Agusan del Sur State College of

Agriculture and Technology

College of Agriculture

AG ECON 101
Introduction to
Agricultural Commodity
Systems

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 Table of Contents

Page

UNIT 1 AGRIBUSINESS IN RETROSPECT 3

The Growth and Development of Agribusiness 4

The Agribusiness System Concepts 6

The Agribusiness Enterprise Development 7

Growth Trends and Prospects in the Food Sector 9

UNIT 2 AGRIBUSINESS COMMODITY SYSTEM 14

Input Sub-system 15

Production Sub-system 20

Processing Sub-system 25

Marketing Sub-system 27

Support Sub-system 34

UNIT 3 INDUSTRY SITUATIONER/INDUSTRY CASE STUDIES 35

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 UNIT 1

AGRIBUSINESS IN RETROSPECT

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 AGRIBUSINESS IN RETROSPECT
Agribusiness is the sum total of all operations involved in the manufacture and distribution of farm
supplies; production operations on the farm; and the storage, processing and distribution of farm
commodities and items made from them.

AGRIBUSINESS DEVELOPMENT IN THE PHILIPPINES

Philippine Agribusiness Sector
Agriculture, forestry and fisheries form the core of Philippine agribusiness. The sector also includes
those enterprises in the manufacturing sector that are engaged in agro-based industry, as well as the
portion of the service sector that deals with agricultural/agribusiness activities.
SMEs can be classified under either of two types:
(a) by asset size, excluding land value; or
(b) by number of employees

CHALLENGES AND OPPORTUNITIES IN PHILIPPINE AGRIBUSINESS

a. Productivity Improvement
b. Development of Irrigation Systems
c. Infrastructure Development
d. Construction of Post-harvest Facilities/Trading Centers
e. Institutional Development
f. Credit Accessibility
g. Uncompetitive Production Costs
h. Uneven Product Distribution
i. Product Quality Standards
j. Policy Reforms

GUIDING PRINCIPLES IN PHILIPPINE AGRIBUSINESS DEVELOPMENT

1. Market-led Development
From past lessons learned by the Philippines, agribusiness development projects now operate
with preferential consideration for market opportunities, market specification and possible
niche markets.
2. Private Sector-led Development
The government will not compete with, or crowd out, the private sector. Rather, it supports
agribusiness entrepreneurs through market identification, institutional development, product
promotion, and investment matching/promotion

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3. Advanced Technology-based Development
The initiatives of research and development institutions are geared towards product extension
through continuous innovation, in order to expand agribusiness industries and provide
convenient, ready-to-cook, attractive, high quality and nutritious consumer items.

4. Minimal Government Subsidy

The government, through the departments concerned, will focus on public investments in
infrastructure such as irrigation systems, farm-to-market roads, post-harvest facilities, terminal
markets and essential “public goods”.
5. Trade Liberalization
In compliance with policies of the World Trade Organization, the Asia-Pacific Economic
Cooperation forum and the Asian Free Trade Area, the Philippines is liberalizing trade in
agribusiness.
6. Broad-based and Transparent Program Implementation
The Department of Agriculture initiates and mobilizes the participation of private organizations,
NGOs, Agriculture and Fishery Councils, and the state colleges and universities in order to
integrate the involvement of key sector players.

Role of Agriculture in Economic Development

1. Contribution to National Income
2. Source of Food Supply
3. Pre-requisite for raw materials
4. Provision of Surplus
5. Creation of Infrastructure
6. Relief from Shortage of Capital
7. Helpful to Reduce Inequality
8. Based on Democratic Notions
9. Create Effective Demand
10. Helpful in Phasing out Economic Depression
11. Source of Foreign Exchange for the Country
12. Contribution to Capital Formation
13. Employment Opportunities for Rural People
14. Improving Rural Welfare
15. Extension of Market for Industrial Output

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 Agribusiness Commodity System
➢ Consist of institutions and processes involved in the production and marketing of a farm
commodity until it reaches final consumers.
➢ Consist of suppliers of farm inputs, farmers, processors, wholesalers, retailers, final consumers and
coordinating institutions and devices involved in the production and flow of a commodity to the
final consumers.
➢
Five Major Sectors Making Up the Whole Agribusiness System
1. Input Sector – the first sector from which all other agribusiness systems emanate. All inputs are
manufactured, imported or distributed.
2. Production Sector – inputs are directly used for production of an agricultural commodity as
end-product in itself or as a raw material for the production of other products.
3. Processing Sector- the commodities from the production sector are transformed into various
products.
4. Marketing Sector – this sector is concerned with the transfer of goods from source to end-users.
The Marketing sector may take the following routes:
a. Transfer of agricultural inputs from manufacturers to farm inputs users.
b. Transfer of commodities from production site to processing site.
c. Transfer of commodities from processing site to end-consumers.
5. Supporting Sector – consists of all key players that provide services, however, optional, but
crucial to the success of an agribusiness venture.

Nature of Successful Agribusiness

1. Clear objectives – determination of objectives is one of the most essential pre-requisite for the
success of business.
2. Planning - is a pre-determined line of action.
3. Sound organization – organization of business is a harmonious combination of men, machine
material, money management etc. so that all these could work jointly as one unit.
Organization is a systematic combination of various related parts for achieving a defined
objective in an effective manner.
4. Research - is a systematic search for new knowledge.
Market research enable a business in finding out new methods of production, improving the
quality of product and developing new products as per the changing tastes and wants if the
consumers.

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 5. . Finance - is said to be the life-blood of business enterprise.
6. Proper plant location, layout and size
7. Efficient management – it can make proper use of available resources for achieving the
objectives set for the business.
8. Harmonious relations with the workers

Common problems faced by agribusiness are:

(a) international trade barriers;
(b) limited access to credit, high interest rates and fluctuating exchange rates;
(c) poor trade policy;
(d) export and import taxes on raw materials;
(e) bureaucratic practices;
(f) high transportation costs;
(g) raw materials of poor quality and unreliable supply;
(h) The lack of support facilities; and
(i) the lack of professional managers.

The Agribusiness Enterprise Development

Drivers of Agribusiness Development

1. Scarcity of land and the need to improve productivities.
2. Markets, urbanization and increasing commercialization of Agriculture.
3. Need for change in scale and reorganization of production and marketing.
4. Economic liberalization, reducing government involvement, income growth, WTO and Trade.
5. Changing food consumption pattern and demand for quality and convenience.
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 6. Development of rural economy, infrastructure, rural-urban migration, and globalization.
7. Information and communication technology revolution.
Policies and Programs for Promoting the Development of Agribusiness Enterprises
From a macro perspective:
• a prudent macroeconomic policy should be pursued. This will ensure that the agribusiness sector
remains healthy.
• In trade policy, all export barriers such as export taxes for agricultural products and high import
tariffs on inputs required by the agribusiness sector urgently need to be eliminated and proactive
trade promotions pursued.
• In the investment sector, removal of all “red tape” for foreign investment in agribusiness would
help the sector.
• In addition, policies and programs need to emphasize:
(a) the creation of a conducive business climate and a level playing field for small-scale agribusiness
ventures;
(b) the strengthening of resource supplies and support institutions in rural areas; the provision of
needed investment in infrastructure and other public goods; and
(c) the provision of training for agribusiness enterprises.
At the micro level:
• emphasis needs to be placed on creating entrepreneurs;
• ensuring competitive products;
• stimulating local investors and human resource development;
• supporting business partnerships; and
• developing agribusiness terminals
❑ Some of these actions should be undertaken by the government, while others can be handed
over to the private sector. In short, what is expected from the government is the formulation of
policies that do not discriminate against agribusiness in trade and industry as well as related
macro policies. If this goal is achieved agribusiness enterprises will grow and become a leading
sector, thereby enriching the country.

