MARKETING COSTS STRUCTURE FOR CORN FOREWORD
Domestic production of agricultural commodities finds its way in the market. In the course of trading, the product passes through various marketing channels. The market flow varies from a very simple one to a more complex set-up depending on the nature and usage of the commodity. There are basic factors that influenced the level and structure of the costs involved in the movement of the product. It is therefore important to better understand the interplay between and among the market players and where they are based as major considerations in the formulation of the types of interventions to improve efficiency.
To address this concern, the Bureau of Agricultural Statistics (BAS) through its Agricultural Marketing Statistics Analysis Division (AMSAD) conducts studies on marketing costs structure for selected high value commercial crops in specific supply and trading areas. This undertaking aims to provide information on the charges that each participant in the marketing chain incurs in carrying out the marketing process. The results of these studies will be presented in a serialized report featuring one commodity in each series.
Marketing Costs Structure for Corn iii TABLE OF CONTENTS
FOREWORD ………………………………………………………………………………………iii
I. Introduction………………………………………………………………………………… 1
II. Objectives…………………………………………………………………………………… 2
III. Methodology……………………………………………………………….…………………2
IV. Study Procedures…………………………………………………………………………… 3
V. Study Limitations…………………………………………………………………………… 5
VI. Discussion of Results…………………………………………………………………………6
Geographic Coverage………………………………………………………………………6 Distribution of Respondents……………………………………………………………… 6 Profile of Respondents…………………………………………………….……………… 7 Marketing Practices and Functions……………………………………….……………… 12 Procurement …………………………………………………………………………… 12 Distribution ………………………………………………………………………………13 Geographic Flow………………………………………………………..…………………15 Marketing Channels……………………………………………………..…………………17 Marketing Costs……………………………………………………………………………21 Labor ………………………………………………………………….…………………21 Transportation ………………………………………………………………………… 23 Material Inputs …………………………………………………………………………26 Miscellaneous and Other Operating Costs ………………………………………………25 Depreciation ……………………………………………………………………………27 Aggregated Marketing Costs …………………………………………….………………28 Total Marketing Costs …………………………………………………..………………28
VII. Problems/Constraints Encountered………………………………………………………… 29
VIII. Monitoring of Marketing Costs Data by the National Food Authority………………………30
IX. Conclusions and Recommendation………………………………………………………… 31
Marketing Costs Structure for Corn iv STATISTICAL TABLES
1 CORN: Distribution of respondents, by type, by province/municipality, 2000 7
2 CORN: Distribution of respondents, by type of marketing participants, by province, 2000 8
3 CORN: Number and percentage distribution of respondents by farm size, Isabela, 2000 9
4 CORN: Number and percentage distribution of farmer-respondents, by type of land ownership, Isabela, 2000 9
5 CORN: Distribution of trader-respondents by type of business ownership, by province, 2000 10
6 CORN: Distribution of trader-respondents, by length of experience, by province, 2000 11
7 CORN: Distribution of trader-respondents, by type of marketing participant, by nature of capitalization, 2000 11
8 CORN: Distribution of respondents by mode of delivery for procurement, 2000 12
9 CORN: Distribution of respondents by mode of payment for procurement, 2000 13
10 CORN: Distribution of respondents by mode of delivery for distribution, 2000 14
11 CORN: Distribution of trader-respondents by mode of payment for distribution, 2000 15
12 CORN: Sources and destinations by area, by province, 2000 17
Marketing Costs Structure for Corn v 13 CORN: Labor costs incurred by marketing participants, by province, 2000 22
14 CORN: Transportation costs, by practice/activity, by province, 2000 24
15 CORN: Cost of material inputs incurred, by marketing participants, by practice/activity/cost item, by province, 2000 25
16 CORN: Miscellaneous and other operating expenses, by province, 2000 26
17 CORN: Imputed costs of depreciation, by province, 2000 28
18 CORN: Total marketing costs, by province, 2000 29
19 CORN: marketing participants in Isabela and Cagayan, 2000 30
20 CORN: Marketing costs structure (cash cost and imputed cost), by province, 2000 40
Marketing Costs Structure for Corn vi ANNEX
13a CORN: Labor costs incurred by marketing participants, by activity/practice, Isabela, 34
13b CORN: Labor costs incurred by marketing participants, by activity/practice, Cagayan, 2000 35
14a CORN: Transportation costs incurred by marketing participants, by activity/ practice, Isabela, 2000 35
14b CORN: Transportation costs incurred by marketing participants, by activity/ practice, Cagayan, 2000 36
15a CORN: Cost of material inputs, by marketing participants, Isabela, 2000 36
15b CORN: Cost of material inputs, by marketing participants, Cagayan, 2000 37
16a CORN: Miscellaneous and other operating expenses, by marketing participants, Isabela, 2000 37
16b CORN: Miscellaneous and other operating expenses, by marketing participants, Cagayan, 2000 38
17a CORN: Imputed costs of depreciation, by marketing participants, Isabela, 2000 38
17b CORN: Imputed costs of depreciation, by marketing participants, Cagayan, 2000 39
Marketing Costs Structure for Corn vii LIST OF FIGURES
1 Tracing Approach……………………………………………………………………………… 2
2 Geographic Flow of Corn in Selected Provinces, 2000…………………………………………16
3 Marketing Channels for Corn, Isabela, 2000……………………………………………………18
4 Marketing Costs for Corn, by level of marketing participants, Isabela, 2000……………………19
5 Comparative Marketing Costs for Corn in Isabela (BAS & NFA)………………………………20
Marketing Costs Structure for Corn viii MARKETING COSTS STRUCTURE FOR CORN
I. INTRODUCTION
Costs or expenditures are essential indicators of economic activities. Policy makers use costs and returns on investment as bases in identifying and prioritizing the types of assistance to be provided to producers in the agriculture and fishery sectors.
