Agricultural Economics

Agricultural
Economics and
Marketing
Contributor:
Dr. Ma. Eden S. Piadozo
Dr. Zenaida M. Sumalde
Prof. Jefferson Arapoc
AGRICULTURAL ECONOMICS AND MARKETING

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Coverage: Basic principles of economics and marketing and its application to agriculture
and international trade.
REVIEW OUTLINE
1. Introduction
1.1 Definition
.:. Economics
.:. Microeconomics
.:. Macroeconomics
.:. Agricultural Economics
.:. Positive Economics
.:. Normative Economics
1.2 Nature and Scope

.:. Relationship of Economics to other Social Sciences
.:. Basic economics problems
:. Economic goals
1.3 Foundation of Economics
1.4 Economic ideologies of nations

.:. Capitalism
.:. Communism
.:. Socialism
.:. Fascism
.:. Nazism
1.5 Economic Theories

.:. Development of Economic Theory
.:. Application of Economic Theory
2. Microeconomics
2. 1 Production and Costs

2.1 .1 Theory of Production
.:. Production function
.:. Production curves
.:. Law of Diminishing Return
2.1.2 Factors of Production
.:. Land
.:. Labor
.:. Capital

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.:. Management (Entrepreneurship and Crop Insurance)
2.1.3 Theory of Costs
.:. Total Cost
.:. Capital
.:. Social
.:. Environmental
.:. Average Cost
2.1.4 Price and Output Determination
.:. Profit Maximization
.:. Loss Minimization
2.1.5 Demand
.:. Law of Demand
.:. Determination of Demand
2.1.6 Supply
.:. Law of Supply
.:. Determination of Supply
2.1.7 Elasticity
.:. Elasticity of demand and supply
.:. Factors affecting elasticity
2.2 Consumption
2.2.1 Definitions- consumption and consumers
2.2.2 Consumption in relation with production
2.2.3 Consumer and price
3. Macroeconomics
3.1 National income accounting

.:. Approaches to GNP computations
.:. National income accounts
3.2 Consumption, savings and investments
.:. The consumption function
.:. Factors affecting the level of aggregate consumption
.:. Simple income determination
3.3 Unemployment and inflation
.:. Definition of Unemployment, Employment and Inflation
.:. Causes of Unemployment and Inflation
.:. Effects of Unemployment and Inflation
.:. Measures to address unemployment and inflation
3.4 Monetary and Fiscal Policy
3.4.1 Monetary Policy
.:. Central Bank
.:. The Philippine Financial System
3.4.2 Fiscal Policy
.:. Component of National Budget
.:. Business cycles

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3.5 Money and Banking
.:. Money and money supply
.:. Theories on demand for money
.:. Commercial banking
4. Agriculture and Economic Growth
4.1 Definition- Agriculture, Sustainable Development, Economic Growth, Economic

Development
4.2 Strategies for economic growth and development
4.3 Policies and programs for agricultural development and legal parameters
.:. AGRICULTURAL AND RELA TED LAWS
.:. AGRARIAN REFORM LAW
.:. AFMA LAW
.:. CROP INSURANCE LAW
.:. BIO-SAFETY LAW
.:. PEST CONTROL LAWS IN THE PHILIPPINES
.:. HIGH V ALU E CROPS LAW
.:. REORGANIZATION OF THE DEPT. OF AGRICULTURE
.:. CREATION OF THE BOARD OF AGRICULTURE
.:. Professional Regulation Commission
.:. SONA (Based on latest S.O.N.A.)
.:. Irrigation Act
.:. Omnibus Power Bill
.:. Other recent policies and programs
4.4 Intensive and Extensive agriculture
.:. Economies of scale
.:. Law of comparative advantage
5. International Economics
5.1 WTO- GATT- UR

.:. Tariff reduction
.:. Liberalized trade and its impact to agriculture (and farmer's incomes)
5.2 Balance of payments
5.3 Foreign Exchange
5.4 International Reserve
6. Agricultural Marketing
6.1 Basic concepts of marketing

6.2 Approaches to the study of agricultural marketing

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6.3 Marketing functions
.:. Transportation
.:. Storage
.:. Standardization and grading
.:. Packaging and labeling
.:. Channels of Distribution
.:. Market Information
6.4 Marketing margins and costs
6.5 Marketing Program- 4 P's of Marketing
.:. Place- channel of distribution
.:. Price- price determination and strategies
.:. Product- quality control
:. Promotion- advertising

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REFERENCES
McConell, C. R. Economics, 8'" ed. McGraw Hill Books Co.
Sicat, G. Economics, National Bookstore, Manila 1983.
Samuelson and Nordhaus, Economics 14th ed.
Amancher and Ulrich, Microeconomic Principles and Policies.
Gregory, Mankiw N. Principles of Microeconomics, ThePryden Press, Florida, 1998.
Piadozo, Ma. E.S. Syllabus on Agricultural Marketing. 1988.
Demberg, T. and D. Mc. Dongall, Microeconomics, 6th ed. McGraw Hill Book Co. New York,
1980.
Leftwich, R. The Price System and Resource Allocation, 7thed. The Pryden Press, Illinois,
1979.
Salvatore, O. Microeconomics Theory. Schaum Series, 1986.
Parkin, Michael. Microeconomics, Addison-Wesley Publishing Company. 1990.
Darrah, L. B. & F. A. Tiongson. Agricultural Marketing in the Philippines, UPCA. 1971
Kohls, R. & R. Downey.Marketing of Agricultural Products.
Shepherd, G. S. et. al. Marketing Farm Products
MEMBERS OF THE ECO-MARKETING COMMITTEE

Dr. Eduardo G. Marzan Jr. CLSU
Ms. Veneranda T. Larroza Xavier University
Dr. Romeo N. Guinto PAC
Dr. Nicolas A. Tumos USM
Ms. Cristina R. Salvosa NVSIT
Vicente L. Domingo PRC, Broad of Agriculture

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GLOBALIZATION
The wide array of literature on globalization reveals a broad range of concepts on

the subject. These can be grouped into two parallel sets of concepts: the mainstream
concept and the emerging concept on the subject.
A. Mainstream Concept
Mainstream concept viewed primarily as an economic, particularly trade and

business phenomenon. Globalization did not descend on national economies in one
felswoop. The process has been going on for at least two decades. This was initially driven
by autonomous technology and market forces. In recent times, globalization was
accelerated by rapid advances in telecommunications, transportation, information and
computer technologies and material and genetic sciences.
There are two dimensions of globalization- macroeconomics and microeconomics

dimensions. The microeconomics dimension focuses on the globalization of markets for
commodities and factors: the convergence of prices. Nowhere is this visibly seen than in
the globalization of financial markets. Alburo (1997) notes the globalization of markets is a
continuation of the international trade.
Another dimension is the firm of microeconomic agents. Globalization means firms

behave differently in terms of supplies and markets. Different parts of the particular
products are produced by different countries and are then assembled in still another
country. Suppliers come from one set of countries while financing is generated from
another set of countries. The same goes for market.
There are several characteristics of globalization:
1. Global firms today are both small and large and nimble
2. There are changes in the nature of investments beyond simple equity purchase. For
example, there is increasing investment in research and development.
3. The change in location of international production.
4. Changes in the nature of production processes and organization.
5. Changes in international governance. Globalization involves going beyond legal
systems and relying increasing on private systems of dispute settlement and
arbitration.
Globalization at the micro and macroeconomic levels has spurred the transformation
not only of economic systems but also of political, social and cultural institution as well.
While, the process might be described as economic in nature, impacts are wide ranging.
Many view these as threatening to human development while others see it as an
opportunity for civil society to play a vital role in the development process.

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Important Globalization Trends
The following are the most important economic trends in the world today:
1. Very rapid rise in world trade during the last two decades.
The ratio of world merchandise exports to world output has doubled (from
10% to 20%) during the last decades.
2. Services becoming a very important part of world trade.
The share of transactions in services to total world trade increased from 15%
to 22%. The next stage of globalization will involve services as contrasted to goods
and merchandise.
3. Rapid globalization of stock and financial markets.
One in seven equity trade in the world today involves a foreign counterpart.
The share of foreigners in the total transactions in the Philippine stock exchange is
even higher.
4. Increasing borderlessness of both production and consumption.
Sales of affiliates of multinational corporations now exceed total world
export.
Also giving impetus to globalization is real progress in international cooperation

both at the multilateral and regional levels, namely:
1. The setting up of the World Trade Organization (WTO) at Marrakech in 1995

which marked the successful conclusion of the Uruguay Round of the General
Agreements in Tariffs and Trade (GATT-UR), ushered in a boarder deeper
and better-articulated multilateral trading system.
2. Establishment of the European Union.
3. Signing of the North Free Trade Agreement (NAFTA).
4. The vision of Asia-Pacific Economic Cooperation.
B. Emerging Concepts
The second set of concepts does not limit the globalization process to macro and
microeconomic phenomena. For example, Sarah Timpen, Resident Representative of NDP,
views international movements, actions and initiatives on democracy, human rights,
environment and social development as part of globalization.
Pro-democracy movements and human rights campaigns have become global

concerns, the cause of our environment as part of our “common future” is recognized in all
countries. Problems of social development- poverty, unemployment and social
disintegration and gender issues- are also the subject of global campaigns. The emergence
of this second concept is primarily due to the work of NGOs, people organizations, research
groups and academics. United Nations organizations have given special attention to these
issues in their global summits.

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Unevenness of the extent and effects of globalization
Finance capital is more globalized than industrial capital. Flows of capital in turn are
more globalized than trade in goods and services, and markets for goods and services are
more globalized than labor market in which barriers to international mobility are imposed
by all countries.
Developing countries have gained at least as much as developed countries from

globalization. However, only a very select group of developing countries benefited
significantly. Group of GNP in East Asia had been around 8% but growth in the Sub-Saharan
Africa was less than 2%. Less than a dozen developing countries absorbed 90% of foreign
capital flows to developing countries.
In sum, globalization offers opportunities to developing countries. It opens up

bigger markets from exports, an expanding array of goods and services to trade, better
access to private capital flows and improved access to technology. Indeed, developing
countries as a group have gotten a very large share of the increase in the world trade (from
a share of 33% in the mid-1980s to 43% in 1997). And these were accompanied and
partially financed and facilitated by increasing private flows.
The benefits from globalization however will not be disturbed. Fast integrators have
benefited and will benefit much more than slow integrators.
The effects of globalization within countries are also uneven. Some parts of the
country are more closely integrated with the international economy than other parts of the
country. Metro Manila, Metro Cebu, Calabarzon and parts of Mindanao that will be closely
integrated with East Asia Growth Triangle (BIMP-EAGA) are expected to benefit much
more from globalization than other parts of the country. As the experience of Subic and
export processing zones show, the fast integrators can grow much faster if they are
delinked from slow integrators (to the extent that they no longer have to buy costly or low
quality inputs from slow integrators).
Traditional Agriculture is a slow integrator and is a high cost producer (due to

problems with land reform and due to national disadvantages) compared to the US,
Australia and other countries in the ASEAN region. Those parts of the country that are
capable of exporting manufactured goods will therefore benefit (from lower food prices
and therefore lower wages) if the Philippines were to liberize food imports. In general,
those sectors in the Philippine economy that are capable of integrating with the world
economy would benefit from a more liberal trade environment. There is therefore bound to
be sore conflict between the interests of the more globally competitive and the less globally
competitive sectors of the Philippine economy.

