COMMODITY SYSTEMS

ANALYSIS (SUPPLY CHAIN

ANALYSIS)
Here are the topics to be studied :
◦ A. Input Subsystem
◦ B. Production Subsystem
◦ C. Processing Subsystem
◦ D. Marketing Subsystem
◦ E. Support Subsystem
By the end of this lesson, you should be able to:
1. Identify the different commodity sub-systems; and
2. Understand the importance of the commodity sub-system in
enterprise development.
The Agribusiness Production
Subsystem
◦ The production subsystem is the "core" of the agribusiness system.
Without it, the whole system fails. It is a transformation process
where resources are combined to produce a specific product at a
specific quality and a specific schedule. These resources include
land, farm inputs, labor, and other resources. The management of
these resources is critical for the long-term sustainability of an
enterprise. Without good management, a profitable mix of
resources will be difficult to achieve. In many cases,
entrepreneurship is the key. This finds it even more important in an
era of global competition
Elements in an Efficient
Production Subsystem
• Market orientation,
• Location,
• Access to the right technology.
• Timely availability of resources, and
• Management system.
Market Orientation.
Every production subsystem must be market-led. It is the
market forces that determine what products to produce, not the
producer. Production-targeting without "listening" to the market is
a thing of the past. Market-led production is the only basis of long-
term sustainability. The products of today may not be the right
products for tomorrow. The markets of today may not be the same
markets in the future. Producers must "roll with the punches”, so
to speak. There are also competitors to reckon with, who could
offer products at the quantity, quality, and service delivery required
by the buyers.
Location.
◦ The farm location is an important competitive element. A
farm may have the right product, but it is not sustainable
as it is poorly situated Among the key considerations
include:
a. Crop choice.
Most agricultural products have a certain level of
perishability. If the product is highly perishable, (e.g.,
vegetables) specialized handling will be required for it to
reach the market at the quantity and quality desired by the
'customers. Otherwise, postharvest quantity and quality
losses will be high to the detriment of the producer. This can
be addressed in part if postharvest facilities or processing
plants are near the production area. If not, the enterprise
must produce fewer perishable products.
b. Availability and/or cost of
land.
Land near the urban centers is likely to be more expensive,
be it purchased or leased. (This is also true for labor.) Thus,
high-value crops will have to be the choice. If the crop is of
low value, then it is not sustainable in the long run. The
ideal is to select the crop and find suitable land rather than
"force-fit" a crop to one's existing land.
c. Agro-climatic factors.
These include soil type, terrain, rainfall patterns,
sunshine duration, wind velocity, and humidity,
among others. These have an impact on crop choice
and investment cost as well as the cost of production.
To thrive well, crops require specific types of soils,
terrain, and climate. The monthly rainfall pattern is
also important.
d. Access to markets.
Distance from the market is one factor of
competitiveness. It influences marketing and
distribution costs as well as the timeliness of product
delivery to customers. It also affects the delivered
cost of inputs. An enterprise may be competitive at
the farm level but not at the customer level due to
the high cost of distribution.
e. Support industries.
These are industries that provide goods and services
to firms. They include the supply of inputs, packaging
materials, transport and storage services, and
financial institutions. Their presence provides the
locator with the so-called "economies of scope. "
Lack or inadequate presence of support industries
would likely increase the cost of doing business.
f. Existing infrastructures.
These include irrigation and water supply,
power, telecommunication facilities, and
transport network. The absence or inadequacy
of many of these infrastructures would increase
the cost of doing business and reduce
competitiveness.
g. Availability of labor.
The supply of labor is critical in large operations. In
typical farm areas, there are peaks and valleys of
labor demand. If the crop being produced has a
similar cropping calendar as the major crops in the
area, the supply of labor could be tight. The workers
can only be hired at higher wages, or in some
instances, produce could rot in the fields. Training of
permanent workers is a must.
h. Local investment climate and
amenities
have bearings on attracting investments into an area. This includes a peace
and order situation, support from the local governments as well as the
presence of amenities such as schools, hospitals, and recreation facilities. In
many cases, investors would be hesitant to locate in an area if there are
risks to their persons and families. They would also look elsewhere if the
local authorities are either uncooperative or create "moral hazards." For
instance, there are cases where "illegal fees" could even be five times
higher than what the business registration and permits required.
Concerning amenities, for larger or highly technical operations,
management executives and technical staff may not be attracted to relocate
when the amenities for themselves and their dependents are inadequate.