Requisites for Initiating Agribusiness Ventures (Thomas Darmawan)

Market trends in Southeast Asia are defined by a number of factors including:
(a) the population, which is growing and getting younger;
(b) the economy, which is generally exhibiting strong growth in many countries of the region;
(c) increasing food imports;
(d) westernization of the diet;
(e) expansion of fast food outlets;
(f) the development of retail and distribution systems; and
(g) the improvement of market access

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 To further promote agribusiness development, the following strategies have been
suggested:
(a) the identification of competitive advantages;
(b) the preparation of business proposals;
(c) understanding the market;
(d) the identification of partner relationships; and
(e) the provision of adequate servicing of customers

Growth Trends and Prospects in the Food Sector

Agricultural Commodity Processors

and Food Manufacturers

Commodity – is an agricultural crop, livestock, or item that comes off the farm in its raw state.
Once the raw commodity has been altered by the processor so that it has been changed from its
initial form, it becomes a food product.
Example: Milk is a commodity, whereas cheese is a product.

Technology in Commodity Processing

and Food Manufacturing

- Advances in technology have allowed perishable food items to last longer without spoilage.
- The advances have created an entire manufacturing industry that can process commodities at lower
costs and in large quantities.

Size, Volume, Structure and Competition

Size – there are approximately 22,000 firms in the commodity processing and food manufacturing
sector.

Volume – processed food shipments which total about $395 billion annually, account for about 13
percent of all U.S. manufacturing activity and represent the largest single sector in the economy.

Structure – the structure of the food-processing industries has changed significantly.

Competition – despite the increased size of the larger firms, competition among the 16,000 firms in the
49 food-processing industries is fierce.

Processors

- is normally the first one in the marketing system to alter the form of a raw agricultural
commodity.

11 Principal Types of Food Processors

1. Canned food 7. Bakery

2. Frozen food 8. Grain Mill
3. Sugar 9. Confectionery
4. Beverage 10. Paper
5. Meat 11. Cotton

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6. Dairy

Livestock Processing
- is how animals are slaughtered and prepared in various ways for sale.
Example: Hamburger, steak, hotdogs, chops, etc.
Potato Processing
- It takes many forms.
- Potato chips and instant mashed potatoes are potato items that require significant processing.

Cotton Processing
- it starts with separating seed from lint or fiber. Once separated, the fiber is woven into cloth.
- the cloth is made into clothing and other products.

Wheat Processing
- involves milling grain into flour and baking a flour product.

Milk Pasteurization

Pasteurized – heated to a specified temperature to kill bacteria.

Homogenized – treated to disperse fat particles throughout the milk to keep the cream from rising to the
top.
- Milk is packaged in cartons of convenient sizes for customer use.
- Milk must be carefully stored in refrigerated areas in all phases of processing and marketing to
maintain the quality.

Poultry Processing

- involves slaughtering the animal, removing the feathers and internal organs, preparing the
desired cuts, and packaging the final product for sale.

Canning and Freezing fruits and Vegetables

- it involves cleaning, peeling, cutting, shelling, breaking (beans), blanching, cooking, canning
freezing, and other processing depending on the commodity.

Paper Processing

- it takes raw wood and makes it into a variety of products.

Poultry Processing
- involves slaughtering the animal, removing the feathers and internal organs, preparing the
desired cuts, and packaging the final product for sale.

Canning and Freezing fruits and Vegetables

- it involves cleaning, peeling, cutting, shelling, breaking (beans), blanching, cooking, canning
freezing, and other processing depending on the commodity.

Paper Processing
- it takes raw wood and makes it into a variety of products.

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Poultry Processing

- involves slaughtering the animal, removing the feathers and internal organs, preparing the
desired cuts, and packaging the final product for sale.

Canning and Freezing fruits and Vegetables

- it involves cleaning, peeling, cutting, shelling, breaking (beans), blanching, cooking, canning
freezing, and other processing depending on the commodity.

Paper Processing
- it takes raw wood and makes it into a variety of products.

Food Manufacturers

- improve the quality of the product, preserve it better, and make it more convenient for the
consumer to use.
- Produce baked goods, breakfast cereals, ice cream, and a huge range of other products.
- They take a raw agricultural commodity that has been changed in some way by a processor and
alter it into a food product that consumers desire.

Example: Milk Pasteurized Milk Ice Cream

Agribusiness Wholesaling

Wholesalers – are operators of agribusiness engaged in the purchase, assembly, transportation, storage,
and distribution of groceries and food products for sale to retailers, institutions, and business,
industrial, and commercial users.

Reasons Why Wholesalers Exist

• Credit – wholesalers make a wide assortment of products available to retailers, and in some
cases provide short-term credit.
• Savings – by purchasing large quantities of single products, wholesalers obtain price savings in
the form of volume discounts that retailers would be unable to obtain for themselves.
• Variety – wholesalers maintain a variety of products and inventory levels that retailers could not
sustain.

Types of Wholesalers

1. Merchant Wholesalers – take title to the goods they handle.

Types of Merchant Wholesalers

• General-line wholesaler merchants – handle a wide range of dry groceries, health and beauty aids,
and household products.

• Limited-line wholesaler merchants – handle a smaller range of dry groceries; most of their stock
tends to be canned foods, coffee, spices, bread, and soft drinks.

• Specialty wholesale merchants – handle perishables, such as frozen foods, dairy products, poultry,
meat, fish, fruit, and vegetables.

• Wholesale clubs – are hybrid wholesale-retail establishments selling food, appliances, hardware,
office supplies, and similar products to their individual and small-business members at prices
slightly above wholesale.

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 2. Manufacturers’ Sales Branches – are extensions of food-processing firms' marketing activity at
the wholesale level.
3. Agents and Brokers – are wholesalers that do not take title to the goods they handle.

Agribusiness Retailing

Agribusiness Retailers – include those businesses selling groceries, prepared foods, soft drinks, floral
products, clothing, shoes, furniture, home furnishing (from agriculturally derived products), and
other products.

Chain Stores – was the first major development in food retailing in US.
- is defined as the operation of 11 or more stores under a single owner.

Grocery store is near the end of the marketing channel, where agricultural products, as well as other
products, are purchased by the consumer.
Types of Grocery Stores
1. Supermarkets – offer the customer a full line of 10,000 to 15,000 items, in addition to many non-
food items such as cleaning products, health and beauty aids, and so forth.

Superstores – offer a greater variety of products than conventional supermarkets; constitute 25

percent of all supermarkets and result in 33 percent of supermarket sales.
2. Convenience Stores – a small store that is open for many hours of the day.
3. Superettes – a type of retail grocery store; usually a smaller grocery store that offers a variety of
food and non-food grocery products, and is usually located in areas not adequately served by
supermarkets.
4. Specialized food stores – usually sell a single food category.

Food Service Industry

- this industry is represented by the people and companies that serve food in hotels, restaurants, fast-
food chain stored, schools, military bases, hospitals, and prisons.

Types of Food Service Establishment

1. Commercial food establishments – make sales and profits from preparing and serving meals and
snacks for consumers.

Types of Commercial Food Establishment

a. Fast foods e. Recreation places
b. Full-service restaurants f. Cafeterias
c. Lodging places g. Drinking places
d. Retail Hosts h. Social caterers
2. Non-Commercial Establishments – these are places of business that offer food service as a
secondary service rather than as their main function.
Example: A hospital may operate a cafeteria, but the primary function of the hospital is still to
offer health care.

