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MARKETING COSTS STRUCTUREFOR CORN

Marketing Costs Structure for Corn iii

FOREWORD

Domestic production of agricultural commodities finds its way in the market. Inthe course of trading, the product passes through various marketing channels. Themarket flow varies from a very simple one to a more complex set-up depending on thenature and usage of the commodity. There are basic factors that influenced the level andstructure of the costs involved in the movement of the product. It is therefore importantto better understand the interplay between and among the market players and where theyare based as major considerations in the formulation of the types of interventions toimprove efficiency.

To address this concern, the Bureau of Agricultural Statistics (BAS) through itsAgricultural Marketing Statistics Analysis Division (AMSAD) conducts studies onmarketing costs structure for selected high value commercial crops in specific supply andtrading areas. This undertaking aims to provide information on the charges that eachparticipant in the marketing chain incurs in carrying out the marketing process. Theresults of these studies will be presented in a serialized report featuring one commodity ineach series.

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………………………………………………………………………6Distribution of Respondents……………………………………………………………… 6Profile of Respondents…………………………………………………….……………… 7Marketing Practices and Functions……………………………………….……………… 12

Procurement …………………………………………………………………………… 12Distribution ………………………………………………………………………………13

Geographic Flow………………………………………………………..…………………15Marketing Channels……………………………………………………..…………………17Marketing Costs……………………………………………………………………………21

Labor ………………………………………………………………….…………………21Transportation ………………………………………………………………………… 23Material Inputs …………………………………………………………………………26Miscellaneous and Other Operating Costs ………………………………………………25Depreciation ……………………………………………………………………………27Aggregated Marketing Costs …………………………………………….………………28Total 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

TABLE OF CONTENTS

Marketing Costs Structure for Corn iv

1 CORN: Distribution of respondents, by type, byprovince/municipality, 2000 7

2 CORN: Distribution of respondents, by type ofmarketing participants, by province, 2000 8

3 CORN: Number and percentage distribution ofrespondents by farm size, Isabela, 2000 9

4 CORN: Number and percentage distribution offarmer-respondents, by type of landownership, Isabela, 2000 9

5 CORN: Distribution of trader-respondents by typeof 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 typeof marketing participant, by nature ofcapitalization, 2000 11

8 CORN: Distribution of respondents by mode ofdelivery for procurement, 2000 12

9 CORN: Distribution of respondents by mode ofpayment for procurement, 2000 13

10 CORN: Distribution of respondents by mode ofdelivery for distribution, 2000 14

11 CORN: Distribution of trader-respondents by modeof payment for distribution, 2000 15

12 CORN: Sources and destinations by area, byprovince, 2000 17

STATISTICAL TABLES

Marketing Costs Structure for Corn v

13 CORN: Labor costs incurred by marketingparticipants, by province, 2000 22

14 CORN: Transportation costs, by practice/activity, byprovince, 2000 24

15 CORN: Cost of material inputs incurred, bymarketing participants, bypractice/activity/cost item, by province,2000 25

16 CORN: Miscellaneous and other operatingexpenses, 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 andCagayan, 2000 30

20 CORN: Marketing costs structure (cash cost andimputed cost), by province, 2000 40

Marketing Costs Structure for Corn vi

13a CORN: Labor costs incurred by marketingparticipants, by activity/practice, Isabela, 34

13b CORN: Labor costs incurred by marketingparticipants, by activity/practice, Cagayan,2000 35

14a CORN: Transportation costs incurred by marketingparticipants, by activity/ practice, Isabela,2000 35

14b CORN: Transportation costs incurred by marketingparticipants, by activity/ practice, Cagayan,2000 36

15a CORN: Cost of material inputs, by marketingparticipants, Isabela, 2000 36

15b CORN: Cost of material inputs, by marketingparticipants, Cagayan, 2000 37

16a CORN: Miscellaneous and other operatingexpenses, by marketing participants, Isabela,2000 37

16b CORN: Miscellaneous and other operatingexpenses, by marketing participants,Cagayan, 2000 38

17a CORN: Imputed costs of depreciation, by marketingparticipants, Isabela, 2000 38

17b CORN: Imputed costs of depreciation, by marketingparticipants, Cagayan, 2000 39

ANNEX

Marketing Costs Structure for Corn vii

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

LIST OF FIGURES

Marketing Costs Structure for Corn viii

Marketing Costs Structure for Corn 1

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.