Information on production costs are very well captured at the farm level. The costs incurred after production are determined following the flow of the commodities from the supply (farm) level to the demand (consumers) level. The observed practices in moving the products provide the reference for appropriate accounting of the costs of services rendered at each level of market players along the commodity chain. For the costs that the commodity assumes there is a corresponding margin that each market participant takes.
Inadequate information on marketing costs encourages the Bureau of Agricultural Statistics (BAS) to develop and establish a general approach in determining the marketing costs structure that focused initially on crops specifically palay/rice. The growing demand from data users for the same information on other crops, livestock and fisheries has drawn support from various sectors. The BAS through its Agricultural Marketing Statistics Analysis Division (AMSAD) started to undertake marketing costs studies in year 2000 for selected high value commercial crops (HVCC) in selected supply and demand provinces. The studies covered corn for cereals; cabbage and potato for vegetables; calamansi, mango, and papaya for fruits; and orchids and rose for cutflowers. The results of these studies have been viewed to be significant to the bureau’s clients, which include farmers, policymakers, consumers, and other entities who use marketing costs in the interpretation and assessment of market price behavior and ultimately in making production and marketing decisions. This particular report will focus on the marketing costs structure for corn.
Marketing Costs Structure for Corn 1 II. OBJECTIVES
The main objective of study is to determine the components and the corresponding marketing costs incurred by marketing participants in major corn producing areas and trading centers.
III. METHODOLOGY
The study employs the tracing approach starting from the supply level (production) to the demand (consumption) level. The figure below illustrates the general scheme used in the study.
Supply Supply Area 1 Area 2
Trading Center
Demand Center/ Processing Level
Figure 1. Tracing Approach
Marketing Costs Structure for Corn 2 IV. STUDY PROCEDURES
Corn is a major commodity produced in many provinces nationwide. From 1992 to 2001, it contributes about 6.25% to the national agriculture output. Although corn is considered as a secondary crop in most palay producing provinces, its marketing system calls for employing a differentiated tracing approach. The study team traced the flow of corn from the supply level to the demand level.
Team Composition
The staff of the AMSAD and a representative from the Survey Operations Coordinating Division (SOCD) conducted the study from December 3-16, 2000. Two staff members of the Bureau’s Provincial Operations Center (POC) in each supply province participated in identifying respondents, key informants and conduct of interview.
Preparatory Activities
Survey instruments were prepared prior to the conduct of the study. The instruments included guide questions for farmers and traders and a manual of instructions in conducting the fieldwork. The survey instruments were pre-tested in the province of Cagayan during the third quarter of 1999 to determine the applicability and appropriateness of the set of questions. The survey instruments were revised and reproduced.
Research Sites
The research concentrates in Luzon and chooses Isabela as starting point as it is the second top producing province contributing about 14.5% to the national corn production. Further, previous studies indicate that corn produced in Isabela is sold at wholesale to adjacent provinces and to Luzon processors.
Marketing Costs Structure for Corn 3 The geographical domain of the research includes the municipalities of Echague, Roxas, and Cauayan. Fieldwork started at the farm level. Two top producing barangays on each municipality were selected using the compare and contrast method. One barangay is more accessible from the highway and the other one is remote or interior.
From the farm level, the research team traced the traders identified by the farmer- respondents as buyers of their produce. These traders were mostly located in Cauayan. Based on the flow of corn from Cauayan, the team moved to Nueva Ecija where identified feedmills are located.
Another province covered by the study was Cagayan in order to determine whether corn produced in Isabela is sold to nearby provinces up north.
Selection of Sample Respondents
At each level of the marketing system, i.e. production and processing, the research team interviewed key informants, farmers, and traders. The team interviewed sample respondents and key informants using the structured questionnaires. Only farmers and traders who actually engaged in producing/trading corn from January to December 2000 were selected and interviewed.
At the farm level, the barangay (village) chairman/other officers, members of farmer associations and cooperatives served as key informants in locating farmer respondents and gathering information on corn marketing practices. The number of farmer respondents interviewed varied depending on the trends and trading patterns observed/established in the process of building up information needed in the research.
Marketing Costs Structure for Corn 4 Data Processing
Prior to integration of the initial findings, on-field validation of data gathered at the farm level against the information given by respondents at the trading center level was conducted to avoid underestimation or overestimation of costs and to facilitate the compilation of survey returns.
At the central office, the survey returns were compiled and tabulated manually. Aggregated costs were again validated from the responses of the big industry players and the results of special studies undertaken by the National Food Authority (NFA).
Report Preparation
The research team prepared the technical report that discussed the components of the marketing costs structure of corn produced in Isabela. Also included in the report are the marketing costs borne by traders who buy and sell corn to other provinces in Luzon particularly Nueva Ecija.
V. STUDY LIMITATIONS
The study was conducted in December and used two croppings for year 2000 as reference. In the design of the study, Cagayan was included as a demand area for corn coming from Isabela. However, the study revealed that the province can be categorized as a supply area that sells either to Isabela or outside the province.
Due to limited funds, the study covered Luzon provinces only. Although previous studies conducted by BAS and other research and development projects indicated that feedmills get corn from Southern Philippines, the study was not able to cover any area in Visayas and Mindanao.
Marketing Costs Structure for Corn 5 VI. DISCUSSION OF RESULTS
The study focused primarily on the costs borne by marketing participants in moving the commodity from the supply areas to the consumption centers. The discussion of results is presented according to major cost components.
Geographic Coverage
The study covered three provinces namely, Isabela, Cagayan, and Nueva Ecija. Isabela was the identified supply area where two major producing municipalities and three trading centers (Cauayan, Santiago and Roxas) were covered.
Cagayan and Nueva Ecija were treated/classified as trading centers. However, Cagayan was self sufficient on corn and did not procure from Isabela. The feedmills who buy corn from Isabela were widely distributed in Luzon. In Nueva Ecija, the feedmills were located in the municipalities of Munoz and San Leonardo and in Cabanatuan City.
