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ANNEX V: GRASSROOTS VIEWS OF THE STAKES IN A RISING LIVESTOCK SECTOR IN THE PHILIPPINES

Agnes C. Rola[108]

May 2002

This paper was produced as part of Phase I of an IFPRI-FAO project entitled "Livestock Industrialization, Trade and Social-Health-Environment Impacts in Developing Countries", funded by the Department for International Development (DFID), U.K., through the Livestock, Environment and Development (LEAD) initiative at FAO. Correspondence may be addressed to the scientific coordinator for the project, Dr. Christopher Delgado, IFPRI, 2033 K St, N.W., Washington D.C. 20006, USA. Email: C.Delgado@cgiar.org

I. Introduction

Global trends in livestock demand and production indicate quite clearly the growth potential especially in developing countries. In the Philippines, monogastrics such as swine and poultry have been the top performers in the agriculture sector. This livestock "revolution" occurs at a time of significant changes in socioeconomic and institutional environments. The changing demographic patterns, decentralized eco-governance, trade liberalization, and the health and environmental policies will have major impacts on the further livestock intensification and scale of operations. Trade policies in both the input and output sectors, urbanization and the consequent zoning ordinances, competing use of water by the other sectors, and the power prices and policies are some of the instrumentalities that will affect the scale of operations.

What would be the outcomes of these changing phenomena on the viability and sustainability of the livestock enterprises in developing economies such as the Philippines? What are the factors that affect smallholders' investment decisions in livestock as well as their decisions to be (or remain to be) in the livestock industry, as raisers, integrators, small-scale retailers, or laborers?

Through the voice of the grassroots from the Philippines, this paper will try to unravel the black box and understand the would-be outcomes and constraints of the move to intensified systems and the stakes in the rising livestock sector. This understanding will lead us to the formulation of hypotheses to describe a more optimal mix of policies for the poor's effective and sustained participation in the livestock revolution. The small- scale livestock sector will be the focus of the study. The grassroots level livestock industry participants can be classified as independent (backyard or large scale) and contract growers (small scale and large scale).[109]

A. Factors Affecting Scale of Operations

One can hypothesize at least five (5) factors that may affect small farmers' decisions to intensify or raise livestock, or remain in the livestock industry: 1) access to capital; 2) technical knowledge about livestock production and their sources of information; 3) social capital which refers to the trust in integrators and more transparent contractual arrangements, trust in the primary buyers of the livestock, trust in government as a whole; 4) demographic characteristics, i.e. women tend to invest more in livestock than men, the elderly (retirees) would tend to invest more than the younger ones; and 5) perception of the market and policy environment (prices, feeds, and the local ordinances affecting the livestock sector, health and environmental policies).

B. Potential Impacts of Intensification

In situations where small-scale participants will want to intensify operations or just remain to be participants, the question remains to be the limits to the intensification and the possible impacts and hence, mitigating factors to be in the business. Potential impacts will be in the areas of social structures, economic gains of scale, environment and public health risks.

C. Towards Sustainability of Small Scale Livestock Enterprises in the Philippines

This paper will investigate the factors affecting the viability and sustainability of small-scale livestock enterprises in the Philippines under the very dynamic institutional, environmental and economic setting.

The themes of the investigation will be the following:

1. An assessment of the changes in demographic, social and economic profile of livestock producers in the Philippines;

2. Elicitation from different stakeholders- smallholder, large scale and integrator livestock producers-the events and issues that most concern them in matters relating to livestock production and marketing;

3. Assessment of the stakeholders on the level of awareness of changes in policies and their perceived socioeconomic impacts;

4. Assessment by the different producers of the outlook of the industry from their particular view points; their participation in it and their views of actions that would improve their position; and

5. Identification of social, human health and environmental issues at the grassroots that are at stake in the changing policy and market environment for livestock in the Philippines.

Livestock here means pigs and broilers. Stakeholder key informant interviews were done. Local government officials were also key informants especially in areas where imminent urbanization is perceived to be due to livestock intensification. In general, we investigate the interface of industrialization/urbanization on the rural societies and its social, health and environmental impacts.

Data are from secondary sources such as past studies, statistical bureaus and local government offices. Primary data were taken from two types of areas: near-market areas, which represent high production/marketing potential, and far-from-market areas that will represent low production/market potential.

D. Description of the Research Sites

For the purpose of this inception report, key informants were selected from livestock growers in Laguna, Buchanan, and Iloilo, currently the top or among the top provincial producers of livestock in their particular regions. Study sites in Laguna and Buchanan are in upland towns. Both the study towns enjoy a cool climate with elevation greater than 1000 feet above sea level and abundant water supply from surface and ground sources. In both areas, raw water is still free; and people can tap from natural streams. The Iloilo case was in the city proper.

Laguna is a study representative of an intensified system near major markets. Growers in the municipality in Laguna have been in the enterprise for more than twenty years. The intensification is now observed to exacting a toll in the environmental services in the area.

The Department of Agrarian Reform (DAR) in the Laguna town is active in the privatization of agricultural lands. Because of the comprehensive agrarian reform program (CARP), in the late 1980s, most people in the area are now landowners. This asset by the families is the reason for the perceived well to do status of the community members. The poor members of the community in the area are the migrants from the neighboring Bicol region. They work in the farm and the poultry and piggery operations as hired labor. In this Laguna site, most people are upland vegetable farmers, or coconut producers. The town is relatively well off due to relatively high farm profits, and due to the fees paid by the hydro power plant that also employs quite a number of the town's labor. Tourists also come to enjoy the waterfalls in the higher portion of the watershed. The lower portion creeks and rivers are visibly polluted and without any marine life, and seemed to be dangerous for contact swimming. Every household with backyard piggery drains the waste in the various creeks and streams flowing through the town.

According to informants, there are municipal ordinances that encourage environment friendly practices but are not implemented for political reasons. A large number of the community members have backyard livestock operations and thus the enforcement of the local ordinances could make a town official unpopular. The zoning ordinance is not yet approved at the provincial level because the proposed provincial agro-industrial zoning is not acceptable at the moment. There is a need for a public hearing to approve the proposed ordinance. The two ordinances now implemented in the study town related to livestock are the prevention of the Foot and Mouth Disease (FMD) and a fixed the municipal fee of P1.50 per head of pig and layer/broilers sold, where such fees will be spent for municipal development.

On the other hand, Bukidnon is a representative of a site of an emerging livestock industry, and the one farther from the major market. Bukidnon is traditionally a major producer of beef cattle. It has long enjoyed the status of being FMD free. The province, however, is not counted among the top producers of pigs and poultry, until about 1996. The cool physical environment and the large tracts of open spaces of the province are conducive for commercial livestock production. In the study municipality, there were no commercial livestock establishments until 1998. In 2001, there were now 10 commercial farms, mostly breeding farms. It was known that enterprises from the livestock producing provinces in Luzon are transferring their operations in this province due to the urbanization in the former. There are also enterprises from the Visayas, particularly Cebu, whose operations are now in Bukidnon, as the animal manure is used for upland vegetable production in the area and the fact that Bukidnon is one of the country's major corn production areas, (and thus feed availability).

In Lantapan, land is owned mostly by indigenous tribes. Migrants have titles to their names via intermarriages with the daughters of tribal group members. The traditional crops grown were corn and coffee. Because of the increasing market access, temperate crops were also planted in the upper slopes of the watershed. Due to its cool climate, banana firms leased large tracts of land for the cultivation of the exotic varieties exclusively for export market. Available data showed that river waters contain an increasing level of E. Coli bacteria (Deustch, et al., 2001) suspected to come from human and livestock wastes. The rivers in the area also serve as a sink for agricultural chemical wastes. An investigation on the leading causes of morbidity in children showed diarrhea and other water related illnesses to be the culprits.

One respondent was from the peri-urban center of Iloilo province. This is the small contract grower for hogs; who is not affiliated with a large integrator but with the small feeds supplier. The family now living in what can be considered as a city limit, is a traditional backyard grower for hogs when urbanization had not yet set in. Their residence is by the riverbank. City zoning ordinances and the development of a housing subdivision in their periphery now threaten their small hog enterprise.

A total of nine (9) respondents for hogs and seven (7) for poultry served as key informants. Some other primary information was taken from the familiarity of rural societies by the principal investigator. Seven members of the local government units in the two study municipalities were also interviewed.

II. Grassroots Views of the Stakes in the Rising Swine Sector in the Philippines

A. National Trends

The estimated annual growth rate in domestic demand for pork is 3.7 % during the period 1990-1999. This rate was slower in 1990-1995 (1.6%) but had a steep growth in the period 1995-1999 (5.5%). On the other hand, supply of hogs comes from two sources: backyard and commercial operations. Philippine statistics show that while backyard production is all over the different regions in the country, the commercial operations are concentrated in Regions 3 and 4, which are areas near the major markets of Manila.[110] These two regions account for 55% of total commercial hogs inventory in 1980 and which has increased to 73% in 2000 (Table 1). On the other hand, backyard operations in these two regions and in most other regions have barely intensified for the past twenty years. A slight increase in hogs inventory in the backyard operations can be observed in the urbanizing regions (Region 6, 9, 11 and 12).

Table 1: Percent Distribution of Inventory of Hogs on commercial and backyard farms, Philippines, by region, various years

REGION

Commercial

Backyard

1980

1995

2000

1980

1995

2000

Philippines

100.0

100.0

100.0

100.0

100.0

100.0

Luzon







CAR

0.3

0.2

0.2

3.9

3.4

3.0

Region I

1.5

2.6

2.0

7.0

4.9

4.3

Region II

2.0

0.6

0.4

8.6

6.5

6.3

Region III

30.2

34.9

39.4

8.7

8.6

7.4

Region IV

25.1

34.7

34.0

10.3

10.3

9.9

Region V

1.1

0.5

0.5

8.5

7.1

7.4

Visayas







Region VI

5.1

3.9

4.7

7.8

8.6

9.7

Region VII

3.2

2.6

3.1

10.3

10.1

8.6

Region VIII

0.2

0.1

0.1

10.5

9.7

8.8

Mindanao







Region IX

0.2

0.2

0.2

5.6

6.6

7.9

Region X

1.6

1.8

2.1

6.5

5.5

7.0

Region XI

26.2

16.8

12.3

5.2

9.1

10.2

Region XII

1.3

0.7

0.7

2.9

4.5

5.1

CARAGA

0.1

-

0.1

3.7

4.5

4.0

ARMM

1.9

-

0

0.2

0.4

0.3

Source of basic data: BAS, 2001

The poorest regions in the country in terms of the poverty incidence over 50%[111] in 1997 are the Cordillera Autonomous Region (CAR), Regions 10 and 12, and the Autonomous Region of Muslim Mindanao (ARMM) (Source: NCSB, 2000). Trends in hogs inventory for both types of operation have not changed for the past twenty years in the CAR and the ARMM. Region 12 had a slight increase in the hogs inventory in backyard operations, while Region 10 had some increases in both the commercial and backyard operations. While armed conflicts may be a factor for the poverty in some regions in the Philippines, it can be deduced that the poor do take part in the hogs backyard operation. In terms of share of commercial to total hogs inventory in these poorest regions, while CAR and ARMM did not have significant movements, Region 10 has increased share and Region 12 had a decreasing share (Table 2). The decrease in the latter may largely be due to relatively unstable the peace and order situation in the area.

Region 10[112] is a potential site for intensification of commercial livestock operations. The relatively peaceful condition and the conducive physical characteristics of the region will contribute to this intensification. Backyard hogs inventory trend is also increasing in this region, as well as in other regions of similar characteristics. Mindanao as a whole is seen to be a growth area for commercial hog operation because of the space that the island can offer. While several commercial operations in Luzon and the Visayas have relocated to Mindanao national data show that the traditional commercial hog producing regions of Region 3 and 4 are still in the intensification stage (Table 2).