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.

Figure 1. Tracing Approach

SupplyArea 1

TradingCenter

SupplyArea 2

Demand Center/Processing Level


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.


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.


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.


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.


Table 1. CORN: Distribution of respondents, by type,by province/municipality, 2000

Province/Municipality Farmer Trader Total

IsabelaIlaganEchagueCauayanSantiagoRoxas

Cagayan

Nueva EcijaMunozSan LeonardoCabanatuan

28

1612

17

63422

13

3

111

45

2215422

13

3

111

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.


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/PA-MD/Province Farmer RA-LDMA-LD

Retailer Feedmiller Total Percent

Isabela

Cagayan

Nueva Ecija

28

xxxxxxx

xxxxxxx

7

4

6

6

4

3

3

45

13

3

74

21

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


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 respondentsby farm size, Isabela, 2000

Farm Size (In hectare) Number Reporting Percent

1 and below

1.01 – 5.00

Above 5 ha.

3

22

3

11

78

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

Tenant

24

4

86

14

TOTAL 28 100


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

Singleproprietorship

Partnership

Corporation

15

1

1

13

1

2

28

2

3

85

6

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).


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

6 - 10

11 - 15

16 - 20

21 and above

4

6

6

1

1

8

1

2

1

3 8

14

7

2

2

24

43

21

6

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/PA-MD/Nature of Capitalization RA-LDMA-LD

Retailer Feedmill Total Percent

Self-Financed

Under Financing

9

2

8

4

7

3

24

9

73

27

TOTAL 11 12 7 3 33 100


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 deliveryfor procurement, 2000

PA-LD/PA-MD/Mode of Delivery RA-LDMA-LD


Pick-Up

Delivered

Both

1

6

4

4

6

2

7

3

12

12

9

36

36

28

TOTAL 11 12 7 3 33 100


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 paymentfor procurement, 2000

PA-LD/PA-MD/Mode of Payment RA-LDMA-LD

Retailer Feedmill

Total Percent

Cash

Delayed Payment

Both

8

1

2

12 5

2 3

25

1

7

76

9

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.


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 deliveryfor distribution, 2000

PA-LD/PA-MD/Mode of Delivery RA-LDMA-LD


Pick-Up

Delivered

Both

11

11

1

7

3

18

11

4

55

33

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).


Table 11. CORN: Distribution of trader-respondents by mode of paymentfor distribution, 2000

PA-LD/PA-MD/Mode of Payment RA-LDMA-LD


Cash

Delayed Payment

Both

7

1

3

4

4

4

3

4

3

14

9

10

42

27

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.

Figure 2. Geographic Flow of Corn, Selected Provinces, 2000.

Isabela

Nueva Ecija

BulacanPampanga

Metro Manila

Batangas

Pangasinan

La Union

Cagayan



Table 12. CORN: Sources and destinations by area, by province, 2000

Source DestinationProvince Within the province Outside the

ProvinceWithin theProvince

Outside theProvince

Isabela Ilagan

Roxas

Brgy. Salindigan,Sta. Victoria, SanAntonio, Gamu,Quirino, Cauayan

Barangay in Roxas

CauayanPampangaMetro ManilaBatangas

Echague

Cauayan

Cagayan Tuguegarao

Nueva Ecija Cabanatuan City

Barangay Pag-asa,Damang East,Joron, San Agustin,Santiago

Gordon, Santiago,Jones

Cagayan, Amulong,Solano, Bagas,Tuao, Pangkalan,Piat, Rizal

PangasinanMindanao

IsabelaCagayanBulacanMindanao

BulacanPampangaLa UnionPangasinanMetro Manila

BulacanPampanga

BulacanBatangasMetro Manila

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.


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.

Farmer

PA-LDPA-MDMA-LD

RA-LD

Feed Mill

Agent

Agent

Figure 3. Marketing Channels for Corn, Isabela, 2000

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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:


Table 13. CORN: Labor costs incurred by marketing participants,by province, 2000.

