Chapter 1

ECONOMICS AND AGRICULTURE

Economics is the proper allocation and utilization of resources especially available scarce resources to
maxi- mize their benefits for the satisfaction of people. This funda- mental definition clearly relates
economics to all fields of human endeavor. It is only natural that man wants maximum benefits or
satisfaction out of his resources or activities. If he is a businessman, he intends to maximize his profit. As
for the consumers, maximum satisfaction is what they really want whenever they purchase goods or
services. In both situations, the application of economics is a big factor.

In view of the great need of using economic principles in practically all human activities, economics has
gained promi- nence in the area of the social sciences. In fact, some say that economics is the queen of
the social sciences. To cite examples, we have "economics of money and banking," "economics of
insurance," "economics of agriculture," and many others.

Obviously, economics is very much related to agriculture especially in the Philippines which is basically
an agricultural country. Agriculture has many activities which require the help of economics in order to
attain both optimum and maximum outputs. For instance, financing, production, processing, mar-
keting, and management have to be performed with utmost efficiency for the good of the small farmers
and for the whole national economy. And this is only possible through the right

distribution and use of land, labor, capital, materials, and

management.

In our country, economics has a great role in agriculture. The foundation of our whole economy is
agriculture. Most of

the people depend on agriculture for their physical survival. It is rather unfortunate that those who work
in agriculture are the poorest in our society just as in all other Third World countries. Such a dismal
condition shows that there is some- thing wrong with our agricultural development. Here econom- ics
has a big task to perform if it is given the right chance. However, economics alone cannot and will never
solve our prob- lems in agriculture. The root cause of the poverty of all farm- ers all over the world is not
low agricultural productivity. It is the defective social and political structure. Most farmers are only
sharecroppers or tenants. Many of them are mere tempo- rary farm laborers in large plantations. And
even those who are given a small piece of land by virtue of the land reform program still continue to
suffer from absolute poverty because credit institutions are very harsh on them, and the processing and
marketing of their crops are in the hands of aliens or mul- tinational corporations who get most of the
profits of agricul ture, and so do the suppliers of fertilizers, pesticides, and farm tools.

This chapter presents more or less an overview of the course. Subsequent chapters explain in detail the
principles, policies, and programs of the various agricultural activities in their economic and social
contexts.

The Role of Agricultural Economics

Originally, agricultural economics was part of the study of farm production economics. As early as 1903,
a course in agricultural economics was first taught at Harvard Universit and at the University of
Wisconsin. The economics of agricu ture finally acquired its ultimate recognition when the Burea of
Agricultural Economics was organized in 1921 under th Department of Agriculture of the United States.
Prof. Hen Taylor of the University of Wisconsin became its first directe

In the Philippines, the history of agricultural economi has not been clearly defined. It is likely that it was
a part o course in farm management. Our Bureau of Agricultural E nomics was established on June 22,
1963. It was formerly Division under the Office of the Secretary of Agriculture a Natural Resources. The
objective of the Bureau of Agriculture

Economics is to provide information on agriculture and natu- ral resources in line with the efforts of the
government to facilitate the technical, social, and economic development of Philippine agriculture.

Economics affects many human and national endeavors. Since our country is a developing nation and it
is primarily based on agricultural economy, the role of economics becomes significant and essential. The
scarce resources in agriculture have to be increased and properly allocated to the various needs of the
different sectors of the economy. The factors of produc- tion have to be utilized efficiently Farm
enterprises have to be selected wisely and managed competently. The ultimate aim of all these
endeavors in agriculture is to attain profit maximization for the improvement of the quality of life of the
farmers and the development of the national economy.
Unfortunately, the goals of agricultural development are not easy to achieve. The problems of financing,
production, and marketing still continue to bother the farmers and the na- tional government. The
increasing poverty in agricultural com- munities has been compounded by low agricultural productiv- ity
and the high birth rate. Moreover, values and institutions pervading in agricultural economies are not
favorable to devel- opment. These hamper good agricultural programs. The prob- lems in agriculture
have been the challenges and tasks of eco- nomics, especially in developing nations like the Philippines.

Like most of the other countries in the world, our country is basically an agricultural economy. Their
principal source of income comes from agriculture Thus, an improvement in ag- riculture greatly affects
the welfare of the people and the national economy. Obviously, the use of economic principles in
agriculture is very vital. Proper agricultural development leads to industrialization. This is the dream of
every poor nation.

