of a series of market efficiency studies conducted in the UDP-covered areas for selected commodities. The marketing efficiency of lacatan in Sitio Abgang-bato, Sufa-tubo, Glan, Sarangani was evaluated through the deconstruction of the existing marketing margins. Recommendations to improve marketing efficiency are herein offered. This report was prepared by: Jaymee Alcos Elizabeth Supangco Julianne Revilleza May 2001

ii

ACKNOWLEDGEMENTS Report data were gathered from a series of personal and group interviews with farmers and traders of lacatan in Sitio Abgang-bato, Sufa-tubo, Glan, Sarangani and General Santos City, respectively. The time and effort that the respondents have placed into this study are acknowledged. The following were the farmer- and retailer-respondents of the study: Farmers: Assembler-wholesale: Wholesaler-Retailer: Danilo Francisco Elena Recarte Lilia Rata Agripina Ugong Auria Sarahum Glandeco Alexander Caparoso Pablo Arieta Jovito Francisco The valuable assistance extended by the Glan Municipal Agriculturist’s Office and the Sufa-tubo Barangay Council is also recognized.

iii

TABLE OF CONTENTS

Page number Preface i Acknowledgements ii Table of Contents iii Definition of Terms iv Introduction 1 Marketing System of Lacatan 3 Strength and Weakness 8 Other Key Findings 9 Conclusion 9 Recommendations 9 References 10 Appendices A. Cost and Returns per unit of lacatan in

Sitio Abgang-bato, Sufa-tubo, Glan 11

B. Breakdown of costs per unit of lacatan in Sitio Abgang-bato, Sufa-tubo, Glan

12

iv

DEFINITION OF TERMS

Cash costs - costs where actual money is involved. Cash returns - the earnings, where actual money is involved, from the

sale of the farm produce. Depreciation - the expense brought about by the wear and tear of a

piece of equipment, building or tool used in an enterprise for a given period of time.

Exchange labor - the value, non-monetary in nature, of the work (in man-

days) put in by neighbors, friends or other laborers in exchange for the farmers help with similar farm activities in their respective farms.

Given away - the value, non-monetary in nature, of the farm produce

given out by the farmer to others without any monetary payment.

Hired labor - the cash expense for engaging the services of farm

laborers. Home consumption - the value, non-monetary in nature, of the farm produce

consumed by the farmer and his family. Losses/shrinkage of produce - the value, non-monetary in nature, of the damages and

spoilage sustained by the produce. Market information - basic information on prices and quantities traded of

major commodities, from all markets—assembly, wholesale and retail.

Marketing channel - the inter-organizational system composed of

interdependent institutions tasked in moving the product from production to consumption.

Marketing efficiency - the maximization of the input-output relationship where

inputs refer to resources (land, labor, capital) used in moving the products from point of consumption to the point of production and output referring to consumer satisfaction on goods and services made available in the market.

Marketing margin - the difference in prices between the different levels of

v

the marketing system. Marketing - series of services performed in moving the product

from the point of production to the point of consumption.

Net farm income - returns of the use of capital and labor. The overall profit

of the farm after all the expenses, cash and non-cash, have been paid off.

Non-cash costs - costs items used in the production process wherein no

direct outlays occurred or the costs incurred are not monetary in nature.

Non-cash returns - the value, non-monetary in nature, of the farm produce

consumed by the farmer and his family or those given away.

Opportunity cost of capital - the price of foregone opportunity in the use of the

capital invested in the enterprise. It is usually pegged at the current savings interest rate.

Point of consumption - last sale of the product. Point of production - point of first sale. Profit margin - the return to the middlemen for their entrepreneurship,

the risks and the cost of money. Return on investment - measures the amount of cash that the entrepreneur gets

from the capital investment after first paying the opportunity expenses on the value of family labor and management. It also determines how much money the producer got in return for every one peso invested.

Unpaid family labor - also called own labor. The value, non-monetary in

nature, of work (valued in man-days) by the farmer and his family.

i

LACATAN

INTRODUCTION 1. Banana is one of the top products exported by the Philippines. It has consistently ranked next to coconut oil and prawns. The bulk of exports, which is mostly the Cavendish variety, come from Mindanao. 2. There are about 227 banana cultivars in the country. The most popular varieties for local consumption are bungulan, lacatan, latundan, Saba and Cavendish. 3. Southern Mindanao was the top regional producer of banana from 1989 to 1993. During the period, it was the only producing region to ably maintain a harvest of more than a million tons annually to sustain the market demand. 4. Of the three banana varieties being traded in Southern Mindanao, i.e., Cardava, Lacatan and Latundan, Lacatan is identified to be the most marketable. 5. Banana has various economic uses. The fruit, which is rich in vitamins, minerals, and other nutrients, serves as a dessert. 6. About 30% of the household in Sitio Abgang-bato, Sufa-tubo, Glan are into banana production. The whole barangay produce 2000 kg of Lacatan variety per week. 7. The marketing efficiency study for lacatan in Sitio Abgang Bato, Sufa-tubo, Glan was conducted in March 7, 2001. Objectives 8. The main objective of the study is to assess the impact of existing marketing systems of lacatan vis-à-vis income of the farmers. 9. Specifically, the study aims to determine the levels of participants in the marketing chain of lacatan; 10. Determine the marketing practices involved in terms of storage, handling, pricing, delivery systems and terms of payment; 11. Determine the percentage of consumer price that the producer receives through the deconstruction of marketing margins of lacatan at each level in the system, exclusive of production costs; 12. Identify strengths and weaknesses of the existing marketing system of lacatan; and 13. Determine appropriate marketing interventions needed to improve economic efficiency of lacatan in Sitio Abgang-bato, Sufa-tubo, Maitum.

ii

Methodology 14. From the initial agribusiness profile of UDP-Sarangani area, 12 lacatan farmers were identified; five of which come from Sitio Abgang-bato, Sufa-tubo, Glan. Complete enumeration was done in the sitio for the interview. 15. The farmers were asked about their production and marketing practices, production and marketing costs of lacatan. They were also asked on available market information with emphasis on how to improve their production and marketing practices to increase the farmers’ income. 16. The respective buyers of lacatan from each farmer were then traced accordingly. 17. The traders were, in turn, asked about their marketing, costs, and the problems and constraints they have encountered in the marketing of lacatan. 18. The marketing margins (MM), or the total value added to the lacatan per kilogram as it moves along one marketing channel to another, were then deconstructed and the profitability of each marketing participant was also analysed. The Net Farm Income (NFI) of the farmers was determined. An NFI greater than zero (0) would mean that the production and marketing activities of the lacatan farm is profitable, whereas an NFI less than zero (0) would mean that the farm is at a loss. 19. The Return on Investment (ROI) of the traders was compared with the opportunity cost of capital, pegged at the current savings interest rate of eight percent (8%) per annum. An ROI higher than the opportunity cost of capital would mean that marketing lacatan is more profitable than just saving the trader’s money in a bank. While an ROI less than the opportunity cost of capital would mean that it would be more profitable for the trader to invest his money in a bank rather than spend it on marketing lacatan. 20. The percent share to the consumer peso of each marketing participant was also determined by getting the percentage of the marketing participant’s selling price (in the case of traders, less their buying price) relative to the final buying price of the consumer. This indicates the proportion of the final buying price that goes to each marketing participant for lacatan. 21. Moreover, focused group discussions (FGDs) with key informants and selected farmers were conducted to probe into the importance and the demand for market information in each province. This provided rapid feedback on the available market information and the information dissemination strategies existing in the area. 22. Also, key informants such as the Municipal Agriculturists and the Agricultural Technicians were interviewed to obtain an overview of the local agriculture industry.

iii

Limitations and Constraints 23. Upon interview, the farmers only recalled past production level, income, farm tools and equipment used, as there were no records kept of their operations. Thus the cost and return that were analyzed were only estimates. The Return on Investment (ROI) was excluded on the analysis of the farmer’s income due to the ambiguity of the values arrived at, as some factors on capital investment were not quantified. For instance, land valuation was excluded because none of the farmers hold titles to the land that they cultivate. Land, therefore, was not considered a fixed investment in this enterprise and was merely considered as an expense through the credit of land cost (land tax if owned, rent if tenanted). 24. On the marketing aspect, the respondents interviewed were the middlemen identified by the farmers. Most of who also based their answers on their memories since they too do not keep records of their marketing operations. 25. On the analysis of the marketing efficiency of the farmers, only the Net Farm Income (NFI) analysis was utilized since the available data could only allow for this kind of analysis and not the more complicated input-output efficiency analyses. 26. Lastly, the size of the lacatan market, specifically, the estimation of demand was not included in the study.

Margin of Error

22. Aside form the UDP Agribusiness Profile, there are no other available data on the population size of lacatan producers in the area. The margin of error on the analysis, therefore, cannot be established since the formula requires not only the sample size, but the population size as well.

THE MARKETING SYSTEM OF LACATAN Marketing Channels 27. The marketing participants involved in the lacatan commodity system in Sitio Abgang Bato, Barangay Sufa-tubo, Glan are as follows; a. Farmer

Planter and owner of lacatan trees who sells to assembler-wholesaler and consumer. b. Assembler-wholesaler

Buyer of banana from the farmers and later sell either to wholesaler-retailer or retailer.

a. Wholesaler-retailer

iv

Buyer of bulk of banana from the assembler-wholesaler and later sell to retailer and consumer.

b. Retailer - traders who buys from farmers and assembler-wholesaler and sell to the consumer.

i. Below is the product flow of lacatan.

Figure 1. Product flow of lacatan

28. Based on Figure 1, it can be seen that farmer sells either directly to the assembler-wholesaler or to the retailer. The assembler-wholesaler would sell to the wholesaler-retailer or directly to the retailer while the wholesaler-retailer sell to the retailer or directly to the consumer. 29. At each level, there is a 5% loss incurred in the marketing of goods. This is mainly by transportation and storage conditions.

Figure 2. Geographical flow of lacatan. 30. Figure 2 traces the geographical flow of lacatan. Consumers from the Glan town proper and General Santos City purchased lacatan produced in Sitio Abgang Bato, Barangay Sufa-tubo, Glan.