Practice/Activity/Cost Item Isabela Cagayan

peso per kilogram Shelling

Drying Solar Mechanical

Procurement Handling Piling Loading a/

Unloading b/

Corn classification

Selling Handling Loading Unloading Weighing c/

Salaries and Wages

0.25

0.410.220.19

0.31 0.30

0.100.100.10

0.01

0.141 0.14

0.100.04

0.001

0.04

0.060.06

0.23 0.21

0.070.07

0.07 0.02

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”


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:


Table 14. CORN: Transportation costs, by practice/activity,by province, 2000

Practice Isabela Cagayan

peso per kilogram Pre-marketing

Procurement

Distribution/Selling

0.19

0.33

0.52

0.20

0.11

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.


Table 15. CORN: Cost of material inputs incurred, by marketing participants, bypractice/activity/cost item, by province, 2000

Practice/Materials Used Isabela Cagayan

peso per kilogramProcurement

SackTying materialsPlastic bag

Selling Plastic bag Tying materials

0.060.002

0.0030.002

0.0550.002

0.01

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:


Table 16. CORN: Miscellaneous and other operating expenses,by province, 2000

Item Isabela Cagayan

peso per kilogramFoodRentalsNFA licenseLocal gov’t business permit*ElectricityShrinkageStorage feeGas and oilWeighing scale calibration feeOffice suppliesCommunicationRepairs and maintenanceInsuranceInterest on loanAgent’s commission**

0.0530.150.0040.0140.020.0070.150.040.0340.0010.0010.020.030.010.07

0.0020.010.0010.0040.001

0.003

0.01

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 orderfrom 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


(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).


Table 17. CORN: Imputed costs of depreciation,by province, 2000

Facility/Equipment/Tool Isabela Cagayan

peso per kilogramRakeScooperContainerWeighing scaleOffice equipmentMechanical dryerPush cartTableSampler (“buriki”)Building (office/warehouse)VehicleCommunication facilitiesUmbrellaRent (tolda)

0.010.0010.0020.0010.0010.0010.0010.012

a/0.0010.0010.001

0.0020.006

0.04

0.0020.002

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:


Table 18. CORN: Total marketing costs, by province, 2000

Cost Component Isabela Cagayan

peso per kilogramLabor

Transportation

Material Inputs

Miscellaneous and otheroperating expenses

Imputed Costs (depreciation

1.151

1.04

0.067

0.604

0.032

0.33

0.66

0.067

0.031

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.


Table 19. CORN: Common problems encountered by marketing participants,Isabela and Cagayan, 2000

Problem Isabela Cagayan

1) Poor quality commands low price2) Unpredictable weather condition3) Lack of information on frequent price

fluctuation4) Corn importation5) High interest rates6) Risk in accepting check payment7) Poor farm to market roads8) Insufficient capital for procurement9) Lack of drying facilities

912

1123223

221

1547113

! 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 DATABY 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.


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


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.


Table 13a. CORN: Labor costs incurred by marketing participants,by activity/practice, Isabela, 2000

Practice/Activity/CostItem Farmer RA-LD PA-LD MA-LD Retailer

peso per kilogramShelling

Drying

Solar

Mechanical

Procurement

Handling

Piling

Loading a/

Unloading b/

Corn classification

Selling

Handling

Loading

Unloading

Weighing c/

Salaries and Wages

0.25

0.12

0.12

0.54

0.35

0.19

0.31

0.10

0.10

0.10

0.01

0.151

0.10

0.05

0.001

0.03

0.20

0.20

0.30

0.10

0.10

0.10

0.131

0.10

0.03

0.001

0.04

0.30

0.10

0.10

0.10

0.02

0.02

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.


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

Handling

Loading

Unloading

Piling

Drying

Corn classification

Salaries and wages

0.19

0.19

0.10

0.09

0.02

0.04

0.07

0.07

0.07

0.06

0.08

0.04

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-LDpeso per kilogram

Pre-marketingProcurementDistribution/Selling

0.190.400.50

0.300.57

0.300.50

TOTAL 0.19 0.90 0.87 0.80


Table 14b. CORN: Transportation costs incurred by marketing participants,Cagayan, 2000

Practice Farmer RA-LD PA-LD PA-MDpeso per kilogram

Pre-marketing

Procurement

Distribution/Selling

0.20

0.11

0.43

0.11

0.38

0.10

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 Retailerpeso per kilogram

ProcurementSackTying materials

Selling Plastic bag Tying materials

0.060.002

0.060.002

0.002

0.060.002

0.002

0.060.002

0.0020.003

TOTAL 0.062 0.064 0.064 0.064 0.003


Table 15b CORN: Cost of material inputs incurred, by marketing participants,Cagayan, 2000

