TIME SERIES ANALYSIS: AN OUTLOOK ON ARGRICULTURE IN THE PHILIPPINES

(Mark Anthony B Belderol – g156716a)

INTRODUCTION

The Philippines is located at the Southeastern Asia. It is an archipelago between the

Philippine Sea and the West Philippine Sea, east of Vietnam. Despite its effort to industrialize the

economy since year 2000, Philippines is still an agricultural country. About 32 percent of the

country's total land area were agricultural lands. Of this, 51 percent and 44 percent were arable

and permanent croplands, respectively (BAS, 2012).

In 2012, the Gross Value Added of agriculture sector is approximately 695 billion Philippine

Pesos and its contribution to the Philippines’ Gross Domestic Product is about 11 percent of which

50 percent are production in crops. Some of the country's agricultural crops are as follows: palay,

corn, coconut including copra, sugarcane, banana, mangoes, pineapple, coffee, cassava, rubber,

and among others.

The Philippine is exporting 10 percent of its agricultural production around the world

which amounted to about 118 billion Philippine Pesos. However, agricultural trade deficit was

recorded at 74 billion Philippine Pesos.

On the same year, the total labor force employed in the agricultural sector is estimated to

about 32 percent or 12.09 million people. Agricultural production hence, provided for living in

most of the Filipinos.

While the Philippines recognizes the importance of industrialization, the government still

acknowledged that growth in productivity and competitiveness of the agriculture and fisheries
sector remains a key goal of the Philippine government for poverty reduction towards inclusive

growth, according to the National Economic and Development Authority (NEDA, 2013).

The researcher in paper sought to analyze the agricultural production (crops) in the

Philippines from 1967 to 2010 employing principles in time series analysis. In addition, Vector

Autocorrelation Model as well as Vector Error Correction Model was also employed using data on

agricultural production and percentage of land use for agriculture.

OBJECTIVE AND HYPOTHESIS

Objectives:

1. To describe, examine and explain the agricultural production, specifically crop production

in the Philippines, from the year 1967 to 2010.

2. To determine whether or not area of agricultural land affects the agricultural production

or vice versa.

Statement Hypotheses:

1. There is a dynamic pattern in the agricultural production from 1967 to 2010 in the

Philippines.

2. There is a significant relationship between the agricultural land area and agricultural

production in the Philippines.

DATA AND DATA SOURCE

The researcher in this paper used secondary data from the Bureau of Agricultural Statistics

(BAS) on agricultural (crops) value of productions and agricultural land area (in percentage) from

year 1967 to 2010 in the Philippines.

DATA ANALYSIS AND ESTIMATIONS

Time Series Analysis on Agricultural Production

The researcher began the analysis by plotting the series data in the plane. The figure

below shows the series graph of log(agri) and dlog(agri).

LOG(AGRI) DLOG(AGRI)
12.6 .12

12.4
.08
12.2

12.0
.04

11.8

.00
11.6

11.4
-.04
11.2

11.0 -.08
1970 1975 1980 1985 1990 1995 2000 2005 2010 1970 1975 1980 1985 1990 1995 2000 2005 2010

Figure 1. log(agri) and dlog(agri)

The figure shows that log(agri) showed some trend. The Augmented Dickey-Fuller test

statistic in Table 1. Further shows that log(agri) has a unit root and therefore not stationary.

Hence, taking the log difference is necessary to make the series stationary (Table 2).

Figure 2 below shows the autocorrelation function (ACF) and the partial autocorrelation

function (PACF).
 Figure 2. ACF and PACF

The ACF shows that the series has a strong and positive correlation and is diminishing

slowly.

Based on ACF and PACF, AR(1) model was fitted to the data set. Table 3 shows that the

model is statistically significant and R-squared shows that about 99.6 percent of the variability of

log(agri) is explained by the log(agri(-1)).

Figure 3 below shows the correlogram of residuals shows no pattern.

Figure 3. Correlogram of Residuals AR(1) Model

 ARMA(1,1) Model was then attempted to fit on the data series. The table 4 shows that

ARMA(1,1) is statistically significant and R-squared further shows that 99.6 percent of the

variability in log(agri) is explained by the two variables in the model. The ACF and PACF in figure

below shows no pattern.

Figure 4. Correlogram of Residuals ARMA(1,1) Model

The researcher in paper attempted to forecast the agricultural production using

ARMA(1,1) model using Static Method.

