ECON 109- AGRICULTURAL 5.

Private Capital- private equity,

ECONOMICS venture capital, private debt, real estate,
infrastructure, and natural resources.
3 Major Economic Sectors
TOPIC 2.
1. Agricultural Sector- 0.2 %- fishing,
farming, livestock
AGRICULTURAL ECONOMICS- is an 2. Industrial Sector- 6.3%-
applied science that deals on how producers, manufacturing, mining, construction
consumers, and the society uses scarce 3. Service Sector- 9%-
resources in the production, consumption &
Food Industry
marketing of food & fiber products.
Is a complex, global network of
2 Fundamental Facts diverse businesses that supplies most of
the food consumed by the world's population.
1. Scarcity of Resources
The term food industries covers a series of
Types of Resources: industrial activities directed at the
production, distribution, processing,conversion
Natural Resources- Land ,preparation,preservation, transport,
a. Marine Resources- sea certification and packaging of foodstuffs.
b. Biological-livestock, chicken, The food industry includes:
cow, pig
c. Plants Agriculture- raising crops,
d. Wildlife livestock, and seafood.
Human Resources Manufacturing- agriculture
- Young generation products with chemicals
 Physical- Carpenter (agrichemicals), agricultural
 Mental- Doctor construction, farm machinery and
All Man-made Resources supplies, seed, etc.
- Manufactured Food Processing- preparation of
2. Unlimited Human wants fresh products for market, and
manufacture of prepared food
products
Capital Marketing- promotion of generic
products (promotion, campaigns,
1. Fixed Capital- Machinery, packaging, public relations, etc.)
Equipments Wholesale and Food Distribution-
2. Circulating- Raw materials logistics, transportation, warehousing
3. Sunk Capital- may not be recovered Food Service (which includes
easily catering)
4. Social Capital- Parks, public Grocery- farmers’ markets, public
hospital, roads, bridges markets and other retailing
Regulation- regulate the business
(Food and Drugs Association (FDA)
 - Local, regional, national, and
international rules and
regulations for food production
and sale, including food quality,
food security, food safety,
marketing/advertising, and
industry lobbying activities
Education- academic, consultancy,
vocational
Research and Development- food
science, food microbiology, food
technology, food chemistry, and food
engineering
Financial Services- credit, insurance
Retail Sector
- Increase of national and upscale
supermarket chains throughout
the country
- Allocative opportunity for
imported at high value food items
- Account for 1/5 of our GDP
Food Service Sector
- Fast food restaurants, casual
dining, restaurants
- Restaurants operator
- Amounts to $7.2 B
Fiber Industry Development Authority
(PHILFIDA)
- Dept. of Agri – parent agency
- Executive order No. 709 on July
27, 1980
- To promote the growth and
development of the fiber industry
(abaca, cotton)
CODA (Cotton Industry Development
Administration)
- Republic Act, 8486, Feb 11,
1998
(From Ppt)
B. Key Concepts in Environmental
and Resource Economics
Efficiency in Markets
- A central focus of economics is
the efficient allocation of
resources to supply goods and
services to satisfy the demands of
consumers living now and in the
future. Natural resources are
created as goods that yield direct
consumption benefits (water for
human consumption, recreational
benefits from the use of land) or
as inputs in the production of
other goods that are ultimately
consumed (crops and forest
products). That is, their value is
viewed from the perspective of
their direct or indirect
consumptive utility, or
preference satisfaction, for
individuals.
- Economics is sometimes
criticized for its focus on
consumption. However, it should
be borne in mind that this
includes the ability of individuals
to ‘consume’ health care,
education, and a range of other
services and to be able to
exercise choice in the use of their
time for leisure and recreational
pursuits, that is, to have access to
the things that many would
associate more broadly with the
‘quality of life’. Besides,
 production is not limited to
physical goods, it includes
services provided by natural
resources, such as environmental
amenities, that are valued by
people. One of the implications
of this is that when consumptive
resource use in agriculture is
consistent with the maintenance
of a given ecosystem (often
referred to as ‘sustainability’)
there is unlikely to be any
conflict between agricultural
activities and the provision of
ecosystem services, whereas the
opposite can be the case.
