Economics of Corn Farming Final

Download as ppt, pdf, or txt
Download as ppt, pdf, or txt
You are on page 1of 67

“ECONOMICS AND

MARKETING OF CORN
PRODUCTION”

DR. LORNA G. VALDEZ


Professor, College of Business, Development
Economics and Management
Economics of Corn Production
• Corn is the second most important crop in
the Philippines.
• About 12 million Filipinos prefer white corn
as their main staple.
• Yellow corn accounts for about 70% of
livestock mixed feeds.
• Corn is also processed into high value
products, such as corn starch, corn oil,
gluten and snack foods.
• Fifty four percent (54%) of total corn
production comes from yellow corn, which
comprises one third of the total corn area.
• Domestic production of corn increased at
more than 4 % a year during 1973-74-
1988-89.
• Although the growth in corn production
maybe attributed to more land having
been brought into growing corn,
improvements in yields arising from the
adoption of improve open-pollinated and
hybrid corn varieties provided the major
stimulus.
• On the average the annual growth rate of
corn yields was 2.51% during 1973-74-
1988/89.

• Most of that growth came from yellow


corn, which increased at 5.92% annually,
compared with 1.57% for white corn.
• Compared with other countries in
Southeast Asia, however, the Philippine
National average yield of 1.2 metric tons
per hectare is the lowest.

• Corn has two major uses: human food and


animal feed.
• As a cheaper source of calories than rice,
corn is eaten approximately by:
• 20% of the Filipinos, most of them
concentrated in Visayas and Mindanao
regions.
• The most recently available statistics
reveal than twice the 4.30 kilograms were
eaten by rural Filipinos ( Bouis 1992).
• Corn purchase account for only 0.01% of
the food budget in urban households and
0.24 in rural households.
• Corn is an excellent energy source in
production of hogs, cattle, and poultry feed
because of its high metabolizable energy
content and crude protein content.
• Corn accounts for 35% and 30%,
respectively, of the total cost of hogs and
poultry feed mix ( Rosegrant et al, 1987).
• Setboonsarng and Rosegrant ( 1992 )
estimated that corn production in the
Philippines is 30% higher than in Thailand,
and the cost of moving corn from the farm
to retail in the Philippines is about 70%
higher than in Thailand.
• Over the years, more and more corn has
been used in feed manufacturing,
displacing its primary use as a human
food.
• The relative share of corn used in the
manufacturing of poultry and livestock
feed increased to 67% in 1989 from 60%
in 1978.
• Corn consume as food accounted for
almost 27% of domestically available corn
supply in 1989, down from 33% in 1978.
• Due to increasing importance of corn to
the economy and its critical role in the
development of the poultry and livestock
sectors, the Philippine government has
vigorously pursued sectoral and economy-
wide policies that have directly and
indirectly affected the corn industry.
*Price Stabilization Policy Related Market-
Intervention Programs *
• The task of administering the local and
international marketing of corn is
undertaken by the National Food Authority
( NFA)
• Corn is planted in the beginning of the
second quarter of the year, and the
government discloses its support price for
corn later in the cropping period.
• The recent elevation of corn from the
lowest-priority cargo classification to Class
C cargo category and other shipping
reform policies are, however, expected to
alleviate the sailing condition of the
Philippines Shipping Industry.
• The presence of NABCOR
*Public Market Information Services and
Transparency of Prices *
• Created under the Department of
Agriculture, the BAS has redirected its
• Public information services to benefit the
Filipino farmers.
• Large budget cutbacks in the 1980s
resulted in several changes within the
BAS.
• The frequency of reporting of wholesale
and retail prices was reduced from daily to
three times weekly beginning in 1980.
• Because of the small number of personnel
available for conducting the farm and
market survey, fewer agricultural
commodities from a narrower pool of
samples are currently covered.
*Industry Status (updated as of July 2005) *
Production
• 2.4 M ha were planted to corn and
grains produced were 4.6 Mt
• 64% of the total area harvested was
devoted to white corn and the remaining
was planted to yellow corn
Consumption and Utilization
• capita consumption of corn is 10 kg/year
or 27g/day
• about 30% of production is consumed as food
in the Visayas and some parts of Mindanao;
• the remaining 70% is processed into feeds for
swine and poultry production; 2.5 Mt went to
feed production (1988)
• corn constitutes 60-70% of commercial
feed ingredients and contributes about 70% of
the cost in raising hogs and chicken
• corn is also used in the manufacture of
starch, gluten and alcohol
Price Trend
• farm level prices follow the supply and
demand, and prices of wholesale millers in
terminal markets
Demand and Supply
• demand for corn was 6.3 Mt of which 52%
is from the livestock feed industry (1988)
• total gross supply was 4.2 MT; imports
accounted for 0.11 Mt or about 2.61% of
gross supply (1988)
Problems
• imported corn competes with local produce
when its arrival coincides with peak harvest
season
• seasonality of domestic corn supply
causes price fluctuations within the year
• other problems are price increases of
farm inputs, insufficient funds of the
National Food Authority (NFA) to support
its floor price scheme, and inadequate
transport and infrastructure
• there are available commercial hybrids
and cultivation technologies that will
improve productivity; however,
technology transfer and extension
services are weak
Institutional Support
• The Philippine National Corn
Research Development and Extension
(RDE) Program aims to contribute towards
a competitive corn-based industry and
improved economic livelihood of corn
farmers through development and use of
techniques
• The Ginintuang Masaganang Ani (GMA)
Corn Program is being implemented to
boost and prepare our corn industry for
globalization.
• The program capitalizes on key production
areas with local government units (LGU's) and
private sector partnership and capacity building
as key strategies
INVESTMENT OPPORTUNITIES
• Expansion of corn cluster production areas to
meet the increasing demand for both white and
yellow corn
• Increase production yield to supply raw materials
for the development of feed mill industry
• Establishment of efficient post harvest facilities
(like dryers, threshers, storage, and
warehouses) to reduce post harvest losses
• Processing and/or value adding of corn and corn
based products
• The Philippines is ready to become a corn
exporter for the first time as local corn
farmers entered into a supply agreement
for 300,000 tones with Korea Overseas
Grains Investments Co. Philippines Maize
Federation Inc. ( Philmaize ) President
Roger Navarro said that while negotiations
have been ongoing and both parties are
still negotiating the price, which is
tentatively set as at PHP 16 ( USD 0.34)/
kg. Mr. Navarro said Philmaize started
exploring exports markets following the
government’s policy on support programs
for the corn sector.
• In August, corn farmers asked the
National Food Authority ( NFA ) to
increased the support price for corn to
PHP 13 ( USD 0.28)/kg, but the NFA
pegged the price at only PH 10 (USD
0.21)/kg.
World TRADE
• World total exports of corn accounted for
80,786,104 MT valued at 11.4B US$.(Food and
Agriculture Organization of the United Nations
Statistics estimations,2004)
Philippines
• 2001-2005 average imports of corn: 162,143.16
MT from at least 3 countries,with USA providing
at least 58.74% of total average imports,
Argentina with29.15%, and China with 19.52%.
• In 2005, all imports of corn came from
Argentina which is equivalent to 57,750
MT
• Particulars Current Cost Interventions
Resulting Cost
Hybrid Corn
A. Material Inputs
1. Seeds 8,000.00
2. Fertilizer 9,000.00