Nature of Agricultural Economics

Economics is primarily concerned with the efficient use of men, money, materials, and machines. It deals
with proper investment, more production, employment, income, consump- tion, and savings. It aims to
maximize results and satisfac- tion. And with the proper combination and utilization of theavailable
resources of society, the level of prosperity for the people and the nation increases.

Resources are limited while human wants are unlimited. Clearly, available resources are not enough to
satisfy all hu- man wants. In poor countries even the most basic needs of the people, such as food,
clothing, and shelter cannot be met. In view of the scarcity of resources, the problem of supplying the
needs of the people has remained unsolved, especially in agri- cultural economies. Nevertheless, the
impact of the problem can be reduced by properly distributing the scarce resources among the various
demands based on established priorities. But the economy should not remain this way. It has to increase
production in order to create more resources for its fast grow ing population. This is the job of
economics.

Basic Economic Problems

All societies have economic problems, whether they are under capitalism, socialism, or communism
However, their economic problems vary in extent and degree. In contrast to the rich nations, the poor
ones have more serious economic prob- lems, such as starvation, disease, squalor, and illiteracy. There
are three basic economic problems:

1. What goods to produce and how much

Since resources are limited, it is not possible to produce all the needs of the people at the same time. A
system of priori- ties has to be made to satisfy their needs. The most essential and important goods are
produced first, like food, medicine, schools, roads, irrigation systems, houses, etc.

2. How to produce the goods

Poor countries use traditional or primitive methods of production. They do not have the necessary
financial capital and skills to use modern machines and technology in their pro- duction. As a result, they
have a very low prodúctivity. and this greatly contributes to their miserable conditions. It is dif- ferent in
rich countries, such as the United States, Japan and those in Europe. They apply scientific production
which is capable of creating more goods and products in a shorter time and at a lower cost. However,
even the progressive nations encounter problems in methods of production due to geographi-cal
limitations. For instance, the United States is a very rich nation. Yet, it imports oil and other products
from other nations.

3. For whom are the goods produced?

In a capitalistic society, goods are distributed according to the ability and willingness of the people to
buy them. Those who have more money get more goods. And so the rich have more properties than the
poor. In other economic systems, the goods of the society are allocated on the basis of needs of the
families. It is not based on the ability to pay, as in capitalism.

Agricultural Economics Defined*

Being an applied science, agricultural economics is pri- marily concerned with the solution of economic
problems of the farmers in agriculture. Its task is to apply the theories and principles formulated by pure
science in order to solve a spe- cific problem For example, a corn plant is infected with an unknown
disease. The farmer, for lack of scientific training in agriculture and plant diseases, is not in a position to
identify the cause of his withering crop. The work of pure science is to gather enough samples of the
affected leaves and study these under a microscope. The leaves are attacked by a certain type of virus
which cannot be seen by the naked eye. The scientist analyzes its anatomy, feeding habits, and other
char- acteristics. Based on these findings, theories or principles are formulated. On the part of applied
science, it finds ways to control the plant disease without destroying the plant. And this is made possible
through the guidance of pure science which plans, organizes, coordinates, and executes the various agri-
cultural activities.

Agricultural economics is therefore defined as an applied science which is concerned with the
identification, description, and classification of economic problems in agriculture in order to solve
them.The farmers have many economic problems which are related to agriculture, such as financing,
production and mar keting. However, there are many factors which are non-eco- nomic in nature but
they greatly affect the economic problems of the farmers. These are attitudes, values, and institutions
Hence, they are also explained in this book.

Agricultural Economics and Other Sciences

Agricultural economics is also a social science. It deals with people, organizations, and human
relationships. Its func- tions are dependent on other sciences, such as statistics, ac- counting, marketing,
and management. These greatly assist the efficient operations of agricultural programs.