Table 2: Percent share of commercial to total hog inventory, Philippines, by region, various years.

REGION

Total inventory ('000 heads)

Share of commercial to total (%)

1980

1995

2000

1980

1995

2000

Philippines

7933

8941

10760

18

20

22.6

Luzon







CAR

261

252

252

1.5

1.6

1.6

Region I

481

396

412

3.7

11.6

11.9

Region II

590

416

537

4.6

2.6

2.0

Region III

991

1235

1574

42.1

50.0

61.0

Region IV

1025

1353

1656

34.1

45.1

49.9

Region V

573

519

633

2.6

1.7

2.0

Visayas







Region VI

583

685

920

12.0

8.6

12.4

Region VII

719

772

793

6.1

5.9

9.6

Region VIII

698

697

738

0.4

0.1

0.3

Mindanao







Region IX

369

481

664

0.7

0.8

0.6

Region X

445

428

630

4.9

7.2

7.9

Region XI

713

947

1150

51.5

31.2

26.1

Region XII

211

336

440

8.5

3.9

4.1

CARAGA

243

258

338

0.8

0.3

1.2

ARMM

40

20

23

65.0

1.0

0

Source of basic data: BAS, 2001

B. Profile of Swine Producers

1. Age

For this report, the information from key informants (KI) forms our database. In Luzon, four people served as KI, where two retired males were small backyard growers, one young female was a large independent grower and another older woman was a contract grower of the Monterey Farms (Table 3). In the Visayas, one KI was a young male small contract grower of a relatively small scale feed supplier. In Mindanao, there were four KIs who were relatively young. In terms of age, people in the large, more commercial operations were observed to be younger than those who do backyard operation. On the other hand, this cannot be a general statement. Some of the retired persons do invest in the large-scale operations.

2. Education

Contract growers tend to be more educated than the backyard growers. This is because they have to understand the terms of the contract. Furthermore, higher cognitive skills are necessary in managing a large operation.

3. Gender

The key informants for the hog sector were males and females. Previous studies found that backyard swine raisers were predominantly females (Villegas, 1999) and in other instances, predominantly males (Nocon, 1997). In the Philippines, the conventional wisdom is that noncommercial activities are the domain of the females, but once the scale becomes commercial, then the males would come into play. This situation could now be changing, as there are programs that encourage women to take out small loans for small-scale commercial hog operations.

In the far from market area, the large independent grower's wife takes care of the production operations on hogs while the husband takes over the marketing function.

4. Socioeconomic Groups

It is also noted that contract growers and large-scale farmers are active in the social network of their particular communities. They are well respected in society, and have the political connection to be contract growers of large integrators. They need the connection in order to facilitate the legal and other types of regulatory policies concomitant with the business operation. On the other hand, backyard growers network among themselves. There were no cooperative organizations for small hog raisers in the study communities.

Table 3: Profile of Hog Producers, Philippines, 2002.

DEMOGRAPHIC VARIABLE

BACKYARD

LARGE INDEPENDENT

CONTRACT GROWER

Large*

Small

Age (in years)






Near Market

61

35

70

26


Far from Market

49

41

35


Gender






Near Market

M

F

F

M


Far from Market

F

Both M&F

M


Civil Status






Near Market

M

M

M

M


Far from Market

M

M



Education






Near Market

College graduate (Engineer)

College graduate (BS Math)

College graduate

3rd Year HS


Far from Market

1st Year HS

Graduate Student

Grade 6


Mean Family Size






Near Market

5

7

5

4


Far from Market

11

5

5


Main Occupation






Near Market

piggery

piggery

piggery

Tricycle driver


Far from Market

none

Farming

piggery


Other Sources of Income






Near Market

retirement pension

feeds store/tricycle

rice/coco-nut production

none


Far from Market

contribution of children

farming

business


Number of Heads of Hogs






Near Market

13

2000

500

7


Far from Market

12 (4 sows)

43 (9 sows)

1,300


*Note: Only the farm supervisor was interviewed.

Contract growers and large-scale producers must have the corresponding equity for the large-scale operations. They tend to have the capital for the business; and have a good understanding of investment opportunities.

5. Location of Business

Because of the perceived environmental and health consequences, most of the large-scale hog operations are in areas far from dense communities. These areas also have a good supply of water. The Mindanao study site has lower minimum wages than the Luzon areas, and with plenty of labor around, the large scale businesses have an economic advantage over the more expensive Luzon areas. In instances where the operation is located in an urbanizing area, the business is pressured to limit or reduce its hog population.

The other significant finding is that large operations, and most especially the contract growers, would want to be in a secluded area so as to avoid disease outbreaks. The integrators usually have a requirement of some distance away from another hog business to minimize contamination of bacteria/viruses carried by the wind. This allows for conditions to be highly sanitized.

On the other hand, backyard growers now increasingly living in dense communities are not aware of this phenomenon. They report that there is an increasing incidence of disease outbreaks in their communities. The outbreaks are not just a function of the dense human and animal population in towns and villages, but also of the unsanitary practices in backyard operations compared to the contract and large-scale growers.

6. Extent of Formal Sector Capital Investment

Backyard/Small Scale

In general, backyard growers are not dependent on the formal sector for investment requirements. Backyard growers with good community standing tend to have ready credit line with the small town feed supplier. He pays the feed store when he sells his piglets. There are also credit programs now available for the poor from both the government and non-government organizations (NGOs) operating in the poor communities. In the study area far from the market, an NGO supervises a program of livestock dispersal, giving out piglets, cash for feeds and technical advice. During the fieldwork, the local government in this area is starting a credit program where seventy-five percent of the applications were for backyard hog operations and mostly filed by female farmers. The national government is also starting another easy financing program for farmers that will do away with collaterals, and other tedious and cumbersome loan application process. This program intends to eliminate the usurious practices in the rural areas.

On the other hand, the small contract grower took loans from relative, with no interest charges, to build the pigpen and the bamboo water pipes leading to the pen. For operations, he did not need a loan as the input dealer/contractor pays for all the operating costs.

Large Independent Grower

The large independent grower in near-market area is an interesting case. The 2000 heads of hogs started with only one head of piglet that the couple first rose after they married in 1963. In 1975, the enterprise got a loan from the rural bank for the construction of the building, of a farm now called FCC, or Farm, by the community and the business sector. This loan is now paid up. When a disease outbreak took place in 1998, the Farm lost a significant amount of heads. The business went into deficit. To recover, they applied for a PhP3million loan from the feed company that supplies them with feeds. This loan was also without interest; the only condition being for the farm to source its feed requirement from the company. This is one way of cultivating a sustainable business relation, which traditional custom calls the "suki" system.

Contract Growers

For the contract growers, the investment is in the form of buildings. The large contract grower started out as a backyard raiser. She was able to borrow from the rural bank the money needed for the building, which was about PhP5000 in 1985. As she expanded her operations, she also renewed her loan annually. The interest rate was 27-28 percent annually. As a contract grower (since 1996), she did not borrow from the formal sector anymore. She says that she could always borrow anytime she needs a loan.

For contract growers in far-from-market areas, the investment is mostly in the form of land for the operations, and a large capital for the modern buildings. These growers are known to have large tracts of lands and have enough percent capital from the other agricultural enterprises to finance their own operations.

7. Participation of the Poor in Commercial Marketing

Near Market Areas

The entire backyard grower KIs had their hogs picked up by the village buyers. This was no different from the traditional practice. The literature cites that the marketing function of backyard producers had always been taken over by the market intermediaries. In the past, producers sold to middlemen, on the basis of social ties; this relationship did not allow room for exploitation (Deomampo, 1973). Until this day, studies show that these intermediaries are still needed by the poor producers (Baja, 1997), although the social ties have mostly disappeared. It is perceived that farmers have a weak bargaining power due to imperfect market information (Landas, 1993; Del Fierro, 1990; Villegas, 1999).

The marketing system has also been found to be highly inefficient (Revilleza, 1994). At the farm level, prices were determined based on negotiations between farmers and buyers. More often than not, farmers were not aware if the prices offered to them by the buyers are the best prices (Revilleza, 1994). This observation is negated by the current study where KI information revealed that producers have quite good information, and could also haggle with the seller for the best price.

In the pick-up mode, the room for exploitation is in the determination of weights; where the KI in this study felt being shortchanged by the buyer, who was not part of her social network. This KI had expressed the need to regulate the weighing scale of the buyers. This was also a finding in the study of Orquina (1994). The difference between then (the 1980s) and now is that a third party (or local officials) is perceived to have a role in these instances of exploitation.

Respondents in the study of Mercado (1991) were well informed about the relevant market information and the product was considered fairly homogeneous at the farm level.

Pork was differentiated at the retail level using meat types/cuts and processing. The wide price margin was attributed to non-grading of animals, raisers not having the necessary market information; and due to indebtedness to some traders.

There are some qualitative characteristics affecting price that the poor backyard raisers have not mentioned about. Some of these are head size, length and width of back, length of sides, length and width of loin and shoulder structure breed and method of sale (Baula, 1990). Buyers attach demand for pigs in the wet market in considering qualitative characteristics of the pig that affects price. This has strong implications on how raising and buying of piglets should be done to come up with qualities that influence price.

The reason why some backyard raisers get out of business is the high cost of bringing their products to the market themselves or to the slaughterhouse. Very poor producers will not be able to afford a vehicle that will bring the hogs to the market. The more successful backyard raiser is also a wet market retailer, for instance. For wet market retailers dealing with a poor backyard raiser, this delivery is a constraint. It is quite expensive to haul just one pig, or a small number in terms of transport and labor.

Far-From-Market Areas

The conditions of the participation of the poor in marketing in these areas are almost the same as that in the near-market case. The backyard producers visit the market to know the current price ranges. The very poor producers will refer to the municipal market for prices. Market day is only once a week. Because of the absence of abattoirs in the area, the backyard raisers themselves slaughter the pigs in their backyards. However, they need an accreditation from the municipal sanitary inspector. They then bring the slaughtered hogs to the market via the tricycle or even bicycle. The absence of slaughterhouses and meat inspection service could imply that residents still can identify the sources of meat products bought in the municipal market. Further intensification to meet increasing demands will need to have meat inspectors for every town in the Philippines.

In contrast to the condition near market, the backyard raisers in these areas actively seek the buyers especially during the periods of low demand, which is June-August. In the rural areas, these are considered the hungry months (crops are still standing) plus the fact that tuition fees of children are to be paid. For those with hogs backyard production, this is the period of high peak of selling (aside from December). Because of oversupply in these months, the prices will be depressed. Sellers also compete in seeking buyers. In these areas, the retailer of the feeds is a link to the buyer.

8. Barriers to Effective Participation of the Poor in the Industry

The key informants were asked directly what their opinions are as to the barriers to the effective participation of the poor in the production/marketing of hogs. Their answers are very interesting (Table 4) and are summarized below.

Table 4: Barriers to effective participation of the poor in hog production, Philippines, 2002.

DISTANCE

BACKYARD

LARGE INDEPENDENT

CONTRACT GROWER

Large

Small

Near Markets

No capital lenders don't have trust in the poor who have no collateral.

Capital; lack technical knowledge

Capital; lack of technical knowledge; physical environment

Social distance from the market agents; physical environment; labor intensive, needs small equipment like hose for watering.

Far from Markets

No capital

No capital, pollution, lack of market

Price competition


Lack of Capital and the role of trustworthiness

Lack of capital was perceived to be a significant barrier in the effective participation of the poor in the industry. The poor need capital, but because they do not have collateral, the poor would have to depend on personal character as collateral. Lenders must have "trust" in the poor. The feed supplier loans the retiree feeds because of trust (and maybe so because the retiree also has a constant source of cash, his pension). And so the poor has to cultivate/build this trust. But how do the poor network with possible lenders?

