Changes in rice farming profitability over five

decades in Central LuzonKei Kajisa

Aoyama Gakuin UniversitySSD Division Seminar, 2014 Nov 19

Book publication project• Title:

• Changes in Rice Farming the Philippines: insights from five decades of a household level survey

• Authors: • Piedad F. Moya, Kei Kajisa, Randolph Barker, Sam Mohanty, Fe Gascon and

Maryrose San Valentin

• I took care of “Profitability section”• I would like to share findings of that section (together with the related findings

in the other chapters)

• All figures and tables are from the book draft.　• More figures and tables which are useful and informative are available in the

book.

The Loop Survey• It started in 1966-67 (i.e, before the onset of the

Green Revolution). very rare• Twenty three (!) rounds of survey were conducted

every four to five years until 2011-12.• It covers detailed records on the production

systems in both wet and dry season.

Central Luzon Loop Survey

• the fields to be observed at specific kilometer posts along the “loop” of national highway (e.g., the 50th, 100h,150th etc.)

• Re-survey the same field (even when the operator changes) Plot panel data

Historical Background

Background (1): technologies1966 1970 1974 1979 1982 1986 1990 1994 1999 2003 2008 2011Wet %

Tv 100 34 36 9 7 4 5 3 1 1Mv1 77 86 14 10 11 4 2 2 3Mv2 88 95 43 18 10 6 1 1 0Mv3 1 65 88 93 43 12 4 2Mv4 60 89 95 98Hybrid 1 1

1967 1971 1975 1980 1987 1991 1995 1998 2004 2007 2012Dry %

TV 94 8 7 6 3Mv1 6 92 100 10 9 9 2 13 1Mv2 7 89 20 12 7 2 3 1Mv3 78 83 91 46 6 3 8Mv4 43 90 96 92Hybrid 5

• Continuous introduction of newer MVs. Adopting newer MVs without much time lag from the release. progressive farmers.

• MV2: short duration, pest and disease resistance• MV3: MV2+ grain quality• MV4: MV3+tolerance to environmental stress

Table 7.2. Top 5 Varieties planted overtime by season, Central Luzon Loop survey 1966-2012 Rank Wet

1966 1970 1974 1979 1982 1986 1990 1994 1998 2003 2007 2011

1 TJEREMAS IR5 IR20 IR36 IR36 IR64 IR64 IR64 IR64 PSBRc8

2 Rc128 216

2 BINATO IR20 IR1561 IR42 IR42 IR42 IR72, IR66

Rc14, RC10, IR60, IR66

Rc28 Rc18 PSBRc82 RC222

3 BE3 WAGWAG

IR28, RAMINAD, C4

IR44 IR50 IR36 IR70 Rc4 Rc18 ANGELICA Rc18 RC 224,

160

4 INTAN BE3, INANO BE3 IR48,

IR29 IR54 IR10, IR48 IR74 Rc2 IR74 Rc64,

IR64 Rc28 RC128

5 RAMINAD IR

IR747, IR5, TJEREMAS, IR12

BE3 IR48 IR62 IR36 IR36, IR74

Rc64,RC54, IR52, RC74

Rc28 ANGELICA

SUPER82

Top 5 varieties (WS)

Dry 1967 1971 1975 1980 1987 1991 1995 1999 2004 2008 2012

1 INTAN IR20 IR1561 IR36 IR64 IR64 IR64 IR64 PSBRc82 Rc128 SL8

2 WAGWAG IR8 IR20 IR42 IR36 IR72 Rc14 Rc28 Rc14 PSBRc82 216

3

TJEREMAS, SERUP KETCHEL, BINONTON, IR8, MACAM

IR5

IR1529, IR579, IR5, BPI76, IR747, BINATO, IR26

IR2307, IR247

IR22, IR66, IR42

IR66 Rc4 PSBRc Rc18 Rc28 224

4 INTAN IR44

DAKOT MOMONG, IR10, IR68

R10 R10, IR60

IR28, RC52

IR64, RC28

Rc18, RC130, SUPERINGO, ANGELICA, PJ25

222

5 IR22 IR23 TUNNEL, 13 IR74 IR66

IR32, IR52, IR20

Rc60

PG25, PSBRC10, PG7, BIGANTE, RC1163

PSBRc10, HYBRID, 160, 128

Top 5 varieties (DS)

Background (2): technologies (cont.)• Irrigation

• UPRIIS in 1975 DS rice farming became possible• low lift pumps and shallow tube wells since 1990s

• Direct seeding• since mid 1980s labor and water saving tech +

demand for herbicide ↑

• Small scale mechanization (hand tractor & threshing machine) (note: large threshing machine “tilyadora”was available at plantations in 1920s)

• since 1970s labor saving tech

Background (3): Institution• Land reform

• From 1963; Operation leasehold (Crop sharing tenants Leasehold farmers)

• @ fixed rent at the average of 25% of harvest • From 1972; Operation land transfer (Tenants land owners)

• Purchase from landowner @ 10% of the land value and sell to tenants for annual mortgage over 25 years.

YearOwner Leaseholder Share Tenant

Count % Count % Count %1966-67 13 12.62 13 12.62 77 74.761970-71 6 8.11 25 33.78 43 58.111974-75 12 15.00 47 58.75 21 26.251979-80 63 27.75 135 59.47 29 12.781982 59 26.11 144 63.72 23 10.181986-87 54 36.49 67 45.27 22 14.861990-91 77 45.29 70 41.18 13 7.651994-95 68 49.28 52 37.68 11 7.971999-98 64 59.26 35 32.41 8 7.412003-04 94 56.63 41 24.7 20 12.052008-07 55 53.92 33 32.35 6 5.882011-12 75 63.03 32 26.89 6 5.04

Background (4): Market

Loop survey data International Market (Bangkok)

0

100

200

300

400

500

600

700

800

1961 1966 1971 1976 1981 1986 1991 1996 2001 2006 2011Year

0

300

600

900

1200

1500

1800

2100

• Rice markets are integrated very well.

Background (5): Non-agricultural sector development

Loop survey data Laguna (Brgy Tubuan) data• Once increased (in early 90s) but stable these days = ag. laborers

are still available in less favorable areas.• (probably labor shortage will emerge in a few years if the econ

growth continues at the current rate.)

0

100

200

300

400

500

600

700

1965 1970 1975 1980 1985 1990 1995 2000P

/day

(200

0 pr

ices

)

5

10

15

20

25

30

35

40

kg/d

ay

Ag. wage (deflator=CPI)Ind. wage (deflator=CPI)Ag. wage (deflator=rice price)

Figure 2. Changes in real wage rates in the non-farm sector and in a rice village in the Laguna lowland rice belt,

rough estimates, 1965-2002

Background (6): Non-agricultural sector development Aging of farmers

Average age of farm

operator: 59 years

old

Changes in Profitability and Factor Share

Changes in profitability• (1) Net return over

paid out costs= revenue - paid out cost (=income)

• (2)Net profit = (1) – imputed

Changes in revenue, costs, yield

Note: rice price has been declining over 5 decades.

Findings• Combination of stagnated yield & declining rice

price is the reason for declining profit in WS.• Unfavorable weather condition?• Need improvement in biotech or agronomy.

• Total costs are relatively stable over time, even though there have been dramatic changes in tech, inst, mkt.

• Why?

1966-67

1970-71

1974-

75

1979-

80

1982 1986-87

1990-91

1994-95

1998-99

2003-

04

2007-

08

2011-

12

0

10,000

20,000

30,000

40,000

50,000

60,000

70,000

80,000

WS Total costs

Current costLabor costCapital costsLand rent

1966-67

1970-71

1974-75

1979-80

1982 1986-87

1990-91

1994-95

1998-99

2003-04

2007-08

2011-12

0

10,000

20,000

30,000

40,000

50,000

60,000

70,000

80,000

DS Total Costs

Current costLabor costCapital costsLand rent

Composition of Total Costs

• Total costs have been relatively stable but its composition has changed, reflecting changes in tech, inst, mkt.

• Land rent ↓• Labor cst stable• Current (fertilizer &

seed) ↑

• Overall more or less stable

Fertilizer use and price

1966-67

1970-71

1974-75

1979-801982

1986-87

1990-91

1994-95

1998-99

2003-04

2007-08

2011-120

5,000

10,000

15,000

20,000

25,000

30,000

35,000

WS Current Inputs

Others ** Irrigation Cost Seeds* Other Pesticide Herbicide Insecticide Fertilizer

1966-67

1970-71

1974-75

1979-801982

1986-87

1990-91

1994-95

1998-99

2003-04

2007-08

2011-120

5,000

10,000

15,000

20,000

25,000

30,000

35,000

DS Current Input

Others ** Irrigation Cost Seeds* Other Pesticide Herbicide Insecticide Fertilizer

Labor use and wage rate

• Land rent• Land reform + (land saving tech) rent ↓

• Current input (Fertilizer)• 60s 70s: Introduction of MV fertilizer demand ↑ fertilizer use

↑(regardless of p↑) current input cost ↑• 80s: p↓ demand ↑↑ (reached recom level) expenditure no big change• 00s: p↑ maintain recom level expenditure ↑

• Current input (seed)• Use of certified seeds↑

• Labor• 70s: MV (labor using tech, weeding) labor demand and use↑• 80s90s: Wage rate ↑ substitution effect direct seeding & mechanization

& MV2 (short duration) Mandays ↓.• More obvious in DS, direct seeding is possible only in DS. (Seed cannot germinate in

continuous flooding in WS)

• 00s: Wage ↓substitution effect Mandays↑• Through these substitution effects, labor costs are relatively stable over

time• Proportion of hired labor continuously ↑ ( non-ag dev & aging)

• Facing the changes in technology, inst, and market price, farmers are actively changing inputs to achieve optimal combination. (i.e., use expensive one less and substitute cheaper inputs)

• Total cost did not change dramatically.

Factor share

• Share of labor cost• Relatively stable over time• Substitution of hired labor (poor landless) for family

labor• The GR has generated more returns to poor

households.

• The operators surplus and land rent • The share belonged to land reform beneficiaries in 80s &

90s. • However, this benefit is disappearing particularly in WS.

For the future• In the short run

• Need the improvement of WS yield.• Unfavorable weather? Need biological and agronomic technologies

• In the long run• Wage rate of hired labor will stat increasing. & Aging of

farmers (inevitable event along the course of econ dev)• Need to introduce labor saving tech = agglomeration of

land + mechanization• Need an active land rental market for agglomeration

• Seems to be very difficult. Continuous extension of the land reform code makes the land owners hesitant to rent out.

• Need to complete the reform and let the rental market determine allocation.

Cf. Japanese farm’s production costs by operational size

Total cost

Total cost

1960

2008

High cost farming can survive under highly protected rice market. expensive rice at the cost of consumers

Thank you very much