In planning agricultural production and marketing, ad- equate and accurate statistics are needed. For
instance, dato on the resources of the farmer, like money, machines, ware housing, tools, and the
current market price, demand, and number of competitors, among other things, provide a basis for good
planning of agricultural projects. To record financial trans- actions, incomes, and expenses, a a fair
knowledge of simple bookeeping is needed. This gives a clear picture of the viability of the farm en
enterprise. It shows whether the farmer is gaining or losing. Obviously, however, the most important
factor is the man who plans, organizes, coordinates, and executes the vari- ous agricultural activities.
Indeed, management plays a vital role in agriculture.
The world of a farmer does not only consist of his family, the rice field, and work animals or machines.
Being a citizen, people and institutions affect him. His farm operations are influenced by laws, market
conditions, and technology. He can- not isolate himself from the rest of the groups. For his own
economic advantage, he has to join farmers' associations or cooperatives

A progressive farmer is not only a producer of crops but he is also business-oriented. He operates his
farm in the same way a manager manages his company. Farmers, therefore, should be familiar with
agronomy, animal husbandry, econom- ics, accounting, marketing, and management.

The Importance of Agricultural Economics

Most of the countries of the world have agricultural devel mies. They the countries of the w
underdeveloped, and deveof Oping or Third World Indian pooAnd the Philippines is one of them. Most
of theild nations and foreign exchange earnings come from agriculture. Their main export products are
raw materials. They are the feeders of the factories and industries of the rich countries. In return, the
latter sells the finished products to the agricultural countries.

Since agriculture is the principal economy of the poor nations, there is a great need to improve it. They
still use primi- tive methods of production in agriculture. Lack of money, tech- nology, and skills has
diminished their opportunities to adopt imodern techniques of production. Economics assumes a very
important function in agricultural development

In the Philippines most of the people live and work in agricultural areas. Thus, production, employment,
and income come mostly from agricultural activities. Likewise, a big por tion of our dollar earnings and
other foreign currencies are derived from selling raw materials and farm products to the industrial
nations. These foreign exchange earnings are very important to national economic development. They
are used to buy machines, oil, and technological services from abroad for the development of our
economic infrastructure, projects, and industries. Again, economics provides the appropriate prin- ciples
and policies for the development of agriculture. Once this has been achieved, economic growth and
prosperity follow. It paves the way for industrialization, and this increases faster the resources of the
whole economy.

Economic Problems of the Filipino Farmers

The objective of any farmer is to maximize his income from his farm. With his knowledge of economics
and management, he is more likely to realize it. He should know the alternative ways of attaining his
goals. He has to make a good decision on what crops to raise or farm projects to set up; what methods
of production to use, and how, where and when to buy his farm inputs and to sell his outputs.

However, in contrast to other occupations, farming is gen- erally in a disadvantageous position in terms
of income and security. Natural calamities can destroy crops any time. The farmers' meager incomes are
not even sufficient to meet their basic needs. Low agricultural productivity, unemployment, large
families, and other institutional barriers have deprived them of the chance to get out from the vicious
circle of poverty. The rural development program of the government, such as agrarian reform,
cooperatives, community development, and the rural credit program and agricultural infrastructure pro-
gram, has been envisioned to emancipate the farmers from cen- turies of poverty. And above all, the
government has promised to restore their human dignity.

HISTORY OF AGRICULTURE

The glaciers started to retreat after 9,000 B.C. As a re- sult, there were more rains in Europe. Forests
grew and ani- mals moved to the North. In view of the change in climate, man also changed his ways of
living to adapt himself to his new natural environment. Likewise, his tools were changed to improve his
skills in fishing and hunting. His native intelli- gence and inherent desire for social organizations greatly
con- tributed to his systematic ways of exploiting the gifts of nature for his physical existence.

The path of development of agriculture from food gather- ing to the present stage has been a long one.
However, not a few agricultural countries still practice primitive agriculture. It has been their aspiration
to modernize their agriculture. But there are obstacles which they have yet to hurdle.

Agricultural Villages*

The word agriculture was taken from the Latin words Ager Cultura which means field cultivation. The
discovery of agri- culture by man was one of the most important steps in human development. Man's
complete dependence on the bounties ofnature somehow ended upon his discovery of ways to raise
croри and animals for food.
The beginning of agricultural practices occurred in several places. One was Southeastern Asia, where
millet, yams, and later on, rice, were domesticated. In Central America and Peru, they began to cultivate
beans, potatoes, and then cors Another region was the upland hills of the Middle East, where several
kinds of wheat and barley grew wild. Archaeological evidence showed that peoples of the region were
actually rais ing wheat and barley around 6000 B.C. Of the regions mentioned, the Middle East
contributed most to the spread of knowledge of agriculture to most parts of Europe and Asia.