a. Organic
1. Use of Organic Fertilizers 2,300.00
2. Bio-N - Use of Bio-N 360.00
3. weedicide 1,850.00
4. Use of trichogramma 360.00
6. Sacks & Twine 1,500.00
Sub-Total 23,370.00
B. Labor Inputs
Plowing 3,600.00
Planting 1,750.00
Organic Matter Application 500.00
Side dressing 500.00
Spraying 600.00
Furrowing 1,600.00
Harvesting 3,275.00
In-field Hauling 2,700.00
Shelling & Drying 4,875.00
Sub-Total 19,400.00
C. Interest Expense
D. Total Cost of Production 42,770.00
E. Yield (kgs/Ha) 5,000
F. Farm Gate Price (Php/kg) 13.00
G. Gross Returns 65,000.00
H. Net Returns 22,230.00
OPV Corn
A. Material Inputs
1. Seeds 1,000.00
2. Fertilizer 3,000.00

a. Organic
1. Use of Organic Fertilizers 2,300.00
2. Bio-N - Use of Bio-N 360.00
3. weedicide 3,000.00
4. Use of trichogramma 360.00
6. Sacks & Twine 1,300.00
Sub-Total 11,320.00
B. Labor Inputs
Plowing 3,600.00
Planting 1,750.00
Organic Matter Application 500.00
Side dressing 500.00
Spraying 600.00
Furrowing 1,600.00
Harvesting 2,400.00
In-field Hauling 2,160.00
Shelling & Drying 2,080.00
Sub-Total 13,610.00
C.Interest Expense -
D. Total Cost of Production 24,930.00
E. Yield (kgs/Ha) 5,000
F. Farm Gate Price (Php/kg) 3,000.00
G. Gross Returns 39,000.00
H. Net Returns 14,070.00
R&D Information : Economics of the Corn
Industry in Ilocos Norte *