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 Related and Contributory Services

1. Standardization and Grading

Standardization – establishment of standards for matters such as quality, size, weight, and
color.
Grading – the arrangement of something, such as food, according to established standards and
criteria for quality.
2. Packaging
3. Storage
4. Order Processing
5. Inventory Control
6. Transportation
Most Common Methods of Transporting Commodities
a. Truck
b. Railroad
c. Boat
d. Airplane
7. Market Communications
8. Financing
9. Product Development
10. Market Research
11. Merchandising
12. Advertising
13. Regulation

Careers in Agrimarketing

1. Meat and Livestock Industry

2. Feed Industry
3. Fruits and Vegetables
4. Ornamental Horticulture Agribusiness
5. Cotton Industry
6. Dairy Industry

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UNIT 2

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Unit II. The Agribusiness Input Subsystem

The agribusiness system may be divided into four subsystems: 1) input subsystem, 2) production subsystem,
3) processing subsystem, and 4) marketing subsystem. This is a general sequence of the value chain. The value
chain involves a series of transformations. The systems are interactive, but they must always be market-
led.

Inputs are important factors in attaining farm productivity, in particular, and product/industry competitiveness, in
general. The efficiency of the transformation of inputs will determine the unit costs and quality of the
product. Among the major considerations are:

1. Quantity of Inputs
➢ In any factory/ production site or any processing firms which are dealing with living productive
units, there is an optimal quantity of inputs required to produce a product.
➢ For living productive units such as plants and animals, the level of inputs must be measured
according to their specific requirements for optimal growth as well as the total environment.
2. Quality of Inputs
➢ The quality of inputs impacts on productivity or efficiency. Poor quality of inputs will lead to
slow growth, poor product quality, and even high mortality.
3. Timeliness of Application
➢ Crops and animals have growth cycles. There are specific input requirements in every stage
of the cycle. Failure to observe this will eventually affect productivity, product quality, and
product costs. Delays in application will reduce its effectiveness, or could make it together
useless.
4. Cost of Inputs
➢ The choice of inputs affects the farm’s profitability. There are inputs that can be ideal for
productivity and quality criteria. However, their usage may not be cost-effective. High cost of
inputs would reduce the farm profits.
5. Combination of Various Inputs
➢ The appropriate combination of input use and timely application is an important consideration
in attaining plant or animal growth and quality. This is the primordial role of the manager or
entrepreneur.

Inputs

Transformation / Productivity/ Efficiency Criteria

Process/ Technology

*QUALITY
*QUANTITY
*UNIT COST Output
Figure 5. Factors that determine input efficiency

The input subsystem involves the supply of various combinations of inputs of farm production. It involves
many products and firms. Its delivery system has similarities to other commodity systems— production,
marketing, and distribution. Inputs are produced from a mixture of other inputs.

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Philippine Input Subsystem Scenario Crops
✓ Crops are land intensive. For centuries, farmers increased their production by increasing the area of
land they farmed.
✓ New land was a significant source of growth, but its future role is limited to few countries. The
alternative is to use existing land more efficiently, and efforts to do so have been largely successful.
Productivity gains have been achieved mainly by improving the availability and reliability of irrigation
and increasing the use of new seeds and fertilizer.
Classification of Crops According to Gestation Period

1. Annual Crops- These are crops that are harvested within one year after planting. Rice and corn are the
dominant annual crops of the Philippines. About half of the farmlands in the country are primarily
planted with these crops.
2. Perennial Crops- These crops have longer gestation periods and produce several harvests over their
economic life. Coconut, the major perennial crop occupies about 30% of the farmlands. Sugarcane
could either annual or perennial.

✓ Crops can be differentiated from livestock, poultry and aquaculture in terms of their land
requirements. Crop farming is sensitive to various features of the land, ex. Soils, terrain, rainfall,
humidity, and sunshine duration. A prudent business plan must give careful consideration to the agro-
climatic conditions. Soil analysis, for instance, is important in determining the mix and quantity of
fertilizers required.

Among the major inputs to crop productions are:

 Seeds and Planting Materials

 Fertilizers
 Crop Protection Products
 Farm Machinery and Equipment
 Buildings and Structure
 Irrigation

Seeds and Planting Materials

➢ Its selection should be based on the market demand for the product as well as the quality.
➢ The low productivity of crops in the Philippines can be attributed, in part, to poor quality
seeds or planting materials.
a. Seeds- the quantity of seeds used per hectare will depend on technical recommendations of
experts and/or suppliers. It would also depend on the quality of the seeds and type of technology
used.
b. Planting Materials- The quantity of planting materials used is primarily determined by plant
density. According to experts, higher plant density will normally yield higher production.

➢ The supply system of seeds in the Philippines is generally underdeveloped. The supply chain could
vary according to crops.
➢ Many seed companies are members of the Philippine Seed Industry Association (PSIA).

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Fertilizers
➢ Fertilizers are critical to plant growth. Low fertilizer use is among the major factors for generally low farm
productivity in the Philippines. Other important factors are low organic content of the soils following
many years of chemical fertilizer applications and inadequate knowledge of the importance of micro-
elements.
➢ Fertilizer marketing is fairly established in the Philippines and there are relatively few government
regulations.
➢ Despite of tight competition among players, the cost of fertilizers to farmers are relatively high. This is due
to high cost of distribution as a result of the following factors:
a. High transport and handling costs due to poor rural infrastructure and inefficient port services; and
b. The small purchases of small farmers who are largely unorganized and widely dispersed in the
countryside.
➢ Over the past decade, the use of organic fertilizer has dramatically increased due to the following
factors:
a. The loss of soil fertility due to incessant use of chemical fertilizer
b. The increasing use of by-products for organic fertilizer manufacturing; and
c. The increasing awareness of “balanced fertilization” which emphasizes the use of micro
nutrients.
➢ The major markets for fertilizers in the Philippines are rice, corn, sugarcane, vegetables, Cavendish banana,
and pineapple
➢ According to Philippine FPA, there are about 100 registered importers and 72 manufacturers, among the
key players are:
 Philippine Phosphate Fertilizer Corporation
 Atlas Fertilizer Corporation
 Soiltech Agricultural Products Corporation
 Farmix Fertilizers Corporation

Crop Protection Products

➢ Crop protection products include insecticides, fungicides, and herbicides, molluscicide, nematocides . Pests
and diseases are unavoidable in production units while native cultivars may have developed some
resistance to them; high yielding hybrids are easily susceptible.
➢ The industry is dominated by foreign brands which are sold by either subsidiary of multinational or their
agents.
➢ The following are the crops that are major users of crop protection products: rice, Cavendish banana, mango,
vegetables, corn, & pineapple.
➢ The following are the key players in crop protection: Bayer Philippines, Novartis, Jardine, Syngenta, etc.
➢ The use of crop protection products must be calibrated, due to the increasing concerns regarding the effects
of farm chemicals on environment, particularly on the soils and on the waterways.
➢ The introduction of IPM lessens the excessive use of farm chemicals by using biological control (using
beneficial insects).
➢ Two developments that have greatly benefited crop production are the use of bio-friendly bio-
pesticides and the advent of biotechnology.

Farm Machineries and Equipment

➢ Farm machineries generally include two-wheel or hand tractors, four wheel tractors, rice threshers, corn
shellers and pumps.

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 ➢ The market for farm machineries is heavily influenced by farm profitability because these are
products that require lump-sum investment
➢ The key players in the Philippine agricultural machinery and equipment industry are: Abomar
Corporation, Alpha Machinery and Engineering Corp, Honda Philippines Inc., Kubota Agro-Industrial
Machinery Philippines Inc., Kawasaki Motors Inc., Solanda Enterprises, etc.

Irrigation and Drainage

➢ Irrigation is very useful due to variation of rainfall pattern. It has several benefits:
a.It increases the use of land as it allows planting during dry season
b.It increases farm productivity
c.It provides an avenue for crop diversification
➢ There are many irrigation systems that are run-of-the-river gravity system which includes Magat River
Irrigation in Isabela, Upper Pampanga River Irrigation System in Nueva Ecija, Angat-Maasim River
Irrigation System in Bulacan.
➢ There are over 180,000 hectares under private irrigation, over 650,000 hectares under national
irrigation and over 480,000 hectares under communal irrigation system.
➢ Modern irrigation technologies such as drip and sprinkler irrigation are also used in banana
plantations.