12.6
Forecast: AGRIF
12.4 Actual: LOG(AGRI)
Forecast sample: 1967 2010
12.2
Adjusted sample: 1968 2010
12.0 Included observations: 43
Root Mean Squared Error 0.024919
11.8 Mean Absolute Error 0.017516
Mean Abs. Percent Error 0.147386
11.6 Theil Inequality Coefficient 0.001048
Bias Proportion 0.000003
11.4
Variance Proportion 0.001324
11.2 Covariance Proportion 0.998673

11.0
1970 1975 1980 1985 1990 1995 2000 2005 2010

AGRIF ± 2 S.E.

Figure 5. ARMA(1,1) Static Forecasting

 The figure above shows that the bias proportion is very small, this implies that ARMA(1,1)

forecast is accurate. Moreover, the dynamic ARMA(1,1) forecasting in figure below shows a bias

proportion value 0.06, thus affirmed accuracy of the model. Agriculture production is forecasted to

increase in the next twenty years holding other factors constant.

13.00
Forecast: AGRIF
12.75 Actual: LOG(AGRI)
Forecast sample: 1967 2020
12.50 Adjusted sample: 1968 2020
Included observations: 43
12.25
Root Mean Squared Error 0.057709
12.00
Mean Absolute Error 0.049724
Mean Abs. Percent Error 0.417865
11.75 Theil Inequality Coefficient 0.002426
Bias Proportion 0.063969
11.50 Variance Proportion 0.024370
Covariance Proportion 0.911661
11.25

11.00
70 75 80 85 90 95 00 05 10 15 20

AGRIF ± 2 S.E.

Figure 6. ARMA(1,1) Dynamic Forecasting

VECTOR AUTOREGRESSION (VAR) MODEL

Bivariate Vector Autocorrelation (VAR) Model, the easiest multivariate time series model,

was used to analyze two dependent variables, the log(agri) and log(land). The appropriate lag for

the above mentioned variables is 1 (Table 5). There were two equations generated from VAR(01)

model (Table 6).

The figure below shows the impulse response function of VAR(01) Model. The figure

further shows the dynamics effects of the system when model receive some shocks. The upper

right f the figure shows the behavior of log(land) when there is a shock in log(agri) while the
bottom left of the figure shows the response behavior of log(agri) when there is a shock in

log(land).

Response to Cholesky One S.D. Innovations ± 2 S.E.

Response of LOG(LAND) to LOG(LAND) Response of LOG(LAND) to LOG(AGRI)
.025 .025

.020 .020

.015 .015

.010 .010

.005 .005

.000 .000

-.005 -.005
5 10 15 20 25 30 35 40 45 50 5 10 15 20 25 30 35 40 45 50

Response of LOG(AGRI) to LOG(LAND) Response of LOG(AGRI) to LOG(AGRI)

.04 .04

.03 .03

.02 .02

.01 .01

.00 .00

-.01 -.01
5 10 15 20 25 30 35 40 45 50 5 10 15 20 25 30 35 40 45 50

Figure 7. VAR(01) Model IRF Graph

Table 7 reveals the VAR Granger Causality/Block Exogeneity Wald Tests. It implies from the

table that log(agri) causes log(land) whith chi-square value of 21.5 and degrees of freedom of 1.

However, log(land) does not cause log(agri).

VECTOR ERROR-CORRECTION (VEC) MODEL

Vector error-correction (VEC) model was also employed in this study in the assumption

that the variables log(agri) and log(land) becomes stationary after getting the first difference.

Necessary test was performed prior VEC estimation.

Table 9 shows that there are a total 12 coefficients in the error correction model. In table

10 its shows that d(log(agri(-2))) and d(log(land(-1))) is significant to d(log(land)).

SUMMARY AND FINDINGS

This paper described, examined and explained the agricultural production in the

Philippines employing principles in time series analysis. Results show that agricultural production

showed trend and seasonality.

To show and explain the relationship between agricultural land area and agricultural

production, VAR and VEC models were estimated. Both model show that agricultural production

somehow causes the agricultural land area to change.

CONCLUSIONS

The following conclusions were arrived at based on the findings of the study:

1. That there is a dynamic pattern in the agricultural production from 1967 to 2010 in the

Philippines.

2. That there is a significant relationship between the agricultural land area and agricultural

production in the Philippines.

References:

Bureau of Agricultural Statistics. (n.d.). CountryStat Philippines. Retrieved from

http://countrystat.bas.gov.ph/?cont=3

National Economic and Development Authority. (2013). Improving Agri Productivity,

Competitiveness Still Vital in PDP Midterm Update. Retrieved from
http://neda.gov.ph/ads/press_releases/pr.asp?ID=1497
ANNEX: TABLES

Table 1
Null Hypothesis: AGRI_LOG has a unit root
Exogenous: Constant, Linear Trend
Lag Length: 0 (Automatic - based on SIC, maxlag=9)

t-Statistic   Prob.*

Augmented Dickey-Fuller test statistic -1.940712  0.6161

Test critical values: 1% level -4.186481
5% level -3.518090
10% level -3.189732

*MacKinnon (1996) one-sided p-values.