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To some extent competition and markets (largely impelled by multinational firms
and finance capital) will produce convergence, rendering government much less relevant
or sovereign. With greater mobility of capital, for example, government and central banks
have much weaker control over money supply, credit and exchange rates, and are now
under pressure to make their tax system and tax rate structures more similar. In some
cases, reforms in stock and financial markets were undertaken by the private sectors and
not because of pressure from government but because of pressure from highly mobile
finance capital.
On the other hand, great pressure is also felt by governments to become more
protectionists because some sectors which are hurt by globalization are quite capable of
mounting successful lobbies for more protection. In more countries negatively affected by
protectionism are bound to retaliate. Moreover, countries that have bigger bargaining
power will try to dictate on weaker countries.
What is marketing?
• A series of services involved in moving a product from the point of production to the
point of consumption.
What is Agricultural Marketing?
 Involves series of services or functions performed from the time the product leaves
the farm until it reaches the final consumer or user.
Service
 Is a function performed on or for a product that alters its form, time, places or
profession characteristics
Point of production
• The point of usual first sale by the farmer
• May be done at the farm, farmer's house, along the road, mountain trail or assembly
market
• Transaction occurs between the farmer and the buyer
• A price is established: Pf
Point of consumption
• The point of last purchase or sale
• Transaction occurs between the buyer and the seller
• A price is established: Pr
Marketing Services
• A function performed on or for a product that alters its form, time, place, or
possession characteristics
• Add value to a product and thus entail cost
• Mayor may not involve physical handling
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• Generally performed to meet existing or anticipated consumer's demand
Marketing Processes
 Involves:
 Assembling
 Packaging, sorting or grading, transporting, and storage
 Processing or Value Additions
 Retailing to the consumers
 Financing, Risk-taking
 Market intelligence or Market information
 Buying and selling
Types of Marketing Functions:
1. Exchange function
• Activities involved in the transfer of title of goods
• The point at which price determination enters the study of agricultural marketing
o Buying - seeking out sources of supply
o Selling - merchandising activities; proper unit of sale, proper packaging, best
market channel
2. Physical function
• Those activities that involve handling, movement and physical change of the actual
commodity itself
• Answer the when, what and where of marketing

o Storage
o Transportation
o Processing - done to either change the form of the product or to aid in the
preservation of the product, to make it available to consumers for longer periods
of time (canning, freezing, drying)
3. Facilitating function
• Acts as the grease of the agricultural marketing machinery
• Enables the smooth performance of both the exchange and physical functions
o Grading- classify the product according to size, colors, etc.
o Standardization- the establishment and maintenance of uniform measurements
o Financing - the advancing of money to carry on the various aspect of marketing
o Risk-bearing - the acceptance of the possibility of loss in the marketing of the
product
o Packaging - to preserve the product and to protect it from contamination to
make it easier to handle, and to make the product more attractive to the buyer;

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Packaging is especially more important to protect the product from damage
during transport, particularly if transport occurs over poor roads.
o Market intelligence - the job of collecting, interpreting and disseminating the
large variety of data which are necessary to the smooth operation of the
marketing processes
o Market research - alternative marketing channels, routes, marketing functions,
market potential of new products, policies, etc.
o Demand Creation- effective advertising and use of promotional devices.
What is a market?
• A group of buyers and sellers with facilities for trading with each other
• A place where buyers and sellers meet to exchange goods and services
• A large geographic area wherein a given set of supply and demand forces operate to
set prices
• May be formal or informal markets
• Elements of market: buyers, sellers, trading facilities, arrangement
Marketing system
• Also known as agricultural marketing machinery
• An inter-organizational system made up of a set of interdependent activities aimed
at expanding agricultural production
1. has objectives or goal to achieve
2. has components or participants
3. has institutional arrangements
4. needs planning and management decision structure
5. has spatial and temporal dimensions
Components of the agricultural marketing system

1. Producer subsystem - initiators of production
2. Channel subsystem - the actors often branded as “necessary evil”’
3. Flow subsystem - product, financial and information flows
4. Functional subsystem
• Marketing processes and functions
o Concentration
o Dispersion
o Equalization
5. Environmental subsystem- concerned with minimizing market imperfection
6. Consumer subsystem
A knowledge of marketing and its problems will help farmers make important decisions on
the following aspects:
1. What to produce and prepare it for sale

2. When and where to sell

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3. How much of the marketing job should be done by the farmer himself as an
individual or as a member of a group
4. What can be done to expand markets
5. Which of many marketing arrangements are desirable
6. How can changes necessary to correct undesirable practices be secured
On the part of middlemen and consumers, the marketing system performs the following
functions
1. Provides an outlet for intermediaries’ agricultural products
2. Distributes goods and services to consumers in the desired form and condition and
delivers them at prices consumers are willing and able to pay
3. Provides employment for middlemen and producers
Approaches to the Study of Agricultural Marketing
a. Commodity Approach
• Studying the commodity concerned
• Product oriented than marketing function oriented
• Study may cover the characteristics of the product, market demand and
supply situation, prices, consumer preferences, market potential of new
products, etc.
b. Institutional Approach
• Studying the various agencies and business structures involved in the
marketing processes
• Attempts to answer the question "who"
• Considers the nature and character of the various middlemen and related
agencies, also the arrangement and organization of the marketing machinery.
Types of middlemen
• Merchant middlemen - take title to and therefore own products they handle;
buy and sell for their own gain
o Contract buyers
o Grain millers
o Wholesalers
- Assembler wholesaler or viajeros
- Financer wholesaler or bodegeros/cuartajera
- Shippers
- Wholesaler
- Wholesaler-retailer
o Retailers

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• Agent middlemen - act as representative of their clients; do not take title to
and therefore do not own the products they handle; income is in the form of
fees and commission
o Commission agent- normally takes over the physical handling of the
product, arranges for the terms of sale, collects, deducts his fees and
remits the balance to the principal.
o Broker- usually does not have physical control of the product,
ordinarily follows the instruction of his principal closely and has less
discretionary power in price negotiations than the commission agent.
• Processors and manufacturers
• Facilitative organizations- e.g. auction markets
• Market associations- such as cooperatives and cluster marketing
c. Functional Approach
• Attempts to answer "what" in the question "who does what"
• Marketing function - a major specialized activity performed in accomplishing the
marketing process
• Types of marketing function
1. Exchange function
2. Physical function
3. Facilitating function
1. Exchange Function- Activities involved in the transfer of title of goods; the point
at which price determination enters the study of agricultural marketing
 Buying- seeking out sources of supply
 Selling- merchandising activities; proper unit of sale, proper packaging, best
marketing channel
2. Physical Function-Those activities that involve handling, movement and physical

change of the actual commodity itself; answers the when, what and where of
marketing
 Storage
 Transportation
 Processing-done to either change the form of the product or to aid in the

preservation of the product to make it available to consumers for longer
periods of time (canning, freezing or drying).
3. Facilitating Function- Acts as the grease of the agricultural marketing machinery;

enables the smooth performance of both the exchange and physical functions
 Standardization- the establishment and maintenance of uniform
measurements
 Financing- the advancing of money to carry on the various aspects of
marketing

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 Risk-bearing- the acceptance of the possibility of loss in the marketing of a
product.
 Packaging- to preserve the product and to protect it from contamination, to
make it easier to handle, and to make the product more attractive to the
buyer. Packaging is especially more important to protect the product from
damage during transport, particularly if transport occurs over poor roads.
 Market intelligence –the job of collecting, interpreting and disseminating the
large variety of data which are necessary to the smooth operation of the
marketing processes.
 Market research- alternative marketing channels, routes, marketing
functions, market potential of new products, policies, etc.
 Demand creation- effective advertising and use of promotional devices.
Uses of the functional approach

• Considers the job that must be done
• Helpful in evaluating marketing costs of various middlemen
• Useful in understanding the difference in marketing machinery by breaking
down a complex marketing task into its component function
4. Industrial Organizational Approach

a. Market Structure- refers to how a market is organized with particular emphasis
on the characteristics that determine the relationship among the various sellers
and between the various buyers and sellers in the market; deals with the
organization of a market as it influences the nature of competition and pricing
within the market.
Dimensions of Market Structure

o Degree of buyer & seller concentration- number or size distribution of
buyers and sellers who own or control the market.
o Degree of product differentiation- buyers differentiate, distinguish or
express their specific preferences among competing output of the
various sellers in the industry
o Condition of entry to the market
o Degree of knowledge of the market
Barriers to entry - refers to the competitive relationship between established

firms and potential entrants.
Forms of Barrier to Entry:

1. Economies of scale- minimum efficient scale of operation
2. High capital requirement
3. Rules and regulations set by the government
4. Inherent technical relationship in the industry
b. Market Conduct- marketing practices or “behavior”

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Dimensions of Market Conduct
o the principle and the method employed by the firm or group of firms
in calculating or determining price and output
o Product policy
o Sales promotion
o Means of coordination
o Presence or absence or extent of predatory/exclusionary tactics
c. Market Performance- the appraisal of how much the economic resource of the
industry’s market behavior or conduct deviates from the best possible
contribution it can make to achieve relevant socio-economic goals.
o Economic
o Efficiency
o Equity
o Progressiveness
o Responsiveness
o Social
o Environmental concern
o Product safety
Characteristics of Agricultural Production systems that affect marketing

 Farm size
 Location of farms
 Management and cultural that affect quality of the product
 Seasonality of supply
Problem Areas
 Characteristics of the Producers
o So many and small farmers
o Low volume of marketable Surplus
o Scattered farms throughout the different locations
o Limited capital to finance facilities for improvement of product quality
 Characteristics of Consumers
o Differences in socio-economic characteristics (income, age, sex,
religion, educational attainment, etc.)
o Cultural differences
o Many and small buyers scattered in different locations
 Characteristics of the agricultural products
o Bulky
o Highly seasonal