Livestock

➢ Livestock accounts more or less 16% of the total agricultural production.

Swine

Inputs in swine production include: breeds, feeds, animal health products and farm structures and
equipments.

a. Breeds. Most of the pigs in the Philippines are descendants of various foreign breeds such as Duroc,
Landrace, and Yorkshire. Most Philippine commercial farms are sow-fattener operations, that is, they
maintain sows that will produce piglets for fattening. Breeding farms require high investments. Breed
selection is important. Good breeds deliver good production performance in terms of daily weight
gains, feed conversion ratio, and fat-lean meat ratio. New breeding techniques such as embryo
transplant and artificial insemination have led to better animals.
b. Feeds. Feeds account for up to 80% of the cost of production. Feed ingredients are mixture of many
products, mainly corn, soybean meal, full fat soybean, fish meal, rice bran, etc. The proportion of
each will depend on the availability, the price, and the growth stage of the animal. Feeds can be in form
of pellets, mash or crumble. Many feed milling industries are owned by integrators. These are firms
involved in contract breeding and growing of chickens. The following are the major feed millers in the
country: San Miguel Foods BMEG Division, Swifts Foods Corporation, Pure foods
Corporation, Vitarich Corporation, Universal Robina Corporation, Purina Philippines, CJ Philippines,
Superfeeds Corporation, etc.
c. Animal Health Products. Animal health products include biological, pharmaceuticals and feed
additives. The major players in animal health industry are: Bayer, Novartis, Unacho ,JM Mendoza
Enterpises, Pfizers Inc., Univet Agricultural Products, etc.

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 d. Farm Machineries. The farm machinery requirements of the commercial hog business are fairly
diverse, including feeding equipment such as hammer mills and mixers, water servers, and laboratory
equipment.
e. Buildings and Structures. Swine require building designs and specifications suited to the growth stage
of the pig. Such structures include sow, nursery and, grow out areas; ventilation systems; water
systems; wastes disposal systems; and waste treatment plants.

Cattle

The cattle industry account for more or less 16% of the livestock sector. The major inputs of cattle feedlots include:
feeder cattle, roughage and forages, feed concentrates, animal health products, farm machineries and building
and structures.

a. Feeder Cattle. Supply of feeder cattle in the Philippines comes from two sources: cattle ranchers
and imports. Importation of feeder cattle is not regulated; large feedlot operators can import on their
own. Cattle are usually fattened over several months prior to sales.
b. Roughage and Forages. Roughage and forages comprise the bulk of the cattle ration. It includes
sugarcane tops, Napier grass and corn plant. As a key input source, it is important that the supply is
not too far from the cattle feedlot.
c. Feed Concentrates. Feed concentrates provide the vitamins and minerals.
d. Animal Health Products. Its same with those used in swine production, the only difference is the
feedlots increasing use of growth hormones.
e. Farm Machineries and Structures. It includes water supply equipment, tractors for manure disposal
and weighing scales. The structures are fairly simple and open buildings.

Poultry

➢ The poultry industry in the Philippines comprises chicken meat, chicken eggs, duck meat and duck
eggs.
➢ The chicken industry has the same types of inputs as the swine industry like breeds, feeds, animal
health products and farm machinery and structures.
➢ Under contract growing agreement, the company supplies the day-old chicks (DOCs) and provides the
feeds, vaccines, and technical services. The grower provides housing, labor, medication and
equipment and utilities.
a. Breeds. The DOCs used by broiler contract growers of the poultry integrators come from a long line of
activities. Some of the poultry integrators are San Miguel Foods, Swift Foods, Vitarich, and
Purefoods. The harvested eggs are collected by the integrators and brought to either company-
owned or contract hatcheries. The eggs from the contract breeders are picked up by the integrators for
hatching (21days) in contract hatcheries. The female DOCs are sold to layer farms, while male
DOCs are brought to broiler contract growers. In 38-42days they are harvested and picked up by the
integrators and brought to company-owned or contract dressing plants.
b. Feeds. Feeds are supplied by the integrators following their standard requirements. The pre -mixed
feeds are delivered to the contract grower on a periodic basis.
c. Animal Health Products. Following the contract growing agreement, the grower will provide the
animal health requirements, except the vaccine as vaccination is undertaken by the integrator.
d. Farm Machineries. The housing and other facilities of the broiler farm include brooding and feeding
equipment as well as ventilators and water pumps.

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The Agribusiness Production Subsystem

➢ It is a transformation process where resources are combined to produce a specific output. These
resources include land, farm inputs, labor, and other resources.

Elements in an Efficient Production Subsystem

1. Market Orientation
➢ Every production subsystem must be market-led. It is the market forces that determine what products
to produce, not the producer. Market-led production is the only basis for long term sustainability. (The
products of today may not be the right products for tomorrow and the market today may not be the
same market in the future.)
2. Location
➢ The farm location is an important competitive element. A farm may have the right product, but it is
not sustainable since it is poorly situated. Among the key considerations are the following:
a. Crop Choice. Most agricultural products have certain level of perishability which requires
specialized handling for it to reach the market at the quantity and quality desired by the
customers.
b. Availability and/or Cost of Land. Select the crop and find the suitable land rather than “force- fit”
a crop to one’s existing land. Comprehensive Agrarian Reform Law in the Philippines in1988 limits
the ownership of large track of land for plantations. Alternative farm modalities such as
contract growing and joint ventures have been formed in response to this limitation.
c. Agro-climatic factors. These include soil type, terrain, rainfall patterns, sunshine duration, wind
velocity, humidity, etc. To thrive well, crops require specific types of soil, terrain and climate.
d. Access to market. Distance to the market influence marketing and distribution costs as well as
timeliness of product delivery of the product. An enterprise may be competitive at farm level but not
at customer level due to high cost of distribution.
e. Support Industries. These are industries that provide goods and services to agribusiness firms
which include supply of inputs, packaging materials, transport and storage services and financial
institutions. Their presence provides the locator with the so-called “economies of scope”.
f. Existing Infrastructures. These include the irrigation and water supply power,
telecommunication facilities, and transport network.
g. Availability of Labor. The supply of labor is critical in large operation. If the crop being produced
has similar cropping calendar as the major crops in the area, the supply of labor could be tight.
Training of permanent employees is a must.
h. Local investment climate and amenities. This includes peace and order situation, support
from local government s as well as presence of amenities such as schools, hospitals and
recreation facilities.
i. Technology. It means the combination of farm inputs, the density of planting, the type of
irrigation, and the methods of land preparation, harvesting and handling of produce. Technology
influences productivity, product quality, and production costs. There is no need to develop new
technology if they can be acquired elsewhere and they can be adapted to local condition.
j. Timely availability of resources. Since agribusiness is dealing with live productive units, delays
in application of appropriate farm inputs will affect productivity and product quality.
k. Management System. The application of production management techniques influences farm
profitability and sustainability

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Traditional Concepts of Production

Traditional production model relate production with factors of production which includes land, labor and capital.
According to Heady and Dillon (1961), management is not included as input since there is no objective
measure available in the data.

Land Labor Capital

Production

Figure 6. The traditional paradigm for production subsystem

New Paradigm of Production

Under new production paradigm, management and entrepreneurship together with technology are highlighted.
In new and emerging businesses, entrepreneurship is a major element. Entrepreneurs are innovator; they
find new markets for existing products, new products for existing market and new processes or ways of doing
things.