Augmented Dickey-Fuller Test Equation

Dependent Variable: D(AGRI_LOG)
Method: Least Squares
Date: 11/12/13 Time: 23:56
Sample (adjusted): 1968 2010
Included observations: 43 after adjustments

Variable Coefficient Std. Error t-Statistic Prob.  

AGRI_LOG(-1) -0.101176 0.052133 -1.940712 0.0594

C 0.511518 0.252789 2.023500 0.0497
@TREND(1967) 0.001055 0.000714 1.476064 0.1478

R-squared 0.180396    Mean dependent var 0.014232

Adjusted R-squared 0.139416    S.D. dependent var 0.011976
S.E. of regression 0.011110    Akaike info criterion -6.094790
Sum squared resid 0.004937    Schwarz criterion -5.971916
Log likelihood 134.0380    Hannan-Quinn criter. -6.049478
F-statistic 4.402038    Durbin-Watson stat 1.594426
Prob(F-statistic) 0.018710
Table 2
Null Hypothesis: D(AGRI_LOG) has a unit root
Exogenous: Constant, Linear Trend
Lag Length: 0 (Automatic - based on SIC, maxlag=9)

t-Statistic   Prob.*

Augmented Dickey-Fuller test statistic -5.127865  0.0008

Test critical values: 1% level -4.192337
5% level -3.520787
10% level -3.191277

*MacKinnon (1996) one-sided p-values.

Augmented Dickey-Fuller Test Equation

Dependent Variable: D(AGRI_LOG,2)
Method: Least Squares
Date: 11/13/13 Time: 00:00
Sample (adjusted): 1969 2010
Included observations: 42 after adjustments

Variable Coefficient Std. Error t-Statistic Prob.  

D(AGRI_LOG(-1)) -0.811387 0.158231 -5.127865 0.0000

C 0.016511 0.004987 3.311035 0.0020
@TREND(1967) -0.000236 0.000153 -1.543597 0.1308

R-squared 0.402792    Mean dependent var -0.000654

Adjusted R-squared 0.372166    S.D. dependent var 0.014548
S.E. of regression 0.011527    Akaike info criterion -6.019515
Sum squared resid 0.005182    Schwarz criterion -5.895395
Log likelihood 129.4098    Hannan-Quinn criter. -5.974020
F-statistic 13.15195    Durbin-Watson stat 1.923433
Prob(F-statistic) 0.000043
Table 3
Dependent Variable: LOG(AGRI)
Method: Least Squares
Date: 11/13/13 Time: 00:46
Sample (adjusted): 1968 2010
Included observations: 43 after adjustments

Variable Coefficient Std. Error t-Statistic Prob.  

C 0.336505 0.119752 2.810012 0.0076

LOG(AGRI(-1)) 0.974358 0.010104 96.43187 0.0000

R-squared 0.995610    Mean dependent var 11.87814

Adjusted R-squared 0.995503    S.D. dependent var 0.386921
S.E. of regression 0.025946    Akaike info criterion -4.420200
Sum squared resid 0.027601    Schwarz criterion -4.338283
Log likelihood 97.03429    Hannan-Quinn criter. -4.389991
F-statistic 9299.106    Durbin-Watson stat 1.625923
Prob(F-statistic) 0.000000

Table 4
Dependent Variable: LOG(AGRI)
Method: Least Squares
Date: 11/13/13 Time: 00:57
Sample (adjusted): 1968 2010
Included observations: 43 after adjustments
Convergence achieved after 7 iterations
MA Backcast: 1967

Variable Coefficient Std. Error t-Statistic Prob.  

