A VALUE CHAIN STUDY OF RICE IN ABUYOG, LEYTE

An Undergraduate Thesis

Presented By

Jerome M. Alvero

Submitted to the Development Studies Program of

Ateneo de Manila University in Partial Fulfillment of the Requirements

for the Degree of Bachelor of Arts, major in Development Studies

29 February 2008
 TABLE OF CONTENTS
Abstract i
Chapter I. Introduction 1
1.1 Rationale of the Study 1
1.2 Objectives of the Study 2
1.3. Limitations of the Study
Chapter II. Review of Related Literature 3
2.1 Role of Rice in the Philippines 3
2.2 Philippine Rice Industry Profile 4
2.3 Rice Value Chain 6
Chapter III: Theoretical Framework 10
Chapter IV. Empirical Framework 13
4.1 Research Hypothesis 13
4.2 Description of Methodology 13
Chapter V. Implications of Results 32
5.1 Value Chain and Cost Structure at Production 16
5.2 Marketing at Post-production 25
5.3 Social Cost 27
Chapter VI. Implicatiions of Results 32
6.1 Implication to Development Theory 32
6.2 Implication to Development Policy 37
Chapter VII. Summary and Conclusion 40
Appendices
List of figures
List of Tables
Questionnaires
Map of Abuyog
Documentation
 INTRODUCTION

Leyte is the largest rice-producing province in Eastern Visayas. It is, however, considered as one of
the provinces in the Philippines with a significant deceleration of productivity growth in rice since 1986.
In 2006, the municipality of Abuyog was the highest rice producer in Leyte from its 2,830 hectares of
irrigated land and 1,813 hectares of rain fed land. Despite these decent figures, the rice industry in this
municipality is teeming with unscrupulous trading malpractices which results in unrealistic marketing
costs. A value chain (VC) is a method that shows the sequence of a sub-sector’s chain of events—
production to processing to marketing—and could be used to study an industry such as a rice sub-
sector. The German Technical Cooperation (GTZ) claimed that with aVC study and promotion,
“economic development is conceived as increasing division of labor and cooperation between actors
better known as ‘systematic competitiveness’” is achieved. Moreover, the “coordination of public and
private roles would result in acombining entrepreneurial development at the micro level, with
institutional change at the meso and macro level.” The VC could loosely be visualized as a “map” that
identifies and spells out the basic functions and categories of actors in a certain sub-sector. In effect,
through the VC organization, costs can be reduced through better logistics thus quality management
is further attained, among others.

Objectives of the Study

The main objectives of the study are the following:

1. Map the value chain of the rice sub-sector of Abuyog, Leyte by identifying the valuechain
processes, the value chain actors and their roles;

2. Identify the costs entailed in value chain processes;

3. Determine the social costs for the actors (the farmers, in particular) in the value chain;

4. Present implications with regard to the results and findings of the study.
 CHAPTER II REVIEW OF LITERATURE

The second chapter provides a brief background on the r

o l e o f r i c e i n t h e Philippines and describes the Philippine rice industry along with
the issues that take place in it. This chapter is relevant for understanding a rice sub-
sector’s value chain structure.T h e d a t a a n d i n f o r m a t i o n p r e s e n t e d i n t h e
sections of this f r o m t h e s t u d i e s d o n e b y C h a r m a i n e R a m o s
a n d t h e U n i t e d N a t i o n s Development Programme (UNDP)

2.1.Role of Rice in the Philippines

Rice in the Philippines is a means of sustenance in two senses: as a basic

stapleand as a source of income.T h e P h i l i p p i n e r i c e m a r k e t h a s b e e n
r e g a r d e d a s h i g h l y politicized.
T h e P h i l i p p i n e g o v e r n m e n t , v i a t h e N a t i o n a l F o o d A u t h o r i t y (NFA),
enjoys monopoly rights over importation and engages in domestic operations to
defend farm support prices.I n 1 9 9 4 , u p o n a g r e e m e n t w i t h t h e
W o r l d T r a d e Organization (WTO), the government abolished
quantitative restrictions on most
of thei m p o r t e d a g r i c u l t u r a l c o m m o d i t i e s a n d i m p o s e d t a r i f f s i n s t e a d .
But the governmentsuccessfully negotiated with the WTO not to inclu
de rice in the tariffication, thusallowing the quantitative restrictions
on rice imports done by the NFA to continue.