Distribution of Respondents
The farmers and the traders were the two groups of respondents for the study. At the barangay level, the farmers were chosen based on land area devoted to corn. The study covered small to large-scale farmers. Table 1 shows the distribution of respondents.
Marketing Costs Structure for Corn 6 Table 1. CORN: Distribution of respondents, by type, by province/municipality, 2000
Province/Municipality Farmer Trader Total
Isabela 28 17 45 Ilagan 16 6 22 Echague 12 3 15 Cauayan 4 4 Santiago 2 2 Roxas 2 2 Cagayan 13 13 Nueva Ecija 3 3 Munoz San Leonardo 1 1 Cabanatuan 1 1 1 1
In Isabela, a total of 28 farmers, 16 in Ilagan and 12 in Echague were interviewed. At the trading center level, 17 traders were interviewed.
Although Cagayan was covered as a trading center, the study found out that it was a supply province that sells directly to other provinces. Thirteen trader-respondents were interviewed. In Nueva Ecija, three feed mills distributed in the municipalities of Munoz and San Leonardo and Cabanatuan City were covered.
Profile of Respondents
The study determined some basic characteristics of the respondents. The category included size of farm and land ownership by farmers. On the other hand, traders were grouped according to type of business ownership and length of experience.
Marketing Costs Structure for Corn 7 Type of marketing participants. The study had three major types of marketing participants: farmers, traders and feedmillers. Trader-respondents were further classified based on their sphere of influence in the conduct of their procurement and distribution activities. Those who devoted resources to both functions were referred to as assembler- distributors (A-Ds). Table 2 shows the type of marketing participants encountered in the study.
Table 2. CORN: Distribution of respondents, by type of marketing participants, by province, 2000
PA-LD/ Feed Province Farmer RA-LD PA-MD/ Retailer Total Percent miller MA-LD
Isabela 28 7 6 4 45 74
Cagayan xxxxxxx 4 6 3 13 21
Nueva Ecija xxxxxxx 3 3 5
TOTAL 28 11 12 7 3 61 100
At the supply province of Isabela, 74% or a total of 45 respondents were covered consisting of 28 farmers and 17 traders. Outside Isabela, 16 traders were interviewed, 13 in Cagayan and 3 in Nueva Ecija.
The four major groups of traders interviewed were as follows: 11 regional assembler-large distributors (RA-LD), 12 combination of provincial assembler-large distributor, provincial assembler-medium distributor and municipal assembler-large distributor, 7 retailers and 3 feed millers.
Size of farm. The study identified farmers whose land areas ranged from small to above average size of farm. Regardless of location, majority of the farmers (78%) owned land of more than one hectare but not exceeding five hectares. Three farmers each owned
Marketing Costs Structure for Corn 8 land below one hectare and above five hectares. The distribution of farmer-respondents by farm size is found in Table 3.
Table 3. CORN: Number and percentage distribution of respondents by farm size, Isabela, 2000
Farm Size (In hectare) Number Reporting Percent
1 and below 3 11
1.01 – 5.00 22 78
Above 5 ha. 3 11
TOTAL 28 100
Land ownership. Most of the farmer-respondents (86%) owned the land they operate while four or 14% were tenants. Table 4 presents the distribution of farmer- respondents by land ownership.
Table 4. CORN: Number and percentage distribution of farmer- respondents by type of land ownership, Isabela, 2000
Land Ownership Number Reporting Percent
Owner-operator 24 86
Tenant 4 14
TOTAL 28 100
Marketing Costs Structure for Corn 9 Business ownership. In Isabela and Cagayan, majority or 28 trader-respondents operated/ran their own business under single proprietorship category. Two of the respondents were into a partnership and a corporation.
Of the three feed mills in Nueva Ecija, one operated on a partnership basis while two were registered as corporation (Table 5).
Table 5. CORN: Distribution of trader-respondents by type of business ownership, by province, 2000
Type of Ownership Isabela Cagayan Nueva Ecija Total Percent
Single proprietorship 15 13 28 85
Partnership 1 1 2 6
Corporation 1 2 3 9
TOTAL 17 13 3 33 100
Length of experience. The study considered length of experience as an important gauge in the estimation of costs. It is hypothesized that longer experience enables traders to estimate costs more precisely.
Most of the traders in Isabela revealed that they have been in corn trading from 1 to 15 years. Only one reported operational for more than 21 years. Trader-respondents from Cagayan have between 6-10 years experience in corn trading. The feedmills in Nueva Ecija were relatively new having been into corn trading for 1 to 5 years (Table 6).
Marketing Costs Structure for Corn 10 Table 6. CORN: Distribution of trader-respondents, by length of experience, by province, 2000
Years in Business Isabela Cagayan Nueva Ecija Total Percent
1 - 5 4 1 3824
6 - 10 6 8 14 43
11 - 15 6 1 7 21
16 - 20 2 2 6
21 and above 1 1 2 6
TOTAL 17 13 3 33 100
Nature of capitalization. The amount and nature of the source of working capital give the traders an allowance on the amount that he can pay for certain cost items. About 73% of the traders were self-financed while 27% were under financing (Table 7).
Table 7. CORN: Distribution of trader-respondents, by type of marketing participant, by nature of capitalization, 2000
PA-LD/ Feed Nature of Capitalization RA-LD PA-MD/ Retailer Total Percent mill MA-LD
9 8 7 24 73 Self-Financed 2 4 3 9 27 Under Financing
TOTAL 11 12 7 3 33 100
Marketing Costs Structure for Corn 11 Marketing Practices and Functions
Farmers and traders perform marketing practices and functions that add value to the product. Correspondingly, they incur certain amount of costs for value-adding, transfer of ownership and for moving the products from one point to another. The major practices and functions and the corresponding marketing costs are described in the succeeding topics.
Procurement
Traders in Isabela procured corn grain from all possible producing barangays within the province and from the adjacent province of Cagayan.