C 0.351439 0.140109 2.508331 0.0163

LOG(AGRI(-1)) 0.973095 0.011822 82.31190 0.0000
MA(1) 0.185329 0.156174 1.186686 0.2424

R-squared 0.995753    Mean dependent var 11.87814

Adjusted R-squared 0.995541    S.D. dependent var 0.386921
S.E. of regression 0.025837    Akaike info criterion -4.406833
Sum squared resid 0.026701    Schwarz criterion -4.283958
Log likelihood 97.74691    Hannan-Quinn criter. -4.361521
F-statistic 4689.693    Durbin-Watson stat 1.989380
Prob(F-statistic) 0.000000

Inverted MA Roots      -.19

Table 5
VAR Lag Order Selection Criteria
Endogenous variables: LOG(LAND) LOG(AGRI) 
Exogenous variables: C @TREND 
Date: 11/15/13 Time: 22:32
Sample: 1967 2010
Included observations: 40

 Lag LogL LR FPE AIC SC HQ

0  138.0641 NA   4.21e-06 -6.703206 -6.534318 -6.642141

1  217.7819  143.4920  9.56e-08 -10.48910 -10.15132 -10.36697
2  225.8344   13.68929*   7.83e-08*  -10.69172*  -10.18506*  -10.50853*
3  227.8230  3.181786  8.71e-08 -10.59115 -9.915600 -10.34689
4  233.1735  8.025641  8.23e-08 -10.65867 -9.814234 -10.35335

 * indicates lag order selected by the criterion

 LR: sequential modified LR test statistic (each test at 5% level)
 FPE: Final prediction error
 AIC: Akaike information criterion
 SC: Schwarz information criterion
 HQ: Hannan-Quinn information criterion
Table 6
 Vector Autoregression Estimates
 Date: 11/12/13 Time: 22:31
 Sample (adjusted): 1968 2010
 Included observations: 43 after adjustments
 Standard errors in ( ) & t-statistics in [ ]

LOG(LAND) LOG(AGRI)

LOG(LAND(-1))  0.740733 -0.078108

 (0.05643)  (0.12875)
[ 13.1259] [-0.60664]

LOG(AGRI(-1))  0.193113  0.946861

 (0.04165)  (0.09504)
[ 4.63607] [ 9.96317]

C -1.264272  0.905440
 (0.32382)  (0.73880)
[-3.90427] [ 1.22555]

@TREND -0.004215  0.001569

 (0.00096)  (0.00218)
[-4.40977] [ 0.71941]

 R-squared  0.990489  0.995876

 Adj. R-squared  0.989757  0.995559
 Sum sq. resids  0.004981  0.025931
 S.E. equation  0.011302  0.025785
 F-statistic  1353.781  3139.275
 Log likelihood  133.8452  98.37652
 Akaike AIC -6.039309 -4.389606
 Schwarz SC -5.875477 -4.225773
 Mean dependent  3.564430  11.87814
 S.D. dependent  0.111669  0.386921

 Determinant resid covariance (dof adj.)  8.15E-08

 Determinant resid covariance  6.70E-08
 Log likelihood  233.1127
 Akaike information criterion -10.47036
 Schwarz criterion -10.14269
Table 7
VAR Granger Causality/Block Exogeneity Wald Tests
Date: 11/15/13 Time: 22:28
Sample: 1967 2010
Included observations: 43

Dependent variable: LOG(LAND)

Excluded Chi-sq df Prob.

LOG(AGRI)  21.49318 1  0.0000

All  21.49318 1  0.0000

Dependent variable: LOG(AGRI)

Excluded Chi-sq df Prob.

LOG(LAND)  0.368014 1  0.5441

All  0.368014 1  0.5441

Table 8
Date: 11/14/13 Time: 15:33
Sample (adjusted): 1969 2010
Included observations: 42 after adjustments
Trend assumption: Linear deterministic trend
Series: AGRI_LOG LAND_LOG 
Lags interval (in first differences): 1 to 1

Unrestricted Cointegration Rank Test (Trace)

Hypothesized Trace 0.05

No. of CE(s) Eigenvalue Statistic Critical Value Prob.**

None  0.199009  10.26521  15.49471  0.2609

At most 1  0.022253  0.945180  3.841466  0.3309

 Trace test indicates no cointegration at the 0.05 level

 * denotes rejection of the hypothesis at the 0.05 level
 **MacKinnon-Haug-Michelis (1999) p-values
Unrestricted Cointegration Rank Test (Maximum Eigenvalue)

Hypothesized Max-Eigen 0.05

No. of CE(s) Eigenvalue Statistic Critical Value Prob.**

None  0.199009  9.320031  14.26460  0.2605

At most 1  0.022253  0.945180  3.841466  0.3309

 Max-eigenvalue test indicates no cointegration at the 0.05 level

 * denotes rejection of the hypothesis at the 0.05 level
 **MacKinnon-Haug-Michelis (1999) p-values
 Unrestricted Cointegrating Coefficients (normalized by b'*S11*b=I): 

AGRI_LOG LAND_LOG
-8.678224  48.19338
 14.89119 -37.31737

 Unrestricted Adjustment Coefficients (alpha): 