Researchers: CB Julian,LB Rafael, ID


Dumaoal, CA Sabuco, ECT Rigonan

Generator:  MMSU
• Description:  This study was conducted to
determine the economics of corn industry
in Ilocos Norte in 2005. Specifically, it
attempted to determine 1) the personal
and farm profile of the respondents; 2) the
area planted and volume of production of
corn in the province; 3) the demand and
supply of corn in the province; 4) the trend
of average production and prices of corn in
the province;
• 5) analyze the cost and returns  of
producing corn;  and 6) the problems
encountered by the respondents  along
pre-production, production, post
production, and marketing.
Findings:
• Corn farmers in Ilocos Norte were in their middle
adulthood, married with an average household
size of five members. The respondents did not
attain high level of education and their main
source of income was farming.
• A total of 12,320 ha was planted with corn in
Ilocos Norte in the year 2005. The larger area
was devoted to yellow corn (7,200 ha) while
white corn accounts for around 42% (5,120 ha)
of the total area.
white corn accounts for around 42%
(5,120 ha) of the total area.
• A total production of 49,988 mt of corn
was produced. Yellow corn accounts 70%
(35,16 mt) of the total production and the
remaining 30% (14,872 mt) was white
corn.
• Yield averaged 4.06 mt ha-1 for both corn
types.  The yield for yellow corn was 4.88
mt ha-1 while white corn was only 2.9 mt
ha-1.
• Demand for corn was 57,374 mt, of which
79% (45,562.05 mt) was from the livestock
and poultry feed industries (yellow corn),
and the remaining 21% (11,811.95 mt)
was from the cornick industry.  The total
supply was 49,988 mt or a shortage of
7,386 mt to meet the demand.
• Prices follow the demand and supply, and
the prices offered by wholesale traders
and feed millers in terminal markets. 
White corn was much expensive (P9.45
kg-1) than yellow corn (P7.71 kg-1).
• At 4.88 mt ha-1 yield of corn, total
production cost was P34,678.54 with a net
income of P2,978.41.  White corn incurred
a net loss of P9,265.76 due to the high
production cost of P36,983.27 and the
yield of 2.9 mt ha-1. 
* Enterprise Budgets*
• One of the best tools for planning
purposes is an enterprise budget
• Enterprise budgets predict profitability by
incorporating quantities and prices of all
inputs and outputs.
• Enterprise budgets are started by
estimating the expected corn production in
kilograms per hectare and the expected
price received
• These are all stated on a per hectare
basis.
• Gross returns are calculated by multiplying
the expected yield per hectare by the
expected price
• Expenses are divided into variable and
fixed costs by whether the expense varies
as the size of the enterprise changes
• The last item for the variable costs is an
interest charge
• When the crop is sold, the money is
returned. If the money is borrowed, this is
the actual interest expense.
• When the farmer’s own equity is used, this
cost is an opportunity cost since the
money could have been earning interest
• The difference between gross returns and
total expenses is the return to operator
labor, land, capital, and management
• The return to operator labor and
management is compensation for the
farmer’s time and expertise invested in
growing a corn crop.
• The return to land and capital is an
opportunity cost for using the land and
other capital.
• Because the farmer has equity invested in
the land, those funds cannot be earning
interest in a bank or used for other
purposes
• Determining prices and quantities is
probably the most difficult aspect of
building a corn budget. Input prices can be
readily obtained from many
agribusinesses
• Good production records can provide
information about yields and about how
much fertilizer and chemicals normally are
used.
Partial Budgets
• Enterprise budgets are great for showing
how an enterprise contributes to
profitability
• However, sometimes a producer might be
interested in examining how some
adjustment to an enterprise or combination
of enterprises affects profitability.
• Examples include selling corn on cobs or
shelled corn
• Partial budgeting is a good tool for these
situations because only those costs
incomes, and resource needs that change
with a proposed adjustment are examined
• Partial budget analysis is a three step
process.
• Step one determines what increases the
profits of the farm business when a
change is implemented.
• Step two determines what decreases the
profits of the farm business.
• This step compares the increase in profits
from step one to the decrease in profits
from step two
“MARKETING OF CORN “
• Marketing of farm products involves
activities which facilitate the movement of
products from the farms to the ultimate
users.
• Prof. Philip Kotler, a marketing expert,
defines marketing as a set of human
activities directed at facilitating and
consummating exchange.
Functions of Marketing
• Assembling- gathering and consolidating
of small quantities of products into larger
lots.
1. Reduces transportation cost
2.Economizes the cost of grading
3.Helps in product processing
4.Facilitates in filling specific orders of
customers
•  
Storage. The keeping of products over a
period of time in a warehouse, cold storage
plant, or other storage facilities. Its
advantages are the following:
• Maintains an adequate supply for processing
• Takes advantage of expected increase in
prices