Manner of procurement. Assembler-distributors in Isabela and Cagayan either picked-up or delivered corn. During periods when supply was low, traders picked up the corn from the supply areas.
Luzon traders who supply corn to the feedmills in Nueva Ecija delivered the corn straight to the warehouse. When local supply of corn is low, feedmills purchase corn from Mindanao for pick-up from the seaport or pier. They also picked up imported corn from the seaport (Table 8).
Table 8. CORN: Distribution of respondents by mode of delivery for procurement, 2000
PA-LD/ Feed Mode of Delivery RA-LD PA-MD/ Retailer Total Percent mill MA-LD
1 4 7 12 36 Pick-Up 6 6 12 36 Delivered 4 2 3 9 28 Both
TOTAL 11 12 7 3 33 100
Marketing Costs Structure for Corn 12 Mode of payment. The two major types of payment were cash and delayed payment of two days to a maximum of one week. Farmers received payment in cash. However, there were instances when payment was done on the next procurement schedule/day.
In Isabela and Cagayan, majority of the traders paid their suppliers in cash most of the time. Feedmills paid in cash and deferred payment from 30 to 60 days. A fee of 10% was being retained for collection in the next delivery or upon completion of the purchase order (Table 9).
Table 9. CORN: Distribution of respondents by mode of payment for procurement, 2000
PA-LD/ Feed Mode of Payment RA-LD PA-MD/ Retailer Total Percent mill MA-LD
Cash 8 12 5 25 76
Delayed Payment 1 1 9
Both 2 237 15
TOTAL 11 12 7 3 33 100
Distribution
Most of the time, traders from Isabela and Cagayan sold corn grain outside the province. The mode of delivery and terms of payment depended on the agreement between the buyer and the seller.
Mode of delivery. The mode of delivery for distribution or selling depended on the type of buyer and the location. Traders in Isabela and Cagayan delivered truckloads of corn to buyers. Consumers or buyers of retailers picked up corn grits from the stall.
Marketing Costs Structure for Corn 13 Buyers picked up the product purchased from the feedmills. Table 10 presents the number and percentage distribution of traders by mode of delivery.
Table 10. CORN: Distribution of respondents by mode of delivery for distribution, 2000
PA-LD/ Feed Mode of Delivery RA-LD PA-MD/ Retailer Total Percent mill MA-LD
Pick-Up 11 7 18 55
Delivered 11 11 33
Both 1 3 4 22
TOTAL 11 12 5 3 33 100
Mode of payment. The mode of payment for the commodity sold was different from the mode of payment for supply procurement. Although traders would want cash payment most of the time, the volume of delivery necessitates staggered payment particularly if the buyers were feedmills. In addition to cash payment, Isabela traders accepted delayed payment, of which the length of time varies depending on the agreement between parties. Big traders (assembler-distributors) could afford to accept delayed payment from 30 to 60 days. In Cagayan, however, traders received payment in cash. Feedmills also received payment in cash and delayed payment (Table 11).
Marketing Costs Structure for Corn 14 Table 11. CORN: Distribution of trader-respondents by mode of payment for distribution, 2000
PA-LD/ Feed Mode of Payment RA-LD PA-MD/ Retailer Total Percent mill MA-LD
Cash 7 4 3 14 42
Delayed Payment 1 4 4 9 27
Both 3 4 3 10 31
TOTAL 11 12 7 3 33 100
Geographic Flow
Table 12 shows the tabular presentation of sources and destinations of corn in the study areas. Figure 2 illustrates the flow of corn from Isabela. In Isabela, there are three major trading centers – Cauayan, Roxas and Ilagan. The corn supply in these trading centers can come from producing barangays and nearby municipalities. Cauayan, being the center where big traders are located, got supply of corn from all producing municipalities and outside the province, i.e. Pangasinan and Mindanao.
In Cagayan, Tuguegarao trading center sourced corn from its producing barangays and nearby municipalities. Corn in Nueva Ecija came from all possible sources in Luzon and from Mindanao provinces.
Marketing Costs Structure for Corn 15 Cagayan
La Union Isabela Pangasinan
Nueva Ecija Pampanga Bulacan Metro Manila
Batangas
Figure 2. Geographic Flow of Corn, Selected Provinces, 2000.
Marketing Costs Structure for Corn 16 Table 12. CORN: Sources and destinations by area, by province, 2000
Source Destination Province Within the province Outside the Within the Outside the Province Province Province
Isabela Ilagan Brgy. Salindigan, Cauayan Sta. Victoria, San Pampanga Antonio, Gamu, Metro Manila Quirino, Cauayan Batangas
Roxas Barangay in Roxas
Echague Barangay Pag-asa, Bulacan Damang East, Pampanga Joron, San Agustin, La Union Santiago Pangasinan Metro Manila
Cauayan Gordon, Santiago, Pangasinan Bulacan Jones Mindanao Pampanga
Cagayan Tuguegarao Cagayan, Amulong, Bulacan Solano, Bagas, Batangas Tuao, Pangkalan, Metro Manila Piat, Rizal
Nueva Ecija Cabanatuan City Isabela Cagayan Bulacan Mindanao
Marketing Channels
The bulk of corn produced in Isabela was intended for selling as corn grain outside the province. It is used as a main ingredient in the manufacture of feeds for livestock and poultry.
Marketing Costs Structure for Corn 17 Figure 3 illustrates the flow of corn from the farmer to the processor’s (feed mill) level. The farmer sold to the agent at the supply area or to the assembler-distributors in the trading centers. These assembler-distributors in turn sold directly to the feed mill. Those who were not able to get “purchase order” from the feedmills maintained an agent who is responsible for finding a feed mill that offers competitive price.