The case of the small contract grower KI is a good example of some venues for this network. The KI first became a houseboy of his contractor. He built up his trustworthiness and industrious traits; and so when he was ready to be married, the contractor, and his household boss, offered that he is a small contract worker for hogs.

Cultivation of trustworthiness is also observed with the large contract grower who now trains his laborer to be a future contractor.

Lack of Technical Knowledge

This was also a popular item in the list of barriers. But this is connected to poverty, lack of education and lack of access to technical materials and other information about livestock. The poor cannot be a contract grower because s/he does not have enough technical knowledge in disease management, for instance. Nor can he/she have the sustainable enterprise due to lack of technical knowledge in the management especially of feeds and veterinary products.

The reason why most livestock dispersal programs failed is because while piglets were entrusted to the poor farmer; the technical knowledge in terms of feeding and vaccinations were not given. The piglets either died due to mismanagement or that it did not reach that optimal size, because of poor feed quality. Successful programs pay particular attention on the level of technical knowledge of the poor farmers in the hog operation. In far-from-market areas, the large independent grower both learns hog raising techniques from the local NGO and from the veterinarian friend.

Social Distance from Market/Other Agents

Social distance refers to the existence of someone "whom you know" who can help you especially in the marketing function. Most of the time, relatives and neighbors are assets to persons in terms of their nearness to them socially. The most effective relation in rural societies is one who is politically connected. The small contract grower and other respondents in the areas far from the market as a facilitating factor in entering new business or in participating in government programs considered social distance. The poor network with their fellow poor. But previous studies have also shown that social ties indeed facilitate the marketing of the product. Social distance from the market is bridged if a grower can establish a "suki", giving him assurance of the market during his time of needs.

Physical Environment

In the urbanizing areas, there the poor who traditionally had backyard hog production are now losing space to do so. Because water is not readily available, the poor cannot maintain the backyard production as well. Physical space is so important. In earlier times, the poor would utilize the public lands in their midst; but now public lands have become privately owned and developed into subdivisions. There are likewise areas of high temperature that makes it expensive to have a backyard hog production. Hog production needs a cool climate and plenty of water.

Legal Barriers

Some studies show other barriers to participation by the poor. Aside from capital requirement and experience (as a proxy for technical know how) the other important consideration to entry and exit are legal matters like license, taxes and permits (Mercado, 1991). These create high transaction costs for the poor; given that it is very expensive to conduct business in the Philippines.

9. Role of Government in relaxing barriers

What then can government do to make the enterprise profitable or remain profitable given the barriers and the constraints? The responses in Table 5 reveal the following: 1) access to long term loans with low interest rates; 2) Department of Agriculture should monitor diseases and potential outbreaks and should also promote the use of vaccines; and 3) seminars to gain technical knowledge. In these last two items, the role of the extension system should be studied, in terms of current programs and capacity building needs.

It was also perceived especially by the poorest that the government couldn't sustain its programs of direct assistance anyway. Maybe, the government could provide a conducive policy environment for small scale feed suppliers who are also doing contracting functions. This arrangement also provides the inputs, technical assistance and the markets that the poor direly need.

Table 5: Government assistance for profitable hog industry, Philippines 2002.

DISTANCE

BACKYARD

LARGE INDEPENDENT

CONTRACT GROWER

Large

Small

Near Market

Long term loans; lower interest rate

DA should monitor disease and potential outbreaks; DA to promote use of vaccines

Credit assistance; seminars to gain technical knowledge

None, government had a program but not sustainable. They only gave piglets; but poor people did not have money to buy feed. No market also.

Far from Market

Financial assistance; Technical know-how, especially on disease management

No answer



10. Institutional and Policy Constraints

The grassroots views were also solicited with respect to the institutions and policies having significant impact on the breadth of participation in the production and marketing of hogs. Most responses refer to the changing health and environmental laws, and also zoning ordinances (Table 6).

Table 6:Institutions and policies having significant impact on the breadth of participation in different kinds of areas, hog industry, Philippines, 2002.


BACKYARD

LARGE INDEPENDENT

CONTRACT GROWER

Large

Small

Near Market

Policies of the Laguna Lake Development Authority (LLDA) on environmental pollution

Department of Environment and Natural Resources (DENR) Policies on Environmental Clearance Certificate (ECC)

Environmental policies

Zoning ordinance by municipality

Far from Market

Role of sanitary inspector; zoning ordinances

ECC; zoning ordinances



The National Meat Inspection Service

At the grassroots level, the meat inspector, or in his/her absence, the sanitary inspector is given the duty to certify the quality of the product, and does the local regulatory function of the National Meat Inspection Service (NMIC). S/he makes sure that the hog is not "double dead" (i.e., when the animal is already dead before being brought to the abattoir). While it is ideal to set up a regulatory scheme for public safety purposes, this could also be a form of an institutional barrier to participation of the poor. Meat inspectors in the different municipalities could proclaim you out of business given the quality of your product. Transparency in the rules and regulations could facilitate the business transactions.

In earlier times, (and currently in the study site far from the market), there was no meat inspector. Individual hog growers would slaughter the hog and sell these to neighbors; or put up for general consumption at a local market that is operational one day a week. Currently, the meat for the wet market has to pass by the abattoir and several items of transactions costs are to be paid for the hog that is to be slaughtered. These costs are as provided for in municipal ordinances.

Small town meat retailers would usually get their pork products from the abattoirs, where municipal regulations for quality and public safety could have been already met. If the hog comes from the large growers or from those who use feeds in the operation, there would most of the time be smooth transaction with the municipal meat inspector. The hog from the small backyard farmer would tend to have more questions in terms of its history of diseases, feed quality, etc. This is one reason why meat retailers would prefer to deal with "suki" who use the commercial feeds.

Politics plays an important part, as the meat inspector is under the office of the mayor. Here, social distance is again very important.

National Environmental Laws

The backyard grower felt that the policies of an environmental regulatory agency, Laguna Lake Development Authority (LLDA), on environmental pollution affect his plans to intensify production. The LLDA charges user fees to industrial factories in the lake banks. Since the surface waters of this Laguna town directly drains to the lake, some pollution level of the lake may accrue from the livestock production (Catelo, et al., 2001).

Policies of the Department of Environment and Natural Resources (DENR) are also constraining in the future participation. This concerns the air and water quality and compliance to the required Environmental Clearance Certificate (ECC) for businesses with potential environmental impacts.

Local Ordinances

Because of urbanization, the local government also has zoning ordinances that will affect the entrance into the industry of those who would start their enterprise only now. The law is kinder on those who are traditional growers as they already had incurred some investments that need to be recouped.

Water Pricing Policy

The water is plentiful and free in the study areas. If the price of water were accounted for, hog production would be relatively expensive. This would be a major deterrent to the further participation of others in the industry. When producers are asked to pay for the environmental services such as that of creeks that serve as sink, the production will be doubly expensive.

11. Case Study of contract farming involving small scale producers

Aside from contract arrangements of major integrators such as RFM, Vitarich, Monterey, etc., the other types of contract are with feed dealers, close relatives and big feed company (Derigi, 1974). These persons would also have connections with the retailers especially in the wet market. In Table 7 are the details of the contract of the KIs in the study.

As earlier mentioned, the small contract grower has a small feed dealer as the integrator. The grower provides the space, the labor and water. The integrator provides the piglets, the feeds and the vet services. The contract per batch is 10 pigs. If any of the piglets die, the contract grower is not accountable. So the risk is totally borne by the integrator. The grower is paid P4000 per batch which is about four months feeding/caring duration. His wife helps him with taking care of the pigs.

The grower plans to stop the contract soon for two reasons: 1) his neighbors are already complaining about the odor in the neighborhood as the houses in the area are less than one foot apart; and 2) the operation is very labor intensive. This area is not as cool and as airy as in the Laguna area, so the grower has to bathe the pigs almost every two hours. The backyard grower in Laguna claimed that because of the cool weather, the pigs he raised sleeps most of the time, saving him from feeds and water, and consequently, labor. In the hot peri-urban area, pigs must be served with water very frequently, and the pigpens have to be cleaned frequently to minimize the odors.

The large contract grower of one of the largest integrators has already reduced its scale of operations from 1000 heads to 500 due to her neighbors' complaints of odors. There was also

Table 7: Case studies of contract farming involving small-scale producers of Hogs, Philippines, 2002.


DESCRIPTION OF CONTRACT

Small Contract Grower

Contracted by a feeds supplier. On the average have 10 pigs, where piglets are given by the integrator together with feeds, medicine and technical advice. Integrator is agriculture graduate and a former household employer of the contract grower. The integrator also provides advise for vaccinations and other health related issues in care of the hogs. Integrator has 100 heads and grows out some more heads where KI is one of those growing out. The KI believes that the integrators "trust" in him make him a contract grower. The initial investment of the integrator was PhP15,000 for 10 piglets. This amount is held "in trust" to the poor contract grower. The contract grower has now 7 piglets to be grown in 4 months. He is paid PhP4,000 for the four months that he cares for the 7 pigs, where his share is his labor, the pig pen space, and water (which is free to the contract grower). He will discontinue the contract because of the odor in the neighborhood. There is a house (his brother's family) on the second story of the pigpen. He will become a backyard grower only. His father is a middleman of pigs.

Big Contract Grower

She is the only contractor of the Integrator in the barangay (village); her husband was a barangay head for the past ten years. She has 500 heads of hogs. The piglets come from the Integrator. All inputs in terms of feeds and medicines are from the Integrator. She supplies space, labor, and water. A Veterinarian visits weekly; but now only twice a month because the hired labor of the contract grower now knows how to take care of the sick pigs. The contract grower gets PhP150 per head, a growing period of 110 days. She pays her two laborers PhP5,000 per month. For every 100 heads, 2 heads are given as incentives. If there is a loss, penalty of 2,500 per head is deducted from the income. Incentives serve those that may die. The Integrator requires that no other piggery be in the vicinity to avoid disease outbreak. The one regular laborer also now raises his own pig, as backyard; and sometimes sells to the Integrator. Since 1996 (start of contract), the payment scheme is still the same.
The contract grower for the Integrator in the area far from market has the same stipulations as in Laguna. However, maybe due to the large number of heads (1300), the management is stricter and the vet from the Integrator visits more often.

Some quarrel as neighbors claim that the odors are making them sick, i.e., chest pains and allergy. However, one of the children[113] of the contract grower is a medical doctor and has vouched that the odor is not a direct factor of these illnesses. The Integrators raised piglets were claimed to have more severe odor than the backyard operation. This was seen to be due to the differences in the feeds' composition.

The contract grower gets PhP150 per head, for a growing period of 110 days. She pays her two laborers a total of PhP5000 per month. For every 100 heads, two heads are given free as incentives. If a loss is incurred due to mortality, penalty of PhP2,500 per head is deducted from the income. Incentives are actually allowance for any death in the batch. The Integrator also stipulates that no other piggery of large head numbers be in the vicinity to avoid disease outbreak. This constrains the entry of other stakeholders in the area and serves as a natural break for intensification thus minimizing potential environmental damages.

This contract grower was a backyard producer in the late 1980s. She claims that she is better off now as before, in terms of absolute profits. She felt relief in the management being supplied by the professional veterinarian from the company.

In the far-from-market areas, there was no small contract grower that was identified. But it is anticipated that with the planned establishment of the feed mills in the place, there could arise small contract growing arrangement between feed millers and the poor farmers, as in those near the market areas.