 Technology
Technology subsumes many things. It means the
combination of farm inputs, the density of planting, the
type of irrigation, and the method(s) of land preparation,
harvesting, and handling of produce. Technology must
consider the prices of various factors of production: land,
labor, and machinery. Technology influences productivity,
product quality, and production costs. There is no need to
develop new technologies if they can be acquired elsewhere
and can be adapted to local conditions.
Timely Availability of Resources.
In agribusiness production, one deals with
"living productive units." Plants and animals
undergo growth cycles. Delays in the application
of the appropriate farm inputs will affect
productivity and product quality.
Management System.
The application of production management
techniques influences farm profitability and
sustainability. Every enterprise must take into
account the major business functions of
marketing, production, finance, and human
resource development,
 Traditional Concepts of
Production
"Traditional" production models relate production with the so-called factors of
production, namely: land, labor, and capital (Fig. 14). Capital includes machinery
and equipment, raw materials, and other inputs. From the model, the so-called
"marginal factor productivity" is measured such as land productivity, labor
productivity, and capital productivity. Management input is not usually
measured.
The traditional paradigm for
the production subsystem.
New" Paradigm of Production
Under a new production paradigm, management and
entrepreneurship together with technology are highlighted. In new
and emerging businesses, entrepreneurship is a major element.
Entrepreneurs are the innovators; they find new markets for existing
products, new products for existing markets, and new processes or
ways of doing things (Drucker undated). Entrepreneurship is critical
to new businesses.
Believers in the new paradigm feel that land, capital, and
labor remain important factors of production. But
technology is no longer a "residual" factor. Technology can
be imbibed in the capital such as good seeds or breeds. It is
also a way of doing things. Productivity and product quality
can be increased by higher levels of technology using similar
inputs of land and labor. New technologies can reduce costs,
create better products, and make land more sustainable.
Management covers the whole range of skills:
marketing, production, finance, research and
development, and human resource
development. The success of an enterprise must
altogether consider these concerns.
Types of Production Subsystems
◦ There are three types of production subsystems covered
in the discussion. They are Crops, Livestock, and Poultry.
◦ Crops are, of course, plants; they are immobile "living
production units. Livestock and poultry are animals; they
are mobile "living production units." They have similarities
as well as distinct differences. As a consequence, specific
management systems will vary.
Important Elements in
Production
Production quantity
The enterprise must be able to deliver to the
intermediate or final customers at agreed minimum
economic volumes. When production is variable, it
affects the capacity utilization or volume
requirements of the processor or user. It could lose
money in the process. Moreso, when production is
seasonal. When farm holdings are small and
dispersed, the assembly cost will be high.
Quality.
The enterprise must adhere to the quality
requirements of the buyers such as processors,
distributors, or exporters. Rising consumer
incomes heighten quality awareness, and this
information is relayed to the producers.
Price/Cost.
Products sold must be price- or cost-competitive
relative to other suppliers. Buyers will almost always
buy from many sources, and good economics dictate
that they will shift to other suppliers if the latter can
provide not only reliability and quantity but more so
competitive price.
Service delivery
The enterprise must be able to respond to the needs
of the buyer. These include reliability in delivery and
a good feedback system. The other factors cited
above are for nothing if the enterprise is negligent in
its delivery commitments. Delivery problems will
bring serious consequences to buyers who have their
delivery commitments to processors, exporters, and
other final users.
PRODUCTION SECTORS
CROPS
a. Economic Importance.
Crop production dominates the agriculture landscape
in the Philippines. Crops account for more than half
of agriculture output. The major crops, in terms of
hectarage, are rice, corn, coconut, banana, and
sugarcane; in terms of value, they are rice, coconut,
corn, banana, sugarcane, and mango in that order.
b. Production Performance.
Crop production, particularly of sugarcane, palay or
rice, coconut, and bananas were among the highest
nationwide and were also among the top export
products. In recent years, fruits and nuts, along with
animal or vegetable fats and oils contributed the
largest share of the total agricultural exports of the
country.
c. Land Use and Cropped Areas.
The Philippines is an agricultural country with a land area of 30
million hectares, 47% of which is agricultural land. In the Philippines,
prime agricultural lands are located around the main urban and high
population density areas.
Of the total area under food crops, coconut accounted for the
biggest average harvest area of 4.25 million hectares. Sugarcane with
673 thousand hectares; Industrial crops with 591 thousand hectares;
148 thousand hectares for fruits; 270 thousand hectares for
vegetables and root crops; 404 thousand hectares for pasture and
133 hectares for cut flowers.
d. Family size and tenure
Philippine agriculture is primarily composed of small farms. The
average farm size in 2012 was only 1.3 ha. Compared to 2.2 ha. In
1991. Generally, the decrease in its area could be attributed to
a) land division among family members from one generation to
another,
b) the government’s implementation of theComprehensive Agrarian
Reform Program in 1988 and the Comprehensive Agrarian Reform
Program Extension with Reforms in 2009, and
c) continued agricultural lands conversion due to urban development
or expansion.
e. Productivity Trends.