Feed Mill
Agent
RA-LD
MA-LD PA-MD PA-LD
Agent
Farmer
Figure 3. Marketing Channels for Corn, Isabela, 2000
Marketing Costs Structure for Corn 18 Marketing Costs Structure forC
Practice/Activity/ CostMarket Price* Minimum Feed Mill Cost Item (P/kg) Trader Price Margin* (P/kg) (P/kg)
Total 2.894 Feed Mill 8.00 0.24
Agent 0.02
Drying 0.410 Handling in procurement 0.300 Handling in distribution 0.140 orn RA-LD Other labor costs 0.051 A-Ds 7.50 0.10 Transportation - procurement 0.330 - distribution 0.520 Miscellaneous 0.604 Material Inputs 0.067 Depreciation 0.032
MA-LD PA-MD PA-LD 0.10
Agent 0.02
Shelling 0.250 Drying 0.12 Transporting 0.190 Farmer's 4.50 Farmer Selling Price
* Based on actual interview of traders, December 2000
19 Figure 4. Marketing Costs for Corn, by level of marketing participants, Isabela, 2000 Marketing Costs Structure forCorn
Study Results Market Price* NFA monitoring (Isabela) Feed Mill Practice/Activity Amount Marketing Price Practice/Activity/ Amount Cost Item (P/kg) Participant (P/kg) Cost Item (P/kg)
Estimated Selling Estimated Selling 7.55 Price w/o margin (buying 7.39 Feed Mill 8.00 Price (Buying price + total costs) (buying) price + total costs) Agent Total Costs 2.894 Total Costs 1.05
Drying 0.410 Distribution 0.74 Handling in procurement 0.300 Handling (loading) 0.08 Handling in distribution 0.140 Transportation 0.55 RA-LD Other labor costs 0.051 A-D 7.50 Storage 0.07 Transportation (Selling) Handling (unloading) 0.03 - procurement 0.330 Interest on loan 0.01 - distribution 0.520 Miscellaneous 0.604 Material Inputs 0.067 Depreciation 0.032 Procurement 0.31 Handling 0.08 MA-LD PA-MD PA-LD Transportation 0.10 Storage 0.03 Sack Depreciation 0.03 Insurance 0.04 Interest on loan 0.03
Agent Transporting 0.190 Shelling 0.250 Drying 0.12
Buying Price 4.50 Farmer 4.50 Buying Price 6.50 Farmer (Selling)
* Based on actual interview of traders, December 2000
Figure 5. Comparative Marketing Costs for Corn in Isabela (BAS & NFA) 20 Marketing Costs
Marketing corn from the farm level to the processing level (feed mill) entails a number of costs items. The expenditure items include labor, transportation, material inputs, other operating expenses and depreciation. The succeeding topics describe the expenditure items and the corresponding costs as borne by the marketing participants in the transfer of the commodity from the farmer to the processor (feed miller). The items may be similar among certain level of marketing participants but the amount varies depending on the extent of business operations.
As Cagayan is more of a supply area rather than a trading center for Isabela, some expenditure in Cagayan are treated as costs before selling to assembler-distributors in Isabela.
Labor
Labor costs are the expenses incurred or paid for the services rendered in performing the activities undertaken from the farm to the processing level (feed mill). From the farm up to the trading center level, the activities are shelling, drying, warehousing, and handling. Table 13 presents the labor costs incurred by marketing participants in Isabela and Cagayan. Tables 13a and 13b give the detailed costs by type of marketing participants. Finding on labor costs also revealed the following:
Marketing Costs Structure for Corn 21 Table 13. CORN: Labor costs incurred by marketing participants, by province, 2000.
Practice/Activity/Cost Item Isabela Cagayan
peso per kilogram Shelling 0.25
Drying 0.41 0.06 Solar 0.22 0.06 Mechanical 0.19
Procurement 0.31 0.23 Handling 0.30 0.21 Piling 0.10 0.07 Loading a/ 0.10 0.07 Unloading b/ 0.10 0.07 Corn classification 0.01 0.02
Selling 0.141 Handling 0.14 Loading 0.10 Unloading 0.04 Weighing c/ 0.001 0.04
Salaries and Wages 0.04
TOTAL 1.151 0.33 a/ Loading of corn grains from the farm to the truck/vehicle. b/ Includes unloading and weighing. c/ Truckload is weighed using a truck scale.
! Shelling at the farm level is done at the farm level through the use of a gas-powered mechanical sheller. It costs 25 centavos per kilogram.
! Solar and mechanical drying is done to obtain the ideal moisture content of 14%. Drying costs 41 centavos in Isabela and 6 centavos in Cagayan.
! Traders hired laborers to perform handling activities for procurement and selling. The costs incurred were loading from the pick-up point on to the truck/vehicle, unloading at the trader’s point (usually at the warehouse) and piling or “kamada”
Marketing Costs Structure for Corn 22 inside the warehouse. For each move, handling cost an average of ten centavos per kilogram or about P5.00 per bag of 50 kilograms in Isabela.
! When dry and ready for selling, loading on to the vehicle was charged another ten centavos per kilogram.
! When corn was finally accepted at the feed mill, the whole truckload was weighed.
Weighing fee was 0.001 centavo per kilogram.
! Unloading at the destination point, usually at the feed mill cost lower (3 to 5 centavos or an average of 4 centavos per kilogram). There were laborers who regularly stand-by around the mill to offer services for a fee.
! In addition, traders maintained regular employees paid on a monthly basis costing the traders four centavos per kilogram.