One of the first true agricultural villages so far discov ered was in the hills of Iraq, now called Jarmo.
People lived in houses made up of several rooms partitioned by walls of mud with stone foundations.
Excavations uncovered ancient human habitations dating to about 4750 В.С.

People at Jarmo planted wheat and harley which had been derived from the wild varieties. Also, they
raised goats, pigs, sheep, and cattle. The way they domesticated animals was quite obscure, however. At
any rate, ancient farmers had both fields and flocks.

In the village a great variety of tools, ornaments, and other objects were discovered. Unbaked clay
figurines of women and animals were the common finds in the early agricultural villages. Obsidian and
pottery were likewise discovered. Since these came from other regions, it was likely that the village of
Jarmo had trade contacts with the outside world.

The Expansion of Agriculture

From the village of Jarmo, the practice of agriculture rap idly spread out to many other parts of the
Middle East. From Iran to Egypt, men turned to farming wherever it was feasible to do so. By 4000 BC,
farming, together with herding, had become the way of life for most of the people of the region.
Agriculture further expanded eastward to India, apparently across Central Asia to China, and then
westward into the Medi- terranean coastal region. By 3000 BC, agriculture was well- known up to north
of the Alps in Europe.

The expansion of agriculture spawned the growth of agri- cultural villages. Farming became the center
of activities of ancient agricultural communities, mostly along the Tigris and Euphrates river valleys of
Mesopotamia. The first village people were likely united by bond of kinship. In the process of their
groupings, social, political, and religious institutions al- though in primitive forms gradually developed
The economic transition from food gathering to food production is considered to have been one of the
longest steps toward a stable human society. The first cultivation of plants and domestication of animals
in the Middle East was not made by choice. Climate was favorable, with natural meadows of wild wheat
and bar ley, rainfall was adequate, and the region was suited to the

domestication of animals.

With the marked improvement in agricultural practices, food surpluses were created among the
agricultural villages Their non market economy was replaced by trade and commerce. As a result, more
communities cropped up. This ushered in the development of great civilizations of Europe and Asia.

The Importance of Agriculture

Prior to the discovery of agriculture, people were like animals wandering from place to place looking for
food. There were no permanent communities. They settled in areas where there were abundant
supplies of food from nature, such as fruits, vegetables, animals, etc. When these resources became
scarce, they moved to other places to continue their hunting, fishing, and food-gathering activities.

However, when agriculture began to be practiced, people ended their nomadic life. They stayed in
places which they chose, and built their houses. Thus, villages developed and grew. In the beginning,
people only produced the goods which they could consume. It was a self-supporting society. But when
better techniques of farm production were introduced and their institutions became more developed,
they realized the advan- tage of producing more goods for trade purposes. And this was the beginning of
progress. For it is, indeed, inconceivable to achieve progress in the fields of economics, arts, sciences,
andeducation if people wander endlessly from place to place search ing for food. It is mere animal
existence.

Foundations of Industrialization

Industrialization is the ultimate stage of economic development for the poor nations. Countries with
industrial economies are richer and more progressive than those with agricultural economies. Being
aware of the big disparity in wealth between the rich and the poor nations, the latter greatly desire to
industrialize their economies Not a few poor coun- tries, however, are not prepared to advance their
level of devel- opment. The planned change does not only require capital skills and technology but also
major reforms in their values and institutions.
To attain a lasting industrial economy, a country must first develop a strong agricultural base. Raw
materials should be sufficient to supply the needs of factories and industries. Improvements in
agricultural production increase the purchas- ing power of the people in the rural areas. This provides a
good market for the products of the industries. A newly industrial- ized nation finds difficulties in selling
its finished goods in the international markets. It should first develop its own domes tic market for its
industrial products.

Nevertheless, some countries developed their agriculture and industries at the same time. But such a
development strategy needs huge amounts of capital and technology. Unfor- tunately, the poor
countries lack these factors of development. A more serious problem is that they cannot easily change
their deep-rooted values and traditions which are not conducive to economic development. Without
massive financial assistance from the rich countries or World Bank, the poor nations are likely to remain
victims of the vicious circle of poverty.