The large contract grower interviewed in the far-from-market areas is also a contractor of the Integrator. The numbers of heads maintained was 1300, much higher than that of the near markets contract grower. The area of the farm is huge, about 20 hectares. Moreover, there was a higher proportion of labor per number of heads of hogs, than the near-markets case. This is because the labor is cheaper in the area. Most laborers are from the place of the contractor, who is a native of another province. The place is highly sanitized, as visitors have to wash hands and feet in an antiseptic solution. Visitors are also required to take a bath and wear laboratory gowns when entering the pigpens. This was not the case in the near markets. There was no foul smell or any other environmental or health concern because of the cleanliness of the area.

12. Key Elements of Success in Smallholders' Involvement in Contract Farming

Two elements of success stood out in the responses of contract growers. These are the high technical knowledge of the stakeholders and the trust between the two parties (Table 8). These items were discussed also in the previous analysis.

Table 8: Key elements of success in involving smallholders in contract farming, Philippines, 2002.

PLACE

CONTRACT GROWERS

Large

Small

Near Market

High technical knowledge

Trust between contract grower and integrator

Far from Market

Good relation with host community


In addition, the contract grower far from the market viewed the good relationship with community members as a key element of his success. This is because this contractor holds business in the area and resides in another place. The community has demanded that the business gives community service in return for hosting this in the area. Because the business needed to have a water system in place, they also thought of providing water service to the community members. The community members who used to walk several miles to fetch water appreciated this.

C. Views of Stakeholders on Events/Issues Relating to Production and Marketing

1. Near Markets

Backyard Raisers/Small Contract Growers

The views rose by the stakeholders on events and issues relating to production and marketing were varied (Table 9). The backyard grower is concerned with feed quality and feed prices. The origin of this situation is the high production cost of the inputs such as corn. Because of changes in relative prices of feed ingredients, the feed miller would sometimes change the ingredients proportions of feeds, but this would influence the quality of the meat products. Competitors would be the feed suppliers that have access to low priced high quality inputs and with a superior formula. In the Philippines, there is now some contract growing for cassava, to be used as feeds. Adjustments could be in terms of research for materials and formula for quality feeds.

Table 9: Grassroots views on events and issues about production and Marketing of hogs, Philippines, 2002.

DISTANCE

BACKYARD

LARGE INDEPENDENT

CONTRACT GROWER

Large

Small

Near Markets





1. List of Concerns

Feed quality

Environmental pollution

No issue on marketing; environmental pollution as feeds of Monterey is more odorous.

Policies on feeds; odor; no space; labor intensive; water.

2. Origin of the situation

Due to high inputs in the production of feeds. There are some changes in ingredients proportions.

Urbanization

Intensification; the feeds increase the weight rapidly.

Intensification of production

3. Who are competitors

Feed mills should have low input costs;

Neighbors

Neighbors

No perceived competitor

4. What adjustments have.
To be made

Study materials for feeds quality

Put up lagoon

Reduce hog population; Can have sanitary inspector; can have feed formula where fecal waste does not become odorous, but meat quality not good.

Reduce number of hogs raised.

Far from Markets





1. List of Concerns

Pollution

Water supply, market access

Water


2. Origin of the Situation

Intensification/Urbanization

Competing use, isolation

Competing use


3. Perceived Competitors

Neighbors

Household, farmers, banana plantation

Households


4. Adjustments to be Made

Buy land in place far away from the population center

Increase or tap some more sources of water in the town
-Road improvement

Shared water with the community


Large Scale Independent

The large independent grower considers environmental pollution as a serious concern. While the farm has maintained the number of heads to 2000 for the past several years, no expansion is feasible because of the externalities of hog waste to ground and surface water. It is considered that urbanization is the origin of this problem. The competitors are the neighbors. According to the KI, the farm would be willing to put up lagoons to minimize environmental impacts.

Contract Growers

Similarly, the large contract grower felt that environmental pollution is "the issue". She has already reduced her hog heads size from 1000 to 500 due to the odors caused by the enterprise. It is observed that the feed from the Integrators farms had more intense odors than the backyard grower. The feeds increased the weight of the hogs rapidly. The meats are also to the standard of the Integrator farms; more lean meat. Competitor is again the neighbor. The KI suggests that aside from reduction in the hog population, there could be a sanitary inspector so as to determine whether indeed the air and water pollution would affect the health of the population. Also, there must be some feeds formula where fecal waste does not become too odorous, while maintaining the meat quality.

2. Far From Market

Backyard Grower

The backyard grower in areas far from the market feels that pollution is important issue. This is because the area has hosted several research studies on the environmental management and that the local government officials are strict in the implementation of the environmental ordinances such as providing for septic tanks for households that raise pigs. There is also an ordinance that limits the number of hogs for each household to three. This is not observed. The pollution issue is due to the impending intensification and urbanization of the area. The perceived competitors are the neighbors; and the adjustment offered is to buy lands in places far away from the population center.

Large Independent Grower

Water supply and market access are among the concerns of the large independent grower. For water issue, origin is the increasing competing use. His perceived competitors are the other household users of water, farmers, and the banana plantation in the area. The adjustments that needed to be made are to tap more water sources in the town. The study town has several spring sources, similar to that in the study areas near market. This water use by the livestock raisers would create externalities in terms of water shortage to the other competitors of water. At the national level, efforts to price water are underway; and could potentially affect the livestock sector. This policy will affect quality and quantity of water.

For market access, the origin of the situation is the isolation of his farm. Road improvement can facilitate market access.

Large Contract Grower

The large contract grower also thinks about water as the issue to be concerned about in his production of the hogs. This is due to competing use, where his perceived competitors are the farming sector and the household users. He shared his water with the community so that he could still partake of the other sources of water; and likewise to avoid a possible water tax that the community can impose.

D. Level of Awareness of Smallholders to Changes in Policies

The respondents to the key informant survey were generally not aware of changes in policies that affect their enterprise (Table 10). The small contract grower is not aware of any policy at all; the rest of the KIs from Laguna are aware only of the changing environmental policies. The meat inspector in the Laguna town was aware that the trade will be liberalized soon and importation would surely affect the prices especially of poultry. Hogs may not be affected considerably because Filipino consumers prefer the fresh pork.

1. Trade Policies

All the smallholder respondents were not aware of the changing trade policies. They however know that the price of feeds is increasing and that the proportion of ingredients in the feeds is a function of the cost of the imported Soya. But feed prices could also be affected by the transportation cost. In areas far from the market, the respondents look forward to the feed mill that is proposed to be built soon.

2. Domestic Policies

There is also no awareness of domestic policies that affects their livestock operations.

3. Health Policies

In the far from market study site, the respondent is aware of two health policies with regards hog production and marketing. One, the village has a sanitary policy; once the animal is dead, then it cannot be consumed. The village sanitary inspector certifies that the quality of meat is above par before it can be slaughtered for the market. There is no abattoir in the area.

Table 10: Level of awareness by smallholder producers on changes in policies, Philippines, 2002.

DISTANCE

BACKYARD

LARGE INDEPENDENT

CONTRACT GROWER

Large

Small

Near Market






Trade Policies

Not aware

Not aware

Not aware

Not aware


Domestic Policies

Not aware

Not aware

Not aware

Not aware


Health

Not aware

Not aware

Not aware

Not aware


Environment

Aware

Aware

Aware

Not aware

Far from Market






Trade Policies

Not aware

Not aware

Not aware



Domestic Policies

Import of Soya increases feed cost

Not aware

Not aware



Health

Village has sanitary policy. If diseases animal dies, must be buried. Sanitary inspector certifies the quality of the meat before it is sold in the town market.


Not aware



Environment

Aware

Aware

Aware


Second, the village has an ordinance that the households with backyard hogs should have a septic tank for the waste of the hogs. The town actually has an ordinance that only three pigs are allowed per household. This is not being implemented.

The key informant also mentioned of another town in the province that has intensified production of hogs in dense population centers. Because of lack of health ordinances in these areas, it was learned that there is regular occurrence of disease outbreaks among the hog population. The sanitary practices were far from ideal. Puddles are created by the several hog holdings and which can trigger human diseases like the dengue fever. An investigation of the impact of intensification at the community levels and the incidence of livestock related human illnesses would be important. Currently, the respondents did not think that livestock intensification (an increase from one head to several heads per village household) could create health problems to humans.

Among the strategies adopted by the rural communities to follow good hog production practices is a requirement that hogs be housed in the pigpens and not to be saddled around a tree or housed below the living quarters of the poor which is often the case in the Philippines. Frequent contact with foreign (human) bodies could trigger diseases to livestock and vice versa.

4. Environmental Policies

Everybody is aware of the changing environmental policies that will affect hog operations. In particular, they are aware that hog production affects water and air quality. The other policy governing the industry especially for contract growers is the compliance to the Environmental Clearance Certificate (ECC) that is imposed by the DENR for businesses with potential negative impact to the environment. According to one contract grower respondent, the small holders will need to comply with this ECC, as collectively, their operations also have some negative environmental and even health implications. The contract grower has to comply with the sanitary requirements of the integrator, and so, they are more conscious and cautious of the environmental impacts of their enterprise.

5. Perceived Impact of Policies to smallholders group

The respondents have practical responses to the perceived impacts of changing policies (Table 11). In the near market study site, the respondents tried to limit their hogs population. Other strategies included increasing the hired labor force to clean up the pens frequently, but this has decreased profitability.

Table 11: Perceived impact of policies to smallholders' production, Philippines, 2002.

DISTANCE

BACKYARD

LARGE INDEPENDENT

CONTRACT GROWER

Large

Small

Near Market






Trade Policies




None


Domestic Policies




None


Health




None


Environment

Limit number of hogs

None

Increased labor to clean up immediately

None

Far from Market






Trade Policies






Domestic Policies






Health


Okay for having quality of meat assured




Environment

No expansion




The respondents in areas far from the market felt that quality of meat is assured if the health policies are in place.

The perceived impact of environmental policies is no expansion of the operations. Environmental policies also entail some transactions cost and may affect the levels of income.

E. Stakeholders' Views of the Outlook of the Industry

1. Near Market

Backyard Growers

From the small backyard point of view, industry will constrict due to environmental policies, and due to lack of space (Table 12). Local government units (LGU) that implement the ordinances on environmental pollution are a favorable change. Limit the numbers of heads but bigger pigs are some of the things that can be done; research to study feed materials that will improve feed efficiency should be done.

Table 12: Stakeholders Views on the outlook of the hog industry, Philippines, 2002.

DISTANCE

BACKYARD

LARGE INDEPENDENT

CONTRACT GROWER

Large

Small

Near Market





1. Views on the Outlook

Industry will constrict because of the environmental effects; due also to lack of space

Due to ordinances, may face closure

Good outlook; sustainable

Expects that in 10 years, he is still growing pigs; but other income sources are needed

2. Changes that Are seen as Favorable

Implement ordinances on environmental pollution

Can build lagoons, but expensive/or can go back to small backyard.

Lower wage rates per day for laborer (P150/day is too high)

Better breeds, with bigger produce

3. What can be Done

Limit head population, but bigger pigs

Implement policies

Hired labor given other sources of income by the employer

Need balance

Should be done

Government to study feeds material for bigger pig size

Should follow environmental ordinances

Environmental pollution should be minimized by putting up lagoons


Far from Market





1. Outlook

Positive; government also provides livelihood assistance; 75% of these are devoted to swine raising

Profitable; No negative effects if ordinances are implemented



2. Changes that you see are favorable

More units by extension of the DA

More livelihood opportunities; knowledge about production, and sanitation



3. What can be done?

Continue with capacity building such as lakbay-aral or exchange visits

LGU to be more vigilant with environmental and health policies



4. What should be done?

Full-time livestock inspector in the villages

DA should teach farmers knowledge on hog production; Farmers in area only have skills in planting corn and weeds for feeds.



*The respondent was only a farm hand and did not express his views at all.