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o Highly perishable
o Non-homogenous
Constraints in Agricultural Marketing

 Overlapping market channels – too many middlemen (redundant)
 Poor quality of products
 Lack of grading and standardization
 Poor bargaining power of farmers
 Credit-marketing tie up
 Lack of market Information
 Inadequate/inappropriate postharvest facilities (packaging, grading,
processing, storage)
 Poor infrastructure (road and transport network)
 Institutional and policy constraints
Institutional constraints in Agricultural marketing

 Limited Government Support
o Grading/standardization
o Polishing the marketing system
o Policy support
o Market research
o Credit for marketing
o Marketing extension/ Market information

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DEMAND
• The various quantities of a product which consumers will buy at all probable prices
o Demand Function: Qd = f(P)
o Effective demand- Consists of both the desire for the product and the ability
to pay for it
o Market demand- Summation of all individual demands
o Complete demand function: Qd= f(P, Y, Pr, T, E, N)
Y = Income of consumer
Pr= Prices of related goods
T = tastes and references
E = Expectation about the future
N = Number of consumers or population
Types of Demand
1. Consumer demand- demand for the final or finished product
2. Producer demand- demand for the intermediate products used in producing the
final or finished product
3. Demand for social services- a special type of consumer demand where the
government's ability to provide for the services and not the consumer's income
determines demand
The Law of Demand

• Inverse relationship between price and quantity demanded
• Explained by:
o Substitution effect- consumers shift their purchases towards the relatively
cheaper product as prices changes.
o Income effect- a change in the price of one commodity, all other factors
affecting demand held constant, changes the consumer’s real income.
Demand Determinants
 Own Price- gives rise to change in quantity demanded.
 Demand Shifters- gives rise to change in demand
o Income (Y)
o Prices of related products (Pr)
o Population (N)
o Tastes and Preferences (T)
o Expectation of future prices and income (E)

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SUPPLY
 The various quantities of a product offered for sale at various prices holding all
other factors constant
 Composed of production, carryover stocks and imports
 Qs=c +dP
 Complete supply function: Qs = f (P, Pi, Pr, T, E, N)
Law of Supply
 The direct relationship between the price and the quantity supplied
 Quantity supplied to a price change affected by time (concept of short and long run)
Supply determinants
• Own price (change in quantity supplied)
• Supply shifters (change in supply)
o Changes in prices of resource inputs (Pi)
o Prices of competing products/profitability of competing commodities (Pr)
o Technology (T)
o Institutional factors
o Weather
o Seller's expectation of future prices (E)
o
Change in Supply vs Change in Quantity Demanded
 Change in quantity supplied – when there is just a movement along the same supply
curve due to a change in own price of the good
 Change in supply – when there is a shifting of the supply curve due to changes in any
of the factors affecting supply but not own price
Market Equilibrium
 The condition in which both price and quantity are at levels where market demand
is equal to market supply
 Equilibrium price – the price where quantity demanded is equal to quantity
supplied
 Additional concepts:
o Shortage – quantity demanded > quantity supplied; Qd>Qs
o Surplus – quantity demanded < quantity supplied; Qd<Qs
Application of the Demand and Supply Model

 Minimum Price Policy
o A pricing policy intended to protect the producers or workers
o To be effective, the price is set above the equilibrium price, will lead to
surplus
o How to handle the surplus?
 The government should be ready to absorb the surplus
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 Store the surplus as buffer stock
 Export/donate the surplus
 Create new demand for the product
 Maximum Price policy
o A pricing policy intended to protect the consumers
o To be effective, the price is set below the equilibrium price; will lead to
shortage
o How to handle the shortage?
 The government should be ready to supply the necessary quantities
with price not to exceed the price ceiling
 Release the buffer stock
 Import the necessary quantities
 Ration the available quantities
Elasticities of Supply and Demand

Elasticity (ε)
 Refers to the responsiveness of quantity demanded/supplied to changes in any of
the factors affecting them
 Types of Elasticity
o Own Price elasticity of Demand and Supply
o Cross Price elasticity of Demand
o Income elasticity of Demand
Price Elasticity of Demand

 The responsiveness of quantity demanded to a change in the price of the
commodity.
 Measured by:
o The total revenue approach
o The mathematical approach
• Arc elasticity method
• Point elasticity method

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1. Total Revenue Approach
Table 1. Demand schedules with different elasticities.
ELASTIC DEMAND UNITARY DEMAND INELASTIC DEMAND
P Q PQ P Q PQ P Q PQ
10 100 1000 10 90 900 10 100 1000
9 200 1800 9 100 900 9 105 945
8 300 2400 8 112.5 900 8 110 880
2. Mathematical Approach
A. Arc Elasticity Method – elasticity is measured for two points along the demand curve
or supply curve
Q1 – Q2 P1 – P2
Q1 + Q2 P1 + P2
D= ----------------  ------------------
2 2
or
Q1 – Q2 P 1 – P2
D= -----------  ---------------
Q1 + Q2 P1 + P2
Where: Q1 = original quantity

Q2 = quantity after price change
P1 = original price
P2 = the new price
B. Point Elasticity Method- elasticity is measured for a single point on the demand curve
or supply curve
dQX P
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dP Q
Where: Q = equilibrium quantity

P = equilibrium price
Elasticity Value and Description

|ε| = 0 – Perfectly inelastic; the demand curve is vertical and at any price level, the
same quantity will be demanded; % Change in quantity is zero
|ε| < 1 – Inelastic; % change in quantity < % change in price, quantity demanded is
relatively insensitive to price changes
|ε| = 1 – Unitary elastic, % change in quantity = %change in price
|ε| > 1 – Elastic; % change in quantity > % change in Price, quantity demanded is
sensitive to price chance
|ε| = ∞ - Perfectly elastic; demand curve is horizontal; at a given price, quantity
demanded could range from zero to infinity
Own Price Elasticity of Demand/ Supply (εd)

 This refers to the percentage change in quantity demanded or quantity supplied
for every one percent change in own price
Own Price Elasticity of demand= % change in quantity demanded

------------------------------------------
% change in income
Same formula is used for elasticity of supply except that quantity supplied is used
instead of quantity demanded.
Determinants of Own Price Elasticity of Demand

 Availability of good substitute for the good; more substitutes, more elastic
 Number of uses the good can be put into; more uses, more elastic
 The price of the good relative to the consumer’s purchasing power; the higher the
price of the good and if it takes a larger share of the budget, the more likely to be
more elastic
 The time frame under consideration; the longer period of time, the more elastic
 Location along the demand curve; for linear demand curve, the upper half will
give elastic demand; lower half inelastic; at the middle, unitary

page 22
Income Elasticity of Demand ( εy) – this measures the percentage change in demand
for a good for every one percent change in income
% change in expenditure
(a) Income-expenditure elasticity = -------------------------------
% change in income
E2 - E1 Y2 -Y1
= ---------  --------
E2 + E1 Y2 +Y1
where: E = expenditure
Y = income.
% change in quantity demanded

(b) Income-quantity elasticity = ------------------------------------------
% change in income
Q2 - Q1 Y2 -Y1
= --------- --------
Q2 + Q1 Y2 +Y1
where: Q = quantity demanded

Y = income
Interpretation:
 If Income-quality elasticity > 0 or positive, the good is normal, a one percent
increase (decrease) in income will result in a percentage increase (decrease) in the
demand for a good.
o Qualifier: If 0 < income-quality elasticity <1, the good is a necessity
If income-quality elasticity > 1, the good is a luxury item
 If Income-quality elasticity < 0, the good is inferior, a one percent increase
(decrease) in income, will result in a percentage decrease (increase) in the demand
for a good.
Cross Elasticity of Demand (εij)

 should analyze two goods; say goods A and B

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 the cross-price elasticity measures the percentage change in the demand for one
good, say good A, for every one percent change in the price of another good, say
good B
% change in quantity demanded of a given

product
Cross elasticity of demand = ---------------------------------------------------------------
% change in price of another product
QA2 - Q A1
--------------
QA2 + Q A1
= --------------------
PB2 - P B1
--------------
PB2 + P B2
where: QA = quantity demanded of good A

PB= price of alternative product B
Interpretation:
 If Income-quality elasticity > 0, the goods are substitutes
e.g.: Elasticity = 0.80, a one percent increase (decrease) in the price of good a
will result in a 0.80 percent increase (decrease) in the demand for good b.
 If Income-quality elasticity < 0, the goods are complementary
e.g.: Elasticity = -0.75, a one percent increase (decrease) in the price of good a
will result in a 0.75 decrease (increase) in the demand for good b.
Household or Family Size Elasticity of Demand
Household or family % change in expenditure or quantity demanded

size elasticity = ---------------------------------------------------------------
% change in family size
Q2 - Q 1
--------------
Q2 + Q1
= --------------------
H 2 - H1
--------------
H2 + H1
where: H = household size

page 24
Q = quantity demanded
Factors affecting the price elasticity of demand

 Given the demand curve
o Price
o Substitute goods – price of one good and the demand for another good
are positively related
o Complementary goods – price of one good and the demand for another
good are negatively related
o Substitution effect of a price change
 Given different demand curves
o Product characteristics
- Availability of substitutes
- Uses of the commodity
- Length of time product has been marketed
- Quality
- Necessity
- Perishability
- Price
o Consumer characteristics
- Income- high income consumers are more income and price inelastic
- Age- young consumers are price elastic; older consumers are income elastic
- Other tastes and preferences such as sex, religion, etc.
- Characteristics of the marketing system
- Number of consumers or population
- Expectation about the future
Price elasticity of supply

• Measure the responsiveness of quantity supplied to price changes
• Measuring the elasticity of supply:
(Q2 - Q1 )
--------------
Q2 + Q1
S= ----------------
(P2 - P1 )
-------------
(P2 + P1 )

page 25
The equation for point elasticity or that response taken at a specific point on
the supply curve is:
dQ
Q dQ P
S = ----- = ----- ----
dP dP Q
P
• Cases of supply elasticity

o Elastic
o Unitary elastic
o Inelastic
o Perfectly inelastic
Factors affecting elasticity of supply

• Changes in cost incurred by firms when they alter the quantity of their input
• Ease with which resources are shifted from the production of one good to another
• Adjustment time or time it takes the firm to expand or contract
Uses of the Elasticity of Supply