Land Labor Capital

Technology Production Entrepreneurship and Management

Figure 7. New paradigm for production subsystem Types of Production

Subsystem

It includes crops, livestock and poultry. The common thread in the discussion is the imperative of global
competition and sustainability. The following are the important elements: production quantity, quality, price/ cost,
and service delivery.

Production Sectors

1. Crops
➢ Crop production dominates the agriculture landscape in the Philippines. Crops account for more than
half of agricultural output. These provide the, main source of income to some 35% of the Filipinos.
➢ The major crops in term of hectarage are rice, corn, coconut, and sugar. In terms of value, they are
rice, coconut, corn, banana, sugarcane, mango, pineapple and coffee.
➢ Crops contribute about 60% of total agricultural exports. The major contributors are coconut, banana,
and pineapple. Most of these exports come from Mindanao.
➢ There were about 10million hectares of agricultural lands out of total land area of 30 million hectares.
➢ Philippine agriculture is primarily composed of small farms. The average farm size is 2.2ha. Some
37% of the farms were less than one hectare. More or less 76% of the farms were owner-operated or
part owner-operated and only17% is tenant operated.
➢ The average farm productivity in the Philippines is generally, low. There are many causes, including
inadequate irrigation facilities, low utilization of good seeds and planting materials, low fertilizer
usage, high concentration in rice, corn and coconut, lack of all-weather roads, inadequate access to
credit, inadequate investment in research, ineffective extension system, and past policy biases

21
against agriculture in favor of manufacturing. On the other hand, high productivity and quality are notable in
Cavendish banana, pineapple, palm oil, asparagus, tomato, rubber, mango and durian.
The Key Result Areas

✓ Increasing productivity
✓ Maximizing land utilization
✓ Expanding its diversity

Increasing Productivity

➢ Productivity can be analyzed on the basis of input-output framework. This could mean:
 Increasing output from same level of inputs
 Increasing output from increased level of inputs; and
 Increasing output from the lower level of inputs
➢ Productivity improvements are predicated on a change in the traditional ways of thinking and of doing
things. This implies a “paradigm shift”- the application of right management skills on the enterprise. This
means efficiency in resource use; use of recommended level of inputs; and timing.
➢ According to experts, use of good seeds can increase productivity by about 10%. They also reckon that
less than 20% of the rice farmers use good seeds. Rice seeds must be replaced after four
seasons.

Maximizing Land Utilization

➢ The land utilization in the Philippines is not optimized compared to other Asian countries such as
Taiwan, South Korea, Japan, and Indonesia.
➢ There are many cropping systems that can maximize land use. Among these are:
a. Sequential Cropping of annual crops
b. Strip Cropping of annual/perennial crops
c. Intercropping of primary crops
➢ There are also cropping systems that integrate crops with livestock.

Expanding Diversity

➢ Diversification is not an easy process; it must be market-led. Taiwan and Thailand agriculture are
highly diversified because they have most of the ingredients for success (access to right seeds and
planting materials, good technical advice, access to markets, etc.).

Table1. Key Players in Crop Production

Crop Company
Banana TADECO, DOLE, SUMIFRU,
Pineapple Del Monte Philippines, DOLE Philippines, Unifrutti,
SUMIFRU, Lapanday Diversified Foods
Palm Oil Filipinas Palm Oil Industry Inc., Agusan Plantations
Inc.
Mango Marsman-Dyscale Group, AFC Agribusiness Corp,
Dacon Group

Ingredients of a Competitive and Sustainable Production

✓ Crops must be market-led

✓ Access to new technologies

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 ✓ Choice of seeds and planting materials
✓ Choice of appropriate irrigation and drainage system
✓ Access to cost-effective farm inputs and their proper application
✓ Effective crop husbandry
✓ Proper harvesting techniques
✓ Handling, on-farm packaging, and storage of produce

Impact of Government Policies and Programs

➢ Government affects the viability of enterprises through the policies and programs it implements.
Among these policies are:
 Taxes on outputs and inputs, which would impact on enterprise sustainability
 Overvaluation of the currency, which reduces the revenues of exported products
 Government infrastructure spending such as those on irrigation and roads, which can reduce the cost of
doing business
 Monetary and fiscal policies, which influence the cost of money as well as taxes on incomes
➢ The government also ensure adequate institutional support is provided in the following areas:
a. Expansion and revitalization of productivity programs
b. Quick response/ intervention to calamity and disaster situations
c. Irrigation
d. Farm-to-market roads and related infrastructures
e. Agriculture research and development
f. Extension, education and training
g. Rural finance
h. Food price stabilization
i. Private sector participation and empowerment of farmers
2. Livestock
➢ Livestock production in the Philippines comprises swine (hog), cattle, carabao, goat and dairy. Swine
dominates the livestock sector.
➢ The country is short on beef supply. Thus, import is resorted to in the form of either live cattle for
fattening or frozen beef primarily for canning and restaurants.
➢ In 1995, the Philippines joined the World Trade Organization (WTO). As a quantitative restriction on
imports of pork and chicken where lifted and the protection was tariffied.
➢ Domestic meat consumption in the Philippines is relatively low compared to other Asian countries.

Farm Structure in the Philippines

➢ Hog production in the Philippines is primarily backyard or small-scale operations. The following
are the key players in swine/hog production:
 Monterey Farm
 Foremost Farm
 Universal Robina
 Nenita Farm
 Holiday Farm
➢ Among the major cattle feedlot operators are the following:
 DEALCO Farms
 Del Monte Phils.
 Monterey Farms

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Key Result Areas in Production Management
➢ Livestock production management entails right combination of inputs and timely management to
produce a competitive product. These include:
a. The breed that will be marketable and that will respond to good management in terms of the
weight gain, meat-fat ratio, etc.
b. The proper nutrition based on the combination of various feed ingredients at optimum costs.
3. Poultry
➢ The poultry industry in the Philippines is relatively well developed. The integrators import
grandparent stocks which they grow in their own farms. The parent stock is reared by contract
breeders.
➢ The key players are the following:
 Swift Foods Inc.(Swift)
 Vitarich Corporation(Cooks)
 San Miguel Foods (Magnolia)
 Purefoods (Purefoods)
 First Farmers Corp. (First Choice)

Key Result Areas in Production Management

✓ It must be market-led
✓ A good breed that will provide the optimum growth
✓ Proper nutrition based on the cost-competitive mix of feeds and feed ingredients
✓ Good housing and sanitation
➢ Among critical factors to watch are mortality and feed conversion rates.

Table 2. Contribution of Subsectors in Agriculture and Fishery Growth (2004-2010)

Percent Contribution to Growth
Sector Average
2004 2005 2006 2007 2008 2009 2010
Palay 1.3 0.1 0.8 1.0 0.6 (0.5) (0.5) 0.40
Corn 1.0 0.2 1.0 0.7 0.2 0.1 (0.6) 0.31
Coconut 0.0 0.1 0.0 0.0 0.1 0.1 (0.0) (0.02)
Sugarcane 0.2 (0.2) 0.2 (0.2) 0.5 (0.2) (0.4) (0.02)
Banana 0.1 0.3 0.2 0.3 0.5 0.1 0.0 0.22
Other Crops 0.1 0.2 (0.02) 1.3 (0.3) (0.4) 0.4 0.16
Livestock (0.1) 0.3 0.3 0.3 (0.1) 0.1 0.2 0.13
Poultry 0.5 0.0 (0.0) 0.0 0.5 0.2 0.4 0.22
Agricultural 0.2 0.1 0.2 0.2 0.1 0.1 (0.1) 0.11
Activities
Fishery 1.9 1.3 1.3 1.6 1.3 0.6 0.4 1.21
Source: BAS, 2011

Table 3. Value of Philippine Agricultural Exports and Importsin 2004-2010(in million)