Chapter 2

NATURE OF FARMING

In many ways, agriculture differs from the other major sectors of the economy like industry and
commerce. There are some agricultural activities which are beyond control. For instance, it is not
possible to predict agricultural output with exact accuracy. The reason is very simple. Natural calamities
such as typhoons and floods can easily reduce or wipe out even the most scientifically projected harvest.
Farmers can only per haps minimize to a certain extent the damage on their crops but certainly they
cannot avoid the disastrous effects of natural calamities.

Another inherent disadvantage of agriculture is that its products are inelastic. This means that even if
the prices of farm products increase, farmers cannot immediately increase their supply to take
advantage of the higher prices. There are many other shortcomings of agriculture. Because of these, the
farmers and their families have been suffering from poverty, squalor, and disease for centuries. Such
miserable conditions prevail in Third World countries in Asia, Africa, and Latin America. On the other
hand, the farmers of the rich or indus- trial countries enjoy a very high standard of living. They have the
highest productivity in the world. This means more in- come for them. Of course, they are not exempted
from the destructions brought about by the furies of nature. The only difference is that crop insurance
companies and their govern- ments take good care of them. For instance, the U.S. govern- ment extends
substantial benefits to the American farmers to discourage them from leaving their farms to work in the
cities.

Indeed, it is very important to know the nature of farm- ing Its problems are not only created by nature
but also by man. When we know its nature or characteristics, we also per ceive its problems Such basic
knowledge is necessary for us to be able to identify the proper possible solutions. And this is most
important because we live in an agricultural economy whose performance has been considered very
poor, considering our good climate and rich natural resources

This chapter describes the characteristics of farming, qualifications of a good farmer, and other related
topics.

Characteristics of Farming

1. Home and farm business are integrated.

2. Functions of management and ownership are combined.

3. Most farms are small business units.

4 Farm products are not easily standardized.

5 Farmers' control over production is limited.

6. Demand and supply of farm products are inelastic

7. Farming is subject to great risks.

8. Financing farming is a difficult task

9. Farming can be done by less educated persons.

10. Fixed costs are usually high.

Ocha Characteristics Explained

Integration of home and farm business. In a mod- ern-day business enterprise, the business office is
separated from the residence of the owner of the firm. However, many small-scale industries conduct
their business operations in their own houses. They employ their relatives and some others in the
neighborhood. This type of industry-although they em ploy thousands of people does not play a vital
role in the economy the way agriculture does.

Farming is a unique industry for it combines home life and business. The house of the farmer is also his
office where he manages his farm enterprise. His wife, children, and other relatives are integral parts of
the farm. They help the farmer in the operations of his farm.

Combined functions of management and ownership. In farming, the manager and owner is the farmer
himself. This characteristic applies also to small industries and business firms, especially in developing
countries. But in highly devel- oped economies, such as the United States, Germany, France, and other
industrial nations, management is usually separated from ownership in commercial and industrial firms.
The own- ers hire managers to operate their business. In agriculture, this is not the case. It is the owner-
cultivator himself who man- ages his farm activities.

However, in huge tracts of agricultural lands where ten ancy still exists, absentee landlords entrust the
management of the farms to others. Another exception is corporate farming, and also compact farming,
where professional managers are employed to manage the farms. Details of this type of farming are
presented in another chapter.
Most farms are small business units. In farming the unit of organization is small. In the Philippines, most
farmers own at most three hectares of irrigated land. In other coun tries, the size of individual
landholdings is even smaller. In contrast, in the United States which has a very large area of agricultural
land, eighty per cent of all farms are two hundred acres or less.

With such small-size farms, only a few are employed per individual farm. It is only in big plantations, like
sugar, coffee, banana, tobacco, and coconut plantations where large numbers of farm workers are
employed. But such plantations are few and their workers are still considered small compared to facto-
ries and other industrial corporations.

Farm products are not easily standardized. In commercial and manufacturing industries, products can
easily be standardized. Goods can be produced according to specifi- cations, such as size, shape, texture,
and quality. This process of standardization cannot be effectively done in agricultural products. A farmer
can only get the most uniform products through breeding, selection, and culture methods. Then he
grades or sorts out the products. This method of grading of agricultural products is expensive compared
with the machine method. One way of economizing the cost of grading is through collective effort, such
as through cooperatives and farmers'associations. However, efficient management of these is a dif-
ficult job.