FARMER ASSEMBLER- WHOLESALER

WHOLESALER- RETAILER

RETAILER CONSUMER 63.7% 58.7% 50.2% 48.2%

0.5%

(100%) (58.7%) (51.3%) (53.2%)

2.4%

5% 5%

FARMER

SAN VICENTE, GLAN

SUFA TUBO, GLAN

GLAN PUBLIC MARKET

GENERAL SANTOS CITY

80.18%

4.82%

36.3%

85%

5%

v

Marketing Practices and Costs 31. Lacatan is harvested when it is mature but still green in color. After harvesting, the farmers then clean, select and package the lacatan into sacks. They prefer selling the fruit right after harvest and avoid storing to immediately earn cash. The produce is normally sold by “hands” (sipi). Each hand averages around 20 fingers and weighs approximately two kilograms. 32. Farmers usually deliver their produce to the trading sites in the house of the assembler-wholesaler within the barangay, or directly to the consumer in the town market of Glan or General Santos City. Since the traders live near the area, from the farm goods are transported on foot or by horse. In transporting the product to the town market, there are jamboleros or agents waiting for the farmers at the bus terminal of Glan. Farmers shy away from these buyers since they usually offer minimal prices and are very persistent. 33. There are two levels of traders in the town of Glan where farmers sell their produce to: Assembler-wholesalers living in the barangay and Wholesaler-retailer in the public market. After the banana is delivered to them they would then grade the produce. They grade it either as good (attractive to the eyes, and the fingers are close together), Rx (malformed finger and too short), and rejects (inferior quality to the Rx and are usually fed to livestock). 34. The assembler-wholesaler would deliver the banana to the stalls of the wholesale-retailer. They would usually deliver using a passenger jeepney. 35. The wholesaler-retailer usually stores their lacatan for 2 days to ripen and sell the fruit at a higher price. They also stock their fruit so they may sell in larger volumes. They usually wait till most of the farmers have sold their produce before they dispose their stocks in General Santos City or to the public market. 36. Table 1 shows the marketing cost for every marketing level. Table 1. Marketing costs for different market levels (P/kg).

MARKETING PRACTICES FARMER ASSEMBLER WHOLESALER WHOLESALER RETAILER

Cleaning 0.05 nil nil Grading/Sorting 0.04 nil nil Packaging 0.03 nil nil Transportation 0.55 0.98 0.5 Labor nil 0.25 0.38 Packaging Materials nil 0.29 0.18 Fees and Payments nil nil 0.19 Total Cost 0.67 1.52 1.25

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37. It shows that the largest marketing cost is incurred by the assembler-wholesaler due to the high transportation cost in transferring the goods to the wholesaler-retailer. Wholesaler-retailer posted a P1.25/kg cost while the farmer has a P0.67/kg marketing cost. Price Formation 38. Being a perennial crop, prices of Lacatan are fairly stable year round. The ongoing average farm gate price in the area is P2.50 per kilogram. Marketing Margins 39. The marketing margin for each participant in the trading of lacatan was identified and presented in Table 2. Also the Net Farm Income (NFI), established in Appendix A, is presented. Table 2. Marketing margins and income for lacatan at different marketing levels

(P/kg).

ITEM Farmer Assembler/Wholesaler Wholesaler/Retailer

Selling Price 2.50 5.00 7.57 Buying Price na 2.50 6.00 Marketing Margin na 2.50 1.57 Marketing Cost 1.52 1.52 1.25 Profit Margin na 0.98 0.32 Net Farm Income 1.53 na na MC as % of MM na 61% 80% PM as % of MM na 39% 20% % ROI nil 1.84% 0.03% Opportunity Cost of Capital na 8% 8% 40. This shows that each level in the marketing channel enjoys a minimal profit for every kilogram of lacatan they sell.

vii

41. Graphically, the marketing margins are illustrated in Figure 3.

Figure 3. Marketing Margins of lacatan.

61% 80%

39%20%

Assembler-wholesaler Wholesaler-retailer

PM

MC

42. The marketing cost of the assembler-wholesaler covers 61% of the marketing margin while profit is at 39% (Figure 3). On the other hand, the wholesaler-retailer’s marketing cost is 88%, while the profit margin is 12% of the marketing margin. Although the buying price of the traders for the lacatan is inexpensive, they also sell it at a minimal price. Table 3. Percentage share of lacatan prices to the consumer peso.

MARKETING PARTICIPANTS SELLING PRICE (P/kg) % SHARE

Farmer 2.50 22 Assembler-Wholesaler 5.00 35 Wholesaler-Retailer 8.75 43 43. The breakdown of the consumer peso is presented in Table 3 and Figure 4. This shows that 43% goes to the assembler-retailer, 35 % for the assembler-wholesaler and 22% for the farmer.

viii

Figure 4. Percentage share of lacatan prices to the consumer peso

Wholesaler- Retailer 35%

Farmer22%

Assembler-Retailer

43%

STRENGTH AND WEAKNESSES 44. A major strength is the established marketing system. The different marketing participants have varied choices to sell their produce to. For instance, farmers could sell either to the top assembler-wholesaler or directly to the consumer of their choice. The assemblers, on the other hand, have the choice of buyers between the wholesaler-retailer and the retailers. 45. However, several problems in the marketing system of lacatan have been identified. For example, the poor quality of the road leading to Barangay Sufa-tubo discourages passenger vehicles, thereby increasing transportation costs. 46. It was also determined that the farm-gate price of lacatan are dictated by the traders, this is largely due to the low bargaining power of the farmers as the relative volume of their production is low.

OTHER KEY FINDINGS 47. Based on trader interviews, it was established that there is a year-round, stable demand for lacatan in the area. Because of this production is always assured of a ready market.

ix

CONCLUSION 48. With a P1.53 per kilogram Net Farm Income (NFI) we could say that the farmers have profit in their lacatan production, thus, producing efficiently. 49. On the trader’s side, results showed that the two marketing levels namely assembler-wholesaler and wholesaler-retailer incurred a much higher cost as compared to their profit making their business perform inefficiently. Because of the traders’ low ROIs compared to the opportunity cost of capital, it indicates that the traders’ marketing activities for lacatan are inefficient. This means that it is more profitable to invest in a bank than to market lacatan from the area.

RECOMMENDATIONS 50. The main recommendation is for the farmers to be taught efficient marketing activities such as proper packaging and handling of their produce, and knowing the proper grading system. 51. More passenger vehicles should also be encouraged to traverse the Sufa-tubo roads so that transportation costs could be decreased. 52. Lastly, to improve on the welfare of the farmers, an agricultural cooperative or organization should be formed to assist the farmers’ production and marketing of lacatan.

x

REFERENCES

AGARRADO, R.E. et al. Marketing and Information Needs Assessment for Davao

City. BAS-DA-USP, Davao City. CORRE, S. 1996. A Market Efficiency Study for Palay/Rice in Biliran. Published

under the Small Islands Agricultural Support Services Programme. REVILLA, R.S. 1999. Production and Marketing of Sinta Papaya in Laguna, 1998.

Unpublished Undergraduate Thesis, CEM, UPLB, Laguna. UDP 1999. The Terms of Reference for Consultancy Services-Marketing Efficiency

Study. UDP, Davao City.

xi

APPENDIX A. Cost and returns per unit of lacatan in Sitio Agbang-bato, Sufa-tubo, Glan.

ITEM P/kg

RETURNS Cash Sales 2.50 Total Cash Returns (A) 2.50 Non-cash Home consumption 0.32 Total Non-cash Returns (B) 0.32 TOTAL RETURNS (C ) 2.82 COSTS Cash Hired labor 0.16 Transportation 0.51 Land cost 0.02 Total Cash Costs (D) 0.69 Non-cash Unpaid family and/or exchange labor 0.48 Depreciation 0.05 Losses/Shrinkage of produce 0.01 Opportunity cost of capital 0.06 Total Non-cash Costs (E) 0.60 TOTAL COSTS (F) 1.29 Net Returns Above Cash Costs (C-D) 2.13 Net Farm Income 1.53

xii

APPENDIX B. Breakdown of costs per unit of lacatan in Sitio Abgang-bato, Sufa-

tubo, Glan

ITEM P/kg I. Production Cost Land cost 0.02 Depreciation 0.05 Own labor 0.40 Hired labor 0.09 Total Production Cost 0.56 II. Marketing Cost A. Cleaning Own labor 0.03 Hired labor 0.01 Losses/shrinkage 0.01 Sub-Total 0.05 B. Grading/Sorting Own labor 0.03 Hired labor 0.01 Sub-Total 0.04 C. Packing Own labor 0.02 Hired labor 0.01 Sub-Total 0.03 D. Transportation Hired labor 0.04 Transportation 0.51 Sub-Total 0.55 Total Marketing Cost 0.67 III. Opportunity cost of capital 0.06 TOTAL COSTS 1.29

A MARKETING EFFICIENCY STUDY ON

PEANUT

IN SITIO BONG LAWAAN, PALO 19 TAMPAKAN, SOUTH COTABATO

MAY 2001

Republic of the Philippines Department of Agriculture Upland Development Programme in

Southern Mindanao (UDP)

i

PREFACE This report is one of a series of market efficiency studies conducted in the UDP-covered areas for selected commodities. The marketing efficiency of peanut in Sitio Bong Lawaan, Palo 19, Tampakan, South Cotabato was evaluated through the deconstruction of the marketing margins. Recommendation to improve marketing efficiency is herein provided. This report was prepared by: Jaymee Alcos Elizabeth Supangco Julianne Revilleza May 2001

ii

ACKNOWLEDGEMENTS Report data were gathered from a series of personal and group interviews with farmers and traders of peanut in Sitio Bong Lawaan, Palo 19, Tampakan, South Cotabato. The time and effort that the respondents have placed into this study is acknowledged. The following were the respondents of the study: Farmers: Assembler: Retailers:

Esperato Rollo Elena Guevara Nenita Samudin Teresita Laurente Aurelio Olasiman Trinidad Mesa Lucrisio dela Serna Josephine Lomarda Marcos Oreda

The valuable assistance extended by the Tampakan Municipal Agriculturist’s Office and the Palo 19 Barangay Council is also recognized.

iii

TABLE OF CONTENTS

Page number Preface i Acknowledgements ii Table of Contents iii Definition of Terms iv Introduction 1 Marketing System of Peanut 4 Strength and Weaknesses 9 Other Key Findings 10 Conclusion 10 Recommendations 11 References 12 Appendices A. Cost and Returns per unit of peanut in

Sitio Bong Lawaan, Palo 19 13

B. Breakdown of costs per unit of peanut in Sitio Bong Lawaan, Palo 19

14

iv

DEFINITION OF TERMS Cash costs - costs where actual money is involved. Cash returns - the earnings, where actual money is involved, from the

sale of the farm produce. Depreciation - the expense brought about by the wear and tear of a

piece of equipment, building or tool used in an enterprise for a given period of time.

Economies of scale - the economic concept wherein production at a larger scale (more output) can be achieved at a lower cost.

Exchange labor - the value, non-monetary in nature, of the work (in man-

days) put in by neighbors, friends or other laborers in exchange for the farmers help with similar farm activities in their respective farms.

Given away - the value, non-monetary in nature, of the farm produce

given out by the farmer to others without any monetary payment.