Transportation
Transportation was a major consideration in moving the commodity from point to point and from one participant to another. The cost was based on the distance, the minimum of which was P5.00 per kilometer per bag. The transportation costs incurred by marketing participants in Isabela and Cagayan are presented in Tables 14, 14a and 14b. Findings on transportation costs revealed the following:
Marketing Costs Structure for Corn 23 Table 14. CORN: Transportation costs, by practice/activity, by province, 2000
Practice Isabela Cagayan peso per kilogram Pre-marketing 0.19 0.20 Procurement 0.33 0.11 Distribution/Selling 0.52 0.35
TOTAL 1.04 0.66
! Jeeps and trucks were used in transporting corn from the supply areas to the trader. ! From the supply area, farmers in Isabela incurred transportation costs at 19 centavos per kilogram while traders reported an average of 33 centavos for transportation in procurement of corn from the farm level. ! For distribution/selling, transportation costs amounted to 52 centavos per kilogram on the average via the Isabela to Bulacan/Manila/Rizal/Batangas route. ! In Cagayan, farmers incurred pre-marketing transportation costs of 20 centavos per kilogram. From the farmer to the trader’s level, transport costs were estimated at about 10 centavos. Traders spent 25 to 43 centavos or an average of 35 centavos in transporting corn to the feed mills.
Material Inputs
In corn trading, minimal material inputs were used. For procurement, the materials used were sack and tying materials. For selling, plastic bag and tying materials were utilized. Table 15 presents the materials inputs and their corresponding costs.
Marketing Costs Structure for Corn 24 Table 15. CORN: Cost of material inputs incurred, by marketing participants, by practice/activity/cost item, by province, 2000
Practice/ Materials Used Isabela Cagayan peso per kilogram Procurement Sack 0.06 0.055 Tying materials 0.002 0.002 Plastic bag
Selling Plastic bag 0.003 0.01 Tying materials 0.002
TOTAL 0.067 0.067
! In Isabela, the costs of the material inputs were minimal ranging from 0.2 centavos to 6 centavos per kilogram. ! In Cagayan, material inputs also cost less than 10 (P 0.067) centavos.
Miscellaneous and Other Operating Costs
Marketing participants further incurred miscellaneous and other operating expenses. Miscellaneous expenses paid even before the start of the business operations were securing NFA license and local government business permit. Other cost items included food expenses for hired laborers who performed shelling and drying. It also covered expenses for meals and snacks and beverage while transporting the commodity. Other items and their corresponding costs are presented in Table 16. Findings also indicated the following:
Marketing Costs Structure for Corn 25 Table 16. CORN: Miscellaneous and other operating expenses, by province, 2000
Item Isabela Cagayan
peso per kilogram Food 0.053 0.002 Rentals 0.15 0.01 NFA license 0.004 0.001 Local gov’t business permit* 0.014 0.004 Electricity 0.02 0.001 Shrinkage 0.007 Storage fee 0.15 0.003 Gas and oil 0.04 Weighing scale calibration fee 0.034 0.01 Office supplies 0.001 Communication 0.001 Repairs and maintenance 0.02 Insurance 0.03 Interest on loan 0.01 Agent’s commission** 0.07
TOTAL 0.604 0.031
* Local government business permit is estimated to be 10% of gross sales. ** Agent’s commission includes commission paid to agent for supply procurement and for linking with buyers/feed mills for traders who are not able to get purchase order from feed mills.
! NFA license and local government business permit were paid annually and were based on the volume of gross sales. In Isabela, these items cost around P0.004 and P0.014 for NFA license and local government business permit, respectively. In Cagayan NFA license and LGU permit cost around P 0.001 and P 0.004, respectively. ! Traders also paid for insurance of the vehicles and business building. The premium was based on location of the establishment. The charges were relatively higher in business centers. In Isabela it was estimated at 3 centavos per kilogram. ! Other operating expenses were paid, as the items or service were used/availed. In Isabela, the items and their corresponding costs were electricity (0.02), gas and oil (0.04), office supplies (0.001), communication (0.001), repairs and maintenance
Marketing Costs Structure for Corn 26 (0.02), shrinkage/wastage (0.007), storage (0.15), weighing scale calibration (0.034). ! Traders engaged the services of agents. In reference to traders, there are two levels of agent. One for procurement or between farmer and assembler- distributors, and the other one for distribution or selling between assembler- distributor and feed millers. For both levels, an agent was paid 7 centavos per kilogram on the average. ! Traders also acquired loans from banks for business operations. They paid an average of one centavo per kilogram for interest. ! In Cagayan, the miscellaneous and operating expenses were minimal.
Depreciation
Depreciation is the value given to the use of a fixed asset for a given period. The study imputed depreciation costs for fixed assets (such as buildings), tools and equipment used in marketing of corn. The costs were considerably minimal at 3.2 centavos and 5.2 centavos per kilogram in Isabela and Cagayan, respectively (Table 17).
Marketing Costs Structure for Corn 27 Table 17. CORN: Imputed costs of depreciation, by province, 2000
Facility/Equipment/Tool Isabela Cagayan
peso per kilogram Rake 0.01 0.002 Scooper 0.001 0.006 Container 0.002 Weighing scale 0.001 0.04 Office equipment 0.001 Mechanical dryer 0.001 Push cart 0.001 Table 0.012 Sampler (“buriki”) a/ Building (office/warehouse) 0.001 Vehicle 0.001 Communication facilities 0.001 Umbrella 0.002 Rent (tolda) 0.002
TOTAL 0.032 0.052 a/ less than 0.001
Aggregated Marketing Costs
The costs items were aggregated according to cash outlay, classified into cash and non-cash/imputed. Table 18 presents the aggregated costs by cash outlay. Cash costs consist of labor, material inputs, and other operating expenses. Non-cash costs include depreciation. In Isabela, cash costs totaled P 2.862 per kilogram and non-cash costs amounted to P 0.032 per kilogram. In Cagayan, the costs were P 1.09 and P 0.052 for cash and non-cash, respectively.
Total Marketing Costs
Table 19 presents the amount of major costs components incurred in Isabela and Cagayan. The significant findings regarding these were indicated as follows:
Marketing Costs Structure for Corn 28 Table 18. CORN: Total marketing costs, by province, 2000
Cost Component Isabela Cagayan peso per kilogram Labor 1.151 0.33
Transportation 1.04 0.66
Material Inputs 0.067 0.067
Miscellaneous and other 0.604 0.031 operating expenses
Imputed Costs (depreciation 0.032 0.052
TOTAL 2.894 1.14
! The total costs borne by marketing participants were about P 2.90 per kilogram in Isabela and P1.14 in Cagayan. In Isabela, labor accounted for the biggest share of the cost at P1.151 while in Cagayan transportation got the biggest share of 66 centavos per kilogram.
