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The correct citation for this article is Gonzales, Leonardo A. 1987. Rice
production and regional crop diversification in the Philippines: economic
issues. Philippine Review of Economics and Business 24(1-2): 125-148.

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 454O
Philippine Revieiv of Economics and Business
Volume XXIV, Nos. 1 & 2, March & June 1987

x JUCE PRODUCTION AND REGIONAL CROP

& DIVERSIFICATION IN THE PHILIPPINES:
jis ECONOMIC ISSUES

A L. A. Gonzales*
•v.; The paper discusses Philippine rice production on the basis of some
!••• economic issues. Its main points are that: 1 ) the current low world market
'N price of rice adversely affects the economic viability of Philippine rice
|v.7 production. 2) Economic efficiency should be the overriding norm in at-
tempts to alleviate the plight of the poor and disadvantaged groups. 3) Ag-
ricultural diversification can be tapped to help improve the economic
Q^ well-being of poor rice farmers. 4 ) Given natural resource endowments,
Q technology and trade, the determinant of agricultural diversification
i.p, should be comparative advantage or economic efficiency.
N
I. Introduction
t< The Philippine government has given agriculture the
vr> highest priority in its present development program. The de-
velopment strategy strongly advocates a macro policy environ-
ment that removes the bias against agriculture in order that
growth and productivity can prevail in the sector. Agricultural
growth and productivity increases are expected to boost em-
ployment and household incomes in the rural sector. In turn,
rapid growth in rural incomes can have high multiplier effects
because rural expenditures are heavily oriented to food and in-
dustrial consumer goods.
Rice dominates the Philippine agricultural food crop sector.
It is the main staple of the populace and the major source of in-
come of a substantial number of farmers in the country. Over
the past decade the Philippines has achieved major increase? in
rice production and has become nearly self-sufficient in the
cereal. In the light of the new development strategy and the
changing scenario that confronts the rice industry today, there
is a need to reassess the potential contribution of the agricul-
tural sector in general and the rice sub-sector in particular to
overall economic growth and productivity.
This paper discusses Philippine rice production relative to
the following economic issues:
a) trends in world market prices of rice;

*Liaison Scientist for Asia, International Food Policy Research Insti-

tute, and Agricultural Economist, International Rice Research Institute.
This paper is slightly revised from the paper presented during the 10th DA-
JRRI Technology Transfer Workshop, IRRI, Los Banos, Laguna, June 5-6,
" 1987. (Agricultural Economic Department Paper No. 87-20).

125
 L. A. GONZALES
b) technology as it relates to equity and efficiency; and
c) comparative advantage and its implications to diversifica-
tion and employment across regions in the Philippines.

2. Economic Issues

World Market Price of R ice

As a small rice producer, the Philippines is not insulated

from the developments in the international rice market. The
world market price or the border price of rice is important from
the Philippine perspective because it is the opportunity cost of
domestic rice production. The border price of rice is also the
economic price used in assessing the economic viability of in-
vestments in the rice sub-sector.

World rice price is determined by international rice trade —

"a thin, volatile, and unpredictable market" (Siamwalla and
Haykin, 1983) where only 4 per cent of total world production
is traded. In the 1980s, the success of the green revolution in
rice has contributed to increases in rice supply in Asia, leading
to a greater degree of self-sufficiency in rice among the tradi-
tional rice importing Asian countries. The excess rice supply,
the unreliability of international rice trade and rice economic
policies of developed countries particularly the U.S. have con-"
tributed to a certain extent in the substantial decline in world
rice price during the mid-1980s.

From a high of $1084/mt (FOB Bangkok, 5 per cent

broken) in 1974, the price of rice of the same quality declined
to an all-time low of $212/mt in 1986. The World Bank further
projects that the world market price of rice will remain the
same by 1995 and will increase slightly to $216/mt by the year
2000 (Figure 1).

What is the implication of the low world market price of

rice to Philippine rice production? If the world market price or
border price of rice is the opportunity cost of domestic rice
production, then a lower border price affects the economic via-
bility of domestic production (given technology levels). Al-
though it is clear that lower market prices of rice are net gains
to rice consumers, it is also equally true that low border prices
can act as disincentive in the expansion of investments (such as
irrigation, fertilizer, research, and extension) in the rice sub-
sector. Adoption of new technologies by farmers to expand

126
 RICE PRODUCTION

Figure 1 — World Prices of Rice in Constant 1985Dollar

1200 T

1008- -

890-

600-

480+

280--

I 1 11 11
6 66 66 6
I 1 1 L t + t t t + t L L L L L L M M HS-r-4-H*-H"-t
1 6 6 6 7 7 7 7 7 7 7 7 7 7 8 8 8 ^ J 8 . 0
912 345 , 7 8 9 8 1 2 3 45 6 7 8 9 8 1 2 : 45
I8889999999999B 90
.7898123 45 678 98
Actual Projected
YEAR

rice production will likewise slow down causing production

shortfalls that might eventually lead to exceptionally high prices.
A recent International Food Policy Research Institute (IFPRI)
study on the Philippines (Rosegrant, et al, 1987) for example,
showed that even under the import substitution assumption,
the low 1985 price of rice threatens the economic viability of
rice production in the Philippines.

There is a big debate however among economic practi-

tioners whether the current low world market price of rice
should be the appropriate border price to use in assessing the
economic viability of rice production in a small country like
the Philippines. Some economists from the International Agri-
cultural Research Centers (IARCs) (e.g., IFPRI, IRRI) and the
academe feel that the current low world market price of rice is
artificial and temporary contrary to the World Bank's pessimis-
tic projection (WB, 1987) that it will continue to remain low
by the year 2000. A slight decline in global rice supply, from
natural calamities or contraction in rice investments will invali-
date the WB's projected prices. To avoid future rice shortfalls
and to sustain the momentum in rice production, there is a need
in the Philippines to establish a price stabilization scheme for
rice (Rosegrant, et al, 1987).