Hired labor - the cash expense for engaging the services of farm

laborers. Home consumption - the value, non-monetary in nature, of the farm produce

consumed by the farmer and his family. Losses/shrinkage of produce - the value, non-monetary in nature, of the damages and

spoilage sustained by the produce. Market information - basic information on prices and quantities traded of

major commodities, from all markets—assembly, wholesale and retail.

Marketing channel - the inter-organizational system composed of

interdependent institutions tasked in moving the product from production to consumption.

Marketing efficiency - the maximization of the input-output relationship where

inputs refer to resources (land, labor, capital) used in moving the products from point of consumption to the point of production and output referring to consumer satisfaction on goods and services made available in the market.

v

Marketing margin - the difference in prices between the different levels of

the marketing system. Marketing - series of services performed in moving the product

from the point of production to the point of consumption.

Net farm income - returns of the use of capital and labor. The overall profit

of the farm after all the expenses, cash and non-cash, have been paid off.

Non-cash costs - costs items used in the production process wherein no

direct outlays occurred or the costs incurred are not monetary in nature.

Non-cash returns - the value, non-monetary in nature, of the farm produce

consumed by the farmer and his family or those given away.

Opportunity cost of capital - the price of foregone opportunity in the use of the

capital invested in the enterprise. It is usually pegged at the current savings interest rate.

Point of consumption - last sale of the product. Point of production - point of first sale. Profit margin - the return to the middlemen for their entrepreneurship,

the risks and the cost of money. Return on investment - measures the amount of cash that the entrepreneur gets

from the capital investment after first paying the opportunity expenses on the value of family labor and management. It also determines how much money the producer got in return for every one peso invested.

Saved for seeds - the value, non-monetary in nature, of the farm produce kept by the farmer for use as planting material in the following production cycles.

Unpaid family labor - also called own labor. The value, non-monetary in

nature, of work (valued in man-days) by the farmer and his family.

PEANUT INTRODUCTION

1. Peanut (Arachis hypogea Linn.) thrives in loose, friable, well drained and with a high water retention capacity soil. Also, it grows well in an area with warm climate and no distinct wet and dry seasons (FITS-SMARRDEC). There are two cropping seasons per annum, usually from March to July and October to February.

2. For a capital- and labor-intensive farm, as recommended by the Department of Agriculture and the Farmers Information Technology Services (FITS), a peanut farm ideally yields an average of 1,800 kilograms per hectare.

3. Sitio Bong Lawaan, Palo 19, Tampakan, South Cotabato, was identified as one the UDP-target areas with the most number of peanut farmers. The natural features of Sitio Bong Lawaan, especially its climate, were determined to be relatively appropriate for peanut production.

4. Peanut varieties identified in the area are the locally known Singaporean and Imelda varieties. The respondents’ choice of variety is mainly influenced by the availability of planting materials and the price of the seeds.

5. The average yield per hectare of peanut in Sitio Bong Lawaan is only 9.07 sacks or 317 kilograms per hectare. While the average land planted to peanuts is 2.22 hectares. 6. Major crops grown in the area include corn, rice, legume and root crops, most of which are for home consumption and commercial use. Major agricultural trade and transactions, however, are done either in the Palo 19 proper or poblacion Tampakan since the Sitio is approachable only through a 4-kilometer sloping and narrow dirt-path traversed on foot or by draft animals. 7. The marketing efficiency study for peanut in Sitio Bong Lawaan, Palo 19, Tampakan was conducted last March 6, 2001. Objectives 5. The main objective of the study is to assess the impact of existing marketing systems of peanut vis-à-vis income of the farmers. 6. Specifically, the study aims to determine the levels of participants in the marketing chain of peanut; 7. Determine the marketing practices involved in terms of storage, handling, pricing, delivery systems and terms of payment; 8. Determine the percentage of consumer price that the producer receives through the deconstruction of marketing margins of peanut at each level in the chain, exclusive of production costs;

2

9. Identify strengths and weaknesses of the existing marketing system of peanut; and 10. Determine appropriate marketing interventions needed to improve economic efficiency of peanut in Sitio Bong Lawaan, Palo 19, Tampakan. Methodology 11. From the initial agribusiness profile of the UDP, Sitio Bong Lawaan was determined to have the most numbers of peanut farmers in the UDP-target areas of South Cotabato. Purposive sampling was done and of the 19 identified peanut farmers in South Cotabato, five (5) were from Sitio Bong Lawaan. Complete enumeration was done in the sitio and an additional two (2) farmers were identified and interviewed during the survey. 12. The farmers were asked about their production and marketing practices, volume and value of sales, production and marketing costs of peanut. They were also asked on available market information with emphasis on what they need to know to improve their production and marketing practices, thereby increasing the farmers’ income. 13. The respective buyers of peanut from each farmer were then traced accordingly. 14. The traders were, in turn, asked about their marketing, costs, sales and the problems and constraints they have encountered in the marketing of peanut. 15. The marketing margins were then deconstructed and the profitability was of each marketing participant’s enterprise was also analysed. In the case of the farmers, the Net Farm Income (NFI) was determined. An NFI greater than zero (0) would mean that the production and marketing activities of the peanut farm is profitable, whereas an NFI less than zero (0) would mean that the farm is at a loss. 16. On the part of the trader, the Return on Investment (ROI) was compared with the opportunity cost of capital, pegged at the existing current savings interest rate of eight percent (8%) per annum. A ROI higher than the opportunity cost of capital would mean that marketing peanut is more profitable than just saving the trader’s money in a bank, while a ROI less than the opportunity cost of capital would mean that it would be more profitable for the trader to invest his money in a bank rather than spend it on marketing peanuts. 17. The percent share to the consumer peso of each marketing participant was also determined by getting the percentage of the marketing participant’s selling price relative to the final buying price of the consumer. This indicates the proportion of the final buying price that goes to each marketing participant for peanut.

3

18. Moreover, focused group discussions (FGDs) with key informants and selected farmers were conducted to probe into the importance and the demand for market information in each province. This provided rapid feedback on the available market information and the information dissemination strategies existing in the area. 19. Also, key informants such as the Municipal Agriculturists and the Agricultural Technicians were interviewed to obtain an overview of the local agriculture industry. Limitations and Constraints

20. During the interviews, it was observed that the farmers relied on their memories in recalling their past production level, income, farm tools and equipment. There were no record-keeping practices. Thus the cost and return that were analysed were only estimates. The Return on Investment (ROI) was excluded on the analysis of the farmer income due to the ambiguity of the values arrived at. This is mainly due to the fact that some factors on capital investment were not properly quantified in the study. For instance, land valuation was excluded because none of the farmers hold titles to the land that they cultivate. Land, therefore, was not considered a fixed investment in this enterprise and was merely considered as an expense through the credit of land cost (land tax if owned, rent if tenanted).

21. In the marketing aspect, the respondents interviewed were the middlemen named by the farmers. Most of who also based their answers on their memories since they do not keep records regarding their marketing operations.

22. On the analysis of the marketing efficiency on the part of the farmers, only the Net Farm Income (NFI) analysis was utilized since the available data could only allow for this kind of analysis and not the more complicated input-output efficiency analyses.

23. On the analysis of the marketing efficiency on the part of the farmers, only the Net Farm Income (NFI) analysis was utilized since the available data could only allow for this kind of analysis and not the more complicated input-output efficiency analyses.

24. Lastly, the size of the peanut market, specifically, the estimation of demand was not included in the study.

Margin of Error

25. As all of the peanut farmers in the area were interviewed for the study, the margin of error at a 95% confidence level is zero (0). This means that there is a 95% confidence that the real values of the parameters used in this study are the same as those computed for using the data from the respondents.

4

MARKETING SYSTEM OF PEANUT

Marketing Channels

25. The marketing participants involved in the peanut commodity system in Sitio Bong Lawaan are as follows:

a. Farmer

A person engaged in peanut cultivation for sustenance or commercial purposes. They usually sell their produce to retailers based in General Santos City but, in a few cases, they also sell to the Barangay assembler-wholesaler;

b. Barangay Assembler

In the person of the Palo 19 Barangay Captain, he procures stocks peanuts from farmers only during the harvest season. His buyers are the same retailers that the farmers directly sell to in General Santos City;

c. Retailers

Rely on the farmers and assembler-wholesalers for their supply. Based in Lido Subdivision, General Santos City, these retailers have stalls in the public market, where cooked and uncooked peanuts are sold, and mobile carts spread in the city which retail boiled, unshelled peanuts.

26. Based on farmer interviews in the area, a total of 4,777.5 kilograms of unshelled peanuts were produced for one cropping season and the following product flow was established:

Figure 1. Product flow of peanut from Bong Lawaan, Palo 19, 2001.

90.9% 9.09% 9.09% 100% 9.09% 99.9% 99.9%

20. As shown on Figure 1, 90.9% (4342.7 kilograms) of unshelled peanuts were directly sold by the farmers to the retailers while 9.09% (434.3 kilograms) were sold to the assembler. The assembler then sold the peanuts to the retailer in General Santos City.

PRODUCER ASSEMBLER RETAILER CONSUMER

0.0005%

0.0005%

5

21. The discrepancy of 0.001% or roughly 0.1 kilogram of unshelled peanut is accountable to losses sustained during the transportation of the peanuts from the farm to Palo 19 proper. Since the quality of the road from Sitio Bong Lawaan to Palo 19 proper is quite poor, most of the losses occurred there. 22. Similarly, the geographic flow of the peanuts from Sitio Bong Lawaan is illustrated on Figure 2.

Figure 2. Geographic flow of peanuts from Bong Lawaan, Palo 19, 2001.

23. To distinguish the two marketing channels, the marketing chain involving all three marketing participants (farmer, assembler-wholesaler and retailer) is referred to as Case 1 and the marketing chain involving direct selling by farmers to the retailers as Case 2. Marketing Practices and costs

24. After harvest, the peanuts are immediately put into polyethylene sacks, each sack weighing 70 kilograms, and sold. Drying and storage of peanuts in the area are rarely practiced since the established buyers of peanuts from Sitio Bong Lawaan prefer the produce fresh. 30. For Case 1, the peanuts harvested in Sitio Bong Lawaan are directly delivered by the farmers to the retailers in General Santos City observing a single transportation sequence, described as follows:

• Hauling, by horse, from the farm to Palo 19 proper; • Loading on public jeepneys bound for Tampakan; • Transport, by jeepney, from Palo 19 to Tampakan; • Unloading-loading at Tampakan; • Transportation, by jeepney, to General Santos City (Lido Subdivision);

and • Unloading-hauling to the retailers’ stalls

31. Shown below are the marketing costs for different marketing levels of peanut in Sitio Bong Lawaan.

(PRODUCER) BONG

LAWAAN PALO 19

GENERAL SANTOS CITY

6

Table 1. Marketing costs for different marketing levels of peanut (P/kg).