Item RA-LD PA-LD/ PA-MD Retailerpeso per kilogram

ProcurementSackTying materialsPlastic bag

SellingPlastic bag

0.050.002

0.060.002

0.07

0.01

TOTAL 0.052 0.062 0.08

Table 16a. CORN: Miscellaneous and other operating expenses incurred,by marketing participants, Isabela, 2000

Item Farmer RA-LD PA-LD/MA-LD Retailer

peso per kilogramFoodRentalsNFA licenseLocal gov’t businesspermit*ElectricityShrinkageStorage feeGas and oilWeighing scale calibrationfeeOffice suppliesCommunicationRepairs and maintenanceInsuranceInterest on loanAgent’s commission**

0.070.04

0.030.260.0020.0030.010.010.150.010.0040.0010.001

0.030.010.06

0.06

0.010.010.0040.003

0.070.020.0010.0010.020.030.010.08

0.0020.030.05

0.01

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.


Table 16b. CORN: Miscellaneous and other operating expenses incurred,by marketing participants, Cagayan, 2000

Item RA-LD PA-LD/PA-MD Retailer

peso per kilogram Food Rent

Local govt business permitElectricityNFA licenseWeighing scale calibration

0.002

0.0030.0010.0010.006

0.002

0.010.0010.009

0.01

0.0040.0010.001

TOTAL 0.013 0.022 0.016

Table 17a. CORN: Imputed costs of depreciation incurred, by marketingparticipants, Isabela, 2000

Facility/Equipment/Tool Farmer RA-LD PA-LD/MA-LD Retailerpeso per kilogram

RakeScooperContainerWeighing scaleOffice equipmentMechanical dryerPush cartTableSampler (“buriki”)Building (office/warehouse)VehicleCommunication facilities

0.010.010.02

a/a/

0.0040.0010.0010.001

a/0.0010.0010.001

a/a/

0.0040.001

0.001

a/0.0010.0010.001

a/

0.012

TOTAL 0.04 0.10 0.09 0.012

a/ less than 0.001.


Table 17b. CORN: Imputed costs of depreciation incurred by marketingparticipants, Cagayan, 2000

ITEM RA-LD PA-LD/ PA-MD Retailer

peso per kilogramRake

Scooper

Weighing scale

Sampler (‘buriki”)

Umbrella

Tent (tolda)

0.002

0.002

0.03

a/

a/

a/

0.002

0.006

0.05

a/

a/

a/

0.008

0.03

0.05

0.04

TOTAL 0.034 0.058 0.13

a/ less than 0.001.


Table 20. CORN: Marketing costs structure (cash costs and imputed costs),by province, 2000

Cost Item Isabela Cagayanpeso per kilogram

Cash Costs

Labor Shelling Handling Corn classification Weighing Drying Salaries and wages

Transportation Pre-marketing Procurement Distribution

Material Inputs Sack Tying materials (twine) Plastic bag

Other Operating Expenses Food Rental NFA license Business permit/license b/ Electricity/Light Shrinkage/wastage Storage fees Gas and oil Weighing scale calibration Office supplies Communication Repairs and maintenance Insurance Interest on loan Agent’s commission

2.862

1.1510.250.440.010.0010.410.04

1.040.190.330.52

0.0670.060.0040.003

0.6040.0530.150.0040.0140.020.0070.150.040.0340.0010.0010.020.030.010.07

1.09

0.33

0.210.02

0.060.04

0.660.200.110.35

0.0670.0550.0020.01

0.030.0020.010.0010.0040.001

0.003

0.01


Table 20 (continued)

Non-Cash Cost

Imputed Cost (Depreciation) Rake Scooper Container Weighing scale Office equipment Mechanical dryer Push cart Table Sampler (“buriki”) Building (office/warehouse) Vehicle Communication facilities Umbrella Tent (“tolda”)

0.032

0.0320.010.0010.0020.0010.0010.0010.0010.01

a/0.0010.0010.001

0.052

0.0520.0020.006

0.04

a/

0.0020.002

TOTAL 2.894 1.14

a/ Less than 0.001.b/ Approximately 10% of gross sales.

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