Doctoral Dissertations

Date of Award

6-1976

Degree Type

Dissertation

Degree Name

Doctor of Philosophy

Major

Agricultural Economics

Major Professor

Luther H. Keller

Committee Members

Charles B. Sappington, S Darrell Mundy, Keith Phillips

Abstract

The primary objective of this study was to estimate and evaluate the economic effects of selected policy alternatives on prices, output, employment and income in the agricultural sector of the Philippines. The policies evaluated were: fertilizer subsidy; efficiency of irrigation systems; rice price ceilings; mechanization; and natural calamities. The study used a national production-processing-distribution programming model (MAAGAP) and had the following assumptions: a given set of national demands for agricultural commodities; a set of national supplies of resources; and a set of production technologies. Given these sets of conditions and with the further assumption that Philippine agriculture approximated a perfectly competitive market, the MAAGAP model's objective function was the maximization of the sum of the producer's and consumer's surplus (net social benefit). The model isolated the agricultural sector and equated aggregate supply with derived aggregate demand under a linear programming static framework. This procedure would endogenously determine equilibrium prices and quantities at the sectoral level. The input-output (I/O) coefficients for crops used by this study were taken from the national cost of production survey conducted by the Bureau of Agricultural Economics (BAEcon) in 1972; the farm management surveys made by the University of the Philippines College of Agriculture (UPCA); and the Philippine Sugar Institute (PHILSUGIN). For the input-output coefficients on livestock, the primary sources were the studies made by the Development Bank of the Philippines (DBF); the UPCA; and other specialized studies made by Gapuz (poultry) and Drilon (piggery). The demand estimates on the other hand came from two basic studies: the Foote's econometric model based on a time series, fitted by three-stage least squares (3 SLS) and the regression analysis made by Ferrer based on a crossed section data from a consumption survey conducted by Dosayla and Darrah. Results from the study showed that removing the fertilizer subsidy to the food crop subsector would lead to a lower production of rice, lower employment, a decline in usage of tractor services, a decline in capital usage and a lower marginal productivity of land because of lower fertilizer consumption in the food crop subsector. Consumer's surplus would likewise decline while producer's surplus would increase as the fertilizer subsidy to the food crop subsector would be removed. A uniform fertilizer subsidy for both subsectors at high levels (100 to 72 percent subsidy) would result into a significant decrease in domestic prices compared to their 1974 base levels (which was 53 percent subsidized only for the food crop subsector); higher employment; and increase in capital usage as compared to the 1974 base. Higher uniform subsidy levels for both subsectors, however, would tend to reduce the use of four-wheel tractor services and animal labor as compared to the 1974 base. At low levels of uniform subsidy for both export and food crops, domestic production would decline and prices of commodities would tend to rise. Employment, four-wheel tractor usage and animal services would also decline. The Imposition of a 4 percent tax on the export subsector would adversely affect the levels of exports. A uniform fertilizer subsidy scheme whether a tax is imposed or not would generally result in higher net social benefits for both consumers and producers, with the proportion of shares differing between the two conditions (generally lower benefits when tax is imposed). Increasing the efficiency of the irrigation systems would result in higher production of rice, increase in employment, higher usage of capital by crops, increase in fertilizer usage (especially palay), a higher net social benefit for the agricultural sector with consumers benefiting from relatively lower prices. Results of the study also showed that a rice price ceiling of ₱843 per metric ton (?₱1.90 per kilogram at 1974 current prices) would result to lower rice production relative to the 1974 base when no price ceiling was in effect. Furthermore, to maintain the rice price ceiling at ₱1.90 per kilogram, the estimates indicate that .9371 thousand metric tons of rice must be imported, incurring an approximate import subsidy cost of ₱2.8 million. Low price ceilings would tend to depress domestic production, and producer's surplus would be relatively lower while consumer's surplus would be somewhat higher. Higher rice price ceilings on the other hand would eliminate rice import subsidy costs and producer's surplus would be greater while consumer's surplus would be less. The simultaneous increase in the availability of both hand and four-wheel tractor services (0 to 200 percent of 1972 levels) would result in increases in the production of rice and sugar but decreases in the production of corn and commercial hogs. Results in the variation of tractor services also demonstrated the substitutability of both man labor and animal labor for tractor services, while fertilizer showed a comple-mentary relationship with tractor services. Variations in the availability of hand tractor services with four-wheel tractors held constant at 1972 levels, showed the decline in palay production below 1972 base levels but would be offset more than propor-tionately by the substitution of corn grain production for palay. Increasing hand tractor services above the 1972 base levels on the other hand would lead to the higher production of palay but a probable displacement of man and animal labor in the production of rice and corn. Results also indicated that four-wheel tractor services were very vital in the production of sugar and palay but not corn. Reducing the availability of four-wheel tractor services below the 1972 levels would reduce the production of sugar and rice. Results from parametric variation of four-wheel tractors showed that fertilizer was complementary input to four-wheel tractor while animal and man labor services were competing inputs to four—wheel tractor usage. The net effects of floods and/or natural calamities would be higher agricultural prices and lower net social benefits. Finally, the study also evaluated the different policies relative to target variables such as net social benefit for the agricultural sector, value of production, usage levels of inputs, trade, government budget and prices. Results showed that there was no one policy mix that would provide a perfect economic alternative to all relevant macroeconomic variables. Well defined trade-offs were evident among the different policies. For example, producer's surplus and consumer’s surplus were almost always in conflict. In the two exceptions (higher uniform fertilizer subsidy and rice price ceiling of ₱1.143 per metric ton) both may be increased at the expense of a decline in animal labor services, tractor services and export levels.

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