Large Scale Independent

In the other extreme, the large independent grower felt that due to environmental ordinances, they may even face closure or can go back to small backyard operations. Setting up of the lagoon is feasible although this does not guarantee the non-contamination of groundwater sources. Policies should be implemented and growers should follow ordinances.

Contract Growers

Both contract growers felt that they are sustainable in the long run. The small contract grower expressed the need to have other income sources as he plans to reduce his number of pigs due to space limitation. He sees as favorable change better breeds with bigger weights. He still wants to see a feed formula that will result into his ideal situation.

The large contract grower felt that to be sustainable, there must be lower wage rates per day for laborer. This way, she can employ more labor to wash the pens as frequently as possible. The current rate of P150 (as stipulated by law) seems to be high for her. But she also feels that employer should provide the laborer other sources of income. To minimize environmental pollution, lagoons should be set up.

2. Far from Market

Backyard Grower

The small backyard grower has a positive outlook of the industry. The current government program on livestock is expanding and she is a participant to these activities. Livelihood assistance will also be given in the short term and about 75% of the projects proposed are devoted to swine raising. Small raisers want more extension service, in terms of advice on disease management and feed management, from the Dept. of Agriculture (DA). Some changes that have been favorable are the capacity building of poor farmers through exchange visits or "lakbay aral". In a sense, these small holders recognize their deficiency in the technical knowledge about hog production and management. Things that needed to be done, according to the backyard raiser, is for the government to assign a full time livestock specialist in the communities with a significant number of heads of hogs in backyard operations.

Large Independent Grower

The large independent hog grower in the far from market site, likewise sees the industry to be profitable even in the long run; and he foresees expansion of his operation in a much bigger space in the same village. He does not expect any negative impacts of the changing health, environmental and trade policies to his operations. He also does not fear of any shortage in water supply due to the natural springs that are in his land domain. But again, this can create externalities in the long run. Privatization of the water source from a private land also runs counter to the stipulation of the Water Code in the Philippines that states that water is a common wealth. Likewise, it is not expected that market instruments for efficient use of water in the area will be crafted in the near future.

Livelihood opportunities that are currently offered the poor in the community are found to be favorable. The presence of the NGO teaching farmers knowledge about hog production and sanitation practices is also a welcome change. These are positive developments that can contribute to the viability and sustainability of the hog business in the study community.

To attain such outlook, respondents say that the LGUs should be vigilant in implementing the health and environmental policies in the area. There is the impression that these changes in policies will make the hog business sustainable in the long term. Large independent grower urges the DA to be sensitive to farmers' needs of technical skills in hog production. Farmers in the study area are traditionally crop farmers and will need some technical support from the DA technicians in hog raising.

The outlook as discussed above seems to be different for respondents in the different regions of the country. While respondents in the highly urbanized areas talk about constricting production due to environmental policies, the respondents in the far from markets see more expansion in their operation. Changing environmental ordinances are welcome in both areas. This result is to be taken with caution though, as respondents perceive that people who come to interview them has an environmental agenda.

F. Social, Health and Environmental Issues in a Changing Policy and Market Environment

1. Impact on the sustainability of smallholder enterprises

Given changes in trade policies, health and environmental policies, the urbanization and the decentralized eco-governance in the Philippines, key informant interviews revealed the following likely impacts on sustainability of the smallholder enterprises:

2. Impact on incomes and employment at the household level

Strict environmental regulations will mean more hired help needed to clean the pens. So, employment will increase but, necessarily, there will be an income decrease. One KI gives extra employment to her hired help, so she does not have to shoulder the burden of paying the hired help just from the hog business operation alone.

Intensification has brought with it good levels of income for the hog growers. In at least three cases, the respondents started the hog operation with only one pig, but have increased heads through time. Environmental and health policies will downscale the business and according to respondents, they may revert to small backyard or just get out of the business altogether. In both cases, there will be negative effects in household income and employment. However, in the areas far from the market, these same policies are not found to be constraining in terms of their plan to expand the business.

The smallholder group did not find the trade policies and the other domestic regulatory policies to have any significant effect on income and employment.

3. Impact on the economic and social position of women in the household

Traditionally in the Philippines, women hold the purse. This is especially true among agricultural households. In all of household KIs, women were either the full time manager of the livestock enterprise, or have an active part to play. This is because hogs are living beings and women are naturally caring with babies; or in the case of hog operations, the piglets. Hog enterprise is also near the home, and so provides them economic activities while performing their reproductive roles.

Intensification due to favorable policies especially in the areas far from the market has given women the economic independence and higher social position in the household. They go to the markets and the nearby shopping malls to know of the prices. They have even become better entrepreneurs was the case of the wife of a large independent grower. Most of all, they have money to send the children to school. This has been the wish of each woman interviewed for this study.

4. Impact on the household nutrition and the well being of children

Household nutrition may be positively related to incomes and the knowledge of the mothers to feed nutritious food to the children. In the poor households, having a backyard hog operation at least gives one a likely meal of protein. Any changes in the policies that may affect income will also affect nutrition. But there is going to be a differential effect in near-market and far-from-market areas. Households near market areas would get all of its food requirements from the market; i.e., cash is needed for a nutritious meal. On the other hand, far-from-market households would have backyard gardens and other farms for sources of nutrients. This means that the impact of income as a result of changing policies to nutrition would be undetermined.

The central reason for a family to conduct any enterprise is for the well being of children. Well being here implies education, good nutrition, good health and a happy life, where the parents are always at home (and in peace with one another). If the mother is always at home and with a good source of income, the children will be in a win-win situation. This has been the observation in the households that were interviewed. An outstanding example is the case of a KI in Laguna who started out as a teacher. She gave up her profession as she found out that backyard hog raising brings in more income than teaching. The other plus is that she can stay home with her children. She was able to send one child to a medical school. After about ten years of backyard operations, she became a contract grower of integrator in 1996.

G. Conclusions

These are the five (5) factors that could be hypothesized to affect small farmers' decisions to intensify or raise livestock, or remain in the livestock industry: 1) access to financial capital; 2) human capital or the technical knowledge about livestock production and their sources of information; 3) social capital which is the trust in integrators and more transparent contractual arrangements, trust in the primary buyers of the livestock, and trust in government as a whole; 4) demographic characteristics, i.e., women tend to invest more in livestock than men, and the elderly (retirees) would tend to invest more than the younger ones; and 5) perception of the policy environment (prices, feeds, and the local ordinances affecting the livestock sector, health and environmental policies).

To understand the likely reasons for the viability and the sustainability of the enterprises, an investigation into these relationships will be worthwhile. The results of this cursory study likewise indicate that there are indeed certain environmental and health implications in the process of intensification. Some social reengineering could also help in absorbing the shocks of the expected intensification. Government is trying to do its best to establish a win-win situation, by encouraging use of technologies that are friendly to the environment and that minimize public health hazards. However, government has to invest more into providing public type goods for the smallholder enterprise such as information on the nature of disease outbreaks, impact of expected prices, and other technical and market information. Meat inspection on smallholder enterprises should also be studied. Other stakeholders in the rising hog sector are the non-government organizations (NGOs) and the private sector. NGOs seem to be active in things which government is expected to do. The private sectors, i.e., the input dealers, are found to be the providers of credit needed by the small holders. All of the above observations have to be investigated further.

III. Grassroots Views of the Stakes in Rising Poultry Sector in the Philippines

A. National Trends

An estimate of the growth in domestic demand for chicken in the Philippines revealed that for 1990-1999, the annual growth rate was 11%. The growth rate was higher in the period 1990-1995 (9.9%), with a rate of only 7.9% in 1995-1999. There are two (2) general categories of producers in the poultry industry; namely, (i) the backyard and (ii) the contract poultry raisers.

Broilers are mostly grown by contracts. As in the hog industry, Regions 3 and 4 are the areas where the broiler chicken are mostly grown because of the proximity to the major market (Table 13). About 65% of broiler chicken population in 2000 is in these two regions. The other regions have also increasing trends in broiler production, but not as steep. Amongst the regions, Region 3 has the densest population of broiler chicken. Region 4 had a dramatic decline from 1995 to 2000. One of the reasons could be that the disease outbreaks reported to occur in 1998 had put a lot of growers in the red and may not have recovered, or had just abandoned ship. The other is the shock that the sudden importation of cheap chicken leg quarters in 1999-2000 wrought, particularly to independent commercial broiler raisers.

Table 13: Percent Distribution of Inventory of Broiler Chicken Philippines, by Region, various years.

REGION

Broiler Chicken

1990

1995

2000

Philippines

100.0

100.0

100.0

Luzon




CAR

0.2

0.2

0.1

Region I

2.7

3.3

3.6

Region II

2.4

1.6

1.9

Region III

33.6

34.5

41.5

Region IV

39.7

37.0

23.5

Region V

0.8

1.0

2.9

Visayas




Region VI

4.2

4.1

5.9

Region VII

3.7

5.1

5.2

Region VIII

0.9

1.5

2.6

Mindanao




Region IX

0.8

0.8

1.3

Region X

1.0

1.1

4.1

Region XI

3.8

3.7

6.2

Region XII

0.4

0.6

0.5

CARAGA

0.5

0.5

0.5

ARMM

0.1

0.2

0

Source of basic data: BAS

The dramatic increase in the percent share of broiler to total chicken inventory was observed in Region 10, one of the poorest regions (Table 14). The other poor regions however, did not have this particular increase. The physical location of the area may influence the broiler production more than the economic status of the site.

Table 14: Percent share of broiler inventory to total chicken inventory, Philippines, by region, various years.

REGION

Share of broiler to chicken inventory total (%)

1990

1995

2000

Philippines

36.65

32.11

28.94

Luzon




CAR

3.48

3.79

2.72

Region I

15.24

17.56

18.91

Region II

18.94

9.03

7.92

Region III

70.20

73.76

72.20

Region IV

69.58

64.94

48.93

Region V

6.43

8.31

17.63

Visayas




Region VI

14.80

11.59

14.16

Region VII

20.00

19.72

19.17

Region VIII

10.28

10.49

13.71

Mindanao




Region IX

7.95

4.82

9.52

Region X

9.52

6.96

26.09

Region XI

26.32

25.25

19.22

Region XII

5.45

5.92

3.43

CARAGA

10.62

8.53

7.42

ARMM

3.36

3.47

0

Source of basic data: BAS

B. Profile of Poultry Producers

1. Age

Respondents for both categories are young (Table 15). It was noted however that the contract growers have been in the business for more than 15 years, relative to the backyard growers' poultry farming experience of only around eight years. Most contract growers are considered as institution in their respective municipalities, having been in the poultry business for a significant period of their lives.

Table 15: Demographic characteristics of broiler growers, key informant survey, Philippines, 2002.

DEMOGRAPHIC
VARIABLE

BACKYARD

CONTRACT GROWER

Large

Small*

Age (in years)





Near Market

32-53

46

40


Far from Market

33

62

-

Gender





Near Market

Generally F

Both M-F

Both M-F


Far from Market

F

M

-

Civil Status





Near Market

M

M

M


Far from Market

W

M

-

Education





Near Market

HS (10 years)

Degree holder (14 years)

Degree holder (14 years)


Far from Market

College graduate

College graduate

-

Mean Family Size





Near Market

6

4

4


Far from Market

8

5

-

Main Occupation





Near Market

Skilled labor (carpentry)

Full-time poultry raisers

Government employed


Far from Market

Farming

Retired

-

Other Sources of Income





Near Market

Backyard poultry raising

None

Poultry raising (contract growing)


Far from Market

None

Farming

-

Number of Heads of Chicken





Near Market

50-200

80,000

30,000


Far from Market

36

32,000 (breeders)

-

*No respondent in the small contract grower in far from markets.

