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Case 4.

Supply Analysis in the Philippine Corn Industry


The Philippine Corn Industry
A robust corn industry is vital to the Philippines food security. White corn is an important grain served on
the table of at least 20% of the Filipino population. Yellow corn, on the other hand, is the main ingredient in
formulating animal feed mixes. Domestic corn production provides livelihood to over 2 million farming
families.
On a larger scale, the corn industry provides jobs for many other Filipinos in the feed milling, hog and
poultry, food processing, and other support industries. On this note, the strength of the corn industry is a
fundamental factor in successfully achieving the goals of the swine and poultry industries to provide
affordable food for the population and to sell choice meat cuts in the region.
The corn outlook is clear and optimistic. The corn sector has an immense opportunity to supply the demand
of the swine and poultry growers who, in reality, prefer locally produced corn as inputs to the feedmill
industry. A vibrant domestic corn sector gives security in livestock supply, a hedge against foreign
exchange fluctuations, and a greater flexibility in production.
Recent updates reveal that the corn sector is expected to grow in the first nine months of 2004 (January to
September) by 18% from year-ago levels. Production increase is expected as farmers with higher-yielding
seeds are likely to plant bigger areas due to favorable weather conditions and in anticipation that prices
would remain firm and profitable. If sustained, there is a big possibility that the country will be selfsufficient in corn and would even export surplus in the coming years.
In more specific terms, corn is expected to hit 4.12 million metric tons, or 629,000 metric tons
increase. This is more than its previous years level of 3.49 million metric tons. The increased output
will be caused in part by an expansion in area harvested, with the size of corn farms seen to expand
by 8.4% to 1.97 million hectares. Better grains performance is also expected to be attained due to
increase in yield of corn by 9.3% to 2.11 tons per hectare.
The governments intensified campaign in the application of modern agricultural technologies are
contributing significantly to higher grains output as more and more farmers are using hybrid seeds and
adopting better production techniques to increase production.
Table 1.a: Summary of Philippine Corn Figures
Average Growth Rate
2003 Growth Rate
(1991-2003)
0.23%
6.86%
Production
(4.3 million mt/yr)
(4.6 million mt)
0.68%
0.60%
Hectare
(2.48 million has/yr)
(2.4 million has)
4.14%
Yield
(1.73 mt/ha/yr)
(1.94 mt/ha)
2.03%
4.7%
Demand
(5.5 million mt/yr)
(6 million mt)
As seen in the table above (Table 1.a), the figures on Philippine corn industry have been encouraging, with
all production, land area, yield, and demand showing positive average growth rates. For instance, the
average corn yield and demand have been relatively substantial at 4.14% and 2.03%, respectively. Though
these figures are still below international rates, 2003 figures are showing optimistic numbers. Production in
particular increased by 6.86% and demand grew by 4.7%.
Increasing Consumption

The Gross Value Added (GVA) of the livestock and poultry sectors has been relatively stable in recent years
(Table 1.b). In 2002, the GVA of the livestock industry reached Php 26.57 million from Php 25.51 million
or a growth rate of 4.15% in 2001, which is substantially higher from the 2.94% growth rate in 2000 to
2001. The poultry sector, on the other hand, posted Php 22.07 million in 2001 and Php 23.44 million in
2002 or a growth rate of 6.21%. From 1998 to 2002, the livestock sector grew by 3.65% and 5.51% for the
poultry sector.
Table 1.b: Growth Rates of GVA of Livestock and Poultry Industries 2000-2002 and 1998-2002
2000
2001
2002
GR
GR
GR
GVA
(in M pesos) (in M pesos) (in M pesos)
(00-01)
(01-02)
(98-02)
Livestock
24,783
25,511
26,569
2.94%
4.15%
3.65%
Poultry
20,475
22,077
23,448
7.82%
6.21%
5.51%
It has to be noted moreover, that the main end-user of corn products, the livestock industry, has been
increasing. This is mainly accredited to the increase of consumption of livestock food products.
For instance, pork consumption in the country has been increasing at a rate of 4.67% - that is from 1997 to
2002, the consumption of the pork increased by 22%. Annually, the demand for pork is registered at 1.03
million metric tons. Broiler production is likewise increasing at a 5.18% annually, which as of 2003 figures
totaled to 492,000 metric tons.
It is also noteworthy to cite that pork production at 4.18% keeps pace with consumption growth of 4.67%
within the period of 1998 to 2002 (Table 1.c). This is likewise true for b
roiler production, which experienced 4.86% growth as against consumption rates of 5.18% growth.

Year
1998
1999
2000
2001
2002
Average

Table 1.c: Growth Rate of Production Corn, Pork, and Broiler,


Philippines, 1998-2002
% Growth
Corn
Pork Growth
Broiler
-10.21
3.52
-1.10
25.33
4.27
1.06
-5.03
3.48
7.39
-0.55
4.40
10.11
-3.26
5.25
6.82
1.256
4.184
4.856

Import
52.48
-67.75
199.33
-49.55
23.56
31.61

In the near future, as pork production grows at 4.2% and broiler at 4.9%, corn production has to grow faster
than its present rate of 1.3%
. This partly explains why corn imports have been growing through the years, with figures reaching as
much as one million tons annually. Experts agree that the livestock industry will grow faster if and when
the corn industry is able to offer a reliable domestic source of feed. Therefore, the growing livestock sector
offers an opportunity for the local corn sector because on the demand scale, the gap the supply of corn
offers the industry with a burgeoning market for the existing and potential corn lands in the country.
This potential is worth capturing because the swine industry sector has set its mind on a vision to market its
product aggressively and to make pork meat more affordable to a greater number of Filipinos. Moreover,
the swine industry aims to export packaged special cuts of meat by 2005. To support this goal, the Meat
Inspection Law (or Republic Act 9296) was passed by Congress this last May. This bill establishes an
internationally recognizable standard for slaughter and inspection, equivalent to USDA standards.
The Philippines is also starting to export poultry to Japan after the Philippine poultry sector was spared
from the onslaught of the bird flu virus that plagued the rest of Asia. The Philippine International Trading