ACTIVITY FARMER ASSEMBLER RETAILER Case 1 Case 2

Cleaning 0.36 0.36 na na Packing 0.23 0.23 na na Transportation 0.92 0.49 0.97 0.75 Labor na na 0.30 0.75 Supplies and materials na na 0.03 0.08 Utilities and other fees na na 0.03 0.67 Non-cash costs na na 0.13 1.00 TOTAL 1.51 1.08 1.46 3.25 32. As indicated in Table 1, the transportation cost from the farm to the retailer’s stall, including hired labor and losses, total P0.92 per kilogram of peanut sold. However, the transportation cost from the farm to the Barangay proper, for Case 2, is only P0.49 per kilogram. 33. When the farmer reaches the assembler or the retailer a sample is first taken from the sack and examined for the quality of the nuts and the moisture content before purchase. Since the peanuts are usually sold fresh, there is tendency for the pods to rot and blacken. Corresponding price deductions are made to those sacks that contain more spoiled pods than usual. 34. At the Lido Subdivision, General Santos City, the farmers sell the peanuts to retailers who have their own stalls there. During peak months, around 70% of the peanuts handled by the retailers are delivered to their stalls by the farmers or assemblers. The retailers also pick up some peanuts from farms and barangay centers but the price for picked-up peanuts is P 0.50-2.00 per kilogram lower than the prices of delivered peanuts. These retailers also buy vegetables, corn, rice and other agricultural commodities. 35. These retailers sell peanuts in two forms, the dry and cooked. For the dry peanuts, the retailers prefer the native and Imelda varieties. Bulk of their sales, however, use the Singapore variety, which is sold boiled at mobile stalls and carts also owned by the retailers. Packaging sizes are 200 gram-, 500 gram-, and 1 kilogram packs. 36. Marketing costs on the part of this retailer include utilities, transportation, materials for packaging (plastic and paper bags), labor and fuel.

7

37. The peanuts sold to the Palo19 Barangay Captain, on the other hand, are loaded on the assembler’s truck and brought to the Lido Subdivision for sale. Price Formation

38. Peak months for buying peanuts are from July to September and February to March, while the lean months are October to December and April to June. Shown on Table 2 are the buying prices for Imelda and Singaporean varieties in General Santos City. It was found out that prices depend on the supply of peanuts in the area and therefore seasonal in nature.

Table 2. Average buying prices of Imelda and Singaporean varieties of peanuts during

peak and lean months, General Santos City.

VARIETY PEAK MONTHS LEAN MONTHS July-Sept & Feb-Mar Oct-Dec & Apr-Jun

Imelda 20.29 27 Singaporean 22.36 25

39. The Palo 19-based assembler buys the peanuts from the farmers at P19.20 per kilogram while the General Santos City-based retailer buys the peanuts at P23.00 per kilogram. Marketing Margins

40. The marketing margins and Net Farm Income in peanut for the cases are shown in Table 3.

Table 3. Marketing margins and income for peanut at different marketing levels.

FARMER ASSEMBLER RETAILER ITEM

Case 1 Case 2

Selling Price (P/kg) 23.00 19.20 23.00 30.00 Buying Price (P/kg) na na 19.20 23.00 Marketing Margin (P/kg) na na 3.80 7.00 Marketing Cost (P/kg 1.51 1.08 1.46 3.25 Profit Margin (P/kg) na na 2.34 3.75 Net Farm Income (NFI) (P/piece)

16.05 12.68 na na MC as % of MM na na 38% 46.4% PM as % of MM na na 62% 53.6% %ROI nil nil 10.6% 6.41% Opportunity Cost of Capital na na 8% 8%

8

41. A comparison between the Net Farm Income (NFI) of the farmers for the two cases show that the profit or income of the farmer is higher when it is directly sold to the retailers.

42. Although the Case 1 farmer and the assembler sell the peanuts to the retailers at the same price, note that the assembler’s marketing costs are lower. This explains why the assembler still exists despite the fact that the farmers would earn more money if they sell directly to the retailer rather than to the assembler. Also, some farmers would still opt to sell their peanuts to the assembler, to avoid the trouble of travelling and transporting the peanuts.

43. The total value added to the peanuts per kilogram as it moves along one marketing channel to another is indicated by the marketing margin (MM). In this case, the marketing margin of the assembler-wholesaler is P3.80 per kilogram and P7.00 per kilogram for the retailer.

44. The marketing costs make up 38% and 46.4% of the marketing margins of the assemblers and retailers, respectively. Graphically, the marketing margins are shown below.

Figure 4. Marketing margin at different marketing levels of peanut in Sitio Bong Lawaan, Palo 19.

46.4%38%

53.6%62%

assembler retailer

profit margin

marketing cost

45. A comparison between the two, show that the assembler gains more percentage profit than the retailer. This means that for all the marketing practices that the two traders carry out, the retailer relatively earns more.

46. The Return on Investment (ROI) is another way of showing the profitability of the enterprise. For the assembler, every peso that he invests he earns back P0.1067. Similarly, for every peso that the retailer invests, P0.0641 is his profit.

9

47. In the presentation of the breakdown of the consumer peso Case 2 was used so that all the marketing participants are included in the analysis. The breakdown of the consumer peso for Case 2 is shown on Table 4 and Figure 5.

Table 4. Percentage share to the consumer peso. MARKETING LEVEL SELLING PRICE (P/kg) % SHARE Farmer 19.20 64% Assembler 23.00 12.7% Retailer 30.00 23.3%

Figure 5. Percentage share of the consumer peso.

assembler13%

retailer23%

farmer64%

STRENGTH AND WEAKNESSES 48. The only strength in the marketing of peanuts in Bong Lawaan, Palo 19 is the long established marketing system. This means that there are already established buyers for peanuts grown in Bong Lawaan such that farmers would no longer have the problem of looking for prospective buyers of their produce. 49. Weaknesses in the peanut marketing system, on the other hand, surpass its strength. For instance, there are very few, if not non-existent, post-harvest activities involving peanut. Drying and shelling of peanuts, which raise the value of the produce, are rarely, if ever, done in the area. 50. Also, price was determined to be dictated by the traders, therefore, farmers do not have much influence over the farm-gate price which makes the pricing system inefficient.

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51. Lastly, the inaccessibility of the Sitio Bong Lawaan, particularly to motorized vehicles, increases the transportation cost. OTHER KEY FINDINGS 52. Peanut in Sitio Bong Lawaan suffers from a relatively low production, which is brought about by the lack of technical know-how in peanut cultivation. For instance, the use of inoculants before propagation of the peanut seeds is totally unknown to the farmers. This lack of knowledge in the use of peanut inoculants, a technology that is acknowledged and used extensively by other peanut producers in the country, is a clear indication of the lack of peanut production information in Sitio Bong Lawaan. CONCLUSION 53. For the farmers, a comparison between two cases, one where the farmers sell their peanuts to the barangay assembler and the other where the farmer directly sells his produce to the retailers, show that it is better for the farmers to bring and sell their produce to General Santos City-based retailers since they would get a P16.05 per kilogram profit as opposed to the P12.68 per kilogram profit they would get if they sell to the barangay assembler. 54. Since the NFI for both cases of the farmer, it is concluded that peanut production and marketing, on a farmer level, in Sitio Bong Lawaan is profitable and efficient. 55. On the matter of the marketing efficiency for the traders, the percent return on investments of each marketing participant is evaluated. For the assembler, who receives a 10.67% ROI, marketing is efficient since the value exceeds the opportunity cost of capital, set at 8%. 56. For the retailers, however, marketing is inefficient. It would be better for the retailer to invest his money in a bank because it would earn more than in his peanut retail activity. 57. A further comparison between the two traders’ marketing costs in relation to their marketing margins, show that the assembler has economically utilized his costs such that he could still receive 62% of the marketing margin as profit (Table 2).

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RECOMMENDATIONS 58. Based on the strength, weaknesses, other key findings and conclusions established in this study, the following recommendations are offered: • First is the development and improvement of the Bong Lawaan-Palo 19 path

so that it could accommodate two-wheeled vehicles for hauling produce; • The facilitation of an informal assembly or a collective marketing of peanuts

from various Bong Lawaan farmers during harvest such that the volume is enough to reduce the per unit transportation cost and reach the economies of scale in transportation;

• A study on the feasibility of drying and storing peanuts in Sitio Bong Lawaan

should also be conducted to consider the marketing options of the peanut farmers;

• Conduct trainings and information drives highlighting the production, cultural

and marketing practices in peanut so as to empower the farmers with technical know-hoe, consequently improving their yield; and

• To help reduce the costs of the retailers by encouraging them to sell peanuts

wholesale or by efficiently utilizing their stalls and carts through the diversification of commodities sold.

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REFERENCES AGARRADO, R.E. et al. Marketing and Information Needs Assessment for Davao

City. BAS-DA-USP, Davao City. CORRE, S. 1996. A Market Efficiency Study for Palay/Rice in Biliran. Published

under the Small Islands Agricultural Support Services Programme. FARMERS INFORMATION TECHNOLOGY SERVICES (FITS) and

SMARRDEC-DA-RFU-XI. Peanut (Arachis hypogea Linn.). FITS-SMARRDEC-DA-RFU-XI, Davao City.

REVILLA, R.S. 1999. Production and Marketing of Sinta Papaya in Laguna, 1998.

Unpublished Undergraduate Thesis, CEM, UPLB, Laguna. UDP 1999. The Terms of Reference for Consultancy Services-Marketing Efficiency

Study. UDP, Davao City.

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APPENDIX A. Cost and returns per unit of peanut in Sitio Bong Lawaan, Palo 19.

ITEM P/kg

RETURNS Cash Sales* 22.65 Total Cash Returns (A) 22.65 Non-cash Home consumption 0.25 Given away 0.14 Total Non-cash Returns (B) 0.39 TOTAL RETURNS (C ) 23.04 COSTS Cash Planting material 1.54 Fertilizer 0.84 Pesticide 1.12 Hired labor 1.25 Transportation 0.83 Land cost 0.02 Others 0.15 Total Cash Costs (D) 5.75 Non-cash Unpaid family and/or exchange labor 0.93 Depreciation 0.12 Losses/Shrinkage of produce 0.08 Opportunity cost of capital 0.45 Total Non-cash Costs (E) 3.31 TOTAL COSTS (F) 6.89 Net Returns Above Cash Costs (C-D)* 17.29 Net Farm Income* 16.15 *Note that the values are the averages for both cases.

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APPENDIX B. Breakdown of costs per unit of peanut in Sitio Bong Lawaan, Palo 19.