127
 L. A. GONZALES

Technology vis-a-vis Equity and Efficiency

There is a growing concern among members of the CGIAR

and donor countries that technologies generated by the IARCs
should be strongly focused on the alleviation of global poverty
and the improvement of the nutritional status and economic
well-being of low income groups. In the case of rice, there is as
much concern to date in discussing equity issues such as increas-
ing the economic livelihood and security of the poor and dis-
advantaged rice farmers, as on efficiency issues related to rice
output expansion. The Strategic Planning Committee (SPC)
report (IRRI, 1987) for example, clearly articulates the shift
in focus of its rice research to rice environments where majority
of the poorer rice producers and rice dependent rural house-
holds are located. In short, IRRI is equally concerned in
generating rice technology to "the adverse growing environ-
ments where farmers have benefited little from the technologi-
cal changes that swept more favorable environments" (IRRI,
SPC, 1987).

In the Philippines, based on the 1980 agricultural census,

there were around 1.61 million rice farms totalling to around
3.76 million physical hectares. Using the Bureau of Agricultural
Economics data in the same year on rice harvested area, we can
further say that around 44 per cent, 45 per cent and 11 per cent
account for irrigated, rainfed lowland and rainfed upland rice
cultures, respectively.

From the more recent data, the contribution of each type

of rice production system to total rice production in the Philip-
pines is also revealing. Irrigated rice dominates the other two
rice production systems both in terms of hectarage and contri-
bution to total production (Table 1). We can also note that in
terms of harvested hectarage, the area harvested to upland rice
has been declining to an average of - 6.9 per cent per annum in
contrast to the annual hectarage growth rates of 0.7 per cent
and 1.8 per cent for rainfed and irrigated rice, respectively. In
terms of the growth of production of each crop type, again
production from irrigated rice as a proportion to total rice pro-
duction in the Philippines ranks first.

A comparison of the financial performance, economic

efficiency, and labor requirements of the three rice crop types
for the Philippines, by region is shown in Table 2. On the
average for the Philippines, irrigated rice is superior over rainfed

128
 Table 1 — Rice Production, Area and Yield by Crop Type, Philippines, 1961-86

Irrigated Rainfed Upland Total

Year Production Area Yield Production Area Yield Production Area Yield Production Area Yield

(tons) (has) (t/ha) (tons) (has) (t/ha) (tons) (has) (t/ha) (tons) (has) (t/ha)
Pi
1970 2948070 1381350 2.13 2079485 1391400 1.49 436520 422990 1.03 5464075 3195740 1.71
1971 3192415 1509420 2.11 2036725 1311250 1.55 349075 374330 0.93 5578215 3195000 1.75 PS
1972 2775690 1362590 2.04 2223930 1593810 1.40 325255 375890 0.87 5324875 3332290 1.60
1973 2503860 1282260 1.95 1794285 1491290 1.20 311060 420600 0.74 4609205 3194150 1.44
1974 3253585 1533250 2.12 2217655 1574230 1.41 369480 420270 0.88 5840720 3527750 1.66
O
to
CD 1975 3195805 1446980 2.21 2317225 1720150 1.35 396485 464820 0.85 5909515 3631950 1.63
1976 3566535 1534150 2.32 2533805 1739230 1.46 330615 400360 0.83 6430955 3673740 1.75
1977 3647405 1521000 2.40 2675105 1687290 1.59 420020 433090 0.97 6742530 3641380 1.85
1978 4106805 1549770 2.65 2617310 1613320 1.62 474660 438610 1.08 7198775 3601700 2.00 O
1979 4230205 1507650 2.81 2812835 1625350 1.73 458245 427700 1.07 7501285 3560700 2.11
1980 4587250 1606040 2.86 2874115 1655330 1.74 374430 375440 1.00 7835795 3636810 2.15
1981 4544735 1624870 2.80 2922640 1585250 1.84 255375 249010 1.03 7722750 3459130 2.23
1982 5014630 1699110 2.95 2867130 1503010 1.91 239965 240710 1.00 8121725 3442830 2.36
1983 5193190 1762730 2.95 2380035 1319870 1.80 157100 157030 1.00 7730325 3239630 2.39
1984 4971995 1661550 2.99 2661345 1290800 2.06 207590 188320 1.10 7840930 3140670 2.50
1985 5481565 1801100 3.04 2560230 1264690 2.02 158295 155980 1.01 8200090 3221770 2.55
1986 6075875 1906020 3.19 2870120 1359470 2.11 150935 137120 1.10 9096930 3402610 2.67

Source: BAEcon.
 454O
Philippine Revieiv of Economics and Business
Volume XXIV, Nos. 1 & 2, March & June 1987

x JUCE PRODUCTION AND REGIONAL CROP

& DIVERSIFICATION IN THE PHILIPPINES:
jis ECONOMIC ISSUES

A L. A. Gonzales*
•v.; The paper discusses Philippine rice production on the basis of some
!••• economic issues. Its main points are that: 1 ) the current low world market
'N price of rice adversely affects the economic viability of Philippine rice
|v.7 production. 2) Economic efficiency should be the overriding norm in at-
tempts to alleviate the plight of the poor and disadvantaged groups. 3) Ag-
ricultural diversification can be tapped to help improve the economic
Q^ well-being of poor rice farmers. 4 ) Given natural resource endowments,
Q technology and trade, the determinant of agricultural diversification
i.p, should be comparative advantage or economic efficiency.
N
I. Introduction
t< The Philippine government has given agriculture the
vr> highest priority in its present development program. The de-
velopment strategy strongly advocates a macro policy environ-
ment that removes the bias against agriculture in order that
growth and productivity can prevail in the sector. Agricultural
growth and productivity increases are expected to boost em-
ployment and household incomes in the rural sector. In turn,
rapid growth in rural incomes can have high multiplier effects
because rural expenditures are heavily oriented to food and in-
dustrial consumer goods.
Rice dominates the Philippine agricultural food crop sector.
It is the main staple of the populace and the major source of in-
come of a substantial number of farmers in the country. Over
the past decade the Philippines has achieved major increase? in
rice production and has become nearly self-sufficient in the
cereal. In the light of the new development strategy and the
changing scenario that confronts the rice industry today, there
is a need to reassess the potential contribution of the agricul-
tural sector in general and the rice sub-sector in particular to
overall economic growth and productivity.
This paper discusses Philippine rice production relative to
the following economic issues:
a) trends in world market prices of rice;

*Liaison Scientist for Asia, International Food Policy Research Insti-

tute, and Agricultural Economist, International Rice Research Institute.
This paper is slightly revised from the paper presented during the 10th DA-
JRRI Technology Transfer Workshop, IRRI, Los Banos, Laguna, June 5-6,
" 1987. (Agricultural Economic Department Paper No. 87-20).