Farmers' control over production is limited. Ability to control production is considered a vital factor in
the success- ful management of any business enterprise. If it is difficult to control the number of goods
to fit the needs of the market, then problems crop up. For instance, an oversupply of products de-
creases the prices of the products Moreover, the surplus prod- ucts may not have a market If these are
perishables, and there are no storage facilities, they are simply wasted. On the other hand, when there
is underproduction, prices of farm products are high. Farmers cannot take advantage of such economic
opportunities of getting more income and profit.

Producers avoid overproduction and underproduction by manipulating the number of outputs in

relation to anticipated market conditions, particularly demand. They estimate the probable future prices
and costs. Based on this forecast, they determine the quantity of goods to be produced profitably. But
most farmers do not do this especially those in the poor coun- tries. They are not economics-oriented,
and not a few of them depend on pure luck.

American farmers commonly base their production on pre- vailing prices at planting or breeding time. If
the price is high for a certain product, they increase the area for planting. On the other hand, if the price
is low, they reduce the area for planting. In the case of animals, they expand their piggery, poultry, and
cattle industries if prices are favorable. But if the prices are low, they limit their breeding operations.

However, even if the farmers could accurately predict future market prices, and use these as the basis of
their pro- duction, still they cannot completely control production. Agri- cultural production is at the
mercy of weather conditions. Good weather promotes overproduction. An opposite condition re- sults
in underproduction.

In the manufacturing industry, production can be easily controlled. Producers can quantify their outputs
to meet market requirements. They can program their production and profit. In agriculture, an excellent
farm program can be destroyed by natural calamities.Inelastic demand and supply of farm products. De-
mand elasticity pertains to the reactions of buyers to price changes. Based on the law of demand, if
price increases, the quantity demanded decreases, all other things being constant. And people tend to
buy more goods at lower prices. In the case of farm products, consumers are less sensitive to price
changes. This means that whether the prices of farm products increase or decrease, consumers still buy
almost the same quantity. This is because farm products are essential commodities, like rice and
vegetables. Thus, farm products have inelastic demand. The percentage change in price is greater than
the percentage change in quantity demanded

The problem arises when there is a shortage a of farm products. Prices go up and people are forced to
buy the prod- ucts because these are necessities. On the other hand, a sur plus of farm products greatly
reduces their prices. Yet people do not increase their purchases of agricultural products. They only buy
the products, like fruits, vegetables and rice within the limits of their consumption.

The supply of farm products is also inelastic. This means the response of farmers to price changes does
not change much. In accordance with the law of supply, people tend to produce more at higher prices,
and decrease their outputs at lower prices. The reason for this behavior is of course the profit motive.
All other things equal, producers make more profits when the prices of their products are higher.

However, in the case of agricultural producers, they cannot immediately increase or decrease their
volumes of pro- duction. For example, the price of coconuts has doubled. Coco- nut planters cannot
right away increase their production in order to grab such economic blessings. They have to plant more
coconut trees and wait for a long time for the harvest. By that time prices of coconut would probably be
different. On the other hand, farmers cannot reduce the volume of their crops when the prices
decrease. They have already planted their crops, especially if these are ready for harvesting.
Nevertheless, if storage facilities are adequate, the problems of the farmers can be minimized. This
problem does not usually occur in indus- trial production. They can cut down their production whenever
prices go down. Likewise, they can easily respond to higher prices by increasing production.Farming is
subject to great risks. Farming is always exposed to many possible destructions, such as flood, typhoon,
fire, and animal and plant diseases. Non-agricultural enter prises can protect themselves against bad
weather conditions and other forms of ruin. In most cases, these are insurable. But in the case of
farmers, insurance firms have encountered difficulties in working out plans for their adequate
protection at a reasonable cost. In the United States, they have fire and hail insurance which is not a
general farm insurance. We have a new crop insurance in the Philippines which started busi- ness in May
1981 Initially, it covers only rice farmers with production loans. More details on this are presented in the
chapter on farm insurance.