Corporation (PITC) recently completed the shipment of some Php 5 million worth of frozen chicken from
Cagayan de Oro and San Fenando, Pamapanga. Succeeding orders from Japan were expected to about US$
120,000 per month.
During the Asian bird flu outbreak earlier this year, prices of live chickens in the domestic markets had
dropped to about Php 40 per kilogram from around Php 65 per kilogram, despite the country remaining free
of the bird flu, as consumers shunned chicken meat. However, current prices were again back to Php 65 per
kilogram and industry experts predict that prices in the local market would remain at these levels for the
rest of the year.
Supply Drivers
It is important to probe the underlying factors that determine the behavior of corn production and
consumption in order to understand the industry and design effective development strategies. As
highlighted in the previous chapter, supply cannot catch up with demand. Hence, demand factors may not
be as critical as supply factors. Moreover, demand is expected to expand as Filipinos become more affluent
and increase their demand for meat products. 1 The key issue therefore is to understand the underlying
factors that drive supply so appropriate strategies can be mapped out to address the lack of supply.
There are a number of factors that affect the decisions of farmers to produce corn. These include price of
corn, prices of inputs such as labor, capital, agricultural chemicals, and land. Weather and level of corn
imports also affect production of corn. Normally, as price of corn increases, farmers will increase
production. However, if prices of inputs or costs of production as well as imports increase, farmers will not
be encouraged to increase production. In what follows, each of these supply factors is first examined
descriptively, particularly their effect on volume of production before modelling or statistically analyzing
the simultaneous effects of this set of factors on the volume of production. To effectively compare trends
of these variables in graphical form, the data were converted into indices with 1983 as the base. Thus, all
figures in 1983 are converted to a base of 100. Indices above 100 implies an increase from the base and
those below imply a decrease from the base period.
To do:
Considering the pressing issue on the lack of supply of yellow corn due to high demand, supposed you are
asked by the National Corn Competitiveness Board (NCCB) composed of representatives from the private
sector, government and non-government organizations to examine the drivers affecting production corn.
The board needs to understand some key supply issues in order to formulate strategies.
A.

Using Table 1 data, analyze the factors that affect supply or production of yellow corn.

1) Qualitative analysis
1) Convert the data into indexes with 1992 as the base year ie divide all years by 1992 figure.
2) Understand trends or behavior of data by plotting volume of production and each of the factors
affecting it against time or year. ie volume and price vs time (plot volume and price in the y axis
and time or year in the x axis), volume and area vs time, etc. (Note: data plotted are in indices).
3) Analyze trends ie describe the graphs
2) Quantitative analysis
1) Define a supply/econometric model using the volume as dependent variable and the other
variables in table 1 as independent variables
2) Estimate the model using excel or spss.
3) Analyze results including validity of the model
1

An econometric model on demand for corn was estimated in this study and shows significant relationship between
volume of corn produced (as proxy of corn consumption) and livestock and poultry inventory.

Table 1. Corn supply statistics, 1983-2001.


Dependent

Independent

Corn
Corn
Corn
imports
price
wage
fertilizer price Corn area
(metric
Year
Volume
(Pesos)
(Pesos)
(Pesos)
(hectares)
tons)
1983
778260
1.79
15.2
157.56
588060
528,441
1984
961767
2.92
18.65
236.32
689300
182,401
1985
885028
3.57
23
229.47
667450
281,178
1986
1165606
3.47
25.64
172.08
832260
159
1987
1513409
3.58
28.01
169.05
989980
55,814
1988
1569073
2.93
32.46
197.63
1000220
25,132
1989
1599282
4.54
37.98
218.86
986850
153,944
1990
1888334
4.74
46.93
231.83
1081020
343,007
1991
1749335
3.39
52.59
318.94
1006090
314
1992
1919265
5.03
59.83
294.74
980520
604
1993
2170928
4.57
65.84
245.24
1050970
648
1994
2429341
6.2
74.03
271.51
1139950
894
1995
2266087
7.39
86.98
310.71
1022014
208,024
1996
2268245
7.71
91.29
325.1
1040108
405,440
1997
2453208
7.63
96.86
313.28
1026911
302,957
1998
2202719
8.36
104.1
345.29
902959
470,032
1999
2760759
8.51
120.57
335.76
1034453
149,460
2000
2621766
9.26
137.4498
349.72
936934
447,938
2001
2715061
9.43
156.6928
386.53
959795.2
172,729
Sources: Philippine Institute for Development Studies and Philippine Fertilizer Authority

Total area
for
banana,
pineapple
and sugar
61948.8
59707.6
58684.8
61484.6
63715.1
61055.2
61502.5
39865.5
38063.8
40345.4
43320.4
44383.4
44643.7
45768.4
41126.1
38327.5
38092.3
44102
44768.5

B.
Using the analysis or findings you have in 1, what strategies can you recommend to the
NCCB?

Machinery
(million P)
637
159
66
89
138
293
529
517
499
445
693
815
687
822
1012
806
833
881
850