! The second cost item for which traders spent more was transportation (P1.04) for Isabela and labor (P0.33) in Cagayan.
! Traders incurred the lowest cost for depreciation at P0.032 in Isabela and P0.052 in Cagayan.
VII. PROBLEMS/CONSTRAINTS ENCOUNTERED
Farmers and traders encountered numerous problems in corn marketing. These problems are enumerated in Table 19.
Marketing Costs Structure for Corn 29 Table 19. CORN: Common problems encountered by marketing participants, Isabela and Cagayan, 2000
Problem Isabela Cagayan
1) Poor quality commands low price 9 2 2) Unpredictable weather condition 1 2 3) Lack of information on frequent price 2 1 fluctuation 4) Corn importation 11 15 5) High interest rates 2 4 6) Risk in accepting check payment 3 7 7) Poor farm to market roads 2 1 8) Insufficient capital for procurement 2 1 9) Lack of drying facilities 3 3
! For both Isabela and Cagayan, the most common problem encountered by marketing participants was corn importation. Traders stated that most of the feed millers preferred to buy imported corn because of its quality and price, which was cheaper than corn produced in the area.
! Farmers in Isabela complained of low price received for corn. However, they were aware that the quality of corn affected the market price of their product.
! Traders in Cagayan preferred payment in cash as there was always the risk in accepting check payment.
VIII. MONITORING OF MARKETING COSTS DATA BY THE NATIONAL FOOD AUTHORITY
The National Food Authority monitors the marketing costs of corn in major supply provinces on a monthly basis. The areas of coverage are Isabela and Cagayan in Luzon; and North Cotabato, Bukidnon, South Cotabato and Sultan Kudarat in Mindanao. The NFA monitors costs as borne by commercial traders, and costs incurred by the NFA.
Marketing Costs Structure for Corn 30 In Isabela, commercial traders incurred costs in their procurement and distribution activities. The components of the marketing costs for procurement were handling (for loading of sacks of corn into the vehicle), trucking or transportation, storage, sack depreciation, insurance, interest on loan or the cost of money. For distribution, the cost components were handling (unloading and loading), trucking, storage and interest on loan.
In December 2000, the procurement costs amounted to 31 centavos per kilogram while distribution costs was imported at 74 centavos per kilogram. The total costs were around P1.05 per kilogram (Figure 5).
The computed selling price (ex-wholesaler) was about P7.55 per kilogram. This amount was quite close to the result of the BAS marketing costs study at P7.39 (P4.50 buying price + total costs of P2.89).
IX. CONCLUSIONS AND RECOMMENDATIONS
The study covered only three provinces – Isabela, Cagayan and Nueva Ecija. The conclusions and recommendations were confined or based on the results and findings in these areas.
Tracing Approach
The general tracing approach started from the farm or the supply level to the demand level or retail market. The study traced the flow of yellow corn that was used as main ingredient in the manufacture of feeds for livestock and poultry. This indicates that the final destination of corn in its grain form was the processor. Thus, the tracing approach employed in the study ends at the processing level or at the feed mills.
In conducting similar studies in the future, the procedures will depend on the major form by which corn is marketed at specific areas. For instance, if corn is
Marketing Costs Structure for Corn 31 consumed as rice substitute in major corn eating provinces, the tracing approach ends at the retail markets. Marketing Costs
The study traced the costs involved in moving corn produced in Isabela. Based on BAS data, corn is produced in large quantities in some provinces in Mindanao. The feed millers in Luzon also sourced corn from Mindanao provinces. The study covered only the costs in marketing corn from Isabela. In the conduct of similar studies in the future, the study recommends to cover Mindanao provinces to determine the costs involved in the performance of activities in the inter-island movement of the commodity.
Marketing Costs Structure for Corn 32 ANNEX Table 13a. CORN: Labor costs incurred by marketing participants, by activity/practice, Isabela, 2000
Practice/Activity/Cost Farmer RA-LD PA-LD MA-LD Retailer Item peso per kilogram Shelling 0.25
Drying 0.12 0.54 0.20
Solar 0.12 0.35 0.20
Mechanical 0.19
Procurement 0.31 0.30 0.30
Handling 0.10 0.10
Piling 0.10 0.10 0.10
Loading a/ 0.10 0.10 0.10
Unloading b/ 0.10
Corn classification 0.01
Selling 0.151 0.131 0.02
Handling 0.02
Loading 0.10 0.10
Unloading 0.05 0.03
Weighing c/ 0.001 0.001
Salaries and Wages 0.03 0.04
TOTAL 0.37 1.03 0.67 0.30 0.02 a/ Loading of corn grains from the farm to the truck/vehicle. b/ Includes unloading, weighing, piling (“kamada”). c/ Whole truckload is weighed using a truck scale.
Marketing Costs Structure for Corn 34 Table 13b. CORN: Labor costs incurred by marketing participants, by activity/practice, Cagayan, 2000
Practice/Activity/Cost Item RA-LD PA-LD PA-MD
peso per kilogram
Procurement 0.19 0.07 0.08
Handling 0.19 0.07 0.04
Loading 0.10 0.04
Unloading 0.09
Piling 0.07
Drying 0.06
Corn classification 0.02
Salaries and wages 0.04
TOTAL 0.25 0.13 0.08
Table 14a. CORN: Transportation costs incurred by marketing participants, Isabela, 2000
Practice Farmer RA-LD PA-LD MA-LD peso per kilogram Pre-marketing 0.19 Procurement 0.40 0.30 0.30 Distribution/Selling 0.50 0.57 0.50
TOTAL 0.19 0.90 0.87 0.80
Marketing Costs Structure for Corn 35 Table 14b. CORN: Transportation costs incurred by marketing participants, Cagayan, 2000
Practice Farmer RA-LD PA-LD PA-MD peso per kilogram Pre-marketing 0.20
Procurement 0.11 0.11 0.10
Distribution/Selling 0.43 0.38 0.25
TOTAL 0.20 0.54 0.49 0.35
Table 15a. CORN: Cost of material inputs incurred, by marketing participants, Isabela, 2000
Item Farmer RA-LD PA-LD MA-LD Retailer peso per kilogram Procurement Sack 0.06 0.06 0.06 0.06 Tying materials 0.002 0.002 0.002 0.002
Selling Plastic bag 0.003 Tying materials 0.002 0.002 0.002
TOTAL 0.062 0.064 0.064 0.064 0.003
Marketing Costs Structure for Corn 36 Table 15b CORN: Cost of material inputs incurred, by marketing participants, Cagayan, 2000
Item RA-LD PA-LD/ PA-MD Retailer peso per kilogram Procurement Sack 0.05 0.06 0.07 Tying materials 0.002 0.002 Plastic bag
Selling Plastic bag 0.01
TOTAL 0.052 0.062 0.08
Table 16a. CORN: Miscellaneous and other operating expenses incurred, by marketing participants, Isabela, 2000
PA-LD/ Item Farmer RA-LD Retailer MA-LD peso per kilogram Food 0.07 0.03 0.06 Rentals 0.04 0.26 NFA license 0.002 0.01 0.002 Local gov’t business 0.003 0.01 0.03 permit* 0.01 0.004 0.05 Electricity 0.01 0.003 Shrinkage 0.15 Storage fee 0.01 0.07 Gas and oil 0.004 0.02 0.01 Weighing scale calibration 0.001 0.001 fee 0.001 0.001 Office supplies 0.02 Communication 0.03 0.03 Repairs and maintenance 0.01 0.01 Insurance 0.06 0.08 Interest on loan Agent’s commission**
TOTAL 0.11 0.581 0.319 0.092
* Approximately 10% of gross sales. ** Includes commission paid to agent for supply procurement and for linking buyers/feed mills to traders who are not able to get purchase order from feed mills.
Marketing Costs Structure for Corn 37 Table 16b. CORN: Miscellaneous and other operating expenses incurred, by marketing participants, Cagayan, 2000
PA-LD/ Item RA-LD Retailer PA-MD peso per kilogram Food 0.002 0.002 Rent 0.01 Local govt business permit 0.003 Electricity 0.001 0.01 0.004 NFA license 0.001 0.001 0.001 Weighing scale calibration 0.006 0.009 0.001
TOTAL 0.013 0.022 0.016
Table 17a. CORN: Imputed costs of depreciation incurred, by marketing participants, Isabela, 2000
Facility/Equipment/Tool Farmer RA-LD PA-LD/MA-LD Retailer peso per kilogram Rake 0.01 a/ a/ Scooper 0.01 a/ a/ a/ Container 0.02 Weighing scale 0.004 0.004 Office equipment 0.001 0.001 Mechanical dryer 0.001 Push cart 0.001 0.001 Table 0.012 Sampler (“buriki”) a/ a/ Building (office/warehouse) 0.001 0.001 Vehicle 0.001 0.001 Communication facilities 0.001 0.001
TOTAL 0.04 0.10 0.09 0.012 a/ less than 0.001.
Marketing Costs Structure for Corn 38 Table 17b. CORN: Imputed costs of depreciation incurred by marketing participants, Cagayan, 2000
ITEM RA-LD PA-LD/ PA-MD Retailer
peso per kilogram Rake 0.002 0.002
Scooper 0.002 0.006 0.008
Weighing scale 0.03 0.05 0.03
Sampler (‘buriki”) a/ a/
Umbrella a/ a/ 0.05
Tent (tolda) a/ a/ 0.04
TOTAL 0.034 0.058 0.13 a/ less than 0.001.
Marketing Costs Structure for Corn 39 Table 20. CORN: Marketing costs structure (cash costs and imputed costs), by province, 2000
Cost Item Isabela Cagayan peso per kilogram Cash Costs 2.862 1.09
Labor 1.151 0.33 Shelling 0.25 Handling 0.44 0.21 Corn classification 0.01 0.02 Weighing 0.001 Drying 0.41 0.06 Salaries and wages 0.04 0.04
Transportation 1.04 0.66 Pre-marketing 0.19 0.20 Procurement 0.33 0.11 Distribution 0.52 0.35
Material Inputs 0.067 0.067 Sack 0.06 0.055 Tying materials (twine) 0.004 0.002 Plastic bag 0.003 0.01
Other Operating Expenses 0.604 0.03 Food 0.053 0.002 Rental 0.15 0.01 NFA license 0.004 0.001 Business permit/license b/ 0.014 0.004 Electricity/Light 0.02 0.001 Shrinkage/wastage 0.007 Storage fees 0.15 0.003 Gas and oil 0.04 Weighing scale calibration 0.034 0.01 Office supplies 0.001 Communication 0.001 Repairs and maintenance 0.02 Insurance 0.03 Interest on loan 0.01 Agent’s commission 0.07
Marketing Costs Structure for Corn 40 Table 20 (continued)
Non-Cash Cost 0.032 0.052
Imputed Cost (Depreciation) 0.032 0.052 Rake 0.01 0.002 Scooper 0.001 0.006 Container 0.002 Weighing scale 0.001 0.04 Office equipment 0.001 Mechanical dryer 0.001 Push cart 0.001 Table 0.01 Sampler (“buriki”) a/ a/ Building (office/warehouse) 0.001 Vehicle 0.001 Communication facilities 0.001 Umbrella 0.002 Tent (“tolda”) 0.002
TOTAL 2.894 1.14 a/ Less than 0.001. b/ Approximately 10% of gross sales.
Marketing Costs Structure for Corn 41