2. Education

Contract growers appeared to have acquired higher levels of formal education relative to backyard poultry raisers. Most of the contract farmers have completed tertiary education such as civil engineering, maritime engineering, and accountancy, among others. It was also noted that majority of the contract growers were gainfully employed before they decided to engage in poultry business operations. Most of the contract growers have retired from previous employment, to work on a full-time basis in the poultry business. Others who chose to remain gainfully employed have their other family members (e.g., their wives) working full time in the poultry business.

In contrast, backyard poultry raisers were not able to complete the tertiary level of education. Most of the backyard poultry raisers are simultaneously doing either unskilled or skilled types of jobs for a living. Backyard poultry raising are considered as a regular source of additional (sideline) income. But people do not consider it with low education as the main source of income.

3. Gender

In backyard poultry raising as in the hog business, the housewife is principally in charge of the day-to-day operations. The operation is near the residence and the wife can attend to both household and poultry chores. Feeding and watering on a daily basis are considered as the only major activities in backyard poultry farm. Since these two poultry farming operations do not require much time (e.g., at most one hour a day) and skill (no feed formulation is required), housewives would tend to accept this type of responsibility.

In the case of contract farming operations, gender is not an issue. Since contract farming operations involve huge amounts of investment, both the husband and wife are actively involved in the business. The day-to-day operation of the contract poultry business is always considered critical due to the strict technical requirements of the integrators. Any inappropriate decisions with regard to feed, pest and disease treatment, etc., can translate into significant amount of losses. As such, the husband and wife normally share decision-making.

4. Social Groups

Just as in the hog raising findings, the KI interview results indicate that the contract farmers are normally those members of the community who are well respected and/or influential due either to their political affiliation, socio-economic status and educational attainment. As mentioned earlier, contract growers have, in general, completed a college degree. Other contract growers either belong to a family of politicians or a family with business connections. In general, these categories of people are what the poultry integrators are initially looking for: respected and influential people who have the political and financial capability to engage in contract poultry farming operations. As one respondent stated,

"Being in the contract poultry farming business itself gives our family respectability largely due to the huge financial requirements and the management capability associated with the business. Even a break-even cropping season can bring non-economic benefits in the form of respectability in the community."

In contrast, backyard poultry raisers come from varied social standings. In general, however, backyard poultry raisers belong to the less privileged members of the community with less political and business affiliation.

5. Location of the Business

Poultry business operations are located in various types of environments depending on the category of the business. In the near market scenario, backyard poultry raisers are found almost everywhere, whereas contract poultry farms are located in less urbanized or relatively remote areas. Backyard poultry farms, due to their "smallness" in size, are normally allowed to operate in urbanizing areas. However, because of zoning ordinances, backyard poultry farms are not allowed to expand beyond their prescribed capacities. Due to a limited market access and environmental constraints, backyard farming has not expanded in the last ten years.

In the far from market scenario, the backyard raisers are able to take advantage of the lesser degree of urbanization in their area of residences. In the case of contract growers, the project sites have generally been located in areas that are highly elevated, less populated, yet accessible. It was gathered that areas with high elevations are conducive to poultry production in terms of less disease incidence and high feed conversion ratios (FCR). These are also areas of intensive vegetable production; hence, poultry manure has a ready market. Less populated areas are preferred to minimize complaints from the neighborhood regarding the health risks and foul odor normally associated with poultry farming. In far-from-market areas, this is not a problem because space and labor to clean up the buildings are available. There were no odors in the poultry farm far from the market.

6. Extent of Formal Sector Capital Investment

Backyard Farming

In backyard farming, there is no investment originating from the formal sector. Respondents reveal that they did not utilize formal credit sources due to (i) the high cost of borrowing and (ii) the lack of collateral. In case of agricultural loan programs offered by the Land Bank of the Philippines (LBP), backyard raisers are likewise unable to borrow money since most of them do not belong to any active farmer's cooperatives, a requirement for LBP loan programs. In some instances, whenever there are possibilities of access to credit, backyard raisers have eventually shied away from borrowing due to its high cost. Given the volume of business (e.g., 50 to 300 heads), a large proportion of their projected net income would be earmarked to finance the cost of borrowing.

Backyard raisers do not have ready access to informal credit institutions, as well. This could be due to their low socio-economic status. During times of financial difficulties, backyard raisers would normally borrow from informal sources such as relatives, neighbors and friends. In some instances, the feed requirements of the backyard raisers are sourced from local feed dealers to be paid on installment basis. It was also gathered that the volumes of business (e.g., initial number of stocks) of backyard raisers are determined by their capacities to purchase the initial inventories.

Contract Growers

Compared with backyard poultry raisers, contract growers have ready access to formal credit institutions. Their more stable economic status places them in a better position to borrow money from banking institutions. But the major sources of credit of contract growers are their immediate relatives and occasionally from well-to-do friends. While formal credit can be easily accessed, the initial reaction in times of financial need is to seek financial assistance from the above-mentioned informal sources.

Relatives and friends are reportedly providers of cheap credit compared with the banks. The overwhelming choice of informal credit sources is due to the low cost of borrowing and the speedy processing of the loan. Since the cropping season is relatively short (36 to 45 days) with an assured market, contract growers can easily repay the loan amounts. For instance, one respondent in Laguna has recently borrowed P300, 000 from his relatives and after about two months, has paid the loan amount plus a minimal interest.

The relationship between the contract growers and their informal credit sources has become stronger over the long years of their co-existence. In large part, this lasting relationship is anchored in trust between the two groups. It is a normal observation that both the lenders and the borrowers would come from the well-to-do and respected families in the community.

In areas far from the market, one contract grower was able to acquire a substantial loan from the Land Bank of the Philippines through a special government-lending program. This program had lower interest rates compared to regular lending by commercial banks. However, not a lot of people learned about this program. This access to special formal credit information was facilitated by the contract grower's social closeness to the government personnel in the area.

7. Participation of the Poor in Commercial Marketing

In an earlier study (Orduna, 1982) it was learned that while large growers and some medium growers had regular and sure market outlets, the small-scale backyard raisers reported the irregularity of buyers. Among the problems encountered were inefficient marketing, unstable prices, and supply of inputs, inclement weather, outbreak of diseases, inadequate capital and inefficient caretakers. Integrators monopolize the market and set prices. One of the recommended strategy was to form a producer's coop, and enhance the coop's ability to handle the member's market produce, expansion of marketing information and look for alternative buyers (Malabayabas, 1994).

To this day, marketing is still one of the major constraints of the backyard grower. Since this group is not vertically integrated with the market, their main market outlets are the households within the community and their respective municipal public markets. Some backyard raisers would sell their broilers to their neighbors and other acquaintances at a relatively low price to ensure the immediate disposal of their products. In the case of the public markets, the broilers coming from the backyard are considered poorer in quality when compared with the branded products coming from the contract growers through the integrators. As such, backyard-raised broilers are ranked last in terms of consumer preferences in any given public market, and are priced relatively lower. Backyard-raised broilers cannot effectively compete with branded broilers in terms of price and volume demanded. Branded products are superior to backyard-raised broilers given the technical assistance afforded to the contract growers by the field representatives of the integrators.

Cognizant of their market position vis-à-vis branded products, backyard raisers in near market areas have adjusted their cropping season in time for the periods of peak demand such as the Christmas season and fiesta celebrations. During ordinary demand periods, backyard raisers tend to decrease inventories given the limited domestic demand (e.g., household demand within their respective communities). It must be noted however, that the domestic demand for broilers in a more urbanized community (e.g., Los Baños and Calamba) is higher than a less urbanized one (i.e., Majayjay and Nagcarlan). In the far from market case where community of indigenous peoples celebrate many rituals, the backyard farmers who grow native chickens would have a ready market.

Given the highly restricted demand for their products due to the oligopsonistic structure of the poultry industry, backyard poultry raisers are unable to participate in marketing their broilers at a commercial level. This bleak scenario is aggravated by the technical deficiency of backyard raisers in producing quality products and the superior marketing strategies employed by the integrators. Key informants indicate that poultry production at the backyard level shall continue to exist as a secondary or tertiary source of income and that these producers are not expected to benefit from any development in the poultry industry.

8. Barriers to Effective Participation of the Poor

Highly Restricted Market

As discussed in the preceding section, the backyard raisers are unable to participate in the development of the poultry industry due to the limitation of the market for their broilers. The volumes of their businesses are limited to what the local market (e.g., community, household and the municipal public market) can absorb. The integrators, who dominate the market for poultry products, serve as a very formidable barrier for them to enter the market (Table 16).

Table 16: Barriers to effective participation of the poor in the broiler enterprise, Philippines, 2002.

DISTANCE

BACKYARD

CONTRACT GROWER

Large

Small

Near Markets

· Highly restrictive market
· Lack of capital
· Environmental constraints

No response

No response

Far from Markets

· Lack of technical knowledge
· Socially distant from integrators
· Lacks space

· Financial
· Water
· Space
· Technical knowledge


Lack of Capital and Low Quality Products

One of the major setbacks of the backyard raisers in terms of effectively participating in commercial marketing is their low quality of broilers. Lack of capital contributes to this sub-optimal quality. The correct feeding and other medical requirements, which are a function of finances, are the reasons for the low quality.

Environmental constraints and the need for community based resource management

Another barrier to the active participation of the backyard raisers in the areas near the markets relates to the environmental impact of the operation. In particular, the foul odor associated with poultry raising has prevented backyard raisers from expanding their businesses. This is in contrast to the setting in the far-from-markets where the contract growing activity following good sanitary practices did not pose any environmental problems. Collectively, backyard growers can relax this barrier by learning about community-based management.

Since most of the backyard poultry farms are located within or near residential areas, complaints from affected households become common occurrences. In most cases, formal complaints are submitted to the concerned municipal officials who in turn notify the backyard raisers that any planned extension of their poultry business that affects the residents of any given area will not be tolerated. Most municipal ordinances only allow pre-existing backyard poultry farms. However, expansion of the business beyond their current volume as well as new entrants to this type of business will not be allowed if the surrounding residents have complaints. In the far-from-market case, it was revealed that the environmental effects are indeed a function of unsanitary practices. In areas where there is a ready market for manure and labor is plentiful to gather and pack manure, the poultry space is clean.

Institutional and Policy Constraints

Local Governance

The most important perceived constraint to the expansion of the poultry industry is the Local Government Unit's (LGUs) zoning ordinances (Table 17). The ordinances require that the poultry projects must be established in areas assigned for agriculture. Since an environmentally sound poultry-raising project will require a relatively large land area (i.e., ideally one hectare per 10,000 broilers), it is quite difficult for potential contract growers to find bigger parcels of land especially in highly urbanizing areas. Zoning ordinance also prescribes that commercial poultry farms should not be located within residential areas.

In addition, the Department of Environment and Natural Resources (DENR), through its LGU-based Community and Environment Resource Office (CENRO) requires Environmental Clearance Certificate (ECC) before any expansion is allowed or a new business application is approved. The process of securing an ECC is long, tedious and expensive. This can discourage potential investors from entering the poultry business.

Table 17: Institutions and policies having significant impact on the breadth of Participation in different kinds of areas, Philippines, 2002.

DISTANCE

BACKYARD

CONTRACT GROWER

Large

Small

Near Market

Local governance

· Local governance (DENR-CENRO, ECC)
· Corporate Business Policy

· Local governance (DENR-CENRO, ECC)
· Corporate Business Policy

Far from Market

No answer

None


Corporate Business Policy

The integrators, through their network of contract growers, control the production and marketing of broilers in the country. The business performances of the contract growers reflect the corporate business policy of the integrators. The participation of contract growers in terms of volume of business is based on the projected supply requirements of the integrators and not on the production capacity potential of the contract growers. As such, largely the integrators influence business expansion decisions at the producer level. The integrators, through their field representatives, decide upon the type of broiler stocks, feeding requirements and veterinary services.

