Productivity Growth in Philippine

Agriculture: A Literature Review

Romeo G. Teruel
Objectives
 The objectives of this paper are as follows:

 To contribute a literature review on agricultural productivity

analysis, providing a critical assessment of the state-of-the-art at
both international and national levels;
 To describe the standard and emerging empirical techniques
used in agricultural productivity studies, internationally and in the
Philippines, including econometric analysis and growth
accounting;
 To identify the similarities, relationships, and differences between
the techniques within a coherent framework;
 To assess what is known about agricultural productivity growth in
the Philippines, critical gaps in our knowledge and data on the
nature, sources, and causes of productivity growth; and
 To propose a theoretical framework and empirical technique for
use in the aggregate agriculture sector analysis of the PGPA.
The Concept of Productivity
 It is a quantitative relationship between output and input (Antle
and Capalbo, 1988).
 It is also defined as the ratio of some measure of output to some
measure of input use or simply an arithmetic ratio between the
amount produced and the amount of any resources used in the
process of production.
 This definition of productivity can be further simplified as the
output per unit input or the efficiency with which resources are
utilized (Samuelson and Nordhaus, 1995).
The Concept of Productivity
 As a concept, productivity can be a partial or total
measure.
 The partial measure of productivity or partial factor
productivity (PFP) relates output to any input. In this
case, productivity is the amount of output per unit of
a particular input or equally known as the average
product.
 Commonly used partial measures are:
4. yield (output per unit of land),
5. labor productivity (output per economically active
person or per agricultural per-hour)
6. capital productivity.
The Concept of Productivity
 Total Factor Productivity relates the output produced with an
index of composite inputs; meaning the sum of all the inputs
used in the production process which may include land, labor,
physical capital, livestock, fertilizers and pesticides.
 TFP is computed as the ratio of an index of agricultural output to
an index of agricultural inputs.
Major Approaches

1) Growth accounting;
2) Index number (Laspeyres, Paasche, Fisher and the
Törnqvist index procedures);
3) Econometrics (Production, cost and profit
functions);
4) Distance function-based Malmquist approach (data
envelopment analysis); and
5) Stochastic frontier approach.
Growth Accounting Approach

Yt = At f ( K t , Lt )
• • • •
A Y K L
= − wK − wL .
A Y K L
The TFP growth can be interpreted as the residual share of output
growth after accounting for the changes in the production inputs.
One of the disadvantages of using the growth accounting approach is that it
imposes several strong assumptions like the Hicks-neutrality of technological
change, constant returns to scale and long-run competitive equilibrium.
Index Number Approach
Output Quantity Index

k
Laspeyres Index
0
p ⋅y
1 ∑ i Yi
P 0 1

( 0 1 0
YL p , p , y , y =
1
) 0
p ⋅y
0
= i =1
k

∑ i Yi
P 0 0

i =1
Paasche Index k
1
p ⋅y
1 ∑ i yi
p 1 1

( 0 1 0
YP p , p , y , y =
1
) 1
p ⋅y
0
= i =1
k

∑p
i =1
1
i yi0

Fisher Index is computed as the geometric average of the

Laspeyres and Paasche indices.
Index Number Approach
 Törnqvist index

 Qt  1  Q jt 
Output Index
ln  = ∑ ( S jt + S jt −1 ) ln 
Q 2 Q 
 t −1  j  jt −1 
 Xt  1  X it 
Input Index ln  = ∑ ( Wit + Wit −1 ) ln 
 X t −1  2 i  X it −1 
 TFPt   Qt   Xt 
TFP Index ln
 TFP 
 = ln
Q 
 − ln
X 

 t −1   t −1   t −1 
Index Number Approach
 The approach requires imposition of restrictive assumptions such
as the neutrality of technical change, constant returns to scale,
competitive markets and the separability of the underlying
transformation function in outputs and inputs.
 Another disadvantage is that the statistical methods cannot be
used to evaluate their reliability because index numbers are not
statistically generated.
 Index numbers are not particularly informative in identifying
sources of growth.
 This approach, however, can be easily implemented regardless
of the number of observations.
Econometric Approach

Link between primal rate of technological change and TFP

(Capalbo, 1998)

[ ] ∑ S d ln X /dt
• n
TFP = ∂ ln F /∂ t + ( ∂ lnC /∂ ln Y ) − 1
−1
i i
i =1
Link between dual rate of technological change and TFP

C = g ( w1 ,........., wn,Y , t )
(Capalbo, 1998)

• •
− B = ε CY Y − X
• •
TFP = −B + (1 − ε CY ) Y
 The Translog Function Form

[ ]
• n
TFP = ∂ ln F /∂ t + ( ∂ lnC /∂ ln Y ) − 1 ∑ S i d ln X i /dt
−1

i =1
Translog Functional Form
1 1 2
ln Y = α 0 + ∑ α i ln X i + ∑ ∑ α ij ln X i ln X j + β 0t + β 1t + t ∑ γ i ln X i
i 2 i j 2 i

• •   ∂ ln C 
•
−1
 •
∗
TFP = Y − X =   − 1 X + β 0 + β1t + ∑ γ i ln X i
 ∂ ln Q  
•
TFP ∗ = β 0 + β1t + ∑ γ i ln X i
•
TFP ∗= β0 + β1t
The Translog Function Form

• •
TFP = − B + ( 1 − ε CY ) Y
1
ln C = α 0 + ∑ α i ln Wi + ∑∑ γ ij ln Wi ln W j + ∑ β k ln Yk +
i 2 i i k

1
∑
2 k l
∑ β kl ln Yk ln Yl + ∑∑ ρ ik ln Wi ln Yk + α t t
i k

1
+ α ii t 2 + ∑ α it ln Wi t + ∑ β kt ln Yk t.
2 i

•
TFP = α t + α ii t.
Econometric Approach
 The econometric approach allows inferential statistics or
permitting hypothesis testing and calculation of confidence
intervals in order to test the reliability of the model estimated.
 This approach allows identifying the contribution of each input to
aggregate output.
 If the flexible functional form is used, then the use of the
econometric approach would also mean the imposition of fewer
restrictive assumptions about technology as opposed to the
growth accounting and the index number approaches.
 The major disadvantage of the econometric approach, however,
is that it is more demanding in terms of data requirement than
the other approaches to productivity measurement. Oftentimes,
the constraint on data availability may make it difficult to
implement the econometric approach.
 Distance Function-based Malmquist Approach

yc

yt
yb
ya

ys

Xs xt

Efficiency change is the ratio between two successive output distance functions. It measures
the producer’s capacity to improve technical efficiency from period s to period t. Technical
change corresponds to the radial shift in the output set (measured with period t data).
 Distance Function-based Malmquist Approach

Productivity Change 1

DOT ( xt , yt )   DOS ( xt , y t )   DOS ( x s , y s )   2

M O ( x s , y s , xt , y t ) = S ×   T   T  
DO ( x s , y s )   DO ( xt , y t )   DO ( x s , y s )  

DOT ( xt , y t )
Efficiency change =
. DOS ( x s , y s )

1
  DOS ( xt , y t )  DOS ( x s , y s )   2

Technical change =   T  T  

  DO ( xt , y t )  DO ( x s , y s )  
Distance Function-based Malmquist Approach

 One can estimate the distance functions using the

Data Envelopment Analysis (DEA-linear
programming). DEA is a data oriented approach and
a non-parametric analysis.
Distance Function-based Malmquist Approach
Advantages
• DEA is able to handle multiple inputs and outputs
• DEA does not require a functional form that relates inputs and
outputs
• DEA optimizes on each individual observation and compares
them against the “best practice” observations
• DEA can handle inputs and outputs without knowing a price or
knowing the weights
• DEA produces a single measure for every unit that can be
easily compared with other units.

Limitations
• DEA only calculates relative efficiency measures
• As a nonparametric technique statistical hypothesis test are
quite difficult
Stochastic Frontier Approach

Yi = X i b + vi − u i i = 1,............., N
where i = l,……N indicates the units being studied, Yi is the
output, Xi are factors of production and b is a vector of unknown
parameters. The term, vi - ui, is the composed error term, where
vi and ui capture the statistical noise and technical inefficiency in
production, respectively.

For stochastic frontier model, distristributional assumption for ui:

the half-normal, truncated from below at zero and the exponential
distribution.
Stochastic Frontier Approach
Extension to panel data-based specification

Yit = f ( xit , t ) exp( vit − uit )

yit
TEit = = exp( − uit )
f ( xit , t )
∂ ln f ( xit , t )
TCit =
∂t
∂ ln y it
= TC it + TEC it
∂t
∂u it ∂ ln TE it
TEC it = = .
∂t ∂t
Table 1: Productivity Studies on Philippine Agriculture: 1986-2005

Authors Year Years Productivity Methodology

Covered Estimates
Cross-country
Studies
Trueblood and 1997 1961-1991 0.0119 Malmquist Index
Coggins
Arnade 1997 1961-1993 -0.0040 Malmquist Index
Martin and Mitra 1999 1967-1992 0.0164 Translog Production Function
0.0157 Cobb-Douglas Production
Function
Martin and Mitra 1999 1967-1992 0.0207 Growth Accounting
(Actual Factor Share)
Fulginiti and Perrin 1998 1961-1985 -0.0250 Growth Accounting Method
Fulginiti and Perrin 1998 1961-1985 0.0010 Production Function (Variable
0.0180 Coefficient)
Production Function
(Fixed Coefficient)
Fulginiti and Perrin 1998 1961-1985 -0.0030 Malmquist Index
Table 1. Continuation

Coelli and Rao 2003 1980-2000 0.0080 Malmqvist Index

Coelli and Rao 2003 1980-2000 0.0130 Index Number Approach
(Törnqvist Index Procedure)
Mundlak, Larson 2004 1961-1998 0.0025 Production function
and Butzer
Country-specific
Studies
Evenson and 1986 1950-1984 0.0190 Growth Accounting Method
Sardido
Cororaton and 2001 1980-1998 -0.0056 Growth Accounting Method
Cuenca
Teruel and Kuroda 2004 1974-2000 0.0051 Translog Variable Cost
Function
Teruel and Kuroda 2005 1974-2000 0.0162 Index Number Approach
(Törnqvist Index Procedure)
Teruel and Kuroda 2005 1974-2000 0.0091 Cobb-Douglas Production
Function
Teruel and Kuroda 2005 1974-2000 0.0142 Translog Cost Function
Table 2: Productivity Estimates Across Subperiod in Philippine
Agriculture

Authors Year Years Covered Productivity Methodology

Estimates
Evenson and Sardido 1986 1950-1954 0.021 Growth Accounting Method
(5-year subperiod) 1955-1959 0.024 (Land Rents Based)
1960-1964 0.018
1965-1969 0.008
1970-1974 0.014
1975-1979 0.053
1980-1984 -0.011
Evenson and Sardido 1986 1950-1954 0.027 Growth Accounting Method
(5-year subperiod) 1955-1959 0.025 (Fixed Share = 0.3)
1960-1964 0.019
1965-1969 0.010
1970-1974 0.021
1975-1979 0.053
1980-1984 -0.011
Evenson and Sardido 1986 1955-1964 0.021 Growth Accounting Method
(10-year subperiod) 1965-1974 0.013 (Land Rents-based)
1975-1984 0.021
Evenson and Sardido 1986 1955-1964 0.022 Growth Accounting Method
(10-year subperiod) 1965-1974 0.016 (Fixed Share = 0.3)
1975-1984 0.021
Table 2. Continuation

Corroraton and Cuenca 2001 1981-1989 -0.054 Growth Accounting Method

1990-1998 0.042

Mundlak, Larson and 2004 1961-1980 0.0098 Production Function

Butzer 1980-1998 0.0013 (With State Variables)

Teruel and Kuroda 2004 1974-1980 0.0077 Translog Variable Cost Function
1981-1990 0.0050
1991-2000 0.0035

Teruel and Kuroda 2005 1974-1980 0.0219 Cobb-Douglas Production

1981-1990 -0.0053 Function
1991-2000 0.0144

Teruel and Kuroda 2005 1974-1980 0.0250 Index Number Approach

1981-1990 0.0050 (Törnqvist Index Procedure)
1991-2000 0.0260

Teruel and Kuroda 2005 1974-1980 0.0201 Translog Cost Function

1981-1990 0.0116
1991-2000 0.0084
Table 3: Productivity Estimates by Regions in Philippine Agriculture

Growth Accounting Translog Variable Cost Index Number Approach

Regions Approach Function (Teruel and Kuroda,
(Evenson and Sardido, 1986) (Teruel and Kuroda, 2004) 2004)
9-Region Classification 12-Region Classification 12-Region Classification
1950-1984 1974-2000 1974-2000
Ilocos 0.0160 0.0156 0.0216
Cagayan Valley 0.0073 0.0084 0.0204
Central Luzon 0.0000 0.0145 0.0328
Southern Tagalog 0.0239 0.0066 0.0216
Bicol 0.0047 -0.0025 -0.0029
Western Visayas 0.0083 -0.0059 0.0055
Central Visayas - 0.0059 0.0107
Eastern Visayas 0.0146 0.0021 0.0091
Northern-Eastern 0.0254 - -
Mindanao
Western-Southern 0.0109 - -
Mindanao
Western Mindanao - -0.0028 0.0017
Northern Mindanao - 0.0085 0.0216
Southern Mindanao - 0.0082 0.0201
Central Mindanao - 0.0032 0.0085
Table 4: Productivity Studies on Philippine Agriculture by
Approach: 1986-2005

Approaches/Authors Year Years Productivity Methodology

Covered Estimates
Growth Accounting
Approach
Evenson and Sardido 1986 1950-1984 0.0190 Growth Accounting Method
Fulginiti and Perrin 1998 1961-1985 -0.0250 Growth Accounting Method
Martin and Mitra 1999 1967-1992 0.0207 Growth Accounting
(Actual Factor Share)
Cororaton and Cuenca 2001 1980-1998 -0.0056 Growth Accounting Method
Index Number Approach

Teruel and Kuroda 2005 1974-2000 0.0162 Index Number Approach

(Törnqvist Index Procedure)
Coelli and Rao 2003 1980-2000 0.0130 Index Number Approach
(Törnqvist Index Procedure)
Table 4. Continuation

Econometric Approach

Fulginiti and Perrin 1998 1961-1985 0.0010 Production Function (Variable

0.0180 Coefficient)
Production Function
(Fixed Coefficient)

Martin and Mitra 1999 1967-1992 0.0164 Translog Production Function

0.0157 Cobb-Douglas Production
Function

Mundlak, Larson and Butzer 2004 1961-1998 0.0025 Production Function

(With State Variables)

Teruel and Kuroda 2004 1974-2000 0.0051 Translog Variable Cost Function

Teruel and Kuroda 2005 1974-2000 0.0091 Cobb-Douglas Production

Function

Teruel and Kuroda 2005 1974-2000 0.0142 Translog Cost Function

Table 4. Continuation

Malmquist
Approach

Trueblood and Coggins 1997 1961-1991 0.0119 Malmquist Index

Arnade 1997 1961-1993 -0.0040 Malmquist Index

Fulginiti and Perrin 1998 1961-1985 -0.0030 Malmquist Index

Coelli and Rao 2003 1980-2000 0.0080 Malmqvist Index

Literature Gaps
 Key General Findings
 Positive productivity growth rates for Philippine agriculture.
 Numerically, however, there were marked discrepancies among these
estimates.
 Consistent general picture emerges with regard to the recent agricultural
productivity performance of the Philippines.
-The performance during the 1950s was generally good.
-This was followed by a decline in the decade of the 1960s and a recovery
between 1970s and 1980s as shown by a relatively strong growth in productivity.
-A subsequent decline, however, followed through until 2000.
 The regions of Ilocos and Central Luzon are identified as the relatively more
productive regions.
 Bicol region is consistently the least productive of the regions and in some years
experienced negative growth rates.
Literature Gaps

 Estimation
 There are a handful of country-specific studies on productivity estimation
conducted in the Philippines.
 From 1980 onwards, the common approaches to productivity measurement used
by these studies are the growth accounting approach and the econometric
approach (Cobb-Douglas production function, the translog production function
and the dual translog cost function).
 The index number procedure is also seldom used, while the DEA-based
Malmquist index procedure has not been applied so far to Philippine agriculture
using regions as the DMUs. The same case with the stochastic frontier
approach.
Literature Gaps

 Data
 Evenson and Sardido (1986)
 Teruel and Kuroda (2004)
 Data Issues
 The constraint imposed by data availability or small data dimension
indicating limited number of observations which consequently diminishes
the number of options for sophisticated approaches to productivity
measurement or the use of more advanced techniques
 The insufficient disaggregation of the inputs implies the inability to assign
inputs to particular outputs. Given the diverse and highly specialized nature
of modern agriculture, it will be interesting to have forecasts of the
productivity growth of the different commodities.
 Missing data on some intermediate inputs such as pesticides, herbicides,
organic fertilizers and on non-conventional inputs affecting productivity.
Literature Gaps

 The problem on measurement errors also needs to be addressed in the

estimation process. One technique is by accounting for the changes in
the quality of inputs over time or by through minimizing under/over
measurement of inputs.
 There is also a need to look at the possibility of reconstituting the data
to come up with a panel data for the current classification composed of
14 regions or, if possible, even for a more detailed dimension like at the
provincial level.
 The implication of the use of interpolation, extrapolation and other
techniques such as the application of regional shares to distribute
national data to the different regions to fill in the missing years. These
techniques are commonly used and these might have caused some
biases in the estimates for productivity growth or levels.
Literature Gaps
 The use of the following assumptions in constructing the data set
need to be validated:
 The assumption used in the computation of the equivalent
man-days regarding the working capacity of a female worker
relative to the working capacity of a male worker.
 The assumption that an adult male agricultural worker works
160 days a year while an adult female works 105 days.
 The assumption used in the calculation of the equivalent
animal work day that the carabao and the cattle work an
average of 220 and 150 days a year, respectively.
 The cost of services of the work animals per workday was
assumed to be one half of the daily wage of agricultural
labor.
Literature Gaps
 The assumption that labor employment in agriculture is a
constant-proportion (92%) of the reported total employment in
the agricultural sector.
 The use of fertilizer consumption/sales data (withdrawals from
importers’ and manufactures’ warehouses) in lieu of data on
the actual fertilizer consumption.
 The assumption regarding the depreciation as well as the
interest rates used for the computation of the amount of
capital service of the agricultural machinery.
 The imputation of land price as the residual of total revenue
net of measured costs for agricultural labor, fertilizer, seeds,
and machinery and animal services.
Recommendations
 In order to provide better estimates of productivity, particularly in
Philippine agriculture, more work needs to be done on the
following areas:
1. There is a need to highlight the use of models with functional
forms that are flexible enough to take into account the complexity
of relations between output and input and between various inputs
(econometric approach and SFA).
2. For Philippine agriculture, one can also use the DEA-based
Malmqvist productivity index approach to address the issue on
the availability of quality input data series. This approach
provides additional information on efficiency which is assumed to
be constant in the case of econometric approach.
Recommendations
 3. There is also a need to identify the data
requirements for chosen methods and conduct a
detailed quality assessment of all readily available
data series and consider alternatives for correcting the
common data problems.
 4. In preparing for the data series, there is also a need
to develop options for obtaining the missing data of
interest and to assess the feasibility of obtaining the
required data. The missing data problem is more
common in all inputs than in output data and more
conspicuous in pooled time-series and cross-sectional
data set.
Recommendations

 In spite of the extensiveness of the literature on

agricultural productivity, one important characteristic
stands out, that is, most publications measure sector-
wide productivity and neglect commodity-specific
productivity growth.
 There is a need, therefore, to review research studies
addressing this empirical issue such as those of
Lence and Miller 1998; Paris and Howitt, 1998 and
Just, Zilberman and Hochman, 1983).
Conclusion
 The studies reviewed in this paper, particularly the
country-specific studies, that have focused on
Philippine agriculture constitute a small part relative
to the extensiveness of a broad body of international
work that has been published with regard to
productivity since the 1980s.
 The attempt to investigate key issues related to data
and estimation will not only bring research on
Philippine agricultural productivity at par with
international studies, it will also provide broader
evidence significantly to rejuvenate Philippine
agriculture.