Externalities, Public Goods, and Market
failure
The recognition that private decision making
in competitive markets might not lead to a
socially optimal allocation of resources dates
back to the early part of the twentieth
century. The British economist Arthur C.
Pigou (1932) is credited with introducing the
concept of externalities, whose existence is
central to the environmental dimension of
agricultural activities. Externalities are
sometimes said to result from institutional
failure in that they reflect missing markets
that result in missing prices. The solution
proposed by Pigou was to impose a tax on a
negative externality-causing activity and to
provide a subsidy for an activity that
generates a positive externality. These
Pigouvian taxes and subsidies ‘internalize’
external costs and benefits, that is, ensure
that they are taken into account in the
decisions of individuals that determine
resource allocation. It has also been shown
that under certain conditions the use of
subsidies and taxes on inputs can achieve
equivalent results (Peterson et al., 2002).
This is particularly relevant for agriculture
as many of its externalities (e.g., pollution
resulting from the application of fertilizer to
land or agriculture’s contribution to
maintaining wildlife habitat) are associated
with land management practices and the use
of inputs and externality outputs may be
difficult to observe or measure. Taxes and
subsidies are not the only approach that can
be used to deal with externalities; measures
that establish property rights can also
address the issue, as discussed further below
following a brief elaboration on the nature of
externalities.
Intertemporal Allocation
As noted in the Sections Efficiency in
Markets and Externalities, Public Goods,
and Market Failure, resource management is
an important question in economics with
attention focusing on the efficient allocation
of resources across time and space, the
implications of alternative regimes for
property rights, market structures, the role of
information, and the design of market or
nonmarket institutions to correct for market
failure. In terms of individual decision
making attention focuses on the economic
returns from the use of natural resources.
Resources can be classified as expendable,
renewable, or depletable depending on the
period of adjustment involved in their use
(Carlson et al., 1993):
1. Expendable – adjust rapidly such that use
in one-time period has little effect on
availability in subsequent periods.
2. Renewable – self-renewing within a
period relevant to economic decision
making.
3. Depletable – adjust so slowly that one
can meaningfully treat them as being
available only once within a period relevant
to economic decision making.
Natural Resource Management
Natural resource management, or natural
resources management, (NRM) is the
management of natural resources such as
land, water, soil, plants and animals, with a
particular focus on how management affects
the quality of life for both present and future
generations (stewardship).
Natural resource management deals with
managing the way in which people and
natural landscapes interact. It brings together
land use planning, water management, bio-
diversity conservation, and the future
sustainability of industries like agriculture,
mining, tourism, fisheries and forestry. It
recognizes that people and their livelihoods
rely on the health and productivity of our
landscapes, and their actions as stewards of
the land play a critical role in maintaining
this health and productivity.
Natural resource management specifically
focuses on a scientific and technical
understanding of resources and ecology and
the life-supporting capacity of those
resources. Environmental management is
similar to natural resource management. In
academic contexts, the sociology of natural
resources is closely related to, but distinct
from, natural resource management.
Henry Charles Taylor
- the greatest contributor with the
establishment of the Department
of Agricultural Economics at
Wisconsin in 1909
- Developed throughout the 20th
century as a branch of general
economics
Agricultural Environment and Natural
Resources
3 Main Areas:
1. Designing Incentives to control
environmental externalities
2. Estimating the value of non-market
benefits from natural resources &
environmental amenities.
3. Complex interrelationship between
economic activities and
environmental consequences.
Agricultural Economists Have developed
1. Quantitative tools for improving land
management
2. Preventing Erosion, preventing
livestock diseases.