• Describes that a given price change will tend to have greater and greater effect on
quantity supplied in the long run
• Empirical estimates useful to policymakers
o With an elastic supply, a modest reduction in the support price may be sufficient
to solve a surplus problem
Importance of Elasticity
 Price elasticity of demands indicates consumer’s response to changing price
conditions
 Income elasticity is useful in evaluating the effect of changing consumer’s income
 Useful in determining what products may be most profitably advertised, graded,
packaged or may have other additional marketing services
 Government policies aimed at increasing farm prices
Elasticities of Demand and Supply and Tax Incidence

 The tax could be a specific or excise tax or ad valorem tax
page 26
o Specific tax or excise tax – tax per unit of the product
o Ad valorem tax – tax as percentage of the selling price
 Imposition of a tax affects consumption and production
 If demand is downward sloping and supply is upward sloping, the tax is likely to
raise the equilibrium price, but by an amount less than the tax
Sharing the tax

 The issue on who pays the greater portion of the tax depends on the elasticities of
demand and supply
o If demand is more elastic than supply, the greater portion of the tax is likely
to be shouldered more by the producers
o If demand is less elastic than supply, the consumers pay a greater portion of
the tax
o If demand is perfectly inelastic, the consumers pay 100% of the tax.
PRICE
• The amount of money which is needed to acquire in exchange some combined

assortment of a product and its accompanying services
The role of price

• Tells producers what and how much to produce
• Allocates productive resources to the production of goods and services that
consumers demand
• Guides goods through the channels of trade so they end where consumers want
them, when they want them, and in the form where they want hem
• Ration the goods and services to those who demand them most urgently and in
proportions that will all be consumed
Price determination
• In a perfect market, price serves the dual role of
o Informing producer of consumer wants
o Informing consumers of the varying conditions of production
 Price is determined by supply and demand
o Price differential caused by differences in time, location and form of the product.
Demand and supply application

 The instability of farm prices
 Incentives to restrict farm output
 Who benefits from a larger than expected crop?
• Who benefits from cost reducing technologies
• How does export affect food prices?
• What is the effect of food price ceilings and floors?
Price determination in imperfectly competitive markets

page 27
• Monopoly
o Sellers will attempt to set a price that will maximize his profit
o Without regulation from the demand curve where MR = MC
• Monopolistic competition and oligopoly
o MR = MC also applied
o Price competition avoided in monopolistic competition because of threat of
retaliation
o Direct price competition avoided in oligopolistic markets, price leader followed
Price behavior over time

 Fluctuations in market prices occur because of
o Fluctuations in demand
o Fluctuations in supply
o Experimentation in the price discovery process
Types of price fluctuations

1. Seasonal price variation
• These are price fluctuations that tend to follow a more or less uniform pattern
within the year and are observed to conform to this pattern over a period of
years
o Climate and seasonal demand
o Seasonality of production
o Perishability
o Short harvest or marketing season
o Storage, credit and risk charges involved in holding product over time
2. Annual price variation

• Methods of price determination under pure competition can be applied directly
to explain year to year price variation
• Attributable to changes in supply (P, M, COS) and demand (Xd, Ps, N, Y)
• Typically greater for crops without price support
• Yield sensitive to weather and pest and hectarage planted and harvested can be
changed from year to year
3. Trend
• Associated with general inflation and deflation in the economy
• Changes in the taste and preferences of consumers
• Increases in production and income
• Technological change in production
• Distributed lag responses
4. Cyclical price variations

• Prices fluctuate in regular patterns, e.g. livestock production and prices
• Explained by the cobweb model

page 28
o Prices and quantities are viewed as linked recursively in a casual chain
o A high price leads to large production, the large supply results in low prices,
which in turn results in smaller production, and so forth
Factors that would give rise to a cobweb model

• A time lag must exist between the decision to produce and the actual realization
of production
• Producers base their production plan on current or recent prices. Hence,
realized production because of the time lag, is a function of past prices.
• Current prices are mainly a function of current supply, which in turn, is mainly
determined by current production
Consequently, the following chain of events occurs

- Current quantity supplied is a function of past prices, i.e.: Q t=f (Pt-1)
- The quantity produced in time t is sold in time t, Qts=Qtd
- The market clearing price for Qt is determined by the demand relation, P t=F2(Qtd)
5. Random or irregular price movements

• Prices that just happen
• Unexpected and unpredictable price shift caused by unanticipated forces
o Inventions
o Strikes
o Physical destructions from typhoons, floods or earthquakes
Operational Aspects of the Pricing Process

• Mechanism of price discovery
o How prices determined by supply and demand forces actually translated into
transactions and prices in real market situations?
• Categories
1. Individual negotiation-is a simple bargaining process between individual
buyers and sellers for each transaction; implicit procedure of the competitive
market model if there is equal market power and equal information for all
participants; information on general supply and demand condition, prices in
previous transaction and judgments on changes in supply and demand are
important.
2. Organized markets became popular because haggling between buyers

and sellers become too cumbersome, too time consuming and too costly
Types of Organized Markets

a. Commodity Exchanges
• Provide a site for trading to take place under specified rules.
• Types of Trading

page 29
o Spot or Cash market- trading in actual commodities; normally on
the basis of samples
o Future trading- trading in the form of future contracts which
specify the minimum grade or particular grades of a commodity
which must be delivered in fulfillment of the contract at some
future date.
b. Auction Markets
• Used for commodities which are difficult to standardize
• Most widely used where the actual inspection of the product is
desirable to determine its quality
• Prices are determined by progressively bidding for each transaction
made through public outcry.
Terminal Livestock exchanges

• Livestock producers consign their animals to a commission firm at
the terminals
• The commission agents seeks out buyers for the livestock,
negotiates the best possible price, collects payment, deducts
yardage fees and commissions and refunds the remainder to the
seller
• Prices are reported by the exchange and news media
Organized markets provide low cost, impersonal method of pricing which

is not subject to control by either buyers/sellers.
• Price will approximate equilibrium price if:
o Large amount of transactions
o Quality of product is broadly representative of total production
o Large number of buyers and sellers with no single participants
able to manipulate price
o Availability of complete and unbiased information
o No government intervention
3. Administered prices
• Almost exclusively a government function with the following
objectives:
o To provide a floor price so as to minimize price fluctuation when
there is a large crop
o To provide incentives to increase production
o To assure farmers of a fair or equitable price
4. Group or collective bargaining

• Bargaining associations through which farmers can negotiate for
higher prices
• Necessary conditions for effective bargaining
page 30
o Complete control over price so that outsiders cannot offer a lower
price for the product
o Buyers to be few in number
o Inelastic demand is desirable
5. Formula prices
Government and Economic Activity
The Government Budget

 Indicates the public sector’s expenditures and sources of finance
Net Budgetary position

Revenues > expenditures -> budget surplus
Revenues < expenditures -> budget deficit
Revenues = expenditures -> balanced budget
National Government cash budget, 2005-2008

Item 2005 2006 2007 2008
Revenues 816.2 979.6 1,137.00 1,202.00
(Billion PHP)
Expenditures 962.9 1,044.40 1,149.00 1,271.00
(Billion PHP)
Net Budgetary -146.8 -64.8 -12.4 -68.1
Position
Sources of Gov’t revenues 2005-2007 (% share)

Item 2005 2006 2007
Tax Revenue 86.5 87.8 82.1
Taxes on net income and profits 39.6 38.5 37.6
Taxes on property 0.1 0.1 0.1
Taxes on goods and services 22.5 24.2 21.2
Taxes on international trade and 19 20.3 18.5
transaction
Other taxes 5.2 4.7 4.7
Non-tax revenue 13.5 12.2 17.9
Allocation of government expenditures 2006-2008

Item 2006 2007 2008
Social Services 27 27.7 30.8
Economic Services 21.2 25.4 24.4
Defense 4.9 5.4 5
General Public Services 17.1 17.5 16.9
Net Landing 0 0.8 1

page 31
Debt Service 29.7 23.2 22
Proposed 2011 Budget

 2011 Old Budget (GMA): PHP 1.75 T
 2011 Budget: PHP 1.645 (8% increase from PHP 1.54 T Budget of 2010)
 Budget cuts:
o No new Vehicle
o No new infrastructure (classrooms exempted)
o No new positions (Public school teachers, uniformed personnel, medical pax
exempted)
o Borrowings limited to domestic sources
 Projected 2011 Revenues and Target Deficit
o BIR and BOC revenues = PHP 1.4T (8.9% increase)
o Target budget deficit (BD) = PHP 290 B or 3.2% of GDP (lower than 2009 and
2010 BD)
o Allocations for conditional cash transfers: PHP 21 B (>PHP 10B from
previous)
 Beneficiaries: 2.3 M poor HH vs. 1M HH before
Government and National Income: The Three Sector Model

(Households, Firms and Government)
Revisions to the Income Determination Model

 Disposable Income (YD) – income that households are free to spend and save.
 YD = Y-T; where Y – income and T – Taxes
 Aside: for convenience, net transfers to households=0
 Consumption now depends on disposable income
_
C = C + m p c . Y D , or
_ _
C = C + m p c . ( Y - T)
The equation above implies that:

 When T increases, C decreases
 Y= C+S is now replaced by YD = C+S
 In a three-sector model, AE = C + I + G
 Thus, in equilibrium: Y = C + I + G
Where:
C = Consumption
mpc = marginal propensity to consume
AE = Aggregate Expenditure
Y = Income
T = Taxes

page 32
S = Private Savings
I = Investment
G = Government spending
Derivation of Equilibrium Income: Three Sector Economy

Assume: _
Lump sum taxes (T = T) ; T = 100
_
G is autonomous (G = G) ; G = 200
Income and Aggregate Expenditure
Y T YD C I G AE=C+I+G
1100 100 1000 950 100 200 1250
1300 100 1200 1100 100 200 1400
1500 100 1400 1250 100 200 1550
1700 100 1600 1400 100 200 1700
1900 100 1800 1550 100 200 1850
2100 100 2000 1700 100 200 2000
Alternative Equilibrium Condition: 3-Sector Model

 Equilibrium condition: Y = AE
 Equilibrium income is at Y = 1,700
 Alternative equilibrium condition: S + T = I + G
 To illustrate, above values suggest that:
o I = 100, T = 100, G = 200
 In equilibrium,
o S = YD – C = 1600 – 1400 = 200
o I + G = 300 = S + T
Algebraic Treatment
_ _ _ _
C= C + m p c . ( Y - T); I = I ; G = G
Y = AE = C + I + G leads to:
_ _ _ _
Y = C + m p c . ( Y - T) + I + G
Solving for Y*, we now have:

_ _ _ _
Y* = (C + I + G - m p c . T) . α ; α = ______1_______
1 – mpc
In example:
C = 200 + 0.75 (Y – T)
I = 100
T = 100
page 33
G = 200
Thus, equilibrium income is:

Y* = (200 +100 + 200 -0.75 . 100) . ______1_______ = 1,700
1 – 0.75
Government spending and equilibrium income

 Increase in G -> Increase in AE -> Increase in Y*
Income taxes and equilibrium income

 Increase in T -> Decrease in C -> Decrease in AE -> Decrease in Y*
Government in the Macroeconomy
Expenditure and Tax Multipliers

 Expenditure Multiplier (αI, αG)
α = ______1_______
1 – mpc
 Tax Multiplier
αT = ___-mpc_____
1 – mpc
 Balanced budget multiplier

αBB = αG,I + αT
= ______1_______ + ___-mpc_____
1 – mpc 1 – mpc
= 1 – mpc____
1 – mpc
= 1 ; ∆Y* = (∆G – ∆T) . αBB
Fiscal Policy
 Fiscal Policy – a collective term that refers to the use of taxation and government
spending to influence the level of income
o Expansionary fiscal policy – spending and taxation aimed at
increasing income
e.g., Increase in G or Decrease in T

page 34
o Contractionary fiscal policy – spending and taxation aimed at
decreasing income
e.g., Decrease in G or Increase in T
Deflationary Gap
 Full employment level of income or output (Yf)
o Level of income wherein the economy’s resources are fully utilized
o Note: Y* not always equal to Yf
 Deflationary Gap = when AE < Y* at Yf
o Note: with deflationary gap, Y* < Yf -> unemployment
o To close the gap, AE must increase such that Y*= Yf
o Expansionary fiscal policy is required to make the AE shift up
Closing a Deflationary Gap: Using G

 If Yf = 2000, a deflationary gap exists since Y* < Yf
 To close gap, use expansionary fiscal policy, e.g. Increase in G
 Let:
C = 200 + 0.75 (Y-T)
I = 100
T = 100
G = 200
Y* = 1,700
αG = 4
αT = -3
GapG = (Yf-Y*)/ αG
= (2000- 1,700)/4
= 75
Then, G should increase by 75 so that Y* = Yf
Closing a Deflationary Gap: Using T

 If Yf = 2000, a deflationary gap exists since Y* < Yf
 To close gap, use expansionary fiscal policy, e.g. Decrease in T
 Let:
C = 200 + 0.75 (Y-T)
I = 100
T = 100
G = 200
Y* = 1,700
αG = 4
αT = -3
GapG = (Yf-Y*)/ αT
= (2000- 1,700)/-3
page 35
= -100
Then, T should decrease by 100 so that Y* = Yf
Inflationary Gap
 When AE > Y at Yf
o There is pressure for an increase in the general price because it is not
possible to produce beyond Yf
o To close the gap, can use the contractionary fiscal policy to shift the AE
schedule down
Closing an Inflationary Gap: Using T
 If Yf = 1,500, an inflationary gap exists since Y* > Yf
 To close gap, use contractionary fiscal policy, e.g. Increase in T
 Let:
C = 200 + 0.75 (Y-T)
I = 100
T = 100
G = 200
Y* = 1,700
αG = 4
αT = -3
GapT = (Yf-Y*)/ αT
= (1,500- 1,700)/-3
= 66.67
Then, T should increase by 66.67 so that Y* = Yf
Marketing Channels
• An inter-organizational system made up of a set of interdependent agencies and

institutions involved in the task of moving products from the point of production to
the point of consumption
• A fairly well established channel must be available to enable consumers to secure
the products they demand
• Product delivery
Nature of marketing channels

• Vary according to the type of commodity handled, time and location
Producer ->Retailer ->Consumer
• Does the entry of other middlemen into this system incite competition or
cooperative relationship among channel members?
To ensure viability of the channel system

page 36
• Mutual understanding of channel members on:
o Type of channel served
o Territory served
o Functions or activities performed
• Follow explicit rules to ensure the viability of the system (functions of payment
delivery, standardization, etc.)
Emergence of marketing channels

• Product delivery is the major factor for emergence
• Economic reasons
o Increasing the efficiency of the process
o Adjusting the discrepancy of assortments
o Organization of transactions
o Facilitation of the sorting and searching process
Structure of marketing channels

• Determined by the performance of the various marketing functions given in terms of
service output
• Service output
o Market decentralization
o Lot size
o Delivery time
o Product variety
Choice of marketing channel

• Choosing the most efficient channel at the lowest cost is influenced by the:
o Nature of the product
 Perishability
 Unit Value
 Newness of the product in the market
o Nature of the market
 Consumer buying habits
 Size of the average sale
 Total sales volume
 Concentration of the purchases
 Seasonality of sales
Final consideration in choice of channel

• Must consider
o Cost involved in using each channel
o Investment required
o Potential net profit from sales
• Use traditional channels of distribution OR
• Direct selling

page 37
Marketing Channel vs. Supply Chain
 Marketing Channel- connect the market to the target buyers
 Supply Chain- describes the longer channel; sometimes called “value chain”;
interconnected set of linkages between suppliers of materials & services that spans
the transformation process that converts ideas and raw materials into finished
products and services it also represents; a value delivery system.
Marketing Margins
• Refers to the difference between prices at different levels of the marketing system
• The difference between what the consumers pay and what the producers receive for
their agricultural products
• Price spread (Pr- Pf)
o e.g. The price difference between the wholesale price and the farm price or
the Wholesale-Farm marketing Margin
The difference between the retail (Consumer price) and the farm price
or Retail-farm margin or price spread.
Components of the marketing margins

- Gross Marketing Margin – consists of marketing cost and net marketing margin
(Profit) or return to capital used in marketing
- Net margins are gross margins less marketing costs.
Thus, the size of the marketing margin depends on the
magnitude of the marketing costs and amount of profit.
• Marketing costs
o Returns to the factors of production used in providing the processing and
marketing services rendered between the farmers and consumers
o Types of costs:
 Variable Costs
 Handling Costs
 Packaging materials
 Fuel and Oil
 Toll fee and parking fees
 Losses due to spoilage, shrinkage, etc.
 Fixed costs
 Taxes and Insurance
 Rental or stall
 Fixed salary of workers
 Depreciation of facilities and equipment
 Interest on Loans
• Marketing charges
page 38
o Returns according to the various agencies or institution involved in the
marketing of products
o Net return or profit component
Types of marketing margins

 Absolute constant margin
o The absolute peso difference between prices at various market levels (P s - Pb)
• Percentage margin
o The absolute difference in price divided by the selling price (Ps – Pb/Ps x 100)
o Percentage mark-up (absolute margin divided by the buying price (P s – Pb/Pbx 100)
o Combination of fixed/constant and percentage margins
Breakdown of the consumer's peso
• A series of figures representing the absolute margins of different types of
middlemen assignable to different marketing functions divided by the retail price
Ways of estimating margins

• Selecting specific loads of a given commodity and tracing them through the
marketing system
o No assurance of the representativeness of the product that pass through
different channels
o Some products lose their identity when processed and it would be difficult to
assign to individual lots of the raw materials, portions of the varying returns on
the finished products made from them
• Comparing prices at different levels of marketing

o Price quotations used may not be representative of the general level of prices
they are supposed to represent
o Prices used may not cover products of comparable description or quality
o Processing and handling involve ,waste and spoilage thus adjustment has to be
made for any by-product content
o Time lag between the marketing operations
• Gross sales less purchases divided by the number of units handled

o Necessitates adjustment for differences between quantities purchased and sold
because of waste and other losses in product handling
Marketing efficiency
• Maximization of the output-input ratio
o Output - consumer's satisfaction derived from the goods and services made
available in the market
o Input - various resources of land, labor, capital and management used in moving
the products from the point of production to the point of consumption
• A more efficient marketing system provides goods and services at a lower cost or
better services or products at existing costs

page 39
Types of marketing efficiency
• Operational/Technological efficiency
o Focuses more on reducing the cost of inputs assuming that the essential nature
of output of goods and services remain constant
• Pricing/Economic efficiency
o Concerned with improving the buying, selling and pricing aspects of the
marketing process so that it will remain responsive to consumer direction
o A direct response of price to changing market conditions
Measuring market efficiency

1. Evaluation of marketing margins and costs
2. Input-output measurement
3. Evaluation of product loss and waste in the market
4. Load factor efficiency
Areas where efficiency may be developed

• Elaborate and comprehensively organized marketing system
• Volume of business
• Improved physical handling
• Location of the business
o Types of plant
 Material-oriented- losses weight in processing
 Material-oriented- gains weight in processing
 Foot loose
• Changes in marketing methods
• Integration of marketing agencies
Integration
• Vertical Integration - one concern handles the product through two or more steps in
processing or marketing
• Horizontal integration - one organization controls a number of several units of
business
• Forward integration - relationship with the outlets
• Backward integration - relationship with the suppliers
Marketing Plan
 Marketing plan is a guide that allows the farmer to study the consumers’ needs and
preferences in advance before production is carried on.
 It consists of the courses of action that the farm manager should do to make sure
that the products that will be produced can be sold at remunerative price

page 40
Marketing Functions
Transportation - place dimension of marketing

• Major purpose is to make food products useful by transporting them from the farm
or processor to the consumer
• Primary concerns are
o The cost and
o Time it takes to move them from the farm to the processing and consuming
centers
Effects of transportation cost

1. Location of production centers
 Location differentials by the lowest cost means of transportation in competitive
markets
o If truck transport is cheapest it will determine location differential
 Trucks are cheapest for supplies nearest the market
o If rail costs are least expensive it will determine location differential
 The cheapest for most distant supplies
 Production is not undertaken if transport cost exceeds market price less
production costs
2. The market area served by a particular producing area

 Single consuming center for a farm product
o Pf=Pm-T=Pm-f(D)
 Where:
 Pf=site price
 Pm= price at the market center
 T= farm-to-market transport cost
 D= distance
What if the site prices are the same regardless of where they sell their produce?
o Free choice principle: Law of market area
o The boundary between the markets is the locus of points so situated that the
site prices for shipments made to the competing markets are equal
o Pa-ta=Pb-tb
It can be restated as:

o The boundary between two markets is the locus of points for which the
difference in transfer cost to each market is a constant and is equal to the
given difference in market prices
o Pa - Pb= ta–tb
o Where
 P = market price
 t = farm to market transfer cost

page 41
The boundary between the markets will shift if:
o Price rises in one market relative to the other
o If transport costs change
o Differential rates of growth in population or income
o Introduction of a more efficient processing system
3. Form of product marketed

o Transportation cost may be altered by a change in the form of the product
marketed
o e.g. if it costs more to transport corn than hogs, corn will be fed and marketed
in the form of hogs
o Transport costs does not only determine the location differentials for the
processed products but also the location of the processing industry
4. Size and quality of the product marketed
SIZE QUALITY
Good Medium Poor
Large P 1.80 P 1.50 P 1.30
Medium P 1.50 P 1.30 P 1.20
Small P 1.30 P 1.20 P 0.90
5. The kind and type of transportation service used
Who pays the transport cost?

