by: Paulino Jose Misa
(This was PM'd to me by a "truly concerned" trader friend)
As you probably know, next week is the start of the harvest season for rice in Regions 1, 2 & 3. This means now is the time when farmers need to start planting the seeds for transplanting in Oct and for traders to start buying from farmers.
I have just spent the whole day with farmers from Regions 1 & 2 and was surprised to hear complaints about the low prices of palay even from those with high yields. It turns out your instincts were more spot-on than mine.
I asked the farmers about their true costs to determine their break-even, and got the following figures. You probably know these figures already, but thought of sharing them with you nonetheless to help with your analysis.
Figures are in PHP per kg of palay:
PLANTING
Seeds (hybrid) = 1.25
Labor (to help transplant the seedlings) = 1.05
[One needs around 12 persons @350/day to transplant seedlings on a hectare of land. Six is actually enough for a day’s work, I am told, but local labor tends to work deliberately slow in order to force the farmer to pay for another day’s work and to provide meals for the day. As a result, a farmer tends to hire more laborers to finish earlier. There is no difference between wages for one day or half-day.]
Fertilizer = 1.00
[This assumes 4 applications per cycle @P1,000/ha/application: before transplanting and flooding, during the vegetative stage, when panicles are forming, when palay start ripening.More might be spent depending on color of leaves, type of soil, health of palay, etc.]
Pesticides = 0.30
[This assumes 300/ha/application x 4 apps per cycle against the usual pests - leafhopper, bugs, maggot, skipper, crickets. More might be spent depending on pests.]
Total expenses during planting = 3.60/kg
HARVEST
Labor = 1.75
[20 persons are needed for 1/2 day of harvesting work per ha @ 350/person/day. As in the planting season, half this number is enough, but farmers can not afford delayed harvesting so they’d rather hire more to finish harvesting quicker. Laborers charge the same rate even for half day work.]
DRYING
Hauling of “wet” palay = 0.20
[This is the cost to haul the wet palay from the farm to a drying center. Loading rate is 4/sack and 4/sack for unloading. A sack =40kg for wet palay, 50kg for dry. Thus, a 4,000kg harvest per ha = 100 sacks when wet, 80 when dry. Handling rate is halved for provinces that use 25-kg sacks.]
Drying fee = 3.00
[This assumes the use of drying machines. Rate is reduced by 0.50 if the drying center buys the hulls (husks). Rate can also be halved if drying is done under the sun, but a farmer still needs to pay min of 1.50/kg for labor to lay the palay and turn them over at regular intervals, use of a drying area, and loading and unloading. It is now illegal to dry palay on roads.]
Transport (farm to drying center) = 0.25 .
[Standard rate is 10/sack x 100 sacks / 4,000kg. This is just to the drying center. Another 0.20 needs to be spent to transport the dried palay to a separate warehouse. Note that a 10.00/sack rate is normally for farms along farm-market roads. Rate is usually doubled for farms far from roads or when tricycles are used. Additional hauling expense might also be incurred.]
Total expense during harvest (incl drying) = 5.20
Total break-even = 8.80
Add: 20,000 minimum living expense allowance for the farmer for 4 mos. This is equivalent to 5.00/kg
Revised break-even = 13.80
[I was informed that the DA assumes a break-even of 12/kg. The farmers said the DA is ignorant of the actual field costs of labor. 14/kg seems to be a more realistic break-even.]
[At an NFA buying price of P18/kg, dry, CIF NFA, the gain of the farmer becomes 3.75/kg — since he incurs additional cost of 0.45 to haul his palay to the NFA warehouse. This converts to 15,000 if the farmer continues to yield only 4t/ha. This amount is just enough to cover cost of planting for the next season. He still needs to borrow for his own family requirements and to finance harvest.]
I have no way of confirming these numbers, but who am I to argue with the farmers themselves. I was with farmers whose yields vary from 8-12 tons/ha. Yet they too complain that the low cost of palay has forced them to reduce personal expenses or reduce some farming inputs (which consequently affect yield). I immediately thought I ought to confess to you my error.
I also discovered that about 60% of the farmers in the co-ops we contract with are under tenancy arrangements, which means at least 30% of harvest go to the landowners. In some areas, another 5% go to “people’s taxes.”
Thanks bro! I'm really glad you have an open mind about the issue 🙂 Would that our trader/legislators would be as concerned as you!
As you yourself can see, the farmers are really not getting all that much of even a nowhere near fair deal for the risk and effort they incur. The problem is that the farmers are always the whipping boys even if they are not actually the ones responsible for high rice prices.
It is the system by which the cartels have always controlled everything downstream including the NFA that is rotten. It is really a thankless, daunting, near impossible job for anyone wit the best intentions tasked to fix it. The DA needs to take the bull by its horns and finally set the pace for agriculture instead of simply catering to and following the lead of conflicted legislators.
Frankly, would you agree that even if traders HALVED their margins and gave it to the farmers, they would still get by BETTER than the farmers and at least have a PROFITABLE business, albeit not the accustomed hand over fist?
Certainly, there are enlightened traders who do try to at least be kinder than the cartels BUT they really can't make much of a dent on the overall picture. They are as much caught in the current as everyone else.
On the other hand, you can't change everything in a day. It has to be done step by tortuous step, in the PROPER sequence and in a manner, which everyone can keep in step with, otherwise the ever-present wise guys will just figure out how to do their usual thing and everything will again be for naught.
Take the P5B for mechanization. It is really not that simple.
Yes, mechanization would make a major difference if implemented PROPERLY. BUT it is not just a matter of bringing in the machines even if they were simply to be given away, AGAIN to the delight of the businessmen & "smart" government officials who would do the procurement.
In the first place, what about all those displaced workers who know nothing else to do? What would become of them? They might even sabotage those machines!
Secondly, what about proper operation, repair & maintenance?
Simply importing all this equipment from China which no one knows how to properly operate, maintain, repair and where to buy spare parts will only junk them the minute something breaks.
But of course, the usual suspects would all be salivating at how to get their hands on P5B to care much about anything else, wouldn't they? Would I be wrong to suspect that some people already have a plan how to supply them ASAP? 🙂
And as usual, the traders are on the ALL-WIN side while even if some farmers might gain on the one hand, a bigger majority will lose suddenly lose their already meager income (not entirely a bad thing IF they can be directed to a more profitable livelihood).
While the farmers might earn slightly more because of the increase in production, this will also be tempered by a drop in prices at the farmgate although predictably not that much at the wholesale/retail level.
How nice to be a trader!
Thus, rather than actually invest immediately on mechanization, it would make much more sense to instead EMPOWER the farmers to afford the cheaper ones which will allow the proper supply, distribution, service & spare parts channels that these machines would need in the long run to be set up in the meantime.
This can be done by eliminating the 2 biggest concerns of the farmer: having enough money to plant the crop & being properly insured against calamities. Just eliminating these 2 concerns would immediately tend to raise production. The money they would then normally have to save for these could be used by the farmers to buy at least the more affordable machines on their own.
That is why the PROPER SEQUENCE is of utmost importance.
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