Due to limitations of insurance for farm products and animals, farmers have depended more on self-
insurance. To minimize extreme losses, a farmer has to diversify his produc tion. He plants several kinds
of crops. It is possible that some of the crops will be destroyed by pests, but the others will not be
affected. Another way of preventing losses is to adjust the planting and harvesting time to good weather
conditions. For instance, crops are planted at a time that will allow them to mature in months when the
weather is favorable. Despite these measures taken by farmers, their products and animals are not safe
from natural hazards.

Financing farming is a difficult task. Because of the various risks involved in farming, agricultural
production is not easily financed compared to other industries. Loans based on crop production are
risky. The Philippine experience shows that many rice farmers were not able to pay off their debts to the
rural banks. As a result, many of these lending institutions became bankrupt.

Livestock as a security for a credit is also risky. Animals may die or may be taken away. However, land
with good titles serve as excellent securities for bank loans. Farmers with such real estate properties
have no problem obtaining credit.

In line with the rural development program of the na- tional government, a more rational and liberal
rural credit program has been restructured in order to benefit the millions of small farmers. Measures
have been adopted to reduce prob-lems of repayment among farmer borrowers. Details of this program
are explained in the chapter on farm credit.
For commercial and industrial enterprises, financing is not as difficult as in agriculture. They have many
sources of financing for their projects. Aside from loans from financial institutions, they can sell
securities to the public, such as bonds and stocks.

Farming can be done by less-educated persons. Tra- ditional farming is a simple job. It does not require
college edu- cation. What is more important is to love the land and the farm work. To be a successful
farmer, one must have good health, physical strength, dexterity, industry, and patience. And of course, a
farmer must possess a fair knowledge of agronomy, animal husbandry, economics, and management.

Even in commercial farming, an ordinary farmer can still perform his job without a great deal of
education. In fact, in the United States which has a modern agriculture, the educa- tion of a large
percentage of farmers is less than 12th grade. It can be said that in developing countries like the
Philippines, the level of education of the farmers is even much lower. How-

ever, many of them have acquired nonformal education and

training through adult education, farmers' classes, seminars,

conferences, and study tours.

Fixed costs are usually high. Regardless of the vol- ume of production, fixed cost remains the same. In
the case of variable cost, it changes with the volume of production. If there is no production, there is no
variable cost. Examples of these types of cost are:

Fixed Costs

Rents for buildings and lands

Taxes on real estate

Interests on investments

Variable Costs

Farm inputs, such as seeds, fertilizers, chemicals and the like.

Hired labor and other similar services

Gasoline, diesel and oil consumption

In agriculture, the fixed costs usually exceed the variable costs. The problem, however, is the difficulty of
adjusting fixed costs in production under a short-run period. When prices of crops are favorable, farmers
cannot immediately increase their production in order to realize more profits. For a farmer to increase
his production considerably, he has to expand the area of his cultivation. This means he has to buy more
machines, equipment, and facilities. These capital investments are ex- pensive, and these are the fixed
costs in production. In con- trast, variable costs can be easily adjusted to fit the level of production.
When more output is needed, more workers are hired, and more fertilizers, seeds, and chemicals are
purchased. The same resources can be reduced if they are not needed. In the case of lands, buildings,
and machines, adjustment is much more difficult and costly.

Disadvantages of Farming

1. Farm products are highly competitive.

2. Farming has many uninsurable risks.

3. Farm production cost is high caused by a relatively small- sized production unit.
4. Farm wages are lower compared with other industries.

5. Farm production is difficult to control.

6. Farm work is given low social status by Asian societies.

Similarities of Farming to Other Businesses

A farm enterprise is also a form of business organization. As such, business principles and strategies are
in most cases also applicable to farm enterprises. Some of the more essen- tial similarities are:

1. A farm manager must also plan his production program to fit the local market channels.

2. He must plan his everyday operations to achieve efficiency.

3. He must prepare his products for the market to maximize profit.Qualifications of a Good Farmer*

1. Desires to live in the farm

2. Interested in watching plants and animals grow, and in taking care of them while they grow

3. Possesses reasonably good health and physical strength

4. Able to organize and plan the operations of a farm in a successful manner

5. Has a working knowledge of farm machines, agronomy, and animal industry

6. Knows how to make the most effective use of available labor in farm operations

7. Knows how to purchase farm inputs at the lowest possi ble cost and is able to sell farm outputs at the
highest possible price

8. Able to keep adequate and accurate farm records.

9. Business-oriented, with a fair knowledge of basic econom- ics and accounting

10. An active participant in community undertakings.

The Farm Business

Farming is the oldest vocation of civilized people. Even up to the present, large numbers of people are
engaged in farm- ing as a means of livelihood. However, the labor proportion in farming has been
reduced in industrial economics. A greater percentage of human resources is shifted into the
commercial and industrial sectors. With the use of modern machines and technology, agricultural
output has increased with smaller numbers of farmers.