• Short run - most changes in transportation cost will be borne by the producers
• Long run - consumers to bear any increase in transportation cost
Storage-time dimension of marketing

• Objective of storage - to balance S & D
o Seasonal nature of production
o Demand for the different products throughout the year
o Time required to perform the various marketing services - pipeline of product
o The need to have a carry-over into the following year
Types of storage operations

• One that equalizes seasonal production to the pattern of demand
• The storage at all times within trade channels
o Necessary to keep the marketing system operating without interruption
Extent of storage
• Most important for crops that are harvested and marketed within a short time.

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• Less important for products marketed throughout the year and are more plentiful at
certain times than at other times.
• Least important for products marketed in relatively uniform quantities throughout
the year.
Cost of storage
1. Provision and maintenance of the physical facilities for storage and for moving
products into and out of storage
• repairs, depreciation, insurance, handling fee electricity
2. Interest on the amount of capital invested in stored products.
3. Costs of quality deterioration, shrinkage, insect and rodent damage, etc.
How to approximate storage cost

• Through seasonal change in prices
• P>Costs - heavier storage is encouraged
• P<Costs - fewer stocks are stored
Risks in Storage
• Risks of physical loss
o Loss from fire, theft and natural causes
o Natural product deterioration, insect and pest damage
• Market risk due to price changes
Time of storage - size and nature of the crop

• Demand should be inelastic
• Store perishable price - inelastic products when there is a short crop than when
there is a heavy crop
• Store grain products which are used mainly for feed, when there is a large crop
Grading and Standardization
• Grading- sorting of products into lots or units according to one or more of their
quality attributes such as: size, weight, shape, color, odor, length, diameter, strength,
density, texture, uniformity and contents of various elements such as moisture and
foreign materials, and physical damage.
• Standardization- practice of making the quality specification of grades uniform
among buyers and sellers and from place to place and time to time.
Advantages of uniform product grading

1. Pricing efficiency
a. Increase meaningfulness of price quotations as reported in market rows
b. Increase precision of the price formation process through greater knowledge
c. Increase the level of competition in the market
d. It permits more systematic allocation of the available suppliers of a commodity
to the different demands in the market.

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e. It facilitates the collection of reliable information on demands, supplies and
prices.
2. Operational efficiency
a. Limits the time and expense of bargaining about quality as well as price in each
transaction.
b. Increases the ability and potential to buy and sell on the basis of description
alone rather than only after personal inspection
c. Encourage the specialization of marketing functions.
d. May reduce expensive advertising and promotion based on unimportant or
nonexistent quality characteristics.
Problems in developing and using grades

1. Number of grades of classes
2. Grade terminology
3. Quality deterioration
4. Relevant quality characteristics
Promotions Mix
1. Advertising- to effectively inform and persuade target market
2. Public relations- to offer a positive image of the company and the brand
3. Selling- to get the customers to buy
4. Sales promotions- to convince customers to buy immediately
Trade Promotions- designed to convince trade channels like retailers and wholesalers
to buy immediately, or to buy more than their usual quantity.
 Cooperative advertising
 Cooperative promotions
 Discounts and terms
 Display allowance
 Free products
 Trade contest
 Rebates/rewards
 Push pin money
 Personality
 Exhibits and related events
 Conferences/trainings
Consumer promotions- designed to convince end-users to buy immediately or to buy

more than their usual quantity.
 Sampling
 Coupons
 Price off
 Rebates
 Bonus packs
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 Sample packs
 Special packs premiums
 Self-liquidating promotions
 Free trial
 Warranty
 Prizes
 Patronage reward
 Contests
 Personality
Advertising
• Purposes of advertising farm products
o To inform consumer what is available for purchase
o To change the demand for the product
Demand may be changed through advertising
• Increasing demand
o Customers buying product at the same or higher price
o Customers paying a higher price for the same or larger quantity of products
o Decreasing the price elasticity of demand
 Product differentiation
• Increasing the price elasticity of demand
Problems in advertising food products

• Difficulty in recognizing the basic food product that have undergone processing
• Wide variation in quality - uniform quality at all levels
• Perishability - difficulty of standardizing and marketing large volumes of uniform
products
Problems in advertising
• Inelastic demand for most products
• Food products already consumed in volume and not many people are interested in
eating more of the same items
• Competition among food products is primarily in price, not in emotional or other
appeals
• Difficulty of getting funds for advertising
Criteria for effectively advertising farm products

• Products should be highly differentiated with substitutes
• Production and marketing of the product should be in the hands of organized group
of our farmers

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• Advertising must be closely coordinated with other marketing activities - quality
control, flow of supplies, prices, product development, point of purchase materials
• Need for substantial amount of money
Market Intelligence
 the job of collecting, interpreting and disseminating the large variety of data which
are necessary to the smooth operation of the marketing processes.
Market information
• Provided to producers and those involved in marketing agricultural products so that
all will be informed of market conditions and prices
o Consumers want to pay the lowest possible price for the product they purchase
o Farmers want to receive the highest possible price from the sale of their product
o Marketing individuals and/or institutions (wholesalers, feed millers, starch
manufacturers, retailers, etc.) want to earn money from the services or functions
they perform
• Organizing data effectively means considering the risks that the lack of information
brings and considering the timing and costs of acquiring that information
Basic questions in organizing data

• When - How frequent are the data needed for timeliness?
• Where - Source of information, centers of trade, origin and destination of trade
• How - How to organize for market intelligence? How are the data derived?
• What - Supply and demand, prices, units, product form
• Who - Who supplies the data from, whose point of view
• Why - purchasing investment
• Policy planning
Sources of data
• Primary Data
o Industry participants
o Participant in related industries
o Suppliers to the industry
o Industry observers and analysts
 Be prepared to share the information
 Must be done prior to research
• Secondary Data
Demand analysis
• Basis for demand
o Historical data
o Coverage (inclusion/exclusions)
 Unusual events
 Downturn or upturn
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 Circumstances covering historical data
• Derived demand
• Direct estimate of potential markets
• Demand centers
Supply analysis
• Basis for supply
o Supply centers
o Suppliers in the industry
o Production capacity of the suppliers in the industry inventory levels
 Storage capacity of buyers
 Storage capacity of sellers
Other aspects of marketing intelligence

• Geographic flow of trade
o Centers of trade
o Origin of trade
o Destination of trade
• Forms of the products

• Raw, bundled, stored, packaged lot size
• Processed - liquid, solid, grains
• Losses due to wastage in process, transport
• Standard and grades of the product
• Transport and freight considerations
• Freight costs
• Mode of transport and cargo handling, travel time
• Market specifics
• Purchase cycle
• End user purchase behavior
•
PRODUCT
• Anything that can be offered to the market for attention, acquisition, use or
consumption that satisfies a want or need
• Product classifications
• Consumption and tangibility
• Effort and risk
• Levels of a product
Product (via consumption and tangibility)

• Durables - have a long interval between repeat purchases
• Examples: floor polishers, cars, TV sets
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• Non-durables - have stronger repeat purchase
• Examples – detergents, ice cream, cassette tapes
• Services - are essentially intangible because there are no physical products
involved;does not result in ownership
• Examples: auto service center, beauty parlor
Effort and risk (consumer satisfaction=benefit - cost)

• The Cost
• Effort - the amount of money, time and energy the buyer is willing to spend to
purchase a given product
• Risk - the buyer's subjective feeling about the consequences of making a
purchasing mistake
Type of product using effort and risk

1. Convenience products
• Lowest risk and lowest effort products
• None or very small decision making is made before buying the products
• Consumers will not spend a lot of time and money in buying
• No perceived high levels of risk in decision making
Types of convenience products:

o Usually bought frequently, immediately and with a minimum of
comparison and buying effort
o Staple goods - rice, sugar
o Impulse goods - candies, snack food
2. Shopping products
 Products which consumers feel are worth the time and effort to compare with
other competing products
 Type of consumer goods that the customer in the process of selection and
purchase characteristically compares on such basis as quality, suitability, price
and style
o Example: furniture, clothing, used cars, major appliances
3. Preference products
 The distinction between convenience and preference products is mainly the
perceived risk of consumers (branding and advertising)
 Strategy is to minimize risk
o Example: known brands like Colgate, Close-Up or Aqua Fresh are perceived
to be less risky than buying unknown brands
o Serving cheap beer instead of San Miguel may lead to ridicules by the guests
4. Specialty products
 A consumer product with unique characteristics or brand identification for
which a significant group of buyers is willing to make a special purchase effort
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 Customized, with no substitutes, with highest level of risk and effort in buying
o e.g. Rolls Royce, custom made suits, photographic equipment, painting by
Legaspi and Amorsolo
Three levels of products

1. Core product - the problem solving benefits that consumers are really buying
 The generic benefit each product gives
o e.g. AMC cookware - better health
o Sun Life of Canada - financial security against uncertainty of death
2. Augmented product - the offering of additional services and benefits such as
warranty and parts, toll free telephone numbers to call if customers have problems
or questions
 The "extras" built-in to the formal product
o AMC cookware - credit availability, lifetime warranty, free cooking lessons,
free delivery, home demo service
3. Formal product - refers to the products parts, quality level, features, design, brand
name, packaging and other attributes that combine to deliver the core product
benefits
• The physical or tangible product
o AMC cookware - a multi system cookware
Quality
• The ability of the product to perform its functions
• Conforming to customer's specifications, measured through consumer satisfaction
and not self gratification
• Depends on the consumer's, not the firm’s assessment of competing products
Quality can be achieved by:

• Delivering the right product
• Satisfying customer's needs
• Meeting customer expectations
• Treating every customer with integrity, respect and courtesy
Attributes that signal quality

• Intrinsic cues - involve the physical composition of the product such as flavor, color
and sweetness in an orange drink
• Extrinsic cues - are product related but not part of the physical product itself such as
brand name, price warranty, product form and level of advertising
Product quality covers