125
 L. A. GONZALES
b) technology as it relates to equity and efficiency; and
c) comparative advantage and its implications to diversifica-
tion and employment across regions in the Philippines.

2. Economic Issues

World Market Price of R ice

As a small rice producer, the Philippines is not insulated

from the developments in the international rice market. The
world market price or the border price of rice is important from
the Philippine perspective because it is the opportunity cost of
domestic rice production. The border price of rice is also the
economic price used in assessing the economic viability of in-
vestments in the rice sub-sector.

World rice price is determined by international rice trade —

"a thin, volatile, and unpredictable market" (Siamwalla and
Haykin, 1983) where only 4 per cent of total world production
is traded. In the 1980s, the success of the green revolution in
rice has contributed to increases in rice supply in Asia, leading
to a greater degree of self-sufficiency in rice among the tradi-
tional rice importing Asian countries. The excess rice supply,
the unreliability of international rice trade and rice economic
policies of developed countries particularly the U.S. have con-"
tributed to a certain extent in the substantial decline in world
rice price during the mid-1980s.

From a high of $1084/mt (FOB Bangkok, 5 per cent

broken) in 1974, the price of rice of the same quality declined
to an all-time low of $212/mt in 1986. The World Bank further
projects that the world market price of rice will remain the
same by 1995 and will increase slightly to $216/mt by the year
2000 (Figure 1).

What is the implication of the low world market price of

rice to Philippine rice production? If the world market price or
border price of rice is the opportunity cost of domestic rice
production, then a lower border price affects the economic via-
bility of domestic production (given technology levels). Al-
though it is clear that lower market prices of rice are net gains
to rice consumers, it is also equally true that low border prices
can act as disincentive in the expansion of investments (such as
irrigation, fertilizer, research, and extension) in the rice sub-
sector. Adoption of new technologies by farmers to expand

126
 RICE PRODUCTION

Figure 1 — World Prices of Rice in Constant 1985Dollar

1200 T

1008- -

890-

600-

480+

280--

I 1 11 11
6 66 66 6
I 1 1 L t + t t t + t L L L L L L M M HS-r-4-H*-H"-t
1 6 6 6 7 7 7 7 7 7 7 7 7 7 8 8 8 ^ J 8 . 0
912 345 , 7 8 9 8 1 2 3 45 6 7 8 9 8 1 2 : 45
I8889999999999B 90
.7898123 45 678 98
Actual Projected
YEAR

rice production will likewise slow down causing production

shortfalls that might eventually lead to exceptionally high prices.
A recent International Food Policy Research Institute (IFPRI)
study on the Philippines (Rosegrant, et al, 1987) for example,
showed that even under the import substitution assumption,
the low 1985 price of rice threatens the economic viability of
rice production in the Philippines.

There is a big debate however among economic practi-

tioners whether the current low world market price of rice
should be the appropriate border price to use in assessing the
economic viability of rice production in a small country like
the Philippines. Some economists from the International Agri-
cultural Research Centers (IARCs) (e.g., IFPRI, IRRI) and the
academe feel that the current low world market price of rice is
artificial and temporary contrary to the World Bank's pessimis-
tic projection (WB, 1987) that it will continue to remain low
by the year 2000. A slight decline in global rice supply, from
natural calamities or contraction in rice investments will invali-
date the WB's projected prices. To avoid future rice shortfalls
and to sustain the momentum in rice production, there is a need
in the Philippines to establish a price stabilization scheme for
rice (Rosegrant, et al, 1987).

127
 L. A. GONZALES

Technology vis-a-vis Equity and Efficiency

There is a growing concern among members of the CGIAR

and donor countries that technologies generated by the IARCs
should be strongly focused on the alleviation of global poverty
and the improvement of the nutritional status and economic
well-being of low income groups. In the case of rice, there is as
much concern to date in discussing equity issues such as increas-
ing the economic livelihood and security of the poor and dis-
advantaged rice farmers, as on efficiency issues related to rice
output expansion. The Strategic Planning Committee (SPC)
report (IRRI, 1987) for example, clearly articulates the shift
in focus of its rice research to rice environments where majority
of the poorer rice producers and rice dependent rural house-
holds are located. In short, IRRI is equally concerned in
generating rice technology to "the adverse growing environ-
ments where farmers have benefited little from the technologi-
cal changes that swept more favorable environments" (IRRI,
SPC, 1987).

In the Philippines, based on the 1980 agricultural census,

there were around 1.61 million rice farms totalling to around
3.76 million physical hectares. Using the Bureau of Agricultural
Economics data in the same year on rice harvested area, we can
further say that around 44 per cent, 45 per cent and 11 per cent
account for irrigated, rainfed lowland and rainfed upland rice
cultures, respectively.

From the more recent data, the contribution of each type

of rice production system to total rice production in the Philip-
pines is also revealing. Irrigated rice dominates the other two
rice production systems both in terms of hectarage and contri-
bution to total production (Table 1). We can also note that in
terms of harvested hectarage, the area harvested to upland rice
has been declining to an average of - 6.9 per cent per annum in
contrast to the annual hectarage growth rates of 0.7 per cent
and 1.8 per cent for rainfed and irrigated rice, respectively. In
terms of the growth of production of each crop type, again
production from irrigated rice as a proportion to total rice pro-
duction in the Philippines ranks first.