3. Managing Pests
4. Protecting Diversity
Agricultural Production - Involves the
application of labor, capital fuel and material
inputs to land to produce conventional
agricultural commodities. Takes place
within the agroecosystems that encompass
crops, pasture, livestock other flora & fauna,
soils, water & the atmosphere and their
interactions with the land.
Land – provides for space and access to
essential natural resources.
Ecosystems Services – are benefits that
people receive directly or indirectly from
ecosystems.
Classification:
1. Provisioning Services – Food,
Fiber, Fuel & water
2. Regulating Services – Regulation of
floods, drought, land degradation &
disease.
3. Supporting Services – Soil
formation, nutrient cycling
4. Cultural Services – Outdoor
recreation, esthetics and nonmaterial
benefits.
Factors that influenced the environmental
consequences of Agriculture
1. The amount of agricultural activity
affecting the environment
2. Characteristics of farming system
3. Characteristics of soil, climate &
topography
4. Ecological Structure of the
agricultural landscape.
5. Type of sensitivity of the
environments that are affected by
Agriculture.
Agricultural Production
Involves combining private market goods
with nonmarket public & quasi – public
goods (ecosystem services) to produce
private market goods (commodities –
provisioning services).
Public Good – a valuable material or
service that satisfies 2 conditions:
1. Nonexcludable – people cannot be
excluded from using them.
2. Nonrival – consumption by one person
does not reduce the amount available for
others.
Agricultural Land & Production
Activities – influences the volume &
composition of various material flows from
farms to the environment –affects
environmental public goods.
Excludable goods – refers to goods that
restricts some people from using them.
(private goods)
Concept of Externalities – introduced by
British Economist ARTHUR C. PIGOU
(1932)
Externalities – existence is central to the
environmental dimension of Agric’l
activities.
PIGOU proposed a solution to impose tax
on a negative externality –causing activity &
to provide a subsidy for an activity that
generates a positive externality.
Pigourian Taxes & Subsidies – internalizes
external cost & benefits.
POSITIVE externality –
Negative externality –
Resources can be classified as:
Expendable – designed for a single use, not
reusable. Adjust rapidly such that use in one
time period has little effect on availability in
subsequent periods.
Renewable – self-renewing within a period
relevant to economic decision-making.
Depletable – adjust so slowly that one can
meaningfully treat them as being available
only once within a period relevant to
economic decision-making.

AN OVERVIEW OF THE PHILIPPINE
AGRICULTURAL ECONOMY
Economic Performance
In 2019, the country’s Gross Domestic
Product (GDP) grew by 6.0 percent. The
Gross Value Added (GVA) in Agriculture,
Forestry and Fishing (AFF), which
accounted for 9.2 percent of the GDP,
registered a 1.2 percent growth during the
year.
Production Performance in Agriculture
The gross output in agriculture inched up by
0.3 percent in 2019. Crop production
decreased by 1.0 percent. Production of
palay was down by 1.3 percent while corn
recorded a 2.7 percent increment in output.
Banana production contracted by 2.1
percent. Coconut had a 0.3 percent output
gain. Increases in production were exhibited
in the other crops such as mango, pineapple,
calamansi, rubber, sweet potato, eggplant,
onion, tobacco, abaca, tomato, ampalaya,
cabbage, and cacao. Meanwhile, output
decreases were reported in sugarcane,
cassava, coffee, potato, and mongo.
Livestock registered a 1.0 percent decline in
production in 2019. Except for dairy, all
livestock components exhibited output
losses. Hog production dropped by 1.0
percent. Production of poultry was up by 5.9
percent. Chicken registered an output
growth of 4.9 percent while duck had 2.3
percent reduction in production. Uptrend
continued in chicken egg and duck egg
production. Production in the fisheries grew
by 1.5 percent in 2019. Among the major
species, output increases were noted in
roundscad, skipjack, yellowfin tuna,
milkfish, tilapia and tiger prawn.