• Durability and reliability
• Precision
• Care of operation and repair
ISO 9000
page 49
• A series of quality management and assurance standards which define the elements
required to achieve a quality system regardless of the product manufactured or the
technology used
• Enables a company to establish its reliability as a supplier that conforms with
international standards
ISO certification
• Valid only for the plant that was assessed; other plants assessed separately
• Bureau of Product Standards does the inspection and certification if companies are
conforming to quality standards
• Observations on how records are filed and management review of internal audit
system (financial, production process and quality system)
Brand
• A name, term, sign, symbol or design or a combination intended to identify the
goods or services of one seller or group or sellers and to differentiate them from
competitors
Packaging
• The activities of designing and producing the container wrapper for a product
Label
• A part of a package that identifies the product or brand; who made it, where it was
made, its content, how to use it, etc.
Sustainable development
• Development which meets the needs of the present without compromising the
ability of future generations to meet their own needs
• Improving the quality of life for all the earth’s citizens without increasing the use of
natural resources beyond the capacity of the environment to supply
Intensive Agriculture
• System of cultivation using large amounts of labor and capital in relation to land
area
Extensive Agriculture
• Using small amount of labor and capital in relation to land area being farmed
Economic Growth
• The steady process by which the productive capacity of the economy is increased
over time to bring about rising levels of national income
• Emphasis is now shifting to problems of income inequality, poverty and
unemployment

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Economic Development
• The process of improving the quality of human lives
• Has three equally important aspects:
o Raising the people’s living level-i.e. their incomes and consumption level of food,
medical services, education, etc. through relevant economic growth processes.
o Creating conditions conducive to the growth of people’s self-esteem through the
establishment of social, political and economic systems and institutions which
promote human dignity and respect.
o Increasing people’s freedom to choose by enlarging the range of their choice
variables- e.g. increasing varieties of consumer goods and services.
Agricultural Policies and Program and Some Concepts related to Agriculture
Agriculture
 Cultivation of the planting of crops, growing of fruit trees, and raising of livestock,
poultry, and fish
Sustainable Agriculture
 An integrated system of plant and animal production practices having site-specific
application that will, over the long term
o Satisfy human food and fiber needs
o Enhance environmental quality and natural resource base
o Make efficient use of non-renewable resources
 Utilize natural biological cycles and controls
 Improve the economic viability of farming systems
 Enhance the quality of life of farmers and society as a whole
 It is the successful management of resources for agriculture to satisfy changing
human needs while maintaining or enhancing the quality of the environment and
conserving natural resources
 It encompasses the elements of productivity, profitability, conservation, health,
safety, and the environment.
 Basic values:
o Ecologically sound
 Environmental integrity
 Based on agro-ecological principles
o Economically viable
 Food security
 Technically sound
o Socially just and humane
 Empower rural poor
 Social equity
 Healthy and safe for the people
Sustainable Development
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 It is satisfying of the needs of the current generation, without making it impossible
for future generations to meet their own needs.
 Can only be promoted by balancing the potential production capacity of the
changing ecosystem with the scale of population and population growth rates.
 Sustainability referred to is the ability to sustain the environmental resources that
support our lives and the sustainability that makes future economic growth
possible.
Types of Agriculture
 Intensive agriculture – type of farming which uses more labor and capital including
material inputs (e.g. fertilizer) per unit of land
o Mostly practiced in small farms
(e.g., Japan, Taiwan, Philippines)
 Extensive agriculture – type of farming which uses less labor per unit of land, but
uses specialized farm machinery/equipment to attain economies of scale in large
farms.
Law of Comparative Advantage

 States that a good will be produced in that country where its cost is least in terms of
the other goods that it might be produced with the same resources.
 The idea of comparative advantage is the basis for economic specialization
Agricultural Policies and Programs
Republic Act 10068 (Organic Agriculture Act of 2010)

“To promote, propagate, develop further and implement the practice of organic
agriculture in the Philippines that will cumulatively condition and enrich the fertility of the
soil, increase farm productivity, reduce pollution and destruction of the environment,
prevent the depletion of natural resources, further protect the health of farmers,
consumers and the general public, and save on imported farm inputs.”
“Towards this end, a comprehensive program for the promotion of community-

based organic fertilizers such as compost, pesticides, and other farm inputs, together with a
nationwide educational and promotional campaign for the use and processing, as well as
the adoption of organic agricultural system as a viable alternative shall be undertaken.”
 The state recognizes and supports the central role of the farmers, indigenous
peoples and other stakeholders at the grassroots of the program
Rule 2.1. Organic agricultural systems further promote the development of related
community-based industries, namely organic agriculture, prime habitat, eco-
tourism. These communities provide clean, safe, nutritious and sufficient food,
water, air and health conducive environments. Organic agriculture enhances food
sovereignty and substantially contributes to food security.

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Rule 2.2. Organic agricultural systems, in its goal to reduce pollution and
destruction of the environment and prevent the depletion of natural resources, shall
endeavor to promote the low carbon development path and its strategies and
achieve risk reduction due to anthropogenic factors and naturally induced hazards.
Rule 2.3. The state shall also recognize the importance of consumers and other
stakeholders at the grassroots level.
High Value Crops Law (R.A. 7900)

 The passage of the High Value Crops Law intends to encourage farmers to shift from
low value, marginal crops like coconut and corn to profitable crops like asparagus,
mangoes, cutflowers, etc.
 Earning much higher levels of income, the farmers would eventually spend more for
goods produced by local industries
 The High Value Crops Development Act was operationalized through the Gintong
Ani for High Value Commercial Crops program of the Department of Agriculture.
The program was built on a policy and strategy framework that has the following
features:
o Market-led
o Sector-led
o Advanced and Sustainable Technology-based
o Minimal government subsidies
o Liberalized Trade Policy Couples with Progressive Safety Net Measures
o Transparency in Program Implementation and Transaction
o Broad-Based Private Sector Participation
o Cost-sharing
o Agribusiness Orientation
o Linkages
Irrigation Policies
Irrigation Act (Act 2152)

 Passed on February 6, 1912 to regulate appropriations and authorize the Bureau of
Public Works to manage system it had built and allowed it to collect irrigation fees.
Republic Act 3601

 R.A. 3601 is an act creating the National Irrigation Administration
 This law passed on June 22, 1963
Executive Order 98
 Dated September 15, 1964, called for the implementation of the R.A. 3601
 The NIA was established as semi-autonomous agency under the then Department of
Public Works, Transportation and Communication

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 The NIA took over the staff and functions of the Irrigation Division
 Among the NIA’s specific objectives:
o To investigate, study, and develop all available water resources primarily for
irrigation; and
o To collect from the users of irrigation systems built by NIA such as fees for
operation and maintenance
o Today, the NIA provides services to the three types of irrigation systems:
 National
 Communal
 Private
Presidential Decree (PD) 552 and Presidential Decree (PD) 1702

 Presidential Decree (PD) 552 in 1974mand PD 1702 in 1980 amended RA 3601 to
broaden its powers to include the responsibility of:
o Constructing, improving, rehabilitating, and administering all national
irrigation systems in the Philippines including all communal and pump
irrigation projects
o Increase its capitalization
o Grant certain flexibilities to enhance its operation as a corporate entity.
 These laws reflect the government policy on assistance to communal irrigation
systems and provide construction support in the form of interest-free loans, payable
in 50 years
 The policy also required that irrigators’ associations provide a contribution, or
equity, to system construction costs.
R.A. 6978
 An Act to Promote Rural Development by Providing for an Accelerated Program
within a 10-year Period for the Construction of Irrigation Projects, was passed into
law.
Administrative Order (AO) No. 17

 Passed in 1998; provides for the adoption of a socialized irrigation fee, communal
irrigation systems (CIS) amortization rates, and other urgent interim measures to
cushion the effects of El Nino and the Asian Currency Crisis in the agricultural
sector, particularly to benefit irrigation farmer-beneficiaries
House Bill No. 01095

 Provides for the rehabilitation and improvement of all irrigation facilities
throughout the country amending for the purpose Republic Act No. 6978, entitled
an “Act to promote rural development by providing for an accelerated program
within a 10-year period for the construction of irrigation projects.”
Pest Control Laws and Policies

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Presidential Decree (PD) No. 1144
 Created the Fertilizer and Pesticide Authority (FPA) on May 30, 1977
 Established as a technically oriented agency mandated to regulate and ensure
safety in the manufacture, formulation, importation, distribution, storage, sale,
transport, use, disposal of pesticides and fertilizer to support the food security
program of the country as well as develop both fertilizer and pesticide industries
Section 9 of PD 144 and Article II, Sec. 1 of FPA Rules and Regulations No. 1, Series of 1977
 Stipulates that all pesticides intended for commercial use in the Philippines shall be
registered with the FPA.
 Separate registration shall be required for each active ingredient, brand,
formulation of pesticide.
PD 218
 Stipulates that foreign suppliers of pesticides or companies registered under the
SEC as regional liaison offices are not allowed to register pesticide products
 In practice, the applicant or registrant shall be the distributor or the local subsidiary
of a foreign-based pesticide company.
Article V of the FPA Rules and Regulations No. 1, Series of 1977, in particular Sections 1, 4,
6, and 8
 Describe the basic requirements for a pesticide label including the prescribed
statements, language, FPA control number, precautionary measures, and others
Pesticide Circular 04, Series of 1989

 Banned 24 pesticide products and ordered 20 products for restricted or
institutional use only.
FPA Board Resolution 1

 Dated September 1993, banned and restricted five chemicals: 1) organotin
compounds, 2) azinphos ethyl, 3) methyl parathion, 4) endosulfan, and 5)
monocrotophos
 In this board resolution, the FPA launched the National Retrieval Drive under which
a stock inventory of all banned and restricted pesticides is conducted
National Safety Program

 National Safety Program, which the FPA has implemented since 1980 aims to
institutionalize the safe use and handling of pesticides and to reduce the incidence
of pesticide poisoning in coordination with the DA, DOH-National Poison Control
Information Service, DENR, and CPAP.
National Clean-Up Drive

 Designed to monitor establishments selling fertilizers and pesticides
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 Aims at disseminating information nationwide to create community awareness on
FPA programs, thrusts, powers, and functions. Inspection ascertains whether or not
the establishments are selling fertilizers and pesticides with proper licenses.
FPA Board Resolution 1, Series of 1993

 Pursuant to the resolution, the FPA launched the National Retrieval Drive under
which a stock inventory of all banned and restricted pesticides is conducted.
IPM or Kasakalikasan Program

 The FPA supports the promotion of the safe and judicious use of pesticides
consistent with the IPM Concept and the FAO code of Conduct rather than the total
elimination of pesticides for agriculture and public health use.
Biosafety Policies
EO 430
 Established the National Committee on Bio-safety of the Philippines (NBCP)
 Responsible for formulating a national safety mechanism
 The committee is empowered to regulate the entry, propagation, use and
movement of introduced as well as genetically-modified organisms (GMOs) to
protect local biological resources, environment and human health, conduct risk
assessments, and monitor all on-going and proposed initiatives involving the use of
GMOs.
 Biosafety Guidelines – involve works related to genetic engineering, activities,
required for the importation, introduction, field release, and breeding of organisms
that may be potentially harmful to people and the environment
Republic Act 8293 or the Intellectual Property Rights (IPR) Code of the Philippines
 Is basically a consolidation and update of all existing laws of IPR.
 It governs the protection of intellectual creations in the country
 Section 22.4 of the IPR Code
o Deals with patentability of lifeforms; states that plant varieties or animal
breeds or essentially biological processes for the production of plants and
animals are excluded from patent protection, but extends such protection to
microorganisms and non-biological and microbiological processes.
Crop Insurance Laws
Presidential Decree No. 1467

 Decree creating the Philippine Crop Insurance Corporation (PCIC), which was
signed into law on June 11, 1978, however, it was only launched in May 7, 1981
 Only rice and corn were covered by crop insurance
 Three ways by which farmers can be eligible for the insurance:
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o If farmers borrow production loans from any PCIC accredited lending
institution, they will be automatically given the standard cover, except when
they are employees or a sponsor of an employee of PCIC
o For self-financed farmers to agree to place themselves under the technical
supervision of a PCIC-accredited agricultural production technician
o For the farmers’ organizations in which they are members to join and qualify
under the Group Crop Insurance Scheme of PCIC
 A farm to be covered by crop insurance must pass certain requirements:
o The farm must be at least 200 meters away from the nearest uncultivated
areas, marshlands, shorelines, riverbeds, lakebeds, and fishponds
o The farm must have an effective irrigation and drainage system
o The farm must be accessible to regular means of transportation
o The farm must have the right zinc content or if a farm is deficient in zinc, the
required amount of zinc compound must be applied
Republic Act 8175

 This RA amended PD 1467. It increased the amount of capitalization of PCIC from
P750M to P2B and expanded its coverage from traditional crops (rice and corn) to
livestock (cattle, carabao, swine, goat, and poultry), fisheries, high-value crops
(coconut, sweet potato, banana, pineapple, tomato, rubber, sugarcane, gmelina,
cassava, cotton, falcate, garlic, onion, peanut, mango, abaca, asparagus, soybeans,
tobacco, rice seed production, and potato), non-agricultural assets (machinery,
equipment, transport, postharvest facilities, and other related agri-infrastructure)
and insurance of farmers themselves (hospitalization, personal accident, and funeral
benefit).
 It states that “it will be a policy of the state to develop and support an adequate
agricultural insurance program as a mechanism for managing risk inherent in
agriculture and stabilizing the financial fluctuations suffered by agricultural
producers in case of loss of crops including agricultural facilities and related
infrastructures, with the end view of encouraging lending institutions to extend
credit to the agricultural sector.”
Magna Carta for Small Farers or R.A. 7607

 Involves the adoption of a national policy and guidelines that will address the
concerns of one of the most marginalized sectors of society
Fisheries
Fisheries Code (RA 8550)

 Codifies all fishery laws and aims to promote maximum sustainable yield and
ensure ecological balance
 The code also gave power to LGUs to manage municipal water

page 57
 Specifically, the Code proposes to strengthen the fisheries management and the
development mandate of the Department of Agriculture by creating Fisheries and
Aquatic Resources Management Councils (FARMCs) and reconstituting the Bureau
of Fisheries and Aquatic Resources into a line agency with regional, provincial, and
municipal offices.
Non-conventional Energy Bill

 Non-conventional Energy Bill spells out the national policy for a sound, efficient, and
self-sufficient energy development program which promotes the use of indigenous
and non-conventional sources.
Republic Act 8435 or the Agriculture and Fisheries Modernization Act of 1997 (AFMA)
 An act prescribing urgent related measures to modernize the agriculture and
fisheries sectors of the country in order to enhance their profitability and prepare
said sectors for the challenges of globalization through an adequate, focused, and
rational delivery of necessary support services, appropriating funds therefore and
for other purposes
 Declaration of Policy: the goals of the national economy are a more equitable
distribution of opportunities, income and wealth, a sustained increase in the amount
of goods and services produced by the nation for the benefit of the people; and an
expanding productivity as the key to raising the quality of life for all especially the
underprivileged.
 The state shall promote industrialization and full employment based on sound
agricultural development and agrarian reform, through industries that make full
and efficient use of human and natural resources, and which are competitive in both
domestic and foreign markets
 In pursuit of these goals, all sectors of the economy and all regions shall be given
optimum opportunity to develop. Private enterprises, including corporations,
cooperatives, and similar collective organizations, shall be encouraged to broaden
the base of their ownership.
 Thus, it is declared the policy of the State to enable those who belong to the
agriculture and fisheries sector to participate and share in the fruits of development
and growth in a manner that utilizes the nation’s resources in the most efficient and
sustainable way possible by establishing a more equitable access to assets, income,
basic, and support services and infrastructure
 The State shall promote food security, including sufficiency in our staple food,
namely rice and white corn. The production of rice and white corn shall be
optimized to meet our local consumption and shall be given adequate support by
the state
 The State shall adopt the market approach in assisting the agriculture and fisheries
sectors while recognizing the contribution of said sectors to food security,
environmental protection, and balanced urban and rural development, without
neglecting the welfare of the consumers, especially the lower income crops.

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 The State Shall empower the agriculture and fisheries sectors to develop and sustain
themselves. Toward this end, the State shall ensure the development of the
agriculture and fisheries sectors in accordance with the following principles:
o Poverty alleviation and food security – the state shall ensure that the poorer
sectors of society have equitable access to resources, income opportunities,
basic and support services and infrastructure especially in areas where
productivity is low as a means of improving their quality of life compared
with other sectors of society
o Food security – the State shall ensure the availability, adequacy and stable
supply of food to all at all times.
Professional Regulation Commission (PRC) Resolution No. 2000-663 – Creation of the

Board of Agriculture
 As mandated by Section 75 of R.A. 8435 (AFMA) as implemented by the Rules and
Regulations issued by the Department of Agriculture
Agrarian Reform Laws
PD 27 or Land Reform Code

 Provides for the Physical redistribution of only tenanted rice and corn lands under a
system of share-crop or lease-tenancy, whether classified as landed estate or not
(Under the Marcos Administration)
Republic Act 6657 or Comprehensive Agrarian Reform Law

 Provides for the physical redistribution of all privately-owned agricultural lands and
those under the public domain which are suitable to agriculture regardless of
tenurial arrangement and commodity produced.
 The beneficiaries of the program include farm workers and farmers covering all
agricultural commodities (Passed under C. Aquino’s Administration)
International Trade
General Agreement on Tariffs and Trade (GATT)

 An agreement on tariff and the rules governing the conduct of international trade.
The GATT Uruguay Agreement on Agriculture features five main areas of
commitment:
o The conversion of all quantitative restrictions imposed on agricultural
products into tariffs
o Reduction of tariff on agricultural products
o Reduction of domestic subsidies
o Reduction of export subsidies
o Harmonization of sanitary and phytosanitary measures
Agricultural Tariffication Act (R.A. 8178)

page 59
 Seeks to convert trade protection for the rice in the form of quantitative restrictions
(QRs) to ordinary customs duties by 2005
Land Use and Land Use Conversion Laws
National Land Use Act

 Provides the overall framework for the rational allocation, disposition, sustainable
utilization and management of land resources for a variety of ecological and
economic uses, and to prevent premature conversion of agricultural lands

page 60

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Agricultural

AGRICULTURAL ECONOMICS AND MARKETING

1.2 Nature and Scope

1.3 Foundation of Economics

1.4 Economic ideologies of nations

1.5 Economic Theories

2. 1 Production and Costs

AGRICULTURAL ECONOMICS AND MARKETING

3.1 National income accounting

AGRICULTURAL ECONOMICS AND MARKETING

4. Agriculture and Economic Growth

4.1 Definition- Agriculture, Sustainable Development, Economic Growth, Economic

5.1 WTO- GATT- UR

6.1 Basic concepts of marketing

AGRICULTURAL ECONOMICS AND MARKETING

AGRICULTURAL ECONOMICS AND MARKETING

McConell, C. R. Economics, 8'" ed. McGraw Hill Books Co.

Sicat, G. Economics, National Bookstore, Manila 1983.

Samuelson and Nordhaus, Economics 14th ed.

Amancher and Ulrich, Microeconomic Principles and Policies.

Gregory, Mankiw N. Principles of Microeconomics, ThePryden Press, Florida, 1998.

Piadozo, Ma. E.S. Syllabus on Agricultural Marketing. 1988.

Salvatore, O. Microeconomics Theory. Schaum Series, 1986.

Parkin, Michael. Microeconomics, Addison-Wesley Publishing Company. 1990.

Darrah, L. B. & F. A. Tiongson. Agricultural Marketing in the Philippines, UPCA. 1971

Kohls, R. & R. Downey.Marketing of Agricultural Products.

Shepherd, G. S. et. al. Marketing Farm Products

MEMBERS OF THE ECO-MARKETING COMMITTEE

AGRICULTURAL ECONOMICS AND MARKETING

The wide array of literature on globalization reveals a broad range of concepts on

Mainstream concept viewed primarily as an economic, particularly trade and

There are two dimensions of globalization- macroeconomics and microeconomics

Another dimension is the firm of microeconomic agents. Globalization means firms

There are several characteristics of globalization:

AGRICULTURAL ECONOMICS AND MARKETING

Also giving impetus to globalization is real progress in international cooperation

1. The setting up of the World Trade Organization (WTO) at Marrakech in 1995

Pro-democracy movements and human rights campaigns have become global

AGRICULTURAL ECONOMICS AND MARKETING

Developing countries have gained at least as much as developed countries from

In sum, globalization offers opportunities to developing countries. It opens up

Traditional Agriculture is a slow integrator and is a high cost producer (due to

AGRICULTURAL ECONOMICS AND MARKETING

What is Agricultural Marketing?

Types of Marketing Functions:

• Answer the when, what and where of marketing

AGRICULTURAL ECONOMICS AND MARKETING

Components of the agricultural marketing system

1. What to produce and prepare it for sale

AGRICULTURAL ECONOMICS AND MARKETING

1. Provides an outlet for intermediaries’ agricultural products

3. Provides employment for middlemen and producers

Approaches to the Study of Agricultural Marketing

AGRICULTURAL ECONOMICS AND MARKETING

2. Physical Function-Those activities that involve handling, movement and physical

 Processing-done to either change the form of the product or to aid in the

3. Facilitating Function- Acts as the grease of the agricultural marketing machinery;

AGRICULTURAL ECONOMICS AND MARKETING

Uses of the functional approach