A comparison of the financial performance, economic

efficiency, and labor requirements of the three rice crop types
for the Philippines, by region is shown in Table 2. On the
average for the Philippines, irrigated rice is superior over rainfed

128
 L. A. GONZALES
and upland rice production systems in terms of on-farm net
financial profitability and economic comparative advantage.
However, in terms of total labor requirement, upland rice on
the average had the highest of the three production systems
with 114 mandays required per hectare. There are of course
variations of ranking relative to the three indicators across re-
gions in the Philippines, but overall, irrigated rice was by far
more superior than rainfed and upland rice production systems
in terms of financial profitability and economic comparative
advantage. There was only one region (Western Mindanao) in
the study where upland rice had a positive financial profit and
comparative advantage (Table 2).

Our study results clearly imply that there are tradeoffs in

pursuing the objectives of equity and efficiency. If we promote
X an economic enterprise which directly benefits the poor but is
not economically efficient, then we are misallocating scarce
resources which could have been used in more efficient activi-
ties. The 'growth linkages" of the efficient enterprises in the
agricultural sector will stimulate the growth in the economic
activities of the other sectors providing a spillover effect that
can benefit the economy as a whole (Mellor, 1986). The role of
government policy in this case is to distribute the benefits more
equitably to members of society. Economic efficiency there-
fore should be the norm if we want to alleviate the plight of the
poor. The crucial role of technology is to ensure that the trade-
off between equity objectives and the economic efficiency
norm is balanced.

The solution to the problem of how to improve the eco-

nomic well-being of the poor who are located in specific adverse
ecological environments is a complex one. Because it centers
around the problem of human livelihood, it covers areas of con-
cern beyond the capability of a single crop, like rice, to solve. It
involves among others, access to economic employment oppor-
tunities, educational assistance to improve labor skills, and a
continuous flow of public support services and infrastructures
that can guarantee the efficient flow of goods and services from
the agricultural sector to the rest of the economy and vice-versa.
At least at the farm level, if economic efficiency is the criterion,
it involves a strategy that deviates from the monoculture orient-
ation towards rice. It opens up the possibility towards agricul-
tural diversification whether rice-based, non-rice crop based or
farming systems based. As a starting point, one should be aware
of the alternative economic performances of other crops in

130
 L. A. GONZALES
and upland rice production systems in terms of on-farm net
financial profitability and economic comparative advantage.
However, in terms of total labor requirement, upland rice on
the average had the highest of the three production systems
with 114 mandays required per hectare. There are of course
variations of ranking relative to the three indicators across re-
gions in the Philippines, but overall, irrigated rice was by far
more superior than rainfed and upland rice production systems
in terms of financial profitability and economic comparative
advantage. There was only one region (Western Mindanao) in
the study where upland rice had a positive financial profit and
comparative advantage (Table 2).

Our study results clearly imply that there are tradeoffs in

pursuing the objectives of equity and efficiency. If we promote
X an economic enterprise which directly benefits the poor but is
not economically efficient, then we are misallocating scarce
resources which could have been used in more efficient activi-
ties. The 'growth linkages" of the efficient enterprises in the
agricultural sector will stimulate the growth in the economic
activities of the other sectors providing a spillover effect that
can benefit the economy as a whole (Mellor, 1986). The role of
government policy in this case is to distribute the benefits more
equitably to members of society. Economic efficiency there-
fore should be the norm if we want to alleviate the plight of the
poor. The crucial role of technology is to ensure that the trade-
off between equity objectives and the economic efficiency
norm is balanced.

The solution to the problem of how to improve the eco-

nomic well-being of the poor who are located in specific adverse
ecological environments is a complex one. Because it centers
around the problem of human livelihood, it covers areas of con-
cern beyond the capability of a single crop, like rice, to solve. It
involves among others, access to economic employment oppor-
tunities, educational assistance to improve labor skills, and a
continuous flow of public support services and infrastructures
that can guarantee the efficient flow of goods and services from
the agricultural sector to the rest of the economy and vice-versa.
At least at the farm level, if economic efficiency is the criterion,
it involves a strategy that deviates from the monoculture orient-
ation towards rice. It opens up the possibility towards agricul-
tural diversification whether rice-based, non-rice crop based or
farming systems based. As a starting point, one should be aware
of the alternative economic performances of other crops in

130
 Table 2 — Net Financial Profitability, Comparative Advantage, and Man-Labor Requirement
of Rice Production Systems by Region under Import Substitution with Interregional Trade (IRT) Scenario,
Philippines, 1985

Irrigated Rainfedt Lowland Rainfed Upland

Net Economic Labor Requirement Net Economic Labor Requirement Net Economic: Labor Requirement
Financial Compa- Hired Family Total Financial Compa- Hired Family Total Financial Compa- Hired Family Total
Profit at rative Profit at rative Profit at rative
Farm Advantage Farm Advantage Farm Advantage
8
o
PHILIPPINES 3595 0.76 63 33 96 1470 0.80 62 43 105 -781 1.15 47 67 114 n
Uocos 4087 0.89 35 36 71 2524 0.83 41 39 80 — — — — —
Cagayan Valley 5095 0.86 52 36 88 1250 0.95 31 70 101 -1355 1.51 39 92 131 c
Central Luzon 4804 0.78 53 23 76 3691 0.69 63 23 86 — — — — — M

Southern Tagalog 1584 0.82 62 58 120 — — — — — -844 1.02 50 64 114

Bicol 1948 0.92 87 23 110 1031 0.88 79 40 119 -143 1.06 19 93 112
o
Western Visayas 2331 0.75 52 43 95 834 0.78 49 29 78 _ — — — —
Central Visayas 3728 0.71 68 43 111 420 0.89 62 43 105 -813 1.24 56 69 125
Eastern Visayas 2408 0.69 118 55 173 - 69 0.82 105 59 164 -1891 1.39 55 97 152
Western Mindanao 2835 0.66 108 30 138 1005 0.6 7 17 40 57 359 0.71 51 37 88
Northern Mindanao 4712 0.61 34 24 58 2648 0.62 64 38 102 — — — — —
Southern Mindanao 5371 0.69 62 37 99 1362 0.83 69 36 105 — — — — —
Central Mindanao 4236 0.80 77 25 102 — — — — — — — — — —

Source: Philippine Agricultural Diversification as an Alternative Development Strategy (forthcoming).

