The allocation of resources in Philippine corn farming

Abstract

This study attempts to describe and analyse input-output relationships on Philippine corn farms by fitting the Cobb-Douglas production function to survey data of 1,427 farm enterprises onumeratod from nine nolocted corn-growing regions for crop year 1972-73. The functional form of t}ie economic model is specified as: that the gross output of a corn enterprise (measured in cavan or sack of 57 kilograms) is a function of land area (measured in hectare), manlabour (measured in man-days), capital services (measured in pesos), amount of fertilizer applied (measured in kilograms), and quantity of seeds used (measured in cavan). The model is modified to include the effects of farm location (province), cropping season, and time of planting. The latter group of variables are represented by dummies in the estimation. The coefficients representing such factors like location, cropping season and time of planting are reflective of the relative productivity of provinces (seasons, time) within a region (all seasons, all times of planting). On the basis of their corresponding coefficients, a number of provinces appeared inherently more suitable to the production of the crop. The contribution of cropping seasons and planting time to the variability of farm output is found to be important for some corn-growing areas. The average production functions estimated for each region are used as bases for calculating the marginal physical products (MPPs) and marginal returns to factors of production. The results of the calculation shows that a widespread misallocation of inputs existed among smallholder corn farms. The marginal returns to land are found substantially higher than their corresponding land rent per hectare. Rather than argue that land is under-utilised, it is felt more strongly that the current land rent does not reflect the true market value of land. The labour input, on the other hand, appears to have been over-utilised in eight out of nine regions. The overutilisation of this resource is indicated by the negative net MVPs obtained while assuming that the prevailing wage rates for each region represent the competitive price of this factor. Thus, it is asserted that labour surplus exists and that this input is redundantly used in corn production. To attain the optimum use of labour, the indicated readjustment of resources tends to reduce this input sizably from the current level. Capital services are, probably, under-utilised as reflected in the magnitude of the positive net MVPs estimated for this input. In some regions, however, the production elasticity for capital is found to be negative. This is felt to be due to measurement errors as certain forms of capital assets may have been enumerated in some farms although such items are not actually used. Fertilizer is severely under-utilised in most regions although it is more extensively applied in the Mindanao areas. To optimise the use of fertilizer and thus maximise the returns to this input, it is suggested that much higher levels than the current rate would be required. The rate of seeding appears to have been under-estimated by corn farmers. The sizable magnitude of the net MVPs estimated for the seed input indicates that seed is under-utilised. Constant returns to scale are indicated for Central Visayas, Eastern Visayas, Northern Mindanao, and Southern Mindanao regions. Decreasing returns to scale quite strongly describe corn production in Cagayan Valley, Bicol, Western Visayas, and VIestern Mindanao. It is only in Northeastern Mindanao where increasing returns to scale is indicated. An investigation of the economic efficiency of two major compositions of man-labour inputs is pursued in the Visayas and Mindanao regions. The results show that while family labour is an important factor in corn production, it is excessively utilised. The contribution of hired labour to the variability in corn output is highly significant but this type of labour is not used efficiently as well. There is a bias felt to have been introduced by the errors of measurement of the labour input in this study so that the estimation of marginal productivity and/or marginal returns of this particular input may not be a true reflection of its efficiency. Furthermore, this study would hesitate to prescribe policies on the basis of what has been so far shown by these results without first pursuing further investigations of more localised corn-producing areas or provinces. It is felt that because of the apparently significant differences of marginal productivities arising from significant locational and/or seasonal variations, it is only appropriate that policies must come down to the-provincial level rather than on a regional basis. Further analyses of fertilizer usage in the Mindanao regions reveal that where this input is applied, the yield or production per hectare is found to be substantially greater than where it is not used. Then, on the basis of the average production function derived for each group of farmers (i.e. fertilizer-users' group and non-users' group) the technical efficiencies of farmers are evaluated. Such analyses of technical efficiency based on the average production function can be adopted to separate the relatively efficient producers from the relatively inefficient farmers. Extension programs may yet prove more effective utilising the techniques of efficient corn farmers thus identified. For future surveys, this study recommends a somewhat more detailed collection of data, the proper stratification of farming areas (in terms of physical and seasonal factors) and collection of farm specific price information both for factors of production and output. Furthermore, a time series type of data gathering is suggested to allow for variations due to unpredictable factors that may affect the industry during any particular year if further analyses of this type are to be attempted with the intention of arriving at policy conclusions. Show more