A farmer should manage his farm just as in any other type of business organization. He has to apply
appropriate principles of economics, organization, and management. It is most important that he should
be able to correctly identify the problems affecting his farm business, and be able to prevent or
minimize their adverse effects.

*ManagingA farm does not only refer to the land and its buildings, but it also includes farm machinery
for planting, harvesting, and other farm processing work. However, the most important component of a
farm is the farmer himself and his family They are responsible for its organization and operations.
Likewise, they do most of the work in raising crops and animals
Farm Business Defined

A farm business is the farmer's production resources. It includes land, buildings, machineries, power,
livestock, labor, and management. These resources are the inputs of farming which are combined to
produce farm products. Each crop or livestock in which productive resources are used is called a farm
enterprise. For example, poultry, piggery, banana, or coffee are farm enterprises

In the past, most farming units produced only for family consumption. Any excess in the crop and
livestock was sold to others. However, as farms became commercial business enter- prises and as
population increased, many operations in the farms were transferred to businesses outside agriculture.
Spe- cialized types of agricultural firms, such as farm machinery companies, fertilizer firms, food
processors, etc. have been de veloped to serve the requirements of modern agriculture. Thus, the
concept of agri-business came about. This new field of agri- cultural economics is defined as the sum
total of all economic activities involved in supplying farmers with farm inputs in the production of farm
crops and livestock, and distribution of farm output.

TYPES OF FARMING

Farms vary in size and topography, although they may be located in the same region. They also differ in
the kinds of crops they produce and the animals they raise. In the Philip- pines, there are rice, tobacco,
coconut, and abaca plantations and piggery, poultry, and dairy farms. There are types of farms

which are found in one country but not in others. In Japan they have pearl farms and in the United
States they have wheat farms. Other countries have grape and apple farms.

Why Are Farms Different?

Farma vary in their resources, such as buildings, machin. ery, livestock, labor, and management. This is
because one type of farming requires different inputs from that of another. For example, rice farming
needs resources which are the same as those for sugar farming
A farm manager should be able to identify the specific type of farm most suitable to the area or region.
Success in farming can be attained more easily if the resources are appro priate to the type of farm.
Here are the factors which deter mine the types of farming.

Physical factors. Differences in climate, soil surface, and water supply determine the kind of crops that
can be grown. This also applies to the raising of animals. These differences explain why regions or
countries differ in the crops and ani mals they raise. In the Philippines, there are areas where it is more
suitable to plant fruits and vegetables than tobacco or coffee. This is because of the kind of soil,
topography, and climate which favors a certain crop over the others.

Location factors. The site of the farm in relation to its distance in the market likewise determines the
kind of crops to be grown. For example, root crops are most suitable in a far flung valley. But if these
products can not be marketed for lack of transportation, it is not advisable to raise them for business
purposes. Usually, the type of farming changes in response to market conditions. Demand creates
supply. This stimulates the production of crops which are in great demand.

Biological factors. The presence of plant and animal pests and diseases affects the type of farming in a
region. Pre- viously, many farmers were engaged in citrus farming. How- ever, when such crops suffered
from plant diseases, they changed their crops.

Human factors. The personal, cultural, and educational background of the farmer influence his choice of
farming. An

Ilocano farmer who farms in Mindanao may select a type of farming which is different from that of a
Bicol farmer. It is a matter of ethnic interest and tradition. Others, because of their technical training
and social status, prefer a type of farming which conforms to their education or social position.

Historical and institutional factors. Established market connections and the good reputation of crop
producers have economic and management advantages. A farmer who has these advantages is not likely
to change his type of farm- ing. If he is a noted pineapple producer, he sticks to it because he earns well.
Likewise, the presence of financial and market- ing institutions affects the type of farming. In the
selection of a farm enterprise, a farmer gives first consideration to economic benefits