The average farm productivity in the Philippines is generally low.
There are many causes, including
A.inadequate irrigation facilities,
B.low utilization of good seeds and planting materials,
C. low fertilizer usage,
D. high concentration in rice, corn, and coconut,
E. lack of all-weather roads,
F. inadequate access to credit, and
G. inadequate investments in research, ineffective extension system.
 Types of Farm Management
System.
Crop production in the Philippines is primarily on small
farms. They are dominant in rice, corn, coconut, and other
crops. There are plantations in sugarcane, coconut, banana,
pineapple, rubber, coffee, and oil palm. With the advent of
the Comprehensive Agrarian Reform Law in 1988, many of
the plantations were transferred to their farmworkers’
cooperatives. Several plantations in pineapple and banana
now lease their lands from their farmworker’s cooperatives.
The Key Result Areas
There are three key result areas in making the
Philippine crops sector competitive. They are:
◦ • Increasing productivity,
◦ • Maximizing land utilization, and
◦ • Expanding its diversity.
Increasing Productivity
Productivity can be analyzed based on the input-output
framework. This could mean:
• Increasing output from the same level of inputs,
• Increasing output from an increased level of inputs, and
• Increasing output from the lower level of inputs.
All these assume that the product is marketable. Productivity
improvements are predicated on a change in the traditional ways
of thinking and doing things. This implies a "paradigm shift"- the
application of the right management skills in the enterprise. This
means efficiency in resource use. This means the use of
recommended levels of inputs. This means timing. If there are
wastages in the use of fertilizers and farm chemicals, for
instance, these must be reduced. If the method and timing of
application of these inputs are wrong, these must be rectified.
However, the above are not sufficient conditions. If the seeds or
planting materials are poor or inappropriate for the agro-climatic
conditions, the use of the right kind and amount of inputs will be for
nothing.
The choice of the right planting materials can also increase yield and
reduce the cost of labor. "Tall" varieties would entail more labor
inputs in harvesting than the "short" varieties. Moreover, the
application of good management techniques can also increase
productivity. The use of good planting materials (e.g., grafted or
tissue-cultured) together with the right management techniques will
increase yield and reduce labor inputs.
Maximizing Land Utilization
Compared to other Asian countries such as Taiwan (China),
South Korea, Japan, and Indonesia, the utilization of land in
the Philippines is not optimized. Field visits to some of these
countries by the author indicate that there are a few
underutilized or idle lands in these places. Many cropping
systems can maximize land use. Among these are:
 • Sequential cropping of annual crops (e.g., rice-rice-vegetables, vegetables-
vegetables-vegetables).
• Strip cropping of annual crops and/or perennial crops (e.g., vegetables and
legumes; corn and industrial trees such as eucalyptus)
• Intercropping of primary crops (e.g., fruit trees under coconut).
There are also cropping systems that integrate crops with livestock
(e.g. coconut lands planted to grass and legumes for cattle feed).
Expanding Diversity
Diversification is not an easy process. It must be
market-led. Farmers must have access to the right
seeds and planting materials, they must get good
technical advice, and they must have access to
markets. If market information is poor and the road
network is bad, diversification will be a tall order.
Towards a Competitive Crop
Production System
What are the ingredients of a competitive and sustainable production
enterprise? Without being repetitive, it must always be market-led. It must
continually improve its management as well as Its access to new technologies.
Among the key result areas are:
• Choice of seeds and planting materials;
• Techniques of land preparation;
• Choice of appropriate irrigation and drainage system
• Access to cost-effective farm inputs and their proper application
• Effective crop husbandry;
• Proper harvesting techniques; and
• Handling, on-farm packaging, and storage of produce.
All the above factors must be combined to arrive at a
competitive cost to the consumers. This means several
things, namely:
◦ Good managers who will guide the enterprise to attain its time-
bound objectives;
◦ Good monitoring and feedback system that will alert management
to speedy response to opportunities and problems; and
◦ A well-trained labor force, or farmers when the latter is under a
contract- growing system.
Impact of Government Policies
and Program
While the growth of an industry is basically a private sector undertaking, the government also
affects the viability of enterprises through the policies and programs it implements. Among
these policies are:
• Taxes on outputs and inputs, which would impact 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; and
• Monetary and fiscal policies, which influence the cost of money as well as taxes on
incomes.