2004 2010
Item Export Import Trade Export Import Trade
Balance Balance
Meat and Meat Preparations 4.3 150.9 (146.5) 39.4 381.6 (342.3)
Dairy Products and Bird’s Eggs 75.1 482.5 (407.4) 142.1 743.7 (601.6)
Fish and Fish Preparations 413.4 37.0 376.4 633.8 136.8 497.0
Cereal and Cereal Preparations 44.5 659.2 (614.7) 98.5 2446.3 (2347.8)
Vegetables and Fruits 783.4 102.9 680.5 916.6 282.7 633.9
Sugar and Sugar Preparations 102.3 70.2 32.1 105.1 369.5 (264.4)

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 Coffee, Tea, Cocoa and Spices 14.1 90.0 (75.9) 13.0 237.6 (224.7)
Crude Rubber 36.1 31.9 4.1 55.9 24.2 31.7
Fixed Vegetable Oils and Fats 581.3 71.0 510.2 1269.8 39.1 1230.7
Others (tobacco, fertilizer,etc.) 452.1 1647.7 (1195.6) 823.6 2669.6 (1846.0)
Total Agricultural Exports/ Imports 2506.7 3343.5 (836.8) 4097.6 7331.2 (3233.6)
Source: BAS, 2011

The Agribusiness Processing Subsystem

➢ The processing subsystem is strategic because it provides competitive advantage to an otherwise raw
and undifferentiated agricultural product. Processing makes the product palatable, portable and
preservable.
➢ Processing must be seen as provider of better alternative that would satisfy the costumer’s wants
and needs better than that of competitors.

Processing Factors

1.Processing Technology
➢ It is important that technology to be used meet the requirements or preferences of the market.
➢ The processing process is also determined by the product specification.
➢ It is not enough that the most effective technology be selected; one must also consider the cost of
the technology.
➢ The level of mechanization one adopts does not only depend on the nature of the production process,
but also, on the cost of labor in the site.
➢ Considering the seasonality of agricultural products, capacity utilization of the processing equipment is
needed to be considered. The potential negative effects of the technology on the nutritional quality of
their products.

Agro-processing Operations

Conditioning Storing Separating Concentrating

Cleaning Handling(temperature and Cutting Heating(air, water)
humidity control)
Sorting Ventilation Crushing Pressure
Grading Pest & Insect Control Rolling Vacuum
Drying Shearing Distillation
Cutting Milling Centrifugal(acceleration)
Screening
Vibrating
Centrifuge
Floatation
Aspiration
Enzyme treatment
Chemical Extraction

Mixing Forming Stabilizing Packaging

Agitation Molding Curing Canning:
Aeration Extruding Fermentation Aluminum
Measuring Drying Tin
Blending Aggregation Steel
Pelletizing Cooling Glass
Freezing Paper

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 Freeze drying Plastic
Heat(sterilization) Aseptic
Controlled Atmosphere

2. Plant Location
➢ The location of the processing plant is critical due to its implication on the quality of raw materials
and on the cost of the raw materials and so with the product.
➢ There are some products that require immediate processing, thus, requiring such plants to be located
near to the raw material source.
➢ In choosing plant site, one must also consider the following:
✓ Cost of the land
✓ Availability of required labor
✓ Infrastructure
✓ Electricity
✓ Water
3. Inventory Management
➢ The task of inventory management becomes more critical in agribusiness firm due to the
seasonability.
➢ Perishable materials may need less storage capacity but more processing capacity.
➢ The physical facilities must be properly and adequately constructed so that the quality of the raw
materials and finished goods do not deteriorate easily.
4. Packaging and Other Inputs
➢ Packaging performs important functions which includes the following:
a. It protects the product’s quality
b. It facilitates the product’s transportability
c. It enhances the product’s identity and adds value through differentiation
➢ The agribusiness manager must also be concerned with source of plant’s inputs

5. Programming and Control

➢ Once the processing of agricultural product begins, an agribusiness manager has to anticipate the
required steps to ensure the orderly flow of materials (supplies, goods in process, finished products)
and implement the anticipated tasks to meet the desired outcomes.
➢ The quantities and delivery dates of raw materials in relation to processing requirements must be
foreseen. This is to have less work in process, reduced stock inventories, and faster turn over
➢ To do these functions, production shifts must be planned and coordinated so that the firm can deliver
the buyer’s supply orders in a coordinated fashion and avoid additional expense in storage or
penalties due to delayed deliveries.
➢ The quality of the product is another concern for monitoring and control. Globalization of markets has
put greater pressure on upgrading food safety regulation.
➢ It is not only socially responsible but also cost effective for processing firms to ensure that their
operations do not produce emissions and waste that are damaging to the environment as part of
their increasing concern for environmental protection.
6. By-products

➢ The nature of agro-processing which it uses a lot of biological materials, managers need to be
concerned not only about the environmental effect of its by-product’s, but also the economic
opportunities that can be derived from such “wastes”.

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Problems in the Food Processing Sector in the Region

➢ The food processing industry in most parts of Southeast Asia are seen as contributing as: contributing
to employment generation, valuing of agricultural products, mobilization of savings in rural areas, and
eventually facilitating the development of advanced food processing industries.

➢ The main problems of small-scale food processing industries are the following:

a. Insufficient supply of quality raw materials for processing due to inefficient agricultural production and
marketing systems;
b. Low level of technology
c. Lack of research and development at factory level
d. Competitive market or low access to large markets
e. Inconsistency in product quality due to poor practices
f. Lack of cooperative efforts among small-scale processors to advance their interests
g. Inability to meet food safety regulations and packaging requirements
h. Poor access to financing institution which have more confidence in big industries
i. Inadequate management skills

The Agribusiness Marketing Subsystem

Classification of Agribusiness Products

1. Fresh Agricultural Products

➢ These are products freshly or directly harvested from the farms, which do not pass higher level of
transformation. Fresh agricultural products are cleaned, sorted, and graded according to
standards or grades desired by the markets.
2. Semi-processed Agribusiness Products
➢ These are products that underwent secondary or second level of transformation. These are in
forms which are for use by other industries and processors but may not be consumed. Example:
stripped abaca, crude coconut oil for refining, raw sugar, ube powder, hand paper for box making,
leather, natural rubber, etc.
3. Finished Products
➢ These are agribusiness products that may be directly consumed by buyers. These are not
intended for further processing. Example: dairy products, woodcarvings, tire, processed meat,
canned fish, herbal soap.

Characteristics of Agribusiness Products

➢ Agribusiness products are agriculture and agriculture-based. It is more difficult to produce

products of uniform characteristics even in a single farm.
➢ The characteristics of agricultural products are largely determined by their inherent
characteristics, the production process and the postharvest handling activities performed for
these products.
➢ These products are perishable, seasonal and do not have exactly the same physical attributes.

Classification of Marketing Activities

1. Transactional Activities
➢ These are exchange activities which lead to the transfer of ownership or property rights.
Examples of these activities are buying and selling, negotiation and risk taking.
2. Physical Handling and Distribution of Products

27
 ➢ These refer to activities which enable the different parties to have physical possession of the
product. These activities are concerned with the physical supply of the product and include
assembly and storage, grading, packing and processing and transportation
3. Facilitating Activities
➢ These are activities which create faster and more efficient performance on transactional and
physical handling activities. These include market intelligence and marketing information
dissemination, financing, provision of marketing support facilities, and promotions.

