Agriculture - - Marketing -

PHILIP­PINE AGRI­CUL­TURE is largely a small­holder-based sys­tem as a re­sult of pop­u­la­tion growth and decades of land re­form. The chal­lenge for ru­ral poverty re­duc­tion schemes and pro­grams is to boost in­comes of small farm­ers and farm work­ers. For grow­ing economies, agri­cul­tural de­vel­op­ment en­tails diver­si­fi­ca­tion into high­value ac­tiv­i­ties (WB 2009). Such ac­tiv­i­ties are best seen in the con­text of value chains that can link farm­ers to mod­ern mar­kets. A value chain refers to a set of linked eco­nomic ac­tiv­i­ties that suc­ces­sively in­crease value added pro­duced along the chain. A sup­ply chain is an or­ga­nized value chain where a key player co­or­di­nates sup­ply and de­mand. Sup­ply chains typ­i­cally arise for prod­ucts to be ex­ported or sold in mod­ern re­tail out­lets (e.g., su­per­mar­kets), where qual­ity and vol­ume re­quire­ments are para­mount (Rear­don et al. 2001). In agri­cul­ture, co­or­di­na­tion of sup­ply and de­mand is typ­i­cally ar­ranged un­der a con­tract farm­ing scheme.

While it makes sense to posit that the buyer should ben­e­fit from such a scheme, is it also true that small farm­ers ben­e­fit? Bor­ras and Franco (2010, p. 520) deny that such win-win sce­nar­ios are the norm; rather, con­tract farm­ing re­sults in “pro­cesses and out­comes that mainly fa­vors the transna­tional com­pa­nies”. In con­trast, other re­searchers have found that con­tract farm­ing does ben­e­fit farm­ers (Minot 2007); Costales et al. (2007), for in­stance, es­ti­mate that prof­its of poul­try con­tract grow­ers are 44 per­cent higher than those of non­con­tract grow­ers.

Other fac­tors, how­ever, may ac­count for the ob­served dif­fer­ence, such as farmer char­ac­ter­is­tics, area char­ac­ter­is­tics, etc. This Pol­icy Note sum­ma­rizes a study (Bri­ones 2014) that seeks to as­sess the im­pact of con­tract farm­ing on small farm­ers in the Philip­pines us­ing ev­i­dence-based meth­ods. Specif­i­cally, the study aims to char­ac­ter­ize con­tract farm­ing for a ma­jor value chain in Philip­pine agri­cul­ture, de­ter­mine the im­pact of con­tract farm­ing on the farm in­comes of small­hold­ers, and as­sess the de­gree to which par­tic­i­pa­tion in con­tract farm­ing is bi­ased to­ward farm­ers with larger en­dow­ments.


The to­bacco in­dus­try in the Philip­pines is a use­ful test case, as to­bacco is a cash crop with a high-value chain where harvest is in­tended for ex­port or as a fin­ished prod­uct in the do­mes­tic mar­ket. To­bacco farm­ing is done mostly by small farm­ers. Their har­vests are sold ei­ther to ex­porters or man­u­fac­tur­ers un­der con­tract schemes or di­rectly to tra­di­tional to­bacco traders, who in turn sup­ply the same ex­porters and man­u­fac­tur­ers di­rectly or through in­ter­me­di­aries.

To­bacco is mostly planted in the Ilo­cos re­gion. In 2011, the to­bacco in­dus­try out­put at the farm level was val­ued at US$ 91 mil­lion (FAO 2014), while to­bacco ex­ports reached US$ 331 mil­lion (BAS-PSA 2014). There were about 54,000 to­bacco farm­ers cul­ti­vat­ing 37,000 hectares of to­bacco farms (NTA 2014) in 2013. The out­put of the in­dus­try grew 6 per­cent an­nu­ally from 2000 to 2011. More­over, growth in to­bacco ex­ports has been 22.9 per­cent over the same pe­riod.

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