Prices
On the average, the price received by
farmers for producing palay in 2019 was
down by 19.3 percent. Farmgate prices of
white and yellow corngrain were lower by
10.8 percent and 6.7 percent, respectively.
Reductions in farmgate prices were also
recorded in coconut, coffee, and mango.
Except for hog, all livestock commodities
had increases in farmgate prices. Hog was
priced lower by 8.6 percent. For poultry,
farmgate prices improved by 3.8 percent for
chicken and by 13.4 percent for duck.
Meanwhile, the prices paid by consumers for
food and non-alcoholic beverages went up
by an average of 2.1 percent.
Agricultural Trade.
In 2019, the country’s earnings from
agricultural exports, which accounted for 9.4
percent of the total exports, increased by 9.1
percent. The top agricultural export products
were fresh banana, coconut oil, and
pineapple and products with a combined
share of 52.5 percent in the total value of
agricultural exports. The major export
destinations for fresh banana were still Japan
and China, and for coconut oil, Netherlands
and United States of America (USA).
Pineapple and products were mostly shipped
to USA and China. The expenditures for
agricultural imports grew by 3.1 percent in
2019. These shared 13.0 percent in the
country’s total imports. Wheat (including
spelt) and meslin, soyabean oil/cake meal,
and rice were the leading agricultural import
commodities. Collectively, these accounted
for a share of 28.9 percent in the total value
of agricultural imports. USA was the major
supplier of wheat (including spelt) and
meslin and soyabean oil/cake meal, while
Vietnam for rice. The country maintained a
negative agricultural trade balance in 2019.
While it recorded an agricultural trade
surplus with Japan, it continued to record
trade deficits with the other major trading
partners such as Australia, USA, ASEAN
countries and the European Union.
Employment and Wages
The country’s labor force in 2019 totaled
44.69 million persons and about 94.9
percent were employed persons. The
agriculture sector absorbed 9.72 million
persons, contributing 22.9 percent to the
national employment. In nominal terms, the
daily wage rate of agricultural workers in
2019 averaged PhP 331.10.
Agricultural Support Services
In 2019, the expenditure of the Philippine
government in the agriculture and agrarian
reform sector reached PhP 133.71 billion,
higher by 9.5 percent from the previous
year’s level. Agricultural expenditures
accounted for 3.7 percent of the total
national government expenditure. The total
service area provided with irrigation system
reached 1.97 million hectares in 2019.
Irrigation development was estimated at
63.0 percent.
AN OVERVIEW OF THE PHILIPPINE
AGRICULTURAL ECONOMY
Economic Performance. In 2021, the
country’s Gross Domestic Product
(GDP)bounced back from the previous
year’s contraction and recorded a 5.7 percent
growth.
The Gross Value Added (GVA) in
Agriculture, Forestry, and Fishing (AFF),
which shared 9.6 percent in the GDP,
declined by -0.3 percent during the period.
(Table 1.1) Value of Production in
Agriculture and Fisheries. At constant
2018 prices, the value of production in
agriculture and fisheries went down by -1.7
percent in 2021. Decreases were registered
in the value of livestock and poultry
production, while fisheries recorded a
turnaround and posted a growth in value of
production in 2021. Crops grew at a faster
rate of 2.2 percent in 2021. Reduction in the
value of livestock production was noted in
2021 at -17.0 percent. Meanwhile, poultry
production was down by -0.3 percent in
2021 and this can be traced to the reductions
in the production levels of all poultry
commodities except chicken eggs. Fisheries
production recovered from the previous
year’s contraction and came up with a
growth of 0.1 percent in 2021.
(Table 1.1a) Production. Palay and corn
production were recorded at 19.96 million
metric tons and corn at 8.30 million metric
tons, respectively. Production for sugarcane
was at 26.28 million metric tons while
coconut was at 14.72 million metric tons.