 
• Preserves the products, especially the
perishables
• Improves the quality of certain products
such as tobacco, wine, etc.
• Regulates the flow of supply, thus
minimizing price fluctuations
 
 
Financing- This is the use of credit by
middlemen for their operation
• To buy seasonal farm products,
middlemen must have adequate funds for
the necessary cash advances to the
farmers. Usually, they give loans or down-
payments to the farmers in order to
acquire priority in buying the products.
• To maintain a continuous supply, some
farm produce are kept in storage until
these are needed for processing or while
waiting for higher prices.
• To make cash advances for seasonal
expenses which are needed in moving the
farm products to the users.
• To secure needed equipment, it may be
better to obtain a loan.
Standardizing and grading- The sorting of
products based on kind, quality, and size
is called grading. The establishment of
these grades is standardization.
The advantages of grading are the following:
• The need for inspection of the product by
buyers is reduced or eliminated.
• The sale of the product by description is
made easier.
• Cost of transportation is reduced.
• Appearance of the product is improved
and there­fore commands a better price.

Transporting- It is the movement of goods


from one place to another. The presence
of road and transportation systems
facilitate the efficient movement of farm
products to the differ­ent regions of the
country.
• Processing- It is the transformation of a
raw product into a more usable form.
The advantages of processing are:
• Improves the quality of the product
• Makes the produce more usable
• Prevents contamination of the product
• Prolongs the perishability of the product
• Increases the nutrients of the product
• Provides the manufacture of by-products
for con­sumption
• Transforms some raw products into other
products, such as milk into cheese
Packaging- This is the process of placing
goods in bags, containers, or wrappers.
The advantages are the following:
• For easier handling
• Protects from possible damage
• Reduces storage and transportation cost
• Prevents loss of weight and food value
Retailing-. This is the ultimate selling of
products to the final consumers.
The advantages are the following:
• Provides consumers with various goods
• Keeps goods which are for immediate
delivery
• Makes buying convenient for the
consumers
• Sells goods on credit in many instances
• Often sorts and packages the goods for
the consumers
4 Ps of Marketing
1.Product
• Quality
• Features
• Options
• Style
• Packaging
• Service Level
• Other Services
2.Place
• Distribution Channel
• Distribution Cover Range
• Outlets
• Inventory Levels & Location
• Transportation System
3.Promotion
• Publicity
• Advertising
• Personal Promotion
4.Price
• Level
• Discounts
• Allowances
• Payment terms
 
 
 
Marketing Practices
• marketing agents include farmers, local
assemblers, local millers, grain wholesale
dealers, wholesale millers, feed millers
and retailers
• historically, the domestic wholesale price
of corn has been above world process by
an average of 50%; under the General
Agreement on Tariffs and Trade (GATT),
the committed tariff rate of 100% will
adequately protect domestic producers
from corn imports
*Structure of Corn Farms and the Corn
Production System*
Corn growing is the most suitable
in upland conditions with well-drained sandy
loam or clay soil in flat slightly rolling
topography and in areas where rainfall is
distributed evenly throughout the year.
Although corn can be planted in most farms in
the countryside, the agro climatic conditions in
the Visayas and Mindanao regions are the
best-suited for growing corn,
*Socio-demographic Profile of the Filipino
Corn Farmers *
• On average, a typical Filipino corn
household consists of 6 members. Most
Filipino farmers interviewed has been
engaged in corn farming for an average of
19 years. Among provincial samples,
Bukidnon farmers have been in corn
farming the longest, 26 years, while
farmers respondents from davao, Isabela,
Nueva Viscaya, and South Cotabato have
been growing corn for 16-18 years.

MARKETING CHANNELS - CORN


• WHITE AND YELLOW CORN GRITS
WHITE CORN GRITS

C O N S U M E RS
• POULTRY/ HOG RAISER
CONSUMER GROCERIES
• (SARI-SARI)
• STORE RETAILER
• POULTRY
• SUPPLY OR FEED MIX
• STORE
THANK YOU and MERRY CHRISTMAS
TO EVERYONE

You might also like