 L. A. GONZALES

comparison to rice across specific environments (regions), to

have a broader perspective in addressing the problem of improv-
ing the economic livelihood of the disadvantaged groups. The
economic performance of rice production systems relative to
other crops across regions in the Philippines is discussed in the
succeeding section.

Comparative Advantage: Its Implications

to Regional Crop Diversification

Earlier, a framework was suggested by Gonzales (1984) on

how to approach agricultural diversification from a national and
regional perspective. Comparative advantage1 which is used here
as synonymous to economic efficiency should determine the
direction of diversification in the agricultural sector. Several
factors in turn determine comparative advantage: natural re-
source endowments, levels of technology, and trade. Resource
endowments consist of land (soils) capability which can be de-
lineated into texture, slope and elevation, rainfall patterns and
physical cropping suitability. These factors when combined
with existing or potential levels of production technologies
(with defined input/output relationships) enhance the relative
competitiveness of a production enterprise.

Trade is an equally important determinant of comparative

advantage. Domestic and international trade through their price
signals determine simultaneously the financial and economic
viability of different production alternatives. Actual domestic
(market) prices determine the financial feasibility of an enter-
prise at the farmer's level. On the other hand, export-import
(border) prices determine the economic viability of agricultural
production activities at the national economy level.

A summary of the financial and economic performance of

rice production systems at the national level in comparison to
other crops in the Philippines can be gleaned in Table 3.
Comparative advantage is used here to connote economic efficiency
in the expansion of an economic enterprise. It is calculated as the ratio of
the domestic resource cost (DRC) of production and the shadow exchange
rate (SER) of the peso. An economic enterprise has a comparative advan-
tage, neutral comparative advantage, and comparative disadvantage if the
calculated ratio of DRC/SER is less than one, equal to one and greater
than one, respectively. For a discussion of the difference between financial
and economic profitability, general methodology, and assumptions of
comparative advantage analysis as applied to the Philippines, see Rose-
grant, et al, 1987.

132
 Table 3 — Net Financial Profitability, Comparative Advantage and Man-Labor Requirement
of Crop Production Systems by Trade Regime, Philippines, 1985

Crop/Technology Trade Net Economic ibor Requirement

Regime Financial Rank Comparative Rank Hired Family Total Rank
Profit at Advantage
Farm

=r7ha
Rice
Rainfed upland IRT -781 1.15 47 67 114 19 2o
Rainfed lowland IRT 1470 29 0.80 14 62 43 105 23 M
Irrigated IRT 3595 21 0.76 12 63 33 96 24
Corn
3
o
cc Yellow, hybrid IRT 2329 26 0.66 10 52 28 80 31
CO Yellow, open-pollinated IRT 1506 28 082 16 34 35 69 32 oc;
IRT 460 32 28 35 63 33 t J
White, open-pollinated 1.09
^^
Peanuts, shelled
IRT 13 18 24 66 90 26
o
Red variety 6223 0.89
White variety IRT 3221 23 1.25 40 44 84 29 z
Peanut, butter
Red variety IS 0.53 8 24 66 90 26
White variety IS 0.62 9 40 44 84 29
Mungbean
Rainfed upland IRT -448 6.57 6 104 120 18
Rainfed lowland IRT 1438 30 3.01 17 35 52 35
Irrigated IRT 1536 27 2.58 23 20 43 36
Cotton
Rainfed upland IS 8172 8 0.38 6 97 65 162 14
Rainfed lowland IS 3853 19 0.48 7 33 110 143 16
Irrigated IS 6426 12 0.37 5 40 12 52
Table 3 (Continued)
Crop/Technology Trade Net Economic Labor Requirement
Regime Financial Comparative Hired Family Total Rank
Rank Advantage Rank
Profit at
Farm
Soybeans
Rainfed upland IRT 2475 25 0.90 19 65 44 21
Rainfed lowland IRT 3671 20 0.79 13 96 40 136 17
Irrigated IRT 4953 17 0.71 11 77 17 94 25
Sorghum IRT 831 31 0.81 15 32 30 62 34
Tobacco
Virginia EP 4118 18 0.21 2 69 167 236 12
Native EP 5998 15 0.20 1 43 171 214 13
Abaca EP 323 34 0.76 12 26 13 39 37
Irish potato IRT 7709 10 1.00 274 4
I
162 436
Sweet potato EP 363 33 1.23 27 81 108 20
Cassava EP 3160 24 0.88 17 54 35 89 27
Onion EP 23931 2 0.34 4 187 161 348 7
Garlic
Ubi
Gabi
EP
IRT
IRT
25054
-1608
-1813
1 0.29 3 145
98
66
222
381
191
367
479
257
6
3
9
i
CO
Ginger IRT 11901 6 14 136 150 15
Turnips IRT 10442 7 64 42 106 22
Baguio beans IRT 3485 22 420 75 495 2
String beans IRT 6708 11 136 276 412 5
Cabbage IRT 6062 14 255 282 537 1
Tomatoes IRT 15880 3 64 183 247 11
Sweet peas IRT 14199 4 125 218 343 8
Watermelon IRT 8078 9 45 36 81 30
Banana IRT 5229 16 16 69 85 28
Pineapple IRT 12467 5 150 102 252 10

IRT = interregional trade; IS = import substitution; EP = export promotion.

Source: Philippine Agricultural Diversification as an Alternative Development Strategy (forthcoming).
 RICE PRODUCTION

From the aggregated national average, results of the study

showed that from the viewpoint of net financial profitability
at farm, comparative advantage and labor requirement (employ-
ment), rice production systems were less efficient in comparison
to other crop production systems. Of the 40 different crop pro-
duction systems studied, that of irrigated rice (which is the
most efficient among the 3 rice production systems) ranked
only 21st, 12th, and 24th, respectively, using the criteria of net
financial profitability, comparative advantage and employ-
ment. Most of the crops (such as onion, garlic, tomatoes, sweet
peas, tobacco, cotton, and vegetables) which were more finan-
cially and economically efficient than rice had also higher man-
labor requirements. This implies (based on the aggregate level
data), that if our goal is to increase farm incomes and employ-
ment, focus should be made not necessarily on rice alone but
on other crops which are far more efficient than rice. There are
limits of course to the demand for these crops, considering that
they are seasonal and perishables but their supply/demand ba-
lances should be assessed effectively if one follows this strategy.