It is also normal policy among integrators to involve individuals who are relatively well to do and respected as their partners. This policy has prevented the relatively poorer sector of the community to be able to participate regardless of whether or not they are technically capable to operate and manage a poultry production business.

Government Role Towards a Profitable Broiler Business

What can the public sector do in trying to relax the barriers to entry as well as sustain smallholder broiler enterprises? Key informants offer some of these (Table 18). For the backyard producers near market areas, government can do the following: market intervention, relaxation of government ordinances for environmental purposes, and provision of easy credit. Backyard growers far from the market would like more technical assistance especially for disease management and services of a full time veterinarian, as more and more households enter the industry. Again, as in the hog case, this felt need is important for the LGU and the DA to consider.

Table 18: Government role for a profitable broiler industry, Philippines, 2002.

DISTANCE

BACKYARD

CONTRACT GROWER

Large

Small

Near Market

· Market intervention by government
· Reduce transaction costs
· Provision of capital

· Reduce transaction costs
· Limit importation of broiler meat
· Facilitate importation of inputs
· Tap the export market
· Liberalize entry of more integrators

· Reduce transaction costs
· Limit importation of broilers
· Facilitate importation of inputs
· Tap the export market
· Liberalize entry of integrators

Far from Market

· Technical knowledge especially for disease management
· Services of a full-time veterinarian

· Enforce regulatory function
· Low interest credit
· Minimize corruption on the issuance of ECC


Contract growers near market are concerned with markets and trade. They expressed that government can help them become sustainable if ordinances are not so strict; if importation of broiler meat could be limited; if importation of inputs can be facilitated; if export markets can be tapped; and if entry of other integrators can be liberalized. For the far-from-market operators, government's enforcement of the regulations such as the monitoring of the ECC compliance is desirable. However, experiencing first hand the corruption in the issuance of the ECC process was very discouraging. Low interest credit is also one way government can help the industry.

9. Case Study of a Small Contract Grower for Broiler

The large integrator and a private individual sign a "contract growing" arrangement wherein the former shall provide the stocks (chicks), and technical assistance for veterinary services. The integrator also assumes the initial cost of the stocks. A technical representative of the integrator, a veterinarian by training, pays regular visits to the farm(s) of the contract grower about twice a week. On the other hand, the contract grower shall provide the building, cost of feeds, veterinary medicine, labor, electricity and water.

At the end of the cropping period (ranging from 38 to 45 days), the integrator picks up broilers whose live weights range from 1.5 to 1.7 kilograms. In return for his broilers, the contract grower receives a "net price" (ranging from PhP5 to PhP9 per head) after deducting the cost of stocks, feeds and medicine. Overweight (i.e., >1.7 kg) and underweight (i.e., <1.5 kg) broilers are purchased at a much lower price. If the broiler weighs less than one kilogram, it is classified as a reject and usually is not bought by the integrator. On the other hand, if the broiler weighs between 1.60 to 1.63 kilograms, it is classified as a "gold zone" (e.g., perfect weight) and an incentive of PhP0.11 per bird is awarded.

Both parties sign a one-year contract. A total of about four (4) cropping seasons is realistically possible in given year. The minimum number of birds required in a contract growing arrangement is 10,000. Depending on the financial capability of the grower and the accessibility of the project site, the number of broilers can reach a total of 200,000 to 300,000 birds per cropping season. A poultry building, for instance, can initially cost about PhP13 per bird or about PhP130, 000 per 10,000 birds. The current cost of veterinary care is approximately PhP2.50 per bird. The total feed requirements in broiler production is estimated at about 65 bags per 1,000 birds. The cost of electricity is about PhP5, 400 per 1,000 birds while labor cost is pegged at PhP5, 312 per 10,000 birds. In addition, an area of about 1 hectare is required to raise a total of 10,000 birds.

The contract grower generally makes reasonable profit around 75 percent of the time (3 out of 4 cropping) and will lose some amount for about 25 percent of the time (1 out of 4 cropping). Despite occasional business failures in their contract, the growers still continue to do business with the integrator due to the long-run projections of profit because of market assurance. The contract growers do not have to worry about where to market their broilers; they are more pre-occupied with the production aspect, specifically how to manage the production of broilers with the least mortality, and the attainment of the ideal weight at the least cost.

In September 2001, the key informant contract grower lost 10 percent of his birds due to viral infection. In addition, some of his birds were underweight and were rejected by the integrator. The rejects are sold in the local market and competed against backyard-raised broilers. During that particular cropping season, the contract grower lost some money. During the succeeding cropping season, the contract grower was luckier. The mortality rate of the project was less than 10 percent, the weights of his broilers were approaching the ideal range and he made a profit which more than made up for his previous season's loss. Immediately after harvest, the contract grower felt very relieved. He always looks forward to the rare times when he and his family do not think of the broilers' health. However, he also anticipates signing another contract with the integrator. He takes pride in being one of the only few individuals who, for so many years, have been able to satisfy the technical and financial capability and trust requirements of his integrator. To him, there are also psychic benefits derived from doing poultry business with the integrators.

Earlier study showed that factors affecting the profitability of broiler contract growing were the cost of feeds which is about two thirds of the total cost (Cutay, 1982). The contract growers experienced problems, i.e., decreased live weight at hauling due to stress and diseases, improper management, and insufficient knowledge about the behavioral pattern of the broilers.

10. Key Elements of Success of Smallholders in Contract Farming

Technical Capacity

In as far as the integrators are concerned, the success of the contract growing arrangement is based on the quality of the broilers from the contract farms. Quality essentially includes the achievement of the ideal weight at the time of harvest. With regards to the contract growers, they need to achieve a reasonable survival rate, a minimum health cost and a high feed conversion ratio (FCR). These require "technical capabilities" and considered as key element of success (Table 19). The contract growers should have the technical background to evaluate the needs of the broilers at any given time. Complementary to this is the regular technical provision coming from the integrators. The representative of the integrators should possess superior knowledge in the aspect of broiler production.

Mutual Trust

As in the hog sector findings, key informants also identified "trust" as a key element of a successful relationship. Both the contract grower and the integrator should trust each other to ensure a more sustainable relationship. The key informant survey indicates that the contract growers should, as much as possible, strictly adhere to the contract specifications to safeguard the rare privilege of being business partners with the integrators and vice versa. The contract growers also feel that they can also haggle with the integrators more than the other way around. However, with the current restructuring and mergers in the industry, it is perceived that the integrators would become more powerful in the contractual relationship.

Table 19: Key elements of success in involving smallholders in broiler contract farming, Philippines, 2002.

ELEMENTS

CONTRACT GROWERS

Large

Small

Near Market

· Technical capacity
· Trust between the growers and integrators
· Financial capability

Trust between contract grower and integrator

Far from Market

· Space
· Water source


Financial Capability

The production of good quality broilers requires the provision of optimum amounts of inputs, particularly feeds, veterinary medicine, building facilities, electricity and labor. Proper nutrition and medication should be regularly provided and this implies that input supplies should be regularly available. It is a must that the contract growers have adequate capital to finance the day-to-day operation of the business.

Physical Attributes

In the far from market areas, key informants mention space and water source as elements of success in the contract farming.

Other elements

Among the other major problems encountered by the broiler contract growers were the disease outbreak, improper production management, quality and supply of inputs (chicks and feeds) and the relationship between the integrators and the grower (Rosal, 2000).

C. Grassroots Views on Events/Issues Relating to Production and Marketing of Broilers

1. Near Markets

Backyard Raisers

Backyard raisers, in their unguarded moments, do aim to be a contract grower or at least to vertically integrate in the market. But they are also aware of the difficult requirements to become a contract grower. Thus, their views on the events and issues about the industry center on their inability to penetrate the market (Table 20).

Backyard raisers are cognizant of the dominant role that the contract growers play in terms of market shares. The market structure is oligopsonistic and dominated by integrators. They are also aware that their market is limited to the demand of the local community which will become more restricted if dumped with "rejects coming" from the contract growers. In addition, backyard growers are aware that their product quality is below par relative to those of the contract growers.

Integrators are their perceived competitors. They are not aware of a potential competition from the very cheap imports. As mentioned by key informers, contract growing offered to an association of backyard raisers, is one adjustment that can be done to integrate the poor in the market. But this was tried in other areas of the study site and was found to be not sustainable because of management problems. According to the key informant, the reason for failure is the difficulty to get consensus in the management decisions from the various participants.

They are also aware that further expansion of their businesses is a remote possibility given the environmental constraints associated with poultry production as expressed in municipal ordinances, i.e., zoning. Current backyard raisers can still remain in the business but with limited expansion opportunities. Collectively, they create environmental problems as well. A suggestion by one contract grower is for the backyard producers to also be required of ECC as a group. This way, they will also learn about the possible environmental impacts of the operation and how they can mitigate these. Learning about community based resource management could also be a plus in their collective backyard broiler operation.

Finally, financial capability is always an issue for the key informants. According to them, contract growers can afford to buy or lease a project site, and can meet the ECC requirements. Because backyard growers are inherently poor, with low education and thus cannot access capital in regular outlets, intervention along this have to be creative. As mentioned in the case in hog production, the Philippine government, both at the national and local levels, are initiating nontraditional methods of credit assistance for poor farmers.

Table 20: Grassroots views on events and issues affecting production and Marketing of broilers, Philippines, 2002.

DISTANCE

BACKYARD

CONTRACT GROWER

Near Markets



1. List of Concerns

· Limited Market
· Environmental ordinances
· Lack of capital

· Pending importation of cheap broiler products
· Environmental constraint/lack of space

2. Origin of the situation

· Market is dominated by integrators
· Environmental effects of poultry production
· This group is inherently poor

· Philippines participation in the GATT-WTO.
· Strong opposition of communities against perceived health hazard.

3. Who are competitors

· Integrators
· Community at large
· Contract growers can afford to buy or lease a project site

· Broiler products from the neighboring countries.
· Community/Neighbors

4. What adjustments have to be made

· Contract growing should be offered to association of backyard raisers (they should form a group)
· The LGU should be more flexible in the implementation of municipal ordinance

· Government to provide safety nets to local contract growers.
· Business permits should not be expensive.

Far from Markets



1. List of concerns

· Lack of capital
· No problem with marketing.

· Drought

2. Origin of the situation

· Poverty

· Watershed mismanagement

3. Perceived competitors

· No competition. They do not consider contract growers as competitors they face differentiated markets.

· None

4. Adjustments to be Made

· Easy credit facilities for the poor.

· Reforestation

Contract Growers

Contract growers list the pending importation of cheap broiler products as an important issue. They consider the country's participation in the WTO-GATT as a major threat to their existence. They expressed that their major competitor in the business is the expected importation of cheap broilers that may flood the Philippine market. They fear that the integrators may turn to broiler importation instead of favoring local broiler production. Adjustments in terms of providing safety nets to contract growers should be supported by the government. Technical assistance and other technology development activities should be supported so that the local industry could remain competitive.

The other issue identified by the contract growers is the environmental constraint and lack of space for expansion. The origin of this situation is the strong opposition of the local communities against the perceived "health hazard" associated with intensive poultry operation. Sometimes, the contract grower in the area suspects that this strong opposition is an expression of jealousy by some community members. That is why it is very important to maintain good graces with the community. The CENRO and the LGU can make adjustments in this issue by maybe relaxing some constraints in awarding business permits. Or as in the case of the hog contract grower, this sector can also provide some public good for free to most members.

2. Far from Market

Backyard Raisers

The responses of growers far from the market are quite different from those near the markets. The backyard growers still worry about lack of financial capital only and did not have any problem with marketing. This is because the contract growers have a different market from the backyard grower. In addition, there is still a seeming gap in the marketable surplus of the backyard growers in relation to the community demand. The demand for backyard products in terms of native chicken is still increasing. However, capital constraint is an issue. Adjustments were to be in the form of some easy credit for the poor. The backyard scale in the far from market areas has room for expansion. There are still a lot of open spaces for backyard operation without concern of the environmental impact.