ITEM P/kg

I. Production Cost Land cost 0.02 Planting material 1.54 Fertilizers 0.84 Pesticides 1.12 Depreciation 0.12 Own labor 0.70 Hired labor 0.89 Others 0.15 Total Production Cost 5.38 II. Marketing Cost A. Cleaning Own labor 0.14 Hired labor 0.16 Losses/shrinkage 0.06 Sub-Total 0.36 B. Packing Hired labor 0.13 Own labor 0.09 Losses/shrinkage 0.01 Sub-Total 0.23 C. Transportation Hired labor 0.07 Transportation 0.83 Losses/shrinkage 0.01 Others 0.01 Sub-Total 0.92 Total Marketing Cost 1.51 III. Opportunity cost of capital 0.45 TOTAL COSTS 7.34

A MARKETING EFFICIENCY STUDY ON

POTATO

IN SITIO GLANDANG, KABLON, TUPI, SOUTH COTABATO

MAY 2001

Republic of the Philippines Department of Agriculture Upland Development Programme in

Southern Mindanao (UDP)

i

PREFACE This report is one of a series of market efficiency studies conducted in the UDP-covered areas for selected commodities. The marketing efficiency of potato in Sitio Glandang, Kablon, Tupi, South Cotabato was evaluated through the deconstruction of existing marketing margins. Recommendations to improve marketing efficiency are herein offered. This report was prepared by: Jaymee Alcos Elizabeth Supangco Julianne Revilleza May 2001

ii

ACKNOWLEDGEMENTS Report data were gathered from a series of personal and group interviews with farmers and traders of potato in Sitio Glandang, Kablon, Tupi and General Santos City, respectively. The time and effort that the respondents have placed into this study are acknowledged. The following were the farmer- and retailer-respondents of the study: Farmers: Retailers: Rodolfo Cabinyog Edgardo Rivera Maximo Albarado Norma Patalan Fenimor Macabuhi Robin Damandama Mario Ducan Gertrudes Salazar Toting Dawang The valuable assistance extended by the Tupi Municipal Agriculturist’s Office and the Kablon Barangay Council is also recognized.

iii

TABLE OF CONTENTS

Page number Preface i Acknowledgements ii Table of Contents iii Definition of Terms iv Introduction 1 Marketing System of Potato 3 Strengths and Weaknesses 9 Other Key Findings 10 Conclusion 10 Recommendations 10 References 11 Appendices A. Cost and Returns per unit of potato in Sitio

Glandang, Kablon 12

B. Breakdown of costs per unit of potato in Sitio Glandang, Kablon

13

iv

DEFINITION OF TERMS Cash costs - costs where actual money is involved. Cash returns - the earnings, where actual money is involved, from the

sale of the farm produce. Depreciation - the expense brought about by the wear and tear of a

piece of equipment, building or tool used in an enterprise for a given period of time.

Exchange labor - the value, non-monetary in nature, of the work (in man-

days) put in by neighbors, friends or other laborers in exchange for the farmers help with similar farm activities in their respective farms.

Hired labor - the cash expense for engaging the services of farm

laborers. Home consumption - the value, non-monetary in nature, of the farm produce

consumed by the farmer and his family. Losses/shrinkage of produce - the value, non-monetary in nature, of the damages and

spoilage sustained by the produce. Market information - basic information on prices and quantities traded of

major commodities, from all markets—assembly, wholesale and retail.

Marketing channel - the inter-organizational system composed of

interdependent institutions tasked in moving the product from production to consumption.

Marketing efficiency - the maximization of the input-output relationship where

inputs refer to resources (land, labor, capital) used in moving the products from point of consumption to the point of production and output referring to consumer satisfaction on goods and services made available in the market.

Marketing margin - the difference in prices between the different levels of

the marketing system. Marketing - series of services performed in moving the product

from the point of production to the point of consumption.

v

Net farm income - returns of the use of capital and labor. The overall profit of the farm after all the expenses, cash and non-cash, have been paid off.

Non-cash costs - costs items used in the production process wherein no

direct outlays occurred or the costs incurred are not monetary in nature.

Non-cash returns - the value, non-monetary in nature, of the farm produce

consumed by the farmer and his family or those given away.

Opportunity cost of capital - the price of foregone opportunity in the use of the

capital invested in the enterprise. It is usually pegged at the current savings interest rate.

Point of consumption - last sale of the product. Point of production - point of first sale. Profit margin - the return to the middlemen for their entrepreneurship,

the risks and the cost of money. Return on investment - measures the amount of cash that the entrepreneur gets

from the capital investment after first paying the opportunity expenses on the value of family labor and management. It also determines how much money the producer got in return for every one peso invested.

Saved for seeds - the value, non-monetary in nature, of the farm produce

kept by the farmer for use as planting material in the following production cycles.

Unpaid family labor - also called own labor. The value, non-monetary in

nature, of work (valued in man-days) by the farmer and his family.

POTATO INTRODUCTION 1. Potato (Solanum tuberosum L.) granola cultivar is the only potato variety commercially grown in Sitio Glandang, Kablon, Tupi in the Province of South Cotabato. There is no distinct planting and harvesting season for potato and it can be planted as often as monthly, depending only on land and availability of capital. Harvesting of potatoes, therefore, is year-round. 2. Capital- and labor-intensive, potato production starts at germination when the potato seeds are prepared for sprouting four months before planting. At that stage, fungicides are already needed to prevent diseases. A complete crop cycle takes seven months, the fourth month of which the seed tubers are transplanted to the soil. 3. Potato thrives best on well-drained, sandy loam to clay loam soils with a slightly basic pH, conditions which Sitio Glandang, Kablon satisfy. 4. Constant land and crop maintenance, fertilization and irrigation are needed along with high input use to reach the ideal yield of 30 metric tons per hectare every crop cycle, according to the Farmers Information and Technology Services (FITS) pamphlet on potato production. Unfortunately, production averages only 704.65 kilograms per hectare every crop cycle. The average area planted to potato in Sitio Glandang, Kablon is 3.29 hectares per farmer. 5. The marketing efficiency study for potato in Sitio Glandang, Kablon was conducted last March 7, 2001. Objectives 5. The main objective of the study is to assess the impact of existing marketing systems of potato vis-à-vis income of the farmers. 6. Specifically, the study aims to determine the levels of participants in the marketing chain of potato; 7. Determine the marketing practices involved in terms of storage, handling, pricing, delivery systems and terms of payment; 8. Determine the percentage of consumer price that the producer receives, exclusive of production costs through the deconstruction of marketing margins of potato at each level in the system; 9. Identify strengths and weaknesses of the existing marketing system of potato; and 10. Determine appropriate marketing interventions needed to improve economic efficiency of potato in the identified area.

2

Methodology 11. From the initial agribusiness profile of UDP, Sitio Glandang was identified as the sole potato-producing area among the UDP areas in South Cotabato. 12. Purposive sampling was done and of the 17 identified potato producers in the area, seven (41%) were interviewed for the study. The farmers were asked about their production and marketing practices, volume and value of sales, production and marketing costs of potato. They were also asked on available market information with emphasis on what they need to know to improve their production and marketing practices, thereby increasing the farmers’ income. 13. The respective buyers of potato from each farmer were then traced accordingly. 14. The traders were, in turn, asked about their marketing costs, sales and the problems and constraints they have encountered in the marketing of the commodities. 15. The marketing margins were then deconstructed and the profitability was of each marketing participant’s enterprise was also analysed. In the case of the farmers, the Net Farm Income (NFI) was determined. An NFI greater than zero (0) would mean that the production and marketing activities of the potato farm is profitable, whereas an NFI less than zero (0) would mean that the farm is at a loss. 16. On the part of the trader, the Return on Investment (ROI) was compared with the opportunity cost of capital, pegged at the existing current savings interest rate of eight percent (8%) per annum. A ROI higher than the opportunity cost of capital would mean that marketing potato is more profitable than just saving the trader’s money in a bank, while a ROI less than the opportunity cost of capital would mean that it would be more profitable for the trader to invest his money in a bank rather than spend it on marketing potatoes. 17. The percent share to the consumer peso of each marketing participant was also determined by getting the percentage of the marketing participant’s selling price (in the case of traders, less their buying price) relative to the final buying price of the consumer. This indicates the proportion of the final buying price that goes to each marketing participant in potato. 18. Moreover, focused group discussions (FGDs) with key informants and selected farmers were conducted to probe into the importance and the demand for market information in each province. This provided rapid feedback on the available market information and the information dissemination strategies existing in the area. 19. Also, key informants such as the Municipal Agriculturists and the Agricultural Technicians were interviewed to obtain an overview of the local agriculture industry.

3

Limitations and Constraints 16. During the interviews, it was observed that the producers relied on their memories in recalling their past production level, income, farm tools and equipment. There were no record-keeping practices. Thus the cost and return that were analysed were only estimates. The Return on Investment (ROI) was excluded on the analysis of the farmer income due to the ambiguity of the values arrived at. This is mainly due to the fact that some factors on capital investment were not properly quantified in the study. For instance, land valuation was excluded because none of the farmers hold titles to the land that they cultivate. Land, therefore, was not considered a fixed investment in this enterprise and was merely considered as an expense through the credit of land cost (land tax if owned, rent if tenanted).

17. Anecdotal evidence has shown that another marketing system exists in the area. However, no farmers participating in this alternative marketing system was interviewed for the study. Nevertheless, this study has endeavoured to briefly describe this alternative marketing system

18. In the marketing aspect, the respondents interviewed were the middlemen named by the producers. Most of the respondents interviewed also based their answers on their memories since they do not keep records regarding their marketing operations.

19. Lastly, the size of the potato market, specifically, the estimation of demand was not included in the study.

Margin of Error

20. Aside form the UDP Agribusiness Profile, there are no other available data on the population size of potato producers in the area. The margin of error on the analysis, therefore, cannot be established since the formula requires not only the sample size, but the population size as well.

MARKETING SYSTEM OF POTATO Marketing channels

21. The marketing participants involved in the potato marketing system in Sitio Glandang, Kablon are as follows:

a. Farmer-retailers

4

A person engaged in potato production for sustenance or commercial purposes. They sell bulk (97.2%) of their produce to retailers and retail an average of 2.79% of the potato themselves; and

b. Retailers

A trader, usually based in the General Santos City Public Market, who buys potatoes

from the farmers and sells them to the consumers.

22. Another marketing system identified, although no farmers operating under this system were interviewed for the study, was a modified contract-buying system where the traders lend money to the farmers to finance personal or family needs, as well as the farmer’s potato production. This financing would be in exchange for “buying rights” on the part of the traders such that the farmer’s harvest would be bought by the traders at a price that the trader dictates. Unfortunately, the price is usually less than what the other farmers, who do not have this financing-trader tie up. After sale, only then would the farmer be able to repay his debt and the corresponding interest payment.