The regional results further accentuate our earlier hypo-

thesis that variances in resource endowments, levels of techno-
logy and trade determine comparative advantage. The inter-
action of these three factors induces regions to evolve a pattern
of crop diversification and crop specialization in commodities
where they have comparative advantage. For example, the
Ilocos region (Table 4) and Cagayan Valley (Table 5) are effi-
cient producers of tobacco, cotton, onions, garlic, and vege-
tables.

For the Central Luzon (Table 6) and the Southern Tagalog

(Table 7) regions, a pattern of crop specialization emerges:
garlic, onion, and vegetables are financially and economically
viable crops with high labor components. This is followed by
major grains, rice, corn, and sorghum.

The regions of Bicol (Table 8), Western Visayas (Table 9),

Central Visayas (Table 10), and Eastern Visayas (Table 11)
which are situated in the "typhoon belt" are generally deficient
in food grains but abundant in fiber and rootcrops. Abaca,
cassava, corn, and rice appeared to be the economically effi-
cient crops in these regions.

135
 Table 4 — Net Financial Profitability, Comparative Advantage, and Man-Labor Requirement
of Crop Production Systems by Trade Regime, Ilocos Region, Philippines, 1985

Crop/T echnology Trade Net Economic Labor Requirement

Regime Financial Rank Comparative Rank Hired Family Total Rank
Profit at Advantage
Farm

P/ha
Rice
Rainfed upland IRT
Rainfed lowland IRT 2524 16 0.83 9 41 • 39 80 14 a
Irrigated IRT 4087 12 0.89 10 35 36 71 16 o
z
Corn
Yellow, hybrid IRT -396 21 0.97 12 30 30 60 17 >1
Yellow, open-pollinated IRT r
-223 20 0.91 11 33 86 119 12 ts
White, open-pollinated IRT 1762 18 0.74 7 23 26 49 19 CO

Peanuts, shelled
Red variety IRT
White variety IRT 6656 7 1.05 14 32 19 51 18
Peanut butter
Red variety IS
White variety IS 6656 7 0.56 5 32 19 51 18
Mungbean
Rainfed upland IRT
Rainfed lowland IRT 3647 14 1.80 15 24 15 39 21
Irrigated IRT 1802 17 2.75 16 27 15 42 20
 Table 4 (Continued)
Crop/Technology Trade Net Economic Labor Requirement
Regime Financial Rank Comparative Rank Hired Family Total Rank
Profit at Advantage
Farm

Cotton
Rainfed upland IS 4858 10 0.43 4 99 130 229 8
Rainfed lowland IS 74 19 0.61 6 34 137 171 11
Irrigated IS — — — — —
Tobacco, Virginia EP 4118 11 0.21 1 69 167 236 7 ?o
I-H
Garlic EP 6917 6 0.41 3 164 163 327 6 Q
Onion EP 21188 1 0.35 2 188 25 213 9 M
Irish Potato IRT 7709 5 1.00 13 274 162 436 3 *«
Cassava EP 5091 9 0.82 8 28 49 77 15
CO Baguio beans IRT 3485 15 420 75 495 2 O
-a String beans IRT 3912 13 98 107 205 10 O
3 125 282 343 5 t—«
Sweet peas IRT 14199
282
Cabbage
Watermelon
IRT
IRT
6062
10945
8
4
255
45 42
537
87
1
13 3o
Tomatoes IRT 15948 2 — 395 395 4
z
Source: Philippine Agricultural Diversification as an Alternative Development Strategy (forthcoming).
 Table 5 — Net Financial Profitability, Comparative Advantage, and Man-Labor Requirement
of Crop Production Systems by Trade Regime, Cagayan Valley, Philippines, 1985

Crop/Technology Trade Net Economic Labor Requirement

Regime Financial Rank Comparative Rank Hired Family Total Rank
Profit at Advantage
Farm

Rice
Rainfed upland IRT -1355 13 1.51 12 39 92 131 5
Rainfed lowland IRT 1250 7 0.95 7 31 70 101 7
Irrigated IRT 5095 3 0.86 6 52 36 88 10
Com
138

Yellow, hybrid IRT 4874 4 0.66 4 61 30 91 9

Yellow, open-pollinated
White, open-pollinated
IRT
IRT
634
857
10
9
1.00
1.18
8
11
18
26
52
56
70
82
12
11
z
Peanuts, shelled
>
Red variety IRT 5486 2 0.78 5 5 118 123 6
White variety IRT 1991 6 1.09 10 42 51 93 8
Peanut butter
Red variety IS 5486 2 0.48 2 5 118 123 6
White variety IS 1991 6 0.56 3 42 51 93 8

Mungbean
Rainfed upland IRT 462 11 3.23 14 16 116 132 4
Rainfed lowland IRT 3647 5 4.48 15 22 39 61 13
Irrigated IRT
Tobacco
Native EP 5998 1 0.20 1 43 171 214 2
Cassava EP -946 12 1.57 13 304 304 1
Sweet potato EP 983 8 1.05 9 150 150 3

Source: Philippine Agricultural Diversification as an Alternative Development Strategy (forthcoming).

