Differences in Total Factor Productivity (TFP) for Agriculture in Philippine Regions

Differences in Total Factor Productivity (TFP) for Agriculture in Philippine Regions

Published: 2022.11.04
Accepted: 2022.10.27
46
Supervising Agrarian Reform Program Officer/OIC-Chief
Department of Agrarian Reform, Phillipine

ABSTRACT

The studies reviewed deal with output growth using the total factor productivity (TFP) approach. The regional-oriented studies adopted systematic methods of employing cross-sectional data to estimate regional TFP given the data limitations. They had similar findings on the relative edge in total factor productivity of certain regions over the others. The findings should provide bases for regional agricultural planners for productivity enhancing policies and programs.

Keywords:  TFP, index, regions, outputs, inputs

INTRODUCTION

Total Factor Productivity (TFP) measures the amount of agricultural output produced from the combined set of land, labor, capital, and material resources employed in farm production (USDA, 2021).  It is expressed in terms of index of total output relative to an index of total inputs.  It considers the use of most or all inputs including seeds, water, labor, tractors, fertilizers and others. Construction of an index of TFP permits an objective assessment of the productive performance of a system over time (Limbo 1997 from Barnett, 1995).  TFP index also provides an objective assessment of productive performance across regions.

Regional-oriented total factor productivity (TFP) studies were limited but where they exist, they are valuable references for regional planners and agricultural agencies for further improving the agricultural productivity and development potential of major crops. This article presents a review of studies conducted on TFP for Philippine agriculture. The studies reviewed showed that the application of TFP approach in regional analysis is highly appropriate.

STUDIES ON TFP FOR PHILIPPINE AGRICULTURE

Earlier time-series studies on TFP for Philippine Agriculture

The following studies were collated by Limbo (1997) to establish adequate background on the nature of productivity growth in Philippine agriculture. They deal with output growth using the total factor productivity (TFP) approach. 

Estimation of productivity by Lawas (1965) as noted by Antonio (1979) for the post-war period (1948-1960) found that only 11% of total output growth was accounted for by increased productivity. A greater portion was attributed to increased fertilizer use, while the reasons for low increases in productivity were the lack of institutional support services, such as extension and adequate marketing and distribution facilities.

Hooley (1968) studied the long-term growth of the Philippine economy from 1902-1961. A long-term series on value of crop and livestock production at constant prices was computed in order to measure changes in agricultural output. Likewise, inputs were combined to determine whether total farm efficiency increased.  Partial and total productivity indices indicated that over the period, labor use grew more slowly than any other input. Output grew at a compounded annual rate of 2.9% between 1902 and 1961. Agricultural output growth was attributed to expansion in input use rather than to the increases in the efficiency of inputs used, and a substitution effect of land for labor was observed.

Paris (1971) studied the growth of the agricultural sector for the post-war period 1948 to 1967 by constructing annual indices of output, input and partial and total productivity. Results indicated that total productivity increased by only 8.8% over the subject period, while labor productivity increased by 24.6% and land productivity by 19.7%. Results also showed that the productivity of fixed and operating capital declined (Table 1).

Using almost the same period, Crisostomo and Barker (1973), estimated the growth rates in Philippine agriculture from 1948 to 1971 finding out that Philippine agricultural output grew at an average annual rate of 4.0%.  Total inputs increased by 3.3% per year and total productivity of 0.7% per year. 

A further extension of Crisostomo and Barker’s 1973 study was done by David, Barker and Palacpac (1984) dealing with the nature of productivity growth in Philippine agriculture (1948-1982). The nature of productivity growth in Philippine agriculture, the trends in partial productivity of labor and land in relation to changes in relative resource use were examined. Results showed that growth and productivity changes were functions of many other factors aside from the efficiency of resource use within the agricultural sector.  It was considered that the performance of the industrial and public sectors was not good enough to affect a better performance for the agricultural sector. Nonetheless, the latter’s performance was considerably good enough especially with respect to the provision of cheap wages for the entire economy.

INTERSPATIAL TOTAL FACTOR PRODUCTIVITY (TFP)

From the study of Limbo (1997), it was cited that interspatial productivity differences arise from differences in the efficient production functions in each region (Capalbo and Antle, 1988). It was defined as the logarithmic difference in an index of outputs between two (2) