In a recent study, Delgado et al. (1999) reported that from the early 1970s to the mid-1990s, consumption of meat and milk in the developing countries increased by 175 million tonnes, more than twice the increase that occurred in developed countries. For the year 1990, they calculated that the market value of that increase in meat and milk consumption totals approximately US$ 155 billion, more than twice the market value of increases in cereals consumption under the Green Revolution. They argue that population growth, urbanisation and income growth that fuel the increase in meat and milk consumption are expected to continue over the next several decades, creating a veritable livestock revolution. This revolution presents new and expanding market opportunities for smallholder livestock producers. Delgado et al. (1999) projected that per capita consumption of meat and milk will increase by about 50% from 1993 to 2020, and that developing countries, where at least three-fourths of livestock production come from smallholder/backyard producers, will produce about 60% of all meat products and 52% of all milk products. Inappropriate policies and misallocation of investment resources could, however, skew the distribution of the benefits and opportunities away from the smallholders who would potentially gain the most from this revolution. In this context, a search for policies designed to effect benefits to smallholders seems appropriate and this is one main objective of this paper.
Improving access to markets to benefit from the rapidly growing demand for livestock products is one option that policy-makers must consider. However, its consideration is complicated by the potentially offsetting effects of transactions costs, labour mobility, opportunities for off-farm employment and the competing impacts that physical, financial and intellectual capital accumulation may have when diverse opportunities for resource allocation are present. For example, smallholders generally have inadequate capital resources—including, physical and financial resources, and also intellectual capital resources such as experience, education and extension—that limit their ability to diversify farm activities. When an increase in the capital stock arises, for example, through an increase in education levels, and alternative employment opportunities exist, it is unclear what the impacts of the increased capital stock will be on participation and supply in livestock markets. Similar arguments exist in the context of examining increases in incomes from alternative sources, such as remittances and other farm activities. When alternative employment opportunities exist it is unclear what the allocation towards the market will be. In short, alternative employment prospects complicate policy analysis about market participation and supply decisions.
Additional issues further complicate policy design. For example, the inability of smallholder producers to take advantage of economies of scale in production and marketing is a significant impediment to participation. Because large producers are better able to take advantage of scale effects, blanket policies such as price supports are often biased towards them because such policies often favour physically and financially capital-intensive production systems. In addition, smallholders are often disadvantaged due to poor access to information and market-precipitating services such as visits by extension agents and credit assistance and these impediments often give rise to low rates of adoption of improved technologies that could potentially increase productivity. Likewise, poor infrastructure often increases the transactions costs of smallholder market participation and is an open question as to the design of appropriate policies in this context.
This study provides an empirical basis for identifying options to increase the participation of smallholders in livestock markets in The Philippines. Our sub-national focus is prompted by the availability of detailed data on transactions costs, labour mobility and capital formation across a set of households, some of which participate in livestock production and marketing activities and some, which do not. In this context we provide precise evidence on the offsetting impacts of competing factors on the joint decisions to participate in a market and furnish positive supply. While the policy prescriptions have, arguably, a narrower purview, the methodologies employed have broader implications for market participation and supply analysis in the context of household production data.
Section 2 of this paper presents a simple framework for investigating market participation and supply decisions that lends itself to traditional probit and Tobit estimation. Section 3 briefly discusses a multivariate extension of the basic model and presents the estimation algorism. Section 4 introduces the empirical application; and Section 5 presents results. Conclusions are offered in Section 6.