 Table 6 — Net Financial Profitability, Comparative Advantage, and Man-Labor Requirement
of Crop Production Systems by Trade Regime, Central Luzon, Philippines, 1985

Crop/Technology Trade Net Economic Labor Requirement

Regime Financial Rank Comparative Rank Hired Family Total Rank
Profit at Advantage
Farm 33

•P/ha MD/ha
M
o
139

Rice
Rainfed upland IRT
Rainfed lowland IRT 3691 10 0.69 7 63 23 86 9 o
Irrigated IRT 4804 7 0.78 10 53 23 76 11 n
li
Corn o
Yellow hybrid IRT
Yellow, open-pollinated IRT 553 17 0.59 6 108 103 211 5
White, open-pollinated IRT -1278 19 1.53 13 9 36 45 17

Peanuts, shelled
Red variety IRT 4560 8 0.81 11 21 43 64 14
White variety IRT 4161 9 0.92 12 50 56 106 8

Peanut butter
Red variety IS 4560 8 0.52 3 21 43 64 14
White variety IS 4161 9 0.55 4 50 56 106 8
 Table 6 (Continued)

Crop/Technology Trade Net Economic Labor Requirement

Regime Financial Rank Comparative Rank Hired Family Total Rank
Profit at Advantage
Farm
Mungbean
Rainfed upland IRT 1944 14 12.63 16 — 73 73 13
Rainfed lowland IRT 2615 12 1.84 14 13 36 49 16
Irrigated IRT 1928 15 1.99 15 10 27 37 18

Sorghum IRT 1651 16 0.56 5 36 21 57 15

Garlic EP 25707 2 0.26 1 158 255 413 2
Onion EP 26674 1 0.34 2 186 226 412 3
Cassava EP 3610 11 0.75 8 32 76 108 7
Sweet potato EP 2046 13 0.76 9 37 43 80 10 a
o Gabi IRT -444 18 84 40 124 6
Turnips IRT 10442 3 64 42 106 8
String beans IRT 9505 4 143 306 449 1
Watermelon IRT 5212 6 45 29 74 12
Tomatoes IRT 5647 5 100 179 279 4 en

Source: Philippine Agricultural Diversification as an Alternative Development Strategy (forthcoming).

 Table 7 — Net Financial Profitability, Comparative Advantage, and Man-Labor Requirement
of Crop Production Systems by Trade Regime, Southern Tagalog, Philippines, 1985

Crop/Technology Trade Net Economic Labor Requirement

Regime Financial Rank Comparative Rank Hired Family Total Rank
Profit at Advantage
Farm

T/ha MD/ha
Rice
Rainfed upland IRT -844 10 1.02 9 50 64 114 6 so
Rainfed lowland IRT — — _
Irrigated IRT 1584 8 0.82 8 62 58 120 5 P0
Corn
o
Yellow, hybrid IRT 2730 5 0.57 3 12 38 50 10 o
Yellow, open-pollinated IRT 2517 6 0.58 4 7 54 61 8 aa
White, open-pollinated IRT 2121 7 0.64 5 9 51 60 9 Q
Peanuts, shelled
Red variety IRT 11454 3 0.66 6 23 54 77 7
White variety IRT -95 9 1.88 10 8 185 193 3

Peanut butter
Red Variety IS 11454 3 0.48 2 23 54 77 7
White variety IS -95 9 0.78 7 8 185 193 3

Garlic EP 42538 1 0.19 1 66 184 250 1

Tomatoes IRT 26046 2 2 168 170 4
Pineapple IRT 8874 4 154 75 229 2

Source: Philippine Agricultural Diversification as an Alternative Development Strategy (forthcoming).

 Table 8 — Net Financial Profitability, Comparative Advantage, and Man-Labor Requirement
of Crop Production Systems by Trade Regime, Bicol Region, Philippines, 1985

Crop/Technology Trade Net Economic Labor Requirement

Regime Financial Rank Comparative Rank Hired Family Total Rank
Profit at Advantage
Farm

ITha ,, MD/ha --•

•
Rice
Rainfed upland IRT -143 9 1.06 9 19 93 112 3 O
Rainfed lowland IRT 1031 3 0.88 6 79 40 119 2
Irrigated IRT 1948 1 0.92 7 87 23 110 4 o
is
Com r
Yellow, hybrid IRT 838 7 0.59 2 60 16 76 7
Yellow, open-pollinated IRT 1116 2 0.72 3 42 25 67 9
White, open-pollinated IRT 937 4 0.74 4 31 44 75 8
Abaca EP 472 8 0.52 1 27 8 35 10
Cassava EP 878 6 1.03 8 32 62 94 5
Sweet potato EP 913 5 0.84 5 45 44 89 6
Gabi IRT - 3183 10 23 538 561 1

Source: Philippine Agricultural Diversification as an Alternative Development Strategy (forthcoming).

 Table 9 — Net Financial Profitability, Comparative Advantage, and Man-Labor Requirement
of Crop Production Systems by Trade Regime, Western Visayas, Philippines, 1985

Crop /Technology Trade Net Economic Labor Requirement

Regime Financial Rank Comparative Rank Hired Family Total Rank
Profit at Advantage
Farm

•Tlha
Rice
Rainfed upland IRT

RICE!
Rainfed lowland IRT 834 7 0.78 4 49 29 78 7
Irrigated IRT 2331 4 0.75 3 52 43 95 4

Com
Yellow, hybrid IRT 7902 1 0.40 1 89 11 100 3 o
Yellow, open-pollinated IRT 1324 5 0.89 5 28 63 91 5
White, open-pollinated IRT 145 8 1.16 6 25 59 84 6 o

ION
Peanuts, shelled
Red variety IRT 3393 3 1.32 8 32 81 113 2
White variety IRT 3492 2 1.32 8 54 85 139 1

Peanut butter
Red variety IS 3393 3 0.64 2 32 81 113 2
White variety IS 3492 2 0.64 2 54 85 139 1
Mungbean
Rainfed upland IRT 137 9 3.85 10 22 44 66 8
Rainfed lowland IRT -224 10 3.91 11 95 95 4
Irrigated IRT 878 6 3.01 9 20 25 45 10
Sorghum IRT -448 11 1.26 7 38 22 60 9

Source: Philippine Agricultural Diversification as an Alternative Development Strategy (forthcoming).