Key Players in Marketing Subsystem

1. Input Sector
➢ The input sector is the start of the agribusiness marketing chain. Participants include
manufacturers, dealers, brokers, and other types of intermediaries involved in the production and
distribution of farm and agro processing inputs.
2. Farm Sector
➢ The farm sector contains the primary (crop) and secondary (livestock) factories of agriculture,
which produce raw materials for consumption and for further processing.
➢ Marketing participants are the farmers and several layers of middlemen generally termed as
wholesalers, retailers, local buyers, assemblers, dealers, or brokers, who are mainly involved in
the trading of products in their fresh or raw forms.
3. Processing Sector
➢ Regardless of the scale of processing activities, processed products are usually marketed
through intermediaries. These intermediaries mainly handle semi-processed or finished agro-
based products.
4. Agroservices
➢ These entities which function mainly as provider of services to facilitate performance of
production and marketing functions. Some of the agroservices provided are in the areas of
technical assistance, financing, warehousing, market information dissemination, and breeding
services.
5. Marketing Sector
➢ The marketing sector forms the links between the other sectors mentioned. This sector is playing
a different role in the physical movement of products from one sector to another.

Middlemen Classification

1. Assemblers
➢ There are usually rural traders or barrio buyers who do the accumulation of the produce of
individual farmers and bulk these for storage or for distribution to wholesalers.
2. Wholesalers
➢ Wholesalers are those who usually handle products in bulk or in big volumes and sell to retailers,
to processors, or to other wholesalers. They do not deal with the end-users of the products. They
operate between the processors and the end users. For a sustainable wholesaling operation, the
requisites are substantial working capital; access to or availability or market facilities and
communication and transportation vehicles; and ability to conduct market research.
3. Retailers
➢ Retailers are intermediaries who deal directly with the end-users or the customers. They are the
wholesalers’ partners in distribution activities. They usually have their own outlets in places
convenient for them and the consumer. There are also retailers who buy in bulk and repack or

28
reprocess the products for easier disposal. Retailers usually carry an assortment of different product types.
4. Agent and Brokers
➢ These are the types of middlemen who do the business negating in behalf of the producers and the
buyers. The function mainly as intermediaries who bring the two parties together. They don’t get
profit or assume ownership of the product in their selling and distributing activities. Instead, they do
get incentives in the form of commission which is set as percentage of sales.

Marketing Functions

1. Negotiation
➢ This is a function which facilitates transfer of ownership. The negotiation function starts with
finding the buyers and bringing the sellers and buyers together to make arrangements.
2. Assembly
➢ Assembly is being done by an intermediary to accumulate the produce of many small farmers or
producers to attain desired volume. This is usually done at the farm level by rural traders or barrio
buyers who usually have job orders from bigger towns and provincial buyers or processors.
3. Grading
➢ With the variability of the agricultural outputs, grading must be done to facilitate buying, selling,
transportation, storage and pricing of the produce. Grading is done to standardize
measurements, which could be in terms of size, weight, and over-all quality.
4. Storage
➢ This is a function which is done primarily to make goods available when it is needed either for
processing or for consumption.
5. Processing
➢ Processing, though oftentimes not considered a marketing activity, is largely a marketing
function. This is because agribusiness products must pass through some level of transformation
before being made available to the users. Processing increases marketability of products by
changing product forms.
6. Packaging/ Packing
➢ Packaging is defined as the total product presentation. Agribusiness products, whether in fresh,
semi-processed, or processed forms, must be packed in acceptable and recommended
packaging materials. Packaging serves to protect, prolong shelf life, increase product storability,
facilitate product handling, and improve overall presentation to make products appealing to
buyers.
7. Financing
➢ Financing is important to handle all market-related costs and problems. Finances for
agribusiness marketing could be sourced from banking institutions. Oftentimes, the middlemen
themselves finance their operations to avoid delays in the performance of other marketing
activities.
8. Risk-taking or risk-bearing
➢ Associated with any type of business activity is the loss incurred from operations. This could be in
form of physical damages due to natural causes or it could be in the form of loss associated
with the changes in and cost of raw materials, and prices of products handled.
9. Market Intelligence/ Market Research
➢ Market intelligence serves as a very important input in this process of conceptualization. This is
being done to assure that there is a product-market fit, that is, the produce must much with what
the end-users want

29
 ➢ Market research is the process of gathering and analyzing relevant market information for the
purpose of making and fine-tuning marketing decisions to respond to the ever-changing
consumer preferences.
➢ Market research also helps in mapping out competitive strategies, especially now that there are
many firms competing in the market place.
➢ Establishment of warehouse/ storage facilities, construction of farm-to-market roads, exportation,
and importation are all dependent on the gathered market information, which is a product of
market intelligence.
10. Promotion
➢ Promotion is a continuous function of marketing. The objective of promoting goods and services is
to inform prospective buyers of product availability and also to increase sales. Promotion must be
done to capture markets and to develop brand loyalty.

Issues in Agribusiness Marketing in the Philippines

1. Inefficiency
➢ It is defined as the failure of the source or the producer to bring the produce to the market at the
time it is needed and at the lowest possible cost. Agricultural products are perishable and must
reach the consumption units at the shortest possible time.
➢ One of the reasons for this is the nature of agricultural products. Agricultural products require
certain levels of post-harvest handling before being made available for sale. Another
characteristic of agricultural product is bulkiness. Handling and transporting bulky products are
usually more difficult, thus, delaying distribution time.
➢ Another reason is the distance of farms to major markets. There is concentration of farms or
production areas brought about by climatic requirements. Physical distance, coupled with the
lack of transportation facilities also result in slow market information dissemination, especially on
the farmer’s part.
➢ The aforementioned reasons result in high cost of marketing and this puts a strain in the
marketing system because of the usual mismatch between what the consumer require and what
the farmers can deliver.
2. Dependence on Middlemen
➢ Agricultural products are marketed through certain levels of middlemen, depending upon the
volume of products and the distance to the markets. The reasons for farmers’ dependence on
the middlemen are the following:
a. Smallness of farmers’ scale of operations
b. Producers’ lack of market awareness
c. Increasing importance of middlemen’s participation in the production and harvesting process.

Specific Issues in Agribusiness Marketing

Farmers Level

1. Low prices of agricultural produce/cost price squeeze

➢ The perfectly competitive structure of agricultural products market tends to make farm gate prices
close to the cost of production. We can say that the farms are squeezed in between two big
sectors- the input sector which is dominated by big, powerful firms and the processing or the
marketing sector which is also dominated by bigger companies. In terms of bargaining power,
we can say that the farm sector is not powerful since the majority of the farmers are small. Hence,
they cannot dictate prices at both ends. They are price takers. These result in low profits at small
farmers’ level.

30
 2. Perceived lack of buyers or markets
➢ The problem is that there is mismatch between what farmers are producing and what the buyers
require. There is also mismatch between the strict requirement of processors for the quality of
raw materials that enter into their production and the low concern for quality control standards
among farmers.
3. Poor access to major markets due to lack of market infrastructure
➢ The market is available but the problem lies in the poor transportation and post harvest
infrastructure which impede the timely distribution of the commodity to the buying and
consumption centers.
4. Lack of relevant market information
➢ The aforementioned problems become even more serious with the unavailability of relevant
market information. The farmers, who are usually located in the provinces away from urban
centers, have poor access to market information.

Traders’ Level

1. Irregularity of volume available products and inability of farmers to meet demands

➢ The seasonal nature of agricultural products results in unstable supply, which put a strain on the
marketing system because the demand for such products is more stable. This strain is usually
shouldered by the traders. Their concern is to make the needed products available for sale
increases the cost of production since they have to go out of their usual channels and contact
other suppliers to meet what the market requires.
2. Lack of market infrastructures, which results in increased marketing cost and delayed distribution
➢ The traders’ problem caused by lack of market infrastructure is even more than what the farmers’
experiences. This is because traders perform more marketing functions than the farmers. This
situation increases the risk, which the traders have to bear.
3. Competition due to relatively many traders handling the same products
➢ Traders compete not only in sourcing fresh agricultural products for sale, but also in marketing
these products. There are just too many of them in the market that prospective buyers have the
option to switch from one trader to the other.

