Scale and access issues affecting smallholder hog producers in an expanding peri-urban market: Southern Luzon, Philippines

Among all sectors in the Philippine agricultural economy, livestock exhibited the fastest and most consistent growth (4.6 percent on average per year) in the 1990s and well into the twenty-first century, steadily increasing its share of contribution to gross value added in agriculture from 18 percent in 1990 to 24 percent by 2003. The expansion of the industry has been propelled mainly by growth in domestic demand for meat in general, and for pork in particular, fueled by a still-rapid population growth, increased urbanization, and modest improvements in per capita income, particularly in the national capital and in major urban centers in the provinces around the Metropolitan Manila area.

Pig production is the largest contributor to meat output in the Philippines. It is also an economic activity in which smallholders still dominate, accounting for close to 80 percent of total pig inventories. The strong growth in demand for pork presents a potential for increasing income opportunities, and therefore for poverty alleviation among rural and agricultural households in the Philippines, where rural poverty incidence for families remains high at 40.3 percent. In the two major hog-producing regions of Southern and Central Luzon adjacent to the national capital, however, the observed trends depict a more rapid decline in the share of smallholder pig producers in regional output, such that by 2003, smallholders held the minority share. In these two regions, although the number of registered commercial pig farms significantly increased, the number of farms raising pigs declined between the 1990s and 2000s. These numbers suggest a scaling up of larger farms and a displacement of smaller ones.

The more rapid growth in larger commercial farms is not solely premised on the existence of economies of scale in production but is attributed, in large part, to the commercial sector being able to escape or at least overcome transaction costs that cannot be handled as easily by small producers. In addition, the cost advantage of large farms over small ones is also hypothesized to stem from their ability to access privileged prices of crucial inputs that are linked to policy subsidies.

The more rapid growth in larger commercial farms is not solely premised on the existence of economies of scale in production but is attributed, in large part, to the commercial sector being able to escape or at least overcome transaction costs that cannot be handled as easily by small producers. In addition, the cost advantage of large farms over small ones is also hypothesized to stem from their ability to access privileged prices of crucial inputs that are linked to policy subsidies.

The poverty implications of the displacement of smallholders in the market raise important social questions. This report attempts to respond to these questions by investigating empirical evidence about the scale and access issues that affect smallholders. The study employs two methods to quantify the contributions of market forces and policies affecting the scale of livestock-production operations. Then it relates each contribution to measures that can be taken to overcome transaction cost barriers and policy distortions faced by smallholders that tend to ease them out of mainstream markets for their output and consign them to marginal ones.