 Table 10 — Net Financial Profitability, Comparative Advantage, and Man-Labor Requirement
of Crop Production Systems by Trade Regime, Central Visayas, Philippines, 1985

Crop /Technology Trade Net Economic Labor Requirement

Regime Financial Rank Comparative Rank Hired Family Total Rank
Profit at Advantage
Farm

T/ha
Rice
Rainfed upland IRT -813 7 1.24 6 56 69 125 2 •2,
Rainfed lowland IRT 420 4 0.89 4 62 43 105 4
Irrigated IRT 3728 1 0.71 2 68 43 111 3
Com CO
Yellow, hybrid IRT -1533 8 0.95 5 46 53 99 5
Yellow, open-pollinated IRT 1324 3 0.57 1 47 47 8
White, open-pollinated IRT -87 5 1.36 7 26 40 66 7
Cassava EP 1793 2 0.72 3 63 36 99 5
Sweet potato EP -242 6 1.36 7 6 74 80 6
Ubi IRT -1608 9 98 381 479 1

Source: Philippine Agricultural Diversification as an Alternative Development Strategy (forthcoming).

 Table 11 — Net Financial Profitability, Comparative Advantage, and Man-Labor Requirement
of Crop Production Systems by Trade Regime, Eastern Visayas, Philippines, 1985

Crop/Technology Trade Net Economic Labor Requirement

Regime Financial Rank Comparative Rank Hired Family Total Rank
Profit at Advantage
Farm
O
P/ha - MD/ha - - .
Rice o

OUCT]
Rainfed upland IRT -1891 8 1.39 5 55 97 152 3
Rainfed lowland IRT -69 5 0.82 4 105 59 164 2
Irrigated IRT 2408 1 0.69 2 118 55 173 1
O
Corn.
Yellow, hybrid IRT — — — — —
Yellow, open-pollinated IRT -1315 7 2.02 7 18 67 85 7
White, open-pollinated IRT -964 6 1.51 6 31 59 90 6
Abaca EP 584 3 0.56 1 16 24 40 8
Cassava EP 2173 2 0.69 2 15 84 99 5
Sweet potato EP 495 4 0.80 3 54 73 127 4

Source: Philippine Agricultural Diversification as an Alternative Development Strategy (forthcoming).

 L. A. GONZALES
Finally, the Mindanao regions (Western, Northern, South-
ern and Central) are the producers of the major food and feed-
grains. Southern Mindanao (Table 12) in particular has rich
resource endowments and favorable climate conducive to agri-
cultural diversification.

3. Summary and Conclusions

We can summarize our discussions of economic issues as

they relate to rice production in the Philippines as follows:
1) The current low world market price or border price of rice
affects the economic viability of Philippine rice produc-
tion. Low border prices of rice tend to discourage the
adoption of innovations among farmers and act as dis-
incentives to the expansion of investments (e.g., irrigation,
fertilizer, research, and extension) in the rice sub-sector.
This can cause shortfall in rice supply resulting to ab-
normally high prices.
2) There are tradeoffs in pursuing the goals of equity and ef-
ficiency. The crucial role of technology is to balance these
tradeoffs. Economic efficiency should be the overriding
norm in pursuing the objective of alleviating the plight of
the poor and disadvantaged groups.
3) The solution to the problem on how to improve the eco-
nomic well-being of the poor rice farmers in the adverse
environments is a complex one. It transcends beyond what
a monocrop like rice can offer. In this regard, there is a
need to examine the potentials of agricultural diversifica-
tion to other crops or to other agricultural and nonagri-
cultural enterprise that can help increase income and em-
ployment of the poor.

4) Given natural resource endowments by ecological environ-

ments or regions, technology, and trade, the determinant
of agricultural diversification should be comparative ad-
vantage or economic efficiency. The dynamic interactions
of resource endowments, technology, and trade will induce
entrepreneurs within ecological environments/regions to
specialize in production activities in which they have com-
parative advantage. The role of government is not to inter-
vene to the extent that this natural competitiveness is
destroyed but rather to provide infrastructures and
support services to ensure that the economic efficiency

146
 Table 12 —Net Financial Profitability, Comparative Advantage, and Man-Labor Requirement
of Production Systems by Trade Regime, Southern Mindanao, Philippines, 1985

Crop/Technology Trade Net Economic Labor Requirement

Regime Financial Rank Comparative Rank Hired Family Total Rank
Profit at Advantage
Farm

•F/ha — MD/ha

Rice to
Rainfed upland IRT — — ^_
Rainfed lowland IRT 1362 ' 12 0.83 9 69 36 105 6
Irrigated IRT 5371 7 0.69 6 62 37 99 7

Corn o

DUCTK
Yellow, hybrid IRT 3775 9 0.50 4 46 35 81 10
Yellow, open-pollinated IRT 642 15 0.94 12 31 42 73 12
White, open-pollinated IRT 1255 14 0.84 10 41 25 66 13

Cotton o
Rainfed upland IS 11486 3 0.33 1 96 51 147 3
Rainfed lowland IS 7632 5 0.36 2 32 50 82 9
Irrigated IS 6426 6 0.37 3 40 12 52 15
Soybean
Rainfed upland IS 2475 11 0.90 11 65 44 109 5
Rainfed lowland IS 3671 10 0.79 8 96 40 136 4
Irrigated IS 4953 8 0.71 7 77 17 94 8
Abaca EP -86 16 1.21 13 28 11 39 16
Sorghum IRT 1289 13 0.62 5 31 31 62 14
Ginger IRT 11901 2 14 136 150 2
Banana IRT 11180 4 21 54 75 11
Pineapple IRT 16060 1 149 109 258 1

Source: Philippine Agricultural Diversification as an Alternative Development Strategy (forthcoming).

 L. A. GONZALES

gains of these ventures are internalized by private entre-

preneurship.

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Diversification in Rainfed Areas: Implications to National
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Gonzales, L.A. (1987), "Philippine Agricultural Diversification
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Systems: Issues to be Considered," Paper presented during
the International Rice Commission Conference, IRRI,
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International Rice Research Institute (1987), Strategic Plan-
ning Committee Report.
Mellor, J.W. (1986), "Agriculture on the Road to Industrializa-
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Rosegrant, M.W., Gonzales, L.A., Bouis, H.E., and Sison, J.F.
(1987), "Price and Investment Policies for Food Crop
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Phase II".
Siamwalla, A. and Haykin, S. (1983),"The World Rice Market:
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148