 What is policy?
Policy is defined as the course of action chosen by government
towards an aspect of the economy, including the goals that the
government seeks to achieve, and the choice of methods to pursue
those goals that have to be justified.
In addition to setting a conducive policy environment, the government is also seen to play
an important role in ensuring that adequate institutional support is provided for the
following areas:
• Expansion and revitalization of productivity programs;
• Quick-response/intervention to calamity and disaster situations;
• Irrigation;
• Farm-to-market roads and related infrastructures,
• Agriculture and fisheries R&D;
• Extension, education, and training,
• Rural finance;
• Food price stabilization;
• Private sector participation and empowerment of farmers and fisherfolks; and
• Renewal of the Department of Agriculture bureaucracy
LIVESTOCK
Economic Importance
Livestock production in the Philippines
comprises swine (hog), cattle, carabao, goat,
and dairy. It contributes about 12.17 percent of
the total agricultural output.
Livestock population
Swine dominates the livestock sector. According to the PSA
industry performance report, October-December 2021, the
total swine inventory was estimated at 9.49 million heads,
2.60 million cattle, 2.82 carabaos (water buffalo), and
3,874.54 goats
Trade.
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. As result,
quantitative restrictions on imports of pork and chicken
were lifted and the protection was terrified. Because of this,
imported pork started to enter in significant quantities since
1996.
Meat Consumption
The leading meat products consumed in the country
are chicken and pork-based. In 2020, the pork
consumption per capita in the Philippines was about
14.9 kilograms per person, while 13.74 kilograms of
poultry meat per capita were consumed per person.
 Key Result Areas in Production
Management
As in crop production, livestock production management entails the right
combination of inputs and time management to produce a competitive product.
These include:
• The breed that will be marketable and that will respond to good
management in terms of weight gain, meat-fat ratio, etc.
• The proper nutrition based on the combination of various feed
ingredients at optimum costs.
For cattle, average daily weight gain is a critical factor to monitor; for hogs, the
average litter size per sow as well as feed conversion ratio. it is important to
underscore that enterprise sustainability can be affected by government policies
such as tariffs on imported meat as well as those for feed ingredients.
POULTRY
Economic Importance
The poultry sector in the Philippines comprises
chicken meat, chicken, chicken eggs, duck, and duck
eggs. Poultry production accounts for 13% of
agriculture gross value added (GVA).
Poultry Population
In 2021, the total number of chicken poultry
farming in the Philippines amounted to around
177 million heads, and the total number of
ducks in poultry farming was estimated at
approximately 12.51 million heads.
Performance.
Poultry production accounts for 13% of agriculture
gross value added (GVA) and dressed chicken
production in the Philippines surged 40% between
2009-and 2018, increasing from a million metric tons
to 1.4 million. In the second quarter of 2021, the
poultry subsector also logged a 2.5% growth rate.
Farm Management Systems
Broilers.
The chicken industry is relatively well-developed in the Philippines.
There are several integrators, which reportedly control 80-90 percent
of the broiler production. The integrators import grandparent stocks,
which they grow on their farms. The parent stocks are now mostly
reared with the so-called contract breeders. The eggs are picked up
by the integrators and brought to either the contract hatcheries or
company-owned hatchery. Thereafter, the day-old chicks (DOCs) are
sent to the broiler contract growers. After 35 to 42 days, they are
picked up by the integrators and brought either to their own or
contract dressing plants.
Layers.
Integrators and other firms also import
grandparent stocks for layers. They are bred at
the company farms. The parent stocks are
reared either by the company or contract
breeders.
Key Result Areas in Production
Management
As in crops and livestock production, a sustainable enterprise must always be market-led.
In the poultry business, there is a need for:
• A good breed that will provide the optimum growth;
• Proper nutrition based on the cost-competitive mix of feeds and feed
ingredients; and
• Good housing and sanitation.

Among the critical factors to watch are mortality and feed conversion rates. According to
industry sources, the poultry business has attained a good level of efficiency. Many
broiler farms achieve an FCR of 2. However, the high cost of feeds in the country heavily
influence the competitiveness of the industry.
1. How would you differentiate the old and new paradigms for the production
subsystem? Do you think that the new paradigm is applicable in all situations?
Why or why not?
2. Think that the agricultural commodity that you chose (assessment-input
subsystem) is something that you can produce and sell at the same time. Discuss
how the different elements for an efficient production subsystem would
influence your decision in investing in such production venture.