D(AGRI_LOG) -0.003428 -0.001236

D(LAND_LOG) -0.001637  0.000411

1 Cointegrating Equation(s):  Log likelihood  300.1124

Normalized cointegrating coefficients (standard error in parentheses)

AGRI_LOG LAND_LOG
 1.000000 -5.553369
 (0.85688)
Adjustment coefficients (standard error in parentheses)
D(AGRI_LOG)  0.029752
 (0.01516)
D(LAND_LOG)  0.014205
 (0.00604)
Table 9

 Vector Error Correction Estimates

 Date: 11/14/13 Time: 15:41

 Sample (adjusted): 1970 2010

 Included observations: 41 after adjustments

 Standard errors in ( ) & t-statistics in [ ]

Cointegrating Eq:  CointEq1

LOG(AGRI(-1))  1.000000

LOG(LAND(-1)) -6.580360

 (1.03622)

[-6.35037]

C  11.59012

Error Correction: D(LOG(AGRI)) D(LOG(LAND))

CointEq1  0.032845  0.009200

[ 2.67251] [ 1.93434]

D(LOG(AGRI(-1)))  0.065421  0.065287

[ 0.39212] [ 1.01117]

D(LOG(AGRI(-2))) -0.100578  0.137110

[-0.59420] [ 2.09315]

D(LOG(LAND(-1))) -0.064204  0.469467

 [-0.16939] [ 3.20067]

D(LOG(LAND(-2)))  0.467445 -0.036341

[ 1.28162] [-0.25747]

C  0.030410 -0.001631

[ 3.62536] [-0.50246]

 R-squared  0.257971  0.588441

 Adj. R-squared  0.151966  0.529646

 Sum sq. resids  0.022925  0.003433

 S.E. equation  0.025593  0.009904

 F-statistic  2.433588  10.00848

 Log likelihood  95.35050  134.2741

 Akaike AIC -4.358561 -6.257272

 Schwarz SC -4.107794 -6.006505

 Mean dependent  0.032538  0.009137

 S.D. dependent  0.027791  0.014441

 Determinant resid covariance (dof adj.)  6.42E-08

 Determinant resid covariance  4.68E-08

 Log likelihood  229.6508

 Akaike information criterion -10.51955

 Schwarz criterion -9.934431

Table 10
System: UNTITLED
Estimation Method: Least Squares
Date: 11/14/13 Time: 15:50
Sample: 1970 2010
Included observations: 41
Total system (balanced) observations 82

Coefficient Std. Error t-Statistic Prob.  

C(1) 0.032845 0.012290 2.672511 0.0094

C(2) 0.065421 0.166841 0.392118 0.6962
C(3) -0.100578 0.169266 -0.594201 0.5543
C(4) -0.064204 0.379021 -0.169393 0.8660
C(5) 0.467445 0.364730 1.281618 0.2042
C(6) 0.030410 0.008388 3.625358 0.0005
C(7) 0.009200 0.004756 1.934335 0.0571
C(8) 0.065287 0.064566 1.011170 0.3154
C(9) 0.137110 0.065504 2.093154 0.0400
C(10) 0.469467 0.146678 3.200672 0.0021
C(11) -0.036341 0.141147 -0.257469 0.7976
C(12) -0.001631 0.003246 -0.502460 0.6169

Determinant residual covariance 4.68E-08

Equation: D(LOG(AGRI)) = C(1)*( LOG(AGRI(-1)) - 6.58035957154

        *LOG(LAND(-1)) + 11.5901169631 ) + C(2)*D(LOG(AGRI(-1))) + C(3)
        *D(LOG(AGRI(-2))) + C(4)*D(LOG(LAND(-1))) + C(5)*D(LOG(LAND(-2)))
        + C(6)
Observations: 41
R-squared 0.257971    Mean dependent var 0.032538
Adjusted R-squared 0.151966    S.D. dependent var 0.027791
S.E. of regression 0.025593    Sum squared resid 0.022925
Durbin-Watson stat 2.026960

Equation: D(LOG(LAND)) = C(7)*( LOG(AGRI(-1)) - 6.58035957154

        *LOG(LAND(-1)) + 11.5901169631 ) + C(8)*D(LOG(AGRI(-1))) + C(9)
        *D(LOG(AGRI(-2))) + C(10)*D(LOG(LAND(-1))) + C(11)*D(LOG(LAND(
        -2))) + C(12)
Observations: 41
R-squared 0.588441    Mean dependent var 0.009137
Adjusted R-squared 0.529646    S.D. dependent var 0.014441
S.E. of regression 0.009904    Sum squared resid 0.003433
Durbin-Watson stat 1.859670