What was mentioned as a concern though is a disease outbreak that attacks backyard growers every year. The disease is not identifiable at this time, even by the local veterinarian. Growers would usually sell the chickens when the symptoms appear. There is a need to investigate this disease further, by research.

Contract Grower

The contract grower in the far from market area is concerned with the environmental quality. Due to droughts, his water source is sometimes depleted. To the mind of the key informant, this drought is due to watershed mismanagement. He does not have any perceived competitor; and reforestation, could be an adjustment that can be made.

D. Level of Awareness of Smallholders to Changes in Policies

1. Trade and Domestic Policies

Contract growers are aware of the changing trade and domestic policies (Table 21). For instance, they regard importation of cheap poultry products as a threat to the viability and sustainability of their poultry business. They are aware that imported broilers shall directly compete with locally produced broilers.

Table 21: Level of awareness by smallholder producers on changes in policies, Philippines, 2002.

DISTANCE

BACKYARD

CONTRACT GROWER

Large

Small

Near Market





Trade Policies

Not aware

Aware

Aware


Domestic Policies

Not aware

Aware

Aware


Health Policies

Moderately aware

Aware

aware


Environment Policies

Highly aware

Highly aware

Highly aware

Far from Market





Trade Policies

not aware

aware



Domestic Policies

not aware

aware



Health Policies

aware

aware



Environment Policies

aware

Aware


Furthermore, the contract growers are fully aware of the advantage of dealing with the integrators in terms of their dominant role in marketing the broiler products. They are aware that their products are assured of getting to the market at a national level. They are aware that the profitability of their poultry business shall be dictated/controlled by the integrators. However, they do not intend to go against this company policy since they are content with what they are earning in favor of a long-term relationship with the integrators. In short, the integrators bear the burden of the consequences of the changes in policies and the contract growers are insulated from these as long as contracts are in force.

In contrast, backyard raisers are not aware of any changes in trade and domestic policies in relation to their backyard poultry business. They are more concerned with very short-run manifestations of the cost of inputs (e.g., feeds), product prices, and current demand for their broilers. Their business decisions are made on their current performances in terms of net incomes desired. They do not make long-term projections regarding the business except on their current financial requirements and income expectations from their current inventories.

Backyard raisers are less aware if not totally unaware of the policies (e.g., price policies) relating directly or indirectly to production and marketing at their levels. They are more particular with demand peaks and lows at the local scene such as Christmas holidays and town fiestas.

2. Health and Environmental Policies

Contract growers (like the backyard raisers) have a high level of awareness regarding the impact of the poultry sector on the environment (e.g., pollution). This level of awareness is largely attributed to the increasing implementation of local eco-governance. One popular local law is that which prohibits establishing poultry farms within the immediate vicinity of residential areas. However, the sector's impact on human health is not quite clear to some of the contract growers. They nevertheless agree that regulatory policies that are intended to protect the environment are necessary.

Backyard raisers have current knowledge about the local health and environmental policies. They are aware that their business operations will be affected by the health and environmental ordinances of local governments. They are fully aware that they cannot expand their businesses due to the municipal ordinances on zoning, for example.

3. Perceived impact of changing policies by broiler producers

Trade and Domestic Policies

Liberalized trade is expected to result in a significant reduction of contract growing arrangements in the country. Contract growers perceive that the integrators shall decide based on their level on profitability of whether to continue with domestic contracts or apply for import permits. If it is profitable to import, contract-growing operations will eventually cease. Contract growers are also predicting that employment at their level will drastically decline and shall directly contribute to increased poverty at the community level. There will be a huge amount of sunk costs from the initial capital investments.

On a brighter note, contract growers are expecting a reduction of the cost of production if the cost of feeds and input supplies are reduced due to importations. They argued however, that limitations on broiler importations should complement the reductions in the cost of local broiler production for them to survive.

The backyard raisers argued that the only way to achieve a sustainable and viable backyard poultry business is to reduce cost of production through low cost of inputs, particularly, feed costs. They suggested that the government could either provide input subsidies or allow unlimited importation of feeds.

Health and Environmental Policies

Given the changing policies addressing the environmental effects of poultry production, backyard raisers are expecting that their potential secondary/tertiary source of income shall be limited to the minimum.

E. Stakeholders' Views of the Outlook of the Industry

1. Near Market

Backyard Raisers

Backyard raisers expect a bleak future for backyard poultry production due to the market dominance of the integrators, as well as the environmental constraints in the poultry production business. They expect to remain as backyard raisers whose only chance of survival is for the local market to grow (Table 22).

They are hoping for a future scenario wherein the government can intervene for them to be mainstreamed in the market. They are proposing that the government provide them capital, technical and market assistance, similar to what the integrators provide to their contract growers. Changes that would then be favorable include the cheap prices of feeds, and technical assistance to improve quality of their product. Credit and technical support can be provided to backyard association; and more integrators can enter the industry. Some practical things that should be done is providing easy credit and imposing less transaction costs, such as permits, etc.

Table 22: Grassroots views on the outlook of the broiler industry, Philippines, 2002.

DISTANCE

BACKYARD

CONTRACT GROWER

Large

Small

Near Market




1. Views of the Outlook

Gloomy/bleak future. Backyard raisers will be phased out.

Uncertain (but the integrators should know best); Increased imports will result in decreased profitability for locals; but cheap inputs increase profitability.


2. Changes that You see as Favorable

Importation of cheap feeds; backyard raisers can penetrate market through improved quality of broilers.

Integrators can develop superior technology to be able to compete with imported broiler products. More investment on development of environment-friendly feeds, automation of production.


3. What can be Done

Credit and technical support.

Gov't can provide research grants to develop cheap and environment- friendly inputs; government can limit importation of chicken products

Need balance

4. Should be done

Gov't should provide credit facilities to deserving poultry/backyard farming associations; Gov't should encourage potential integrators to enter the industry by providing capital and imposing fewer taxes.

Gov't should allocate more research money to the contract growers' ass'n. and the integrators should form a strong lobby group.


Far from Market




1. Outlook

Positive; small growers may need to confederate

Positive as long as gov't is supportive of plight of contract grower. Banning importation of broilers is good.


2. Changes that you see are favorable

Accessibility to technical experts

There should be ECC not only for large contract growers, but also for backyard growers.


3. What can be done

DA can provide technical support.

Devise policies for extension, research and development, and for trade.


4. Should be done

Extension services, not necessarily the DA should be in place.



Contract Growers

In the earlier times, a contract grower is not usually guaranteed of a higher profit than the independent grower (Saguiguit, Jr., 1974). Contract farmers cash profits are limited by the contract. For instance, prices offered by the wholesalers were considerably higher than the price set by the contract. If the poultry raiser has the needed funds and the necessary technical and managerial know how, and is willing to take the risks involved in the poultry business, then he is better off as an independent grower. In the course of this key informant survey, no large independent grower for broilers was identified. It so seems that the integrators have succeeded in putting the large independents out of business or that these groups may have joined the integrators' group.

Currently, contract growers are dependent on the integrators for their future. Their outlook of the poultry industry is uncertain. They expect a gloomy future once importations of cheap broilers are allowed without restrictions. However, they also anticipate significant reductions in their productions costs once importations of cheap inputs are realized. They declared that their role as producers would continue for as long as the integrators are interested to conduct business with them. They are willing to cooperate with their integrators in terms of developing or evolving production technologies that can make their product more competitive vis-à-vis imported broilers. However, if the poultry business becomes too risky due to the expected competition with imported broilers, their initial response will be to reduce their volume of business.

The contract growers would like the industry to encourage the participation of more integrators so that they can improve their bargaining position. They suggest that the government should intervene by encouraging potential integrators to enter the poultry business.

They look up to feed manufacturers to come up with relatively low-cost, high quality and environment-friendly feed products. In addition, they are proposing that the government should allow unlimited importations of high-quality feeds. They are hoping that the local LGUs can actively assist in identifying and allocating farm areas that are suitable to poultry production.

2. Far from Market

Backyard Raisers

Backyard raisers far from the market have a more positive outlook of the industry. They suggest that small growers could confederate so they can be a market force against unscrupulous agents. They don't consider the contract growers as a competitor because they cater to a more specialized market. One change that could be favorable is for technical experts to be accessible to them. To their minds, the DA can provide this technical support. They also mentioned that extension services should be in the town. They observe that contract growers have the best of the technical services from the integrators, and these small growers believe that they may be able to compete in terms of the quality of the product produced if they also have some technical assistance.

Contract Grower

The positive outlook of the contract grower in these areas could be due to the open space, the cheap resources that the location offers. However, the positive outlook is also a function of government support, especially in the trade issues. Banning the importation of broiler chicken meat, according to the key informant would help the local industry grow.

Contract growers see positive changes in the industry in terms of requiring backyard growers to also comply with the ECC. This will mean that the environmental hazards as a result of inadequate information will be minimized. Policies have to be crafted to ensure environmentally sound poultry industry.

F. Social, Health and Environmental Issues in a Changing Policy and Market Environment

At least two distinct issues differentiate the hogs and the poultry sectors: 1) backyard broiler is not quite integrated to the market; and 2) the health impact of the quality of poultry meat products is not much of a concern. As in the hog sector, it was also mentioned that the backyard sector be required of an ECC. This will force communities to have community based resource management programs.

On the whole, most of what is observed in the hogs sector can also be applicable to the broiler sector.

1. Impact on the sustainability of smallholder enterprises

Backyard farmers will find it extremely difficult to survive due to the stiff market competition that will prevail. They do not expect any improvement in the market for their broilers. On the contrary, importations may even encroach into the domestic market and may consequently reduce their present volumes of business.

2. Impact on incomes and employment at the household level

They expect a general reduction in income and employment at the household level as a result of open trade and strict application of the environmental policies. As the volumes of businesses decline, household incomes generated from backyard raising are consequently reduced. Employment at the household level is also expected to decline but it is considered insignificant since backyard broiler production is not a labor-intensive type of activity.

3. Impact on the economic and social position of women in the household

As secondary income sources decline, the relative income contribution of women to household incomes will diminish. It does not however easily translate to reduction in the social position of women. In a Philippine rural family, decision-making is most of the time a joint activity by all members concerned, thus, reduction in income contribution would not necessarily diminish the social status of women in the household. However, the slowing down of business would mean that women will be less active and less visible in terms of purchasing production inputs and selling broiler products.

4. Impact on household nutrition and the well being of children

Just as in the hog sector case, the decreases in incomes would not necessarily translate to lower household nutrition level especially in the agricultural societies. The well being of children such as access to education and health services will be lower if cash income is not available. There is no recognition from the key informants that intensive broiler production can affect human health.

G. Conclusions

The future of the backyard broiler operation is bleak, as they have limited access to the market. It is important to investigate the potential impact on the viability and sustainability of the enterprise of the following: 1) community level resource management to avoid negative environmental impact; and 2) organizing the broiler into a confederation so they can be effective competitors of branded products in the market. In both counts, the government support is important. In the latter case, technical assistance will be needed.

On the other hand, the viability and sustainability of contract growing is subject to the trade and trade related policies. The cheap importation of feeds and other inputs as the day old chicks can also maintain the profitability of the small- and large- scale contract growers.

The conclusions in the hog case are also applicable in the broiler case.

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[108] Professor, Institute of Strategic Planning and Policy Studies, University of the Philippines at Los Baños, Philippines.
[109] The large commercial sector is managed by corporations and the wealthy private sector.
[110] Laguna study site is in Region 4.
[111] The proportion of poor population to total population.
[112] Bukidnon study site is in Region 10.
[113] The husband of the large Integrator contract grower has also been a village chief.

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