Gains in production were observed in
banana, mango, pineapple, rubber, eggplant,
tomato, ampalaya, calamansi, and cacao. On
the other hand, production declines were
noted in cassava, sweet potato, onion,
coffee, tobacco, abaca, potato, cabbage, and
mongo. Hog and dairy exhibited production
losses, while carabao, cattle, and goat
reported production growth in 2021. All
poultry commodities except chicken eggs
posted declines in production. Production of
milkfish and tilapia went up while
roundscad and skipjack declined.
(Tables 2.1, 3.1, and 4.4) Prices. On the
average, the price received by palay farmers
in 2021 was recorded at PhP16.76 per
kilogram, recording the same price as in
2020. Farmgate prices of white and yellow
corngrain were higher at PhP 14.77 per
kilogram and PhP 13.98 per kilogram,
respectively. Farmgate price increments
were observed in coconut, rubber (cup
lump), pineapple (Hawaiian) and mango
(Carabao). Meanwhile, majority of the other
reference crops reported lower prices in
2021. All livestock commodities exhibited
farmgate price hikes. Hog recorded the
biggest price increment from PhP 111.98 per
kilogram, liveweight, to PhP 155.80 per
kilogram, liveweight. For poultry, increase
in prices were reported in chicken (broiler)
at PhP 118.52 per kilogram and duck at PhP
185.98 per kilogram. In the same year,
prices paid by consumers for food and non-
alcoholic beverages grew by 4.2 percent.
(Tables 6.1, 6.3, 6.4, and 6.5) Agricultural
Trade.
In 2021, the country’s export earnings from
agricultural products amounted to USD 6.79
billion, an increase of 9.4 percent from the
previous year’s level. The top agricultural
export commodities were coconut oil (USD
1.43 billion), fresh banana (USD 1.14
billion), and pineapple and products (USD
769.94 million). Their combined shares
accounted for 49.2 percent of the total value
of agricultural exports. The major markets
for coconut oil were Netherlands (USD 0.48
billion) and United States of America (USA)
(USD 0.36 billion), and for fresh banana
were Japan (USD 0.49 billion) and China
(USD 0.39 billion). Pineapple and products
were mostly shipped to the USA (0.28
billion) and China (USD 0.13 billion).
(Tables 7.1 and 7.3) The value of total
agricultural imports in 2021 amounted to
USD 15.71 billion, an expansion of 24.9
percent from the 2020 record. The top
agricultural imports were wheat (including
spelt) and meslin (USD 1.75 billion),
soyabean oil/copra cake (USD 1.25 billion),
and rice (USD 1.14 billion). Collectively,
these shared 26.4 percent in the total value
of agricultural imports. The major supplier
of wheat (including spelt) and meslin at
USD 0.91 billion and soyabean oil/cake
meal at USD 0.94 billion was USA. Most of
the rice imports came from Vietnam (USD
0.91 billion).
(Tables 7.4 and 7.6) The country sustained a
negative agricultural trade balance in 2021
at USD -8.92 billion. Among the major
trading partners of the Philippines only
Japan recorded an agricultural trade surplus
at USD 0.84 billion. Trade deficits with
Australia, USA, ASEAN countries, and the
European Union continued to register in
2021.
(Table 7.7) Employment and Wages. In
2021, 47.70 million persons comprised the
country’s total labor force and of this
number, 43.99 million persons were
employed. The agriculture sector employed
about 10.66 million persons, contributing
24.2 percent to the national employment.
(Table 1.2) Agricultural Support Services.
In 2021, the expenditure of the national
government in the agriculture and agrarian
reform sector totaled PhP 143.36 billion and
this amount was -20.2 percent lower than the
previous year’s level. Agricultural
expenditures shared 3.2 percent in the total
national government expenditures.
(Table 1.4) The country’s total service area
provided with irrigation system was 2.04
million hectares in 2021. This corresponded
to an irrigation development of 65.3 percent
of the estimated total irrigable area.