Consumers Level

1. High prices of agricultural produce

➢ The high price of agricultural produce available in the market is due to the wide marketing spread
and marketing charged by those within the marketing chain.
2. Variability in quality of agricultural products in the market
➢ Many markets where agricultural products are not graded and so, consumers cannot get the
same quality of products per purchase lot.

Marketing Considerations and Strategies for Agribusiness Products Fresh

Agricultural Products

1. Product Strategies for Farm products

➢ Product strategies are changes made to physical products to make the more attractive and
saleable to consumers. This is usually termed as value adding for farm products.
➢ A good product in itself sells and increases competitiveness in the market.
➢ Foremost in making a product competitive is its total presentation, which is quality and
packaging. A producer must be aware and cautious of quality not only during post-harvest stage

31
but also before and during production stage. How the product is graded and packed depends on the target
market.
2. Pricing Strategies
➢ Price is defined as the value of a product expressed in monetary terms. Setting prices for fresh
agricultural products is relatively difficult because of the perfectly competitive nature of the
market.
3. Distribution Strategies
➢ Farm products have a wide distribution network. However, there are still surpluses in producing
areas and deficiencies in non-producing areas due to transportation and communication
difficulties. The archipelagic nature of the Philippines makes a very long chain and takes time in
distributing agribusiness products. Movement from island to island requires the services of sea
vessels which could be costly, and with adequate capacity or facilities to properly accommodate
products to be transported. While this constrains producers to do direct marketing activities, it
also opens up a very good entry point for the middlemen. Distribution should therefore be viewed
as farmer middleman partnership.
➢ If farmers already have existing buyers or partners in distribution, this partnership must be
strengthened.
➢ The established partnership should not limit to both parties to expand their market coverage.
Market development through networking must be done for market expansion.
4. Promotional Strategies
➢ With a very little differentiation on agricultural products, these are rarely promoted. Promotion
entails cost, only big companies which have the resources and branded products to sell have
the capability to advertise.
➢ Small producers may promote either through trade fairs and market matching activities which
are being conducted by the organizations.

Semi-processed and Processed Products

1. Product Strategies
➢ Aside from high quality and well-packed products, innovation is very important to create new
products for the market. New products are needed because of the growing obsolesce of existing
products. New products must be introduced, but before doing so, these must be branded and
labeled. Brands and label help products to be established and to have firm position in the market.
➢ Another product decision that an investor in processed products must make is the determination of
the level of product mix that he can handle. Product mix strategies are dependent on the
company resources and market sizes for such products.
2. Pricing Strategies
➢ There are three factors that must be considered in price determination: demand, cost and
competition. Pricing strategies are categorized into demand-oriented, cost-oriented and
competition oriented strategies.
➢ Cost oriented pricing strategies are usually adopted by processing enterprises. Mark up pricing is
the most commonly used cost-oriented pricing method. Fast moving items have lower mark up
as compared to slow-moving items.
➢ Prices of exported products are largely determined by the world market situation.
3. Distribution Strategies
➢ The target market is the most determinant in the design of distribution strategies of the
processing companies. For exported products, processors either export directly or sell to indirect
and direct exporters. The decision as to whether to export directly or not depends on the volume
of the produce

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 ➢ Locally distributed products have two groups of target markets: institutional or organizational
markets and consumer markets. Institutional buyers usually buy directly from the processors. On
the other hand, products for the consumer markets go to retail stores like supermarkets, grocer
shops, and convenience stores.
➢ Handling and transportation of processed products is relatively easier because these products are
usually packed and standardized.
4. Promotion Strategy
➢ The Department of Trade and Industry conducts annual exhibit and trade for food and nonfood
products. This serves as a good vehicle for processors to promote their produce. Membership in
export associations and processors association is also a way of promotion since these groups send
trade representatives who promote products of member-enterprises or companies. They also
conduct market networking activities abroad.
➢ Processors also use advertisement to promote their products. These advertisements are either
through print media, television, and point of purchase displays.
➢ The improvement or development of marketing of fresh and processed products must be a joint
effort of the business sector and the government.

Importance of Marketing Research for Agribusiness Marketing Decisions

➢ Marketing research works on the idea that marketing starts when the producer first conceptualizes
products to be produced and that marketing research serves as very important input in this process of
conceptualization. This is being done to assure that there is product-market fit, that is, the product must
match what the buyers want.
➢ The design of marketing strategies is heavily dependent on the result of the market research. A
knowledge of the market is a very important in the marketing decision-making process and this could
be gained only through careful market research.
➢ The importance of market research to agribusiness enterprise are the following:
a. It reduces uncertainty in formulating marketing strategies or marketing plans
b. It helps us continuously monitor marketing activities based on plans prepared.
c. It helps us identify market entry points or opportunities. Through the conduct of marketing
research, gaps in the market are identified, which serves as opportunities for new entrants.

Future Trends in Southeast Asian Markets

➢ For the past two decades, Southeast Asian agricultural economies are moving closer towards agro-
industrialization. This development has provided opportunities and challenges for South East Asian
countries to develop non-traditional exports manufactured out of the traditional agricultural products
that many neighboring countries were found to produce and export.
➢ The increasing globalization of markets has exposed Southeast Asian consumers to new products, new
presentation, and better distribution systems.
➢ The Asian agribusiness marketer is now responding to a more demanding market. The opening of
markets to the world has resulted in more supplies, higher level of trading, and choosier customers.
The Asian customers are now becoming very keen on food safety, customer health and
environmental issues.
➢ “Green Marketing” concept is now being adopted in the Philippines and other Asian countries.
➢ There were trends that drive global expansion which could have great impacts on the behavior of
Asian markets:
a. Increasing global and regional trade agreements
b. Expansion of supermarket
c. Growth in organic and natural product markets

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 d. New market opportunities

The Agribusiness Support Subsystem

The support subsystem provides the necessary logistics, coordination, financing, manpower, technology,
information, policies and programs, incentives, and other services to the system.

Participants in Support Subsystem

1. Government Agencies
➢ The government function in the agribusiness system is basically promotive or regulatory. The
government may formulate and implement laws, policies or regulations that may promote or
regulate the activities of businessmen or enterprises. These laws are implemented with the view
of ensuring public welfare.
2. Private Institutions/ Industry Associations
➢ There are basically two types of non-public institutions: the industry association and the non-
government organizations.
➢ Industry or trade associations are formed primarily to provide unity of action and facilitate the
pursuit of common goals among members of a certain industry. The industry association can
perform the following functions:
a. As liason. Trade association provides means of communication between members to clarify
roles and coordinate efforts. They can also serve as channels for the efficient handling of
government and private services and as link to research institutions.
b. As lobbyist. Trade association can lobby before the congress or parliament to advance the
interest of the group.
c. As integrator. Trade associations can act as means to pool the members’ resources or
products to gain competitive advantage.
d. As facilitator in getting financial aid. Through a trade association, members who need
financial assistance can be better accommodated at better terms by financial institutions.
e. As control mechanism. Trade associations can provide as sense of direction and disciplinary
action to members who engage in acts that jeopardize the interests and reputation of the sector.
f. As planner and decision maker. Trade association can facilitate discussions and consensual
decision-making on matters that affect the industry in particular, and the community as they
seek to serve as a whole.
➢ Non-government organizations are private, non-stock, non-profit organization that is formed
primarily to assist the marginal sectors of the society.
3. Financing Institutions
➢ Financial institutions have three major roles: credit allocation, savings mobilization and education
of businessmen on financial responsibility.
4. Educational and research institutions
➢ Educational institutions like universities and government research and development institutes
have become active participants in the agribusiness system

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 UNIT 3

INDUSTRY SITUATIONER/INDUSTRY
CASE STUDY FORMAT

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