Economies of size in rice production in two selected provinces, Philippines, crop year 1974-1975

Abstract

Agricultural development programs in the Philippines give priority to increased rice production because of the contribution of this crop to the nation's food requirements and the economy in general. For this study, data obtained from a survey of rice farms in Bulacan and Laguna provinces, for the crop year 19 74-75, are used to test for the existence of economies of size in rice production, and to test the efficiency of using improved rice varieties. Average cost curves are estimated using ordinary least squares regression, with both output and area as measures of farm size. The results show that substantial economies of size exist at least for farms producing up to 150-180 cavans, or with a cultivated area of about 30 hectares. The farm size goal for the current Land Reform Program, at 3.0 hectares for irrigated farms is consistent with these results. Differences in the average cost of obtaining a given level of output between different provinces, semesters and varieties, are attributed largely to variations in yield and can be summarized as follows: (i) unit costs for Laguna are below those for Bulacan; (ii) the average costs for Bulacan rice farms are lower in the wet season but for Laguna are lower in the dry season; (iii) improved varieties produce at lower cost for output levels up to 120 cavans. Thereafter local varieties produce at lower cost. Many o f the sample farms produce below 60 to 100 cavans and hence there appears to be potential for economies of size to be realized . Farmers should therefor e be encouraged t o increase their output and/or area to take advantage of this potential . If the use of improved varieties is to be promoted however, the risk and uncertainty associated with thei r use must be reduced through the improvement of irrigation facilities and the provision of extension service s to assist farmers in their management. Although the current effort s by the government to increase rice production recognize these needs , the result s of this study indicate that such effort s may have to be intensified .