23. Based on farmer interviews in the area, of the total 16,248.6 kilograms of potato harvested during the month of February 2001, fifteen thousand one hundred ninety kilograms (15,190 kg) were sold by the farmers. This study traced this amount from the farm to the retailers and the following product flow was established:

Figure 1. Product flow of Potato, Glandang, Kablon, Tupi, 2001. 97.2% 97.2% (100%) (97.19%) (99.99%) Selling price (P/kg): Farmer Retailer

Case 1= 32.50 na Case 2= 23.50 26.88 24. There were two marketing chains of potato established in Sitio Glandang. The first is the direct retailing of the farmers to the consumers (Case 1) and the other is the chain that involves the retailer (Case 2). A big amount (97.2%) of the potatoes are sold to the retailers since farmers are not capable of retailing all their produce because of limited time and labor to peddle it themselves. Farmers, in this case, are only taking advantage of the time that they are in the city, in most cases for only a day. Also note that minimal losses were incurred during the transport of the potatoes from the farm to the retailer. 25. Note that the minimal losses (0.001%) during transportation are also accounted for.

FARM RETA CONSU

2.79%

0.001%

5

26. Similarly, Figure 2 illustrates the geographic flow of the potato from the farm to the end-marketing channel.

Figure 2. Geographical flow of Potato, Glandang, Kablon, Tupi, 2001.

84.2% 8.6% 7.2% 26. On isolated cases, the potatoes are brought to either Surala (7.2%) or Koronadal City (8.6%) and are sold to retailers based at the respective public markets. Bulk (84.2%) of the potatoes, however, are brought to General Santos City and sold either directly to the consumers or to the retailers.

Marketing Practices and Costs

27. Potato is harvested 100 days after planting. These are then air-dried for five to seven days then sorted according to sizes. Sorting is crudely done and “eyeball” estimate is done to determine the grade of the potato. On the average, percentages in production according to grades are:

• 25% for the extra large; • 50% for the big and medium-sized; and • 25% for the small-sized potatoes.

28. The cost of labor for sorting is pegged at P100 per man-day and food at a daily sorting rate of 10 sacks (700 kilograms). 29. The potatoes are then sacked (70kg/sack), at a labor cost of P80 per man-day, and then hauled or moved from the farm to Sitio Glandang proper. Hauling, by horse, costs P20-50 per sack (P0.29-0.71 per kilogram) depending on the distance of the farm from the sitio proper. 30. Three times a week, the barangay holds a market day where traders visit the area and do most of their buying activities. During these market days, jeepneys bound for General Santos City are also available. These are the days when the potatoes are brought down from the farm or the farmers’ houses and loaded onto the jeepneys at a cost of P15 per sack (P0.21 per kilogram). The fare from Glandang to General Santos City is P25 per sack (P0.36 per kilogram).

FARMER

GENERAL SANTOS

KORONADAL CITY

SURALA, SOUTH COTABATO

6

31. At the General Santos City jeepney terminal, the sacks are unloaded for a fee of P5 per sack (P0.07 per kilogram), loaded on carts and brought to the public market at a cost of P2-5 per sack (P0.03-0.07 per kilogram). 32. At the public market, the potatoes are brought to the stalls of potato retailers where it is sold at the average price of P19.29 per kilogram (Farmer case 2). The farmers for their own retail activities keep one to two sacks within the day (Farmer Case 1). 33. Farmers pick a spot along the pavement and peddle the potatoes at P30-35/kg (Farmer Case 1). 34. The farmers sell directly to the retailers. Bulk (97%) of the potatoes sold by retailers was delivered to their market stalls which thereby eliminating transportation costs on the part of the retailer. 35. Upon purchase of the potatoes, they are graded according to size and put on display in their market stalls. Consumers/end-buyers purchase the potatoes at the market stall at an average price of P26.88/kg. 36. Table 1 summarizes the marketing costs for every marketing level. Table 1. Marketing cost for different marketing levels of potato (P/kg).

ACTIVITY FARMER RETAILER

Cleaning 0.03 na Grading/Sorting 0.08 na Packing 0.02 na Transportation 1.11 na Labor na 0.25 Supplies and Materials na 0.24 Fees and payments na 0.08 Non-cash costs na 0.06 TOTAL 1.24 0.63

37. Note that the marketing cost of farmer is higher than that of the retailer. This is mainly due to the high transportation cost (P1.11/kg) borne by the farmers since all of the potatoes are delivered to the buyer. 38. On the retailer’s side, major expenses in marketing are labor and supplies and materials. Labor is the expense incurred by retailer in hiring the stall-keepers who are responsible in minding the store.

7

39. Usually polyethylene bags that could hold up to 5 kilograms of potatoes are used as packaging materials. Non-cash costs for the retailers include the depreciation cost of equipment and the value of labor put in by the owner/manager.

Price Formation

40. Local farm-gate prices of potato were determined to be erratic and unpredictable. Price differences range from P0.50 to P13 per kilogram at intervals as short as three days. No price trend was determined since the neither the farmers nor the traders could recall the monthly prices of potato. It was, however, discussed that one reason why potato prices behave that way is because the General Santos City market is prone to market saturation since it is also the market of other potato-producing municipalities in the region.

41. Estimated farm-gates prices per kilogram in February 2001 are as follows:

• Extra Large (56-75mmm, 100-110g/pc) – P 23; • Large (46-55mm, 86-99g/pc) –P 21; • Medium (36-45mm, 80-85g/pc)-P 21; • Small (26-35mm, 50-79g/pc)-P 16

42. Likewise, retail prices also vary. The retail prices range from P25 to P35 per kilogram. 43. On the case of the farmers with the financing-trader tie up, though none were interviewed for this study but anecdotal evidence show, that the farm-gate price received by such farmers is P0.20 to P1.00 per kilogram lower than the price other farmers without trader financing, receive.

Marketing Margins

44. A comparison between the Net Farm Income (NFI) of the farmers for the two cases show that the profit or income of the farmer is higher when it is directly retailed to the consumers (Table 2). However, the farmers cannot sell a large quantity under case 2 because they are only capable of peddling a limited amount (1 to 2 sacks or 140 kilograms) within a day.

Table 2. Marketing margins and income for potato at different marketing levels.

CASE 1 CASE 2

ITEM Farmer Farmer Retailer

Selling Price (P/kg) 32.50 23.50 26.88 Buying Price (P/kg) na na 23.50 Marketing Margin (P/kg) na na 3.38 Marketing Cost (P/kg) 1.24 1.24 0.63 Profit Margin (P/kg) na na 2.75

8

Net Farm Income* (NFI) (P/kg) 26.06 17.06 na MC as % of MM na na 19% PM as % of MM na na 81% %ROI nil nil 62.64% Opportunity Cost of Capital na na 8%

*Shown in detail on Appendix A.

45. The total value added to the potatoes per kilogram as it moves along one marketing channel to another is indicated by the marketing margin (MM), shown on the table below. In this case, the marketing margin of the retailer is P3.38 per kilogram 19% of which is the marketing cost and 81% is the profit.

46. To illustrate the marketing margin of the retailer, Figure 3 shows the percentage of the marketing cost and the profit margin relative to the marketing margin.

Figure 3. Marketing margin of a potato retailer, Sitio Glandang, Kablon.

19%

81%profit margin

marketing cost

47. Table 3 and Figure 4 shows the breakdown of the consumer peso. Table 3. Percentage share to the consumer peso

MARKETING LEVEL SELLING PRICE (P/kg) % SHARE

Farmer 23.50 87 Retailers 26.88 13

9

Figure 4. Percentage share of the consumer peso.

farmer87%

retailer13%

48. The percentage of the consumer peso, as indicated on Table 3, means that 87% and 13 percent of the final buying price (P26.88/kg) goes to the farmer and the retailer, respectively.

STRENGTHS AND WEAKNESSES

49. The only strength in the marketing of potato in Sitio Glandang is the established marketing system. This means that there are already accepted buyers for potato grown in Sitio Glandang such that farmers would no longer have the problem of looking for prospective buyers of their produce. 50. Also, since there is an established market day three times a week, the farmers and traders are given a regular schedule of trade. This allows the farmer to time his harvest and transportation schedule so that passenger jeepneys bound for General Santos City are already available when he brings the potatoes down from his farm. 51. One weakness of the potato marketing system, however, is the rapid price fluctuation brought about by the influx of potatoes from other areas at unknown schedules. So it often happens that the farmers think they know the buying price of traders in the General Santos City market, only to be disappointed by recent and rapid change in price such that their price that they actually receive lower than what they originally expected. OTHER KEY FINDINGS 52. Potato production in Sitio Glandang is relatively low. The average yield for a Sitio Glandang potato farm is only 686 kilograms per hectare while the FITS standard is 30,000 kilograms per hectare.

10

CONCLUSION 53. By analysing the Net Farm Income (NFI) of the farmer and the percent return on investment of the retailer, the conclusion that potato marketing, on both farmer and retail level, is efficient. This means that investing or engaging in production and marketing of potato in the study area are profitable and efficient. 54. Although production and marketing of potato in Glandang, Kablon is efficient, there are still some marketing problems or weaknesses that were identified. For instance, the rapid price fluctuation brought about by the influx of potatoes from other areas at unknown schedules confuses the farmers. RECOMMENDATIONS 55. For the pricing problem, it is suggested that information on the supply capacities and schedule of other potato-growing areas be supplied to the farmers such that they would be able to time their harvests and their production on the occasions that no large deliveries of potato from neighbouring municipalities are schedule for sale in General Santos City. 56. It is also recommended that trading posts should be established so that potato harvests can be consolidated and sold to traders at a higher price given the larger volume. This can be done during the scheduled tri-weekly market days in Kablon so that there would already be traders in the barangay poblacion. 57. On the production side, technical trainings on production and post-harvest practices to increase potato production should be provided to the farmers.

11

REFERENCES

AGARRADO, R.E. et al. Marketing and Information Needs Assessment for Davao City. BAS-DA-USP, Davao City.

CORRE, S. 1996. A Market Efficiency Study for Palay/Rice in Biliran. Published

under the Small Islands Agricultural Support Services Programme. FARMERS INFORMATION TECHNOLOGY SERVICES (FITS) and

SMARRDEC-DA-RFU-XI. Potato Production. FITS-SMARRDEC-DA-RFU-XI, Davao City.

FRLD. 1995. The Potato Marketing System in Major Production and Demand Areas

in the Philippines. Published under ASAP-USAID Project. REVILLA, R.S. 1999. Production and Marketing of Sinta Papaya in Laguna, 1998.

Unpublished Undergraduate Thesis, CEM, UPLB, Laguna. UDP 1999. The Terms of Reference for Consultancy Services-Marketing Efficiency

Study. UDP, Davao City.

12

APPENDIX A. Cost and returns per unit of potato in Sitio Glandang, Kablon, Tupi.

ITEM P/kg

RETURNS Cash Sales 23.75 Total Cash Returns (A) 23.75 Non-cash Home consumption 0.25 Given away Saved for seeds 1.27 Total Non-cash Returns (B) 1.52 TOTAL RETURNS (C ) 25.27 COSTS Cash Planting material 2.92 Fertilizer 0.81 Pesticide 0.50 Hired labor 0.51 Transportation 0.79 Land cost 0.16 Interest payment 0.03 Total Cash Costs (D) 5.73 Non-cash Unpaid family and/or exchange labor 0.15 Depreciation 0.07 Losses/Shrinkage of produce 0.03 Opportunity cost of capital 0.46 Total Non-cash Costs (E) 0.71 TOTAL COSTS (F) 6.44 Net Returns Above Cash Costs (C-D) 19.54 Net Farm Income 18.83

13

APPENDIX B. Breakdown of costs per unit of potato in Sitio Glandang, Kablon.

ITEM P/kg

I. Production Cost Land cost 0.16 Depreciation 0.07 Seeds 2.92 Fertilizers 0.81 Pesticides 0.53 Own labor 0.15 Hired labor 0.09 Total Production Cost 4.73 II. Marketing Cost A. Cleaning Hired labor 0.02 Losses/shrinkage 0.01 Sub-Total 0.03 B. Grading/Sorting Hired labor 0.06 Losses/shrinkage 0.02 Sub-Total 0.08 C. Packing Hired labor 0.02 Sub-Total 0.02 D. Transportation Hired labor 0.32 Transportation 0.79 Sub-Total 1.11 Total Marketing Cost 1.24 III. Opportunity cost of capital 0.46 TOTAL COSTS 6.44

A MARKETING EFFICIENCY STUDY ON

SWINE

IN SITIO UPPER BALISAN, PALO 19, TAMPAKAN, SOUTH COTABATO

MAY 2001

Republic of the Philippines Department of Agriculture Upland Development Programme in

Southern Mindanao (UDP)

PREFACE This report is one of a series of market efficiency studies conducted in the UDP-covered areas for selected commodities. The marketing efficiency of swine in Sitio Upper Balisan, Palo 19, Tampakan, South Cotabato was evaluated through the deconstruction of existing marketing margins. Recommendations to improve marketing efficiency are herein offered. This report was prepared by: Jaymee Alcos Elizabeth Supangco Julianne Revilleza May 2001

ii

ACKNOWLEDGEMENTS Report data were gathered from a series of personal and group interviews with farmers of swine in Sitio Upper Balisan and traders in Tampakan poblacion. The time and effort that the respondents have placed into this study are acknowledged. The following were the swine raisers- and retailer-respondents of the study: Swine raisers: Retailer: Felisa Mondejar Rowena Paclibar Fernando Magbato Alberto Balansag Benilda Bayole Maristel Rojo Renato Panes The valuable assistance extended by the Tampakan Municipal Agriculturist’s Office and the Palo 19 Barangay Council is also recognized.

iii

TABLE OF CONTENTS

Page number Preface i Acknowledgements ii Table of Contents iii Definition of Terms iv Introduction 1 Marketing System of Swine 3 Weaknesses 8 Other Key Findings 8 Conclusion 8 Recommendations 8 References 10 Appendices

A. Cost and Returns per unit of swine in Sitio Upper Balisan, Palo 19

11

B. Breakdown of costs per unit of Swine in Sitio Upper Balisan, Palo 19

12

iv

DEFINITION OF TERMS Cash costs - costs where actual money is involved. Cash returns - the earnings, where actual money is involved, from the

sale of the farm produce. Depreciation - the expense brought about by the wear and tear of a

piece of equipment, building or tool used in an enterprise for a given period of time.

Economies of scale - the economic concept wherein production at a larger

scale (more output) can be achieved at a lower cost. Exchange labor - the value, non-monetary in nature, of the work (in man-

days) put in by neighbors, friends or other laborers in exchange for the farmers help with similar farm activities in their respective farms.

Given away - the value, non-monetary in nature, of the farm produce

given out by the farmer to others without any monetary payment.

Hired labor - the cash expense for engaging the services of farm

laborers. Home consumption - the value, non-monetary in nature, of the farm produce

consumed by the farmer and his family. Losses/shrinkage of produce - the value, non-monetary in nature, of the damages and

spoilage sustained by the produce. Market information - basic information on prices and quantities traded of

major commodities, from all markets—assembly, wholesale and retail.

Marketing channel - the inter-organizational system composed of

interdependent institutions tasked in moving the product from production to consumption.

Marketing efficiency - the maximization of the input-output relationship where

inputs refer to resources (land, labor, capital) used in moving the products from point of consumption to the

v

point of production and output referring to consumer satisfaction on goods and services made available in the market.

Marketing margin - the difference in prices between the different levels of

the marketing system. Marketing - series of services performed in moving the product

from the point of production to the point of consumption.

Net farm income - returns of the use of capital and labor. The overall profit

of the farm after all the expenses, cash and non-cash, have been paid off.

Non-cash costs - costs items used in the production process wherein no

direct outlays occurred or the costs incurred are not monetary in nature.

Non-cash returns - the value, non-monetary in nature, of the farm produce

consumed by the farmer and his family or those given away.

Opportunity cost of capital - the price of foregone opportunity in the use of the

capital invested in the enterprise. It is usually pegged at the current savings interest rate.

Point of consumption - last sale of the product. Point of production - point of first sale. Profit margin - the return to the middlemen for their entrepreneurship,

the risks and the cost of money. Return on investment - measures the amount of cash that the entrepreneur gets

from the capital investment after first paying the opportunity expenses on the value of family labor and management. It also determines how much money the producer got in return for every one peso invested.

Unpaid family labor - also called own labor. The value, non-monetary in

nature, of work (valued in man-days) by the farmer and his family.

1

SWINE INTRODUCTION 1. Swine (Sus scrofa) production plays an important role in the Philippine livestock industry since 60% of meat consumption in the Philippines is attributed to pork (Rivera, 1992). 2. Sitio Upper Balisan, Palo19, Tampakan in South Cotabato was chosen as the area for market study in swine because it had the most identified swine raisers in the UDP areas of South Cotabato. The average annual commercial production is 2 heads of swine per farmer or 76 kilograms live-weight for the two heads of swine. 3. All swine raised in Sitio Upper Balisan are of the Native breed. This choice of breed is due to the relative cheapness in production since there is minimal production costs such as acquisition of the animal stock (piglets) and veterinary supplies. 4. Other major costs in production and marketing of swine in Sitio Upper Balisan are the non-cash costs such as the unpaid family and exchange labor and feeds (such as the corn and root crops planted by the farmers for home consumption). 5. There are no fixed investments whatsoever because the swine in Upper Balisan are raised in the backyard, usually tied to a tree near the house or let loose to roam around. 6. The marketing efficiency study for swine in Sitio Upper Balisan, Palo 19 was conducted last March 5, 2001. Objectives 7. The main objective of the study is to assess the impact of existing marketing systems of swine vis-à-vis income of the farmers. 8. Specifically, the study aims to determine the levels of participants in the marketing chain of swine; 9. Determine the marketing practices involved in terms of storage, handling, pricing, delivery systems and terms of payment; 10. Determine the percentage of consumer price that the producer receives, exclusive of production costs through the deconstruction of marketing margins of swine at each level in the system; 11. Identify strengths and weaknesses of the existing marketing system of swine; and 12. Determine appropriate marketing interventions needed to improve economic efficiency of swine in the identified area.

2

Methodology 13. From the initial agribusiness profile of UDP, Sitio Glandang was identified as having the most number of swine-raisers among the UDP areas in South Cotabato. 14. Purposive sampling was done and of the 11 identified swine raisers in the area; five (5) were interviewed for the study. The farmers were asked about their production and marketing practices, sales, production and marketing costs of swine. They were also asked on available market information with emphasis on what they need to know to improve their production and marketing practices, thereby increasing the farmers’ income. 15. The respective buyers of swine from each farmer were then traced accordingly. 16. The traders were, in turn, asked about their marketing, costs, volume, value of sales and the problems and constraints they have encountered in the marketing of swine. 17. The marketing margins were then deconstructed and the profitability of each marketing participant was also analysed. In the case of the farmers, the Net Farm Income (NFI) was determined. An NFI greater than zero (0) would mean that the swine raising and marketing are profitable, whereas an NFI less than zero (0) would mean that the activities in swine raising and marketing are at a loss. 18. On the part of the trader, the Return on Investment (ROI) was compared with the opportunity cost of capital, pegged at the existing current savings interest rate of eight percent (8%) per annum. An ROI higher than the opportunity cost of capital would mean that marketing swine is more profitable than just saving the trader’s money in a bank, while an ROI less than the opportunity cost of capital would mean that it would be more profitable for the trader to invest his money in a bank rather than spend it on marketing swine. 19. The percent share to the consumer peso of each marketing participant was also determined by getting the percentage of the marketing participant’s selling price (in the case of traders, less their buying price) relative to the final buying price of the consumer. This indicates the proportion of the final buying price that goes to each marketing participant in swine. 20. Moreover, focused group discussions (FGDs) with key informants and selected farmers were conducted to probe into the importance and the demand for market information in each province. This provided rapid feedback on the available market information and the information dissemination strategies existing in the area. 21. Also, key informants such as the Municipal Agriculturists and the Agricultural Technicians were interviewed to obtain an overview of the local agriculture industry.

3

Limitations and Constraints 22. During the interviews, it was observed that the producers relied on their memories in recalling their past production level, income, tools and equipment. There were no record-keeping practices. Thus the cost and return that were analysed were only estimates. The Return on Investment (ROI) was excluded on the analysis of the farmer income due to the ambiguity of the values arrived at. This is mainly due to the fact that some factors on capital investment were not properly quantified in the study. For instance, land valuation was excluded because none of the farmers hold titles to the land that they cultivate. Land, therefore, was not considered a fixed investment in this enterprise and was merely considered as an expense through the credit of land cost (land tax if owned, rent if tenanted).

23. In the marketing aspect, the respondents interviewed were the middlemen named by the producers. Most of the respondents interviewed also based their answers on their memories since they do not keep records regarding their marketing operations.

24. On the analysis of the marketing efficiency on the part of the farmers, only the Net Farm Income (NFI) analysis was utilized since the available data only allow for this kind of analysis and not the more complicated input-output efficiency analyses.

25. Lastly, the size of the swine market, specifically, the estimation of demand was not included in the study.

Margin of Error

26. Using the population size of 11 swine-raisers in the area, the margin of error was established at ±33.95% at a 95% confidence level. This means that there is a 95% confidence that the real values of the parameters used in this study are within 33.95% of the computed values (using the data from the respondents’ interviews).

MARKETING SYSTEM OF SWINE Marketing channels

27. The marketing participants involved in the swine marketing system in Sitio Upper Balisan, Palo 19 are as follows:

a. Farmer-retailer

A person engaged in swine raising for sustenance or commercial purposes. He sells

bulk (91.7%) of his produce to retailers and retail an average of 8.3% of the swine themselves; and

b. Retailer

4

A trader, usually based in the Tampakan and Koronadal Public Market, who buys live

swine from the farmers, butchers the animals and sells them to the consumers.

28. Shown below is the product flow of swine from Sitio Upper Balisan, Palo 19, Tampakan.

Figure 1. Product flow of Swine, Palo 19, Tampakan.

84.6% 84.6% (100%) (84.6%) (100%) Selling price (P/kg): Farmer Retailer

Case 1= 55.00 na Case 2= 40.00 44.00 29. Out of the total 13 heads (total live-weight of 494 kilograms) sold in Sitio Upper Balisan, only two (2) or 15.4% were slaughtered before sale and retailed by the farmers. The other 11 (418 kilograms live-weight) heads of swine were brought by the retailers to the Tampakan and Koronadal Public Markets for slaughtering and eventual sale to consumers. 30. Similarly, Figure 2 illustrates the geographic flow of the swine from the farm to the end marketing channel.

Figure 2. Geographical flow of Swine, Upper Balisan, Palo19, Tampakan,

Marketing Practices and Costs

31. The two heads of swine were sold, per kilogram, within the neighborhood of Sitio Upper Balisan at P55.00. 32. On some occasions, usually when farmers are in immediate need of money and there are no impending visits from buyers, the farmers opt to bring the live swine to Tampakan and sell it to the retailers. The swine is tied by the neck and led on foot to the barangay center where it is loaded onto the regular Palo-Tampakan public jeepney. Transportation cost from Palo 19 to Tampakan proper is P1 per kilogram live-weight. It is also important to note the great stress the animal undergoes during the walk from the sitio, which is four kilometres from the barangay, and the jeepney

PRODUCER RETAILER CONSUMER

0.0016%

15.4%

PRODUCER TAMPAKAN

KORONADAL

UPPER BALISAN

5

ride. This may cause a significant, but undetermined, decrease in the weight of the animal. The decrease in weight brought about by stress in transportation is undetermined because the animal is only weighed at the point of sale, which is after transportation. No comparison, therefore can be made with the weight of the animal before its transport 33. Most retailers generally visit Upper Balisan on the peak buying months. A few, however, visit the area once every two months to chance upon farmers willing to sell swine. 34. Visits of buyers bring about spot markets wherein farmers bring their mature swine to the sitio proper. Buyers use a weighing device called “espada” to get the live-weight of the swine. 35. Table 1 shows the per kilogram marketing costs for the farmers and the retailers. Table 1. Marketing costs for different marketing levels of swine (P/kg).

ACTIVITY CASE 1* CASE 2*

Farmer Farmer Retailer

Slaughtering 0.65 0 na Transportation 0.12 0 1.59 Labor na na 0.02 Supplies and materials na na 0.04 Fees and payments na na 0.02 Non-cash costs na na 1.46 TOTAL 0.77 0 3.13 *Case 1- swine is slaughtered by the farmers and retailed within Sitio Upper Balisan. Case 2-swine is bought by the retailers and brought to Tampakan and Koronadal for

retail. Price Formation 36. Since swine production is not greatly affected by seasonal changes and production cycles are short, there are no pronounced peak and lean production months. Price, therefore, is demand driven. December is the peak buying season for swine. This is due to the increase in demand for food during the holidays. Aside from December, the months of May to June, the months for fiesta celebrations, are also periods of high farm-gate swine price. Prices at these periods increase up to as much as P 38 per kilogram live-weight of native swine, as opposed to the ordinary, P30-35 per kilogram live-weight price. Marketing Margins

6

37. Table 2 presents the marketing margin of the retailer and the Net Farm Income (NFI) of the swine raiser (as established in Appendix A) in Sitio Upper Balisan.

Table 2. Marketing margins and income for swine at different marketing levels.

ITEM CASE 1 CASE 2

Farmer Farmer Retailer

Selling Price (P/kg) 55.00 40.00 44.00 Buying Price (P/kg) na na 40.00 Marketing Margin (P/kg) na na 4.00 Marketing Cost (P/kg) 0.77 0 3.13 Profit Margin (P/kg) na na 0.87 Net Farm Income (NFI) (P/kg) 28.44 14.21 na MC as % of MM na na 78% PM as % of MM na na 22% %ROI nil nil 3.45% Opportunity Cost of Capital na na 8%

38. A comparison between the Net Farm Income (NFI) of the farmers for the two cases show that the profit or income of the farmer is higher when swine is directly retailed to the consumers (Table 2). However, it is important to note that the volume sold directly to the consumers is considerably less than the volume sold to the retailers.

39. In this case, there is only one marketing channel after the swine leaves the raiser. The retailer marks up the swine by 10%. So, at a buying price of P40.00/kg, the swine is retailed at P44.00/kg (Table 2). The marketing margin of P4.00 covers the marketing costs of P3.13 and a profit margin of P0.87 per kilogram. The ROI, determined to be 3.45%, means that for every peso invested by the retailer on the marketing of durian, he gets P0.0345 back. This low ROI can be explained by the low profit of the retailer compounded by the fact that his buying activities are expansive or covers a large area thereby increasing the retailer’s costs. Marketing of swine for the retailer, therefore, is inefficient.

40. Shown in Figure 3 is the graphical presentation of the percentage of the marketing cost and the profit margin relative to the marketing margin.

7

Figure 3. Marketing margin of a swine retailer, Sitio Upper Balisan, Palo 19.

22%

78%

marketing cost

profit margin

41. Table 3 and Figure 4 present the percentage breakdown of the consumer peso for swine in Sitio Upper Balisan.

Table 3. Percentage share to the consumer peso.

MARKETING LEVEL SELLING PRICE (P/piece) % SHARE

Farmer 40.00 90.9 Retailer 44.00 9.1

Figure 4. Percentage share of the consumer peso.

farmer90.9%

retailer9.1%

42. The percentage of the consumer peso, as indicated on Table 3 and Figure 4, means that of the for every peso paid by the consumer for swine 90.9% or P0.909 goes to the farmer and 9.1% or P0.091 to the retailer.

8

WEAKNESS 43. A weakness in the swine marketing system in Sitio Upper Balisan is the infrequent buying activities of the retailers in the area caused by the relative inaccessibility of the Sitio. 44. This problem is compounded by the competition with the swine raisers from the lower Tampakan sitios. OTHER KEY FINDINGS 45. Based on farmer interviews and cost and returns analysis of swine raising in Sitio Upper Balisan, it was determined that swine raising in the area is profitable despite low investments and maintenance by the farmers. 46. Also, interviews with the Agricultural Technicians reveal that the quality of the native swine’s meat (in terms of percent marbled fat and the like) is better than that of the existing hybrids in the area. 47. It was also determined that there is low demand for the meat of native swine which causes the buying price to be lower than that of hybrids. CONCLUSION 44. Based on the Net Farm Income analysis on the part of the swine raisers, it can be concluded that swine raising in Sitio Upper Balisan, despite its weaknesses, is profitable (as indicated by the positive NFI). 45. The marketing of swine for retailers, however, is inefficient, as established in the ROI analysis. RECOMMENDATIONS 46. Based on the weaknesses and other key findings on the marketing of swine in Sitio Upper Balisan, the following recommendations are offered: • Improve the Sitio Upper Balisan-Palo 19 and the Palo 19-Tampakan roads to

facilitate and broaden the marketing activities of the farmers themselves;

• Establish a “market day” when swine from all Palo 19 sitios would be brought to the barangay proper and auctioned to buyers;

9

• Encourage farmers to time their harvests during the months of December, May and June by giving them the buying prices of the traders during these months and comparing them with the buying prices during off-peak months; and

• Study the feasibility of upgrading the stocks of native swine to improve the

consumer acceptability and demand of the animal’s meat.

10

REFERENCES AGARRADO, R.E. et al. Marketing and Information Needs Assessment for Davao

City. BAS-DA-USP, Davao City. CORRE, S. 1996. A Market Efficiency Stud for Palay/Rice in Biliran. Published

under the Small Islands Agricultural Support Services Programme. REVILLA, R.S. 1999. Production and Marketing of Sinta Papaya in Laguna, 1998.

Unpublished Undergraduate Thesis, CEM, UPLB, Laguna. RIVERA, S.T.C. 1992. An Evaluation of the Performance of the PCIC Livestock

Insurance Program for Swine. Unpublished Undergraduate Thesis, CEM, UPLB, Laguna.

UDP 1999. The Terms of Reference for Consultancy Services-Marketing Efficiency

Study. UDP, Davao City.

11

APPENDIX A. Cost and returns per unit of swine in Sitio Upper Balisan, Palo 19. ITEM P/kg

RETURNS Cash Sold slaughtered 8.46 Sold live 22.87 Total Cash Returns (A) 31.33 Non-cash Home consumption 3.30 Total Non-cash Returns (B) 3.30 TOTAL RETURNS (C ) 34.63 COSTS Cash Animal stocks 11.74 Veterinary supplies 0.06 Transportation 0.06 Total Cash Costs (D) 11.86 Non-cash Unpaid family and/or exchange labor 2.19 Losses/Shrinkage of produce 0.47 Opportunity cost of capital 3.62 Improvised feeds 8.42 Total Non-cash Costs (E) 14.70 TOTAL COSTS (F) 26.56 Net Returns Above Cash Costs (C-D) 22.77 Net Farm Income 8.07

12

APPENDIX B. Breakdown of costs per unit of swine in Sitio Upper Balisan, Palo 19. ITEM P/kg

I. Production Cost Animal stocks 11.74 Improvised feeds 8.42 Veterinary supplies 0.06 Own labor 1.95 Total Production Cost 22.17 II. Marketing Cost A. Slaughtering Own labor 0.24 Losses/shrinkage 0.41 Sub-Total 0.65 B. Transportation Cost Transportation 0.06 Losses/shrinkage 0.06 Sub-Total 0.12 Total Marketing Cost 0.77 III. Opportunity cost of capital 3.62 TOTAL COSTS 26.56