2.2.Philippine Rice Industry Profile

Between 1970 and 2006, the palay production in the country coming
from all ecosystems exhibited a generally increasing trend although with few
fluctuations.

The most notable of which was in 1998 when rice production plunged to
8,554,824metrict o n s ( M T ) f r o m 1 1 , 2 6 8 , 9 6 3 M T i n 1 9 9 7 d u e t o
t h e o c c u r r e n c e o f t h e E l N i ñ o phenomenon in the country which caused
water shortage, as water is needed in growing palay for both rain fed and irrigated
farms. Such reduction in volume resulted from a considerable decline also in
area planted for palay in that same year. Over the past decade, production has
steadily increased: In 1994, the volume of production hit the 10 million-MT
mark. Production significantly increased in 1996 to11.28 million MT but
dropped to 8.55 million MT in 1998 in view of the occurrence of E l N i ñ o . O n
the other hand, from 1999 to 2006, area harvested for palay showed
r elatively flatter and steady trend with values averaging at 4,064,138 hectares per
annum. Furthermore, the trend in yield for the period 1999-2006 was more or less
similar to that of the trend in production, averaging at 3.33 MT per hectare. An increase
in trend was perhaps partly due to the increasing use of high-yielding varieties of rice
among the rice farmers in the country. In spite of the steady increase in
production, the Philippines has remained a net importer of rice, as magnified
with the figures in the past decade. Awe pointed
outg e o g r a p h y a s t h e p r i m a r y r e a s o n w h y t h e P h i l i p p i n e s i m p o r t s r i c e .

Thailand and Vietnam, the countries where we import rice are “typhoon-
exempt and are blessed with great river networks,” unlike the Philippines. He
also argues that the Philippines has a comparative disadvantage in rice

p r o d u c t i o n r e l a t i v e t o t h e m a j o r w o r l d e x p o r t e r s because the quantity of

arable land per person is much lower in the Philippines than in most Asian
countries and the share of rice in agricultural crop area is lower as
well.T h e c o u n t r y ’ s p o p u l a t i o n g r o w t h a l s o p l a y s a n important
role in the rice importation. The Philippine population growth rate is
calculated to be at 2.36 percent, compared to 1 percent
of Thailand, and Vietnam’s 1.4 percent. A growth
i n t h e population translates to an increase in rice consumption. Focusing on rice
prices, trends in the prices of rice indicate that production- related problems,
e.g., water shortage, typhoon, and policies, are not the only sources
of t h e i n d u s t r y ’ s t o r p i d p e r f o r m a n c e , f o r p r o b l e m s a r e a l s o e n c o u n t e r
e d i n t h e p o s t - production level, particularly in marketing. The widening gap
between farm gate paddy prices and wholesale and retail prices gives a picture
of the rising margin attributed to m a r k e t i n g c o s t s . H i g h m a r k e t i n g c o s t s
r e f l e c t i n a d e q u a t e a n d w e a k p h y s i c a l a n d institutional infrastructure in the
marketing system.

CHAPTER III
 THEORETICAL FRAMEWORK

The study is based on the framework of “value chain promotion” which was introduced by the German
Technical Cooperation Agency (GTZ). The value chain is the full range of activities that are required to
bring a product or service from its conception, through its design, raw material sourcing and
intermediate inputs, its marketing and its distribution to the final consumer. The value chain concept
therefore incorporates production, sourcing, distribution, consumption, and beyond until recycling or
disposal of a given product or service. Crucial in doing a value chain study is mapping out and
identifying the various stages and processes that occur in a studied sector or industry. With such
comes an analysis of functions done in every stage or value link. Upon studying the processes inthe
every stage, strengths, weakness, opportunities, and threats are eventually identified, which may
convince value chain actors to adhere to better practices that may reduce costs through better
logistics, for example. Economic development is therefore conceived in the implementation of a value
chain approach, primarily done through the conduct of value chain study, as increasing division of
labor and cooperation between actors is achieved. This eventually would lead to the coordination of
public and private roles thus combining entrepreneurial development at the micro level, with
institutional change at the meso and macro level. A “pro-poor growth” is the primary objective of the
value chain promotion. It is economic growth that alleviates poverty. Pro-poor growth leads to greater
employment and income for poor people. This is attained by better consumer end prices, greater
volume of products, and reduced cost. Additional jobs, new business opportunities, and the
localization of downstream processing stages are also results of the value chain promotion leading to
a pro-poor growth. To better understand the pro-poor growth concept vis-à-vis the value chain
promotion, refer to the Figures 3.1 and 3.2 at the Appendices. To be specific, the objectives of the
value chain approach are: having a bird’s eye view of the sector; giving attention to detail at all phases
of the value chain; linking sector stakeholders and their initiatives; focusing on survival and profitability;
providing ways for government involvement when clear issues are identified; building an organized
and effective sector environment; increasing buyer confidence; and answering the question of where
to prioritize so that support activities will be most effective. In the Appendices, shows the prototype
impact of the value chain promotion. The value chain promotion could be done on a product or a
service sector or sub-sector. In doing so, the process (seeFigure 3.4in Appendices) is as follows: 1)
Bring the stakeholders together in a friendly environment; 2) Improve the understanding of
stakeholders on sector or sub-sector dynamics; 3) Facilitate identification of issues through value chain
mapping; 4) Identify the success factors and evaluate the status quo;5) Prioritize the actions; 6)
Develop among stakeholders the ownership for initiatives(value chain core group); 7) Link with donors
and other agencies for assistance needed to implement initiatives and actions; and 8) Maintain a close
contact among the stakeholders through regular interaction for reviewing progress and revising plans.
According to Arun Rana, the “value chain promotion is the development of each stage in the value
chain to enhance the competitiveness of the industry. “For example, the introduction of new
processing technologies can ensure quality production. However, working at the production end is not
enough. This must be coupled with efforts to market and distribute products. Value chain promotion
works with all stages of the value chain, thereby having a greater impact on the development of the
industry as a whole.
 CHAPTER IV

EMPIRICAL FRAMEWORK

4.1. Research Hypothesis

This type of research does not call for a formulation of a hypothesis; since this is a value chain study,
the researcher mapped out and identified the different phases of the rice value chain in Abuyog, Leyte,
including the roles of the value chain actors and the costs incurred in the various value chain
processes—all guided by the theoretical framework initialized by the German Technical Cooperation
Agency (GTZ), as discussed in Chapter III.

4.2. Description of Methodology

The researcher conducted the study from 23 October up to 31 October 2007.Through the assistance
of Ms. Calypso Nogar, the agricultural technologist from the Office of the Provincial Agriculturist of the
Province of Leyte, data gathering for this study was continued on 12 November up to 28 November
2007, without the actual presence of the researcher. The data gathering in Abuyog, Leyte was done
primarily through an interview-administered survey with 9 farmer-tenants as samples for 9 clusters of
barangays which is composed of 29 barangays. The clustering was based on the barangay’s location;
nearby barangays which shared common characteristics on rice farming were clustered or grouped
together. This method was suggested by Dr. Alfredo Guevarra, Chief of the Research Division from
the Office of the Provincial Agriculturist for the Province of Leyte because according to him,
interviewing farmers from all 29 barangays was impossible considering the timeframe of this research.
Also, the allotted time for data gathering was beyond the palay harvest season hence farmers would
not be easily located as they neither stay nor reside at the rice farm. These clusters are the following:
Cluster 1 – Barangays Paguite and Balinsasayao;Cluster 2 – Barangays Katipunan, Balocawehay,
and Tadoc; Cluster 3 – Barangays Balocawe, Barayong, and Mag-atubang; Cluster 4 – Barangays
Capilian and Maitum;Cluster 5 – Barangays Picas Sur, Laray, Bayabas, Dingle, and Alangilan; Cluster
6 – Barangays Lawaan, Tinalian, and Bahay; Cluster 7 – Barangays Bulak, Kikilo, and SanRoque;
Cluster 8 – Barangays Santa Lucia, Tib-o, Malaguicay, and Buaya; and Cluster 9 – Barangays New
Taligue, Anibongon, Nebgo, and Combis. The numbering in the clusters does not signify any relevant
value and is only used for the purpose of addressing and referring to clusters during the discussion of
results. Four assemblers or “middlemen” were also subjected to interview-administered surveys. All
located in Abuyog, Leyte, these assemblers were Edita Diloy from Barangay Buntay (Poblacion),
Emily Culaba from Barangay Nalibunan (Poblacion),Paulina Silleza from Barangay Balocawehay,
and Marivic Bulacan, also from BarangayBalocawehay. Only these big-time assemblers were
procuring palay at the time of the interview and these samples were selected based on the suggestion
of the Leyte Provincial Agriculture Office and the Abuyog Municipal Agriculture Office. Moreover, a
focus group discussion (FGD) was conducted among farmers in Barayong, a farming barangay in
Abuyog, Leyte, where the researcher mingled with andinterviewed the farmers during the actual
harvesting and threshing of palay. Thesefarmers were headed by their “puno” (leader), Mr. Bonifacio
Sedomia. The questions in the FGD were basically the same with the ones in the interview-
questionnaire tailored for the farmers, but through the FGD, answers were more expounded, justified,
and made clearer. An interview was also conducted among government officers who look over the
sub-sector and who implement regulations and guidelines for the processes that occur in the sub-
sector. Participants in the interview were Ms. Calypso Nogar, the Leyte Agricultural Technologist, Dr.
Alfredo Guevarra, Chief of the Research Division from the Provincial Agriculture Office for Leyte, and
the Leyte Provincial Agriculturist, Mr.Rogelio Portula. This interview was conducted at the Provincial
Agriculture Office in Corner Jones and del Pilar Streets, Tacloban City, Leyte.
 CHAPTER V

RESULTS AND ANALYSIS

This chapter presents the value chain functions and cost structure of palay production, marketing at
the post-production level, and the social costs involved in palay and rice production, particularly for the
farmers. The data used for the cost structure at the production level are based on the answers of
surveyed farmer-respondents and on the focused group discussion with farmer-tenants. However, the
data and figures that were used to determine the costs at the post-production level and the marketing
of rice are based on the data presented during the interview with the government employees of the
Leyte Provincial Agriculture Office in Tacloban City, Leyte. Note that there are two farming seasons in
Abuyog: dry and wet seasons. The interviews with the farmer-tenants, who, by the way, do not own
the farm lands, were done during the post-harvest period at the second farming season (wet season)
of the year. The average farm size based on the surveys is between 4 and 5 hectares.

5.1. Value Chain and Cost Structure at Production

This section presents the value chain function and the cost structure of producing palay, excluding
post-production functions. The figures presented in this section arerough estimates and are based
mainly from the answers in the interviews and surveys among farmer-respondents and focus group
discussion. The main purpose of this section is to present the cost structure of producing rice,
considering the costs in inputs and labor,16which usually vary among rice farms. To facilitate the
discussion of the results, refer to Tables 5.1 and 5.2 in the Appendices

.
 CHAPTER VII

SUMMARY AND CONCLUSION

Gone were the days when the Philippines was known to be a country which exports rice; our country
now imports rice from our neighboring countries that are extensive rice-producers, such as Thailand
and Vietnam. Although the volume of rice production, the area harvested for rice, and yield are
increasing in small increments, still these amounts do not sustain for the demand of rice by the
growing population of our country. Leyte produces the largest volume of rice in Eastern Visayas and
Abuyog is the top rice-producing municipality in Leyte. In line with the framework of value chain
promotion approach of GTZ, the researcher conducted a value chain study in the rice sub-sector
industry of Abuyog, Leyte. This study entailed the identification of the various processes from the
production of palay down to marketing of rice to consumers and the estimation of costs incurred in the
production and post-production stages of rice. At the production level, an estimated total costs
amounting to Php 21,213.75 was incurred for the purchase of inputs, such as seeds, water supply,
pesticides and fertilizers, and for attaining labor from farmers who cultivate the farm land, plant and
harvest the palay. The overall cost for labor (cultivation, planting, harvesting and threshing), at57.18
percent share, outweighs the overall costs for inputs (seeds, water, pesticides, fertilizers, and
transportation cost, 42.82 percent share. Since farmers are the ones who exert labor for rice
production to be possible, they have the most crucial role in the value chain of the Abuyog rice sub-
sector. Despite the major role that they have, they are also the ones who incur the greatest level of
social costs. These costs are in the form of job instability and poverty. Although farmers have the most
number of responsibilities in the value chain, they are the ones who are least powerful. Post-
production involves a different set of actors. First in line are the assemblers or the “middlemen” who
buy the sacks of threshed palay from the farmer-tenant, store them, and sell them to wholesalers.
These middlemen transact with wholesalers not justin Abuyog but also in Tacloban, Hilongos,
Baybay, Samar, and even in Cebu. These middlemen sell the palay at an increased price of Php
12.00 from the previous Php 11.00 farm gate price. The middlemen get their profit by providing
thelinkage between farmers and wholesalers, but at the expense of an added cost .From the
middlemen, the wholesalers are the ones who dry and mill the palay. Php 1.20 per kilogram is the cost
of milling palay into rice. After rice is milled, it is transported to the retailers. An additional cost of Php
1.40 per kilogram is incurred. Prices at the consumer level are pegged at an average of Php 18.50 per
kilo. The government through its Comprehensive Agrarian Reform Act has an ideal action on
empowering farmers which includes ways in attaining productivity in relation to their small farm sizes.
Problems emerge, however, due to the government’s flawed implementation of this agrarian reform
program. Thus, the formation of a farmers’ cooperative would serve to empower the farmers, for
through this they become self-reliant amidst the government’s lack of support. This form of community
development would assist farmers in attaining unavailable input supplies at a cheaper price, provide
for 41 farming equipment, promote mass mobility, and provide for financial assistance that would allow
an expansion of marketing of rice, no longer attached to a middleman
Survey Questionnaire

(FARMERS)

Respondent’s Name: ___________________________________________________________

Location (Barangay) of Farm:_____________________________________________________
Location, Date, and Time of Interview: _____________________________________________

PRE-PRODUCTION

1. Where do you get the seeds that you use for planting rice?
___ from the local/municipal government? Specify (which agency, if
ever.)__________________
Do you pay for the seeds? If so, how much? ___________________________________
How do the seeds get to you? (agency gets to you or you get there?) ________________
What and how much are the other costs to obtain the seeds? ______________________
___from accredited seed dealers? Name and location of dealer:
__________________________
How does the seed get to you? (dealer gets to you or you get there?) _______________
How much do the seeds cost? ______________________________________________
What and how much are the other costs to obtain the seeds? ______________________
___ from yourself (old stock from previous harvest)?
What and how much are the costs involved? ___________________________________
___ from other sources?
What and where is this source? _____________________________________________
How do the seeds get to you? _________________________ _____________________
How much do the seeds cost? ______________________________________________
What and how much are the other costs to obtain the seeds? ______________________
2. What is the type of seed that you use? ___
breeder?Details: ___________________________________________________________
foundation?Details: _________________________________________________________
registered?Details :_______________________________________________________
certified?Details: ___________________________________________________________
3. Those seeds sprout into which variety of rice?
___inbred. Specify and describe the kind.
___________________________________________ ___ hybrid.
Specify and describe the kind. ___________________________________________
4. Where do you get your water supply?
__________________________________________________ How much does it cost?
_________________________________________________________
5. What problems, if any, do you encounter in procuring the input supply, such as seeds and
water?
________________________________________________________________________
_____
________________________________________________________________________
_____
________________________________________________________________________
_____
6. Are your palay variety resistant to pests, such as insects and weeds?
__________________________ (If yes to all pests, go to no.
7)If no, how do you control pests? ___ through insecticides? Specify nature of insecticide(s).
______________________________ From whom or where did you get the insecticide?
_______________________________ How much does it cost until harvest?
_________________________________________ What and how much are the other costs
to obtain it? _____________________________ ___ through herbicides? Specify nature of
herbicide(s). ________________________________ From whom or where did you get the
herbicide? ________________________________ How much does it cost until harvest?
_________________________________________ What and how much are the other costs
to obtain it? _____________________________
___ other methods? Specify nature of the method. _____________________________________
From whom or where did you get the materials for the method? ____________________ How much
does it cost until harvest? _________________________________________ What and how much
are the other costs to obtain it? _____________________________ 7. What other pest management
practices do you practice?
_____________________________________________________________________________
_____________________________________________________________________________
How much do they cost you? ______________________________________________________
8. What other problems do you encounter in pest management?
_____________________________________________________________________________
_____________________________________________________________________________
_____________________________________________________________________________
9. What fertilizers do you use? Describe further the fertilizer and its effects.
______________________
_____________________________________________________________________________
_____________________________________________________________________________
10. Where do you get the fertilizers?
______________________________________________________ 11. How much do they cost?
____________________________________________________________ 12. What other nutrient
management practices do you do?
_____________________________________________________________________________
_____________________________________________________________________________
How much do they cost you? ______________________________________________________
13. What other problems do you encounter in nutrient management?
_____________________________________________________________________________
_____________________________________________________________________________
_____________________________________________________________________________

PRODUCTION

14. How many farmers are there in your farm who plant palay? What else do they do aside
fromplanting?
____________________________________________________________________________
_____________________________________________________________________________
15. What do these farmers get in return of such services? If possible, please specify the amount of
payment for farmer per rendered service.
__________________________________________________
_____________________________________________________________________________
16. Who pays these farmers and how much do they get for planting?
____________________________
_____________________________________________________________________________
17. What other benefits do these farmers receive?
___________________________________________
_____________________________________________________________________________
18. Where do these farmers live? How young and old are they? Please describe them more.
_____________________________________________________________________________
_____________________________________________________________________________
19. What are the problems and/or sentiments, if any, do these farmers have?
_____________________________________________________________________________
_____________________________________________________________________________

POST-PRODUCTION

20. How do you harvest the palay? ___ manual harvesting. Do you hire other workers for such
manual harvest? _______________ If so, how much does this cost you?
_________________________________________ ___ mechanical harvesting. How much does
this cost you, if any? ________________________ 21. How do you thresh the palay? ___ manual
harvesting. Do you hire other workers for such manual harvest? _______________ If so, how much
does this cost you? _________________________________________ ___ mechanical harvesting.
How much does this cost you, if any? ________________________ 22. Who cleans and dries the
harvested palay? ___ farmers themselves. How? ___ mechanical. How much does it cost?
________________________ ___ manual. How much does it cost?
___________________________ ___ others.* Specify who:
________________________________________________________ Who sets the price of the
harvested palay? ____________________________________ How much is it?
_________________________________________________________ How is the price set? What
is the basis? ______________________________________ 23. Who stores the cleaned and dried
palay? ___ farmers themselves. Where?
__________________________________________________ How much does it cost?
___________________________________________________ ___ others.

Specify who: ________________________________________________________ Who sets the

price of the palay? ____________________________________________ How much is it?
_________________________________________________________ How is the price set? What
is the basis? ______________________________________ 24. Who mills the palay? ___ farmers
themselves. How? Which method? ______________________________________
_______________________________________________________________________ How
much does it cost (including the sacks as containers)? _______________________ ___ others.

Specify who: ________________________________________________________ Who sets the

price of the palay? ____________________________________________ How much is it?
_________________________________________________________ How is the price set? What
is the basis? ______________________________________ 25. Upon milling, who buys the milled
palay/rice for wholesaling? ________________________________ Where is the wholesaler located
and how did it get to the farmers? ________________________
_____________________________________________________________________________
What is the price of the milled rice?_________________________________________________
Who sets the price of the milled rice?________________________________________________
What is the basis of the price? _____________________________________________________
26. What are the problems encountered during transactions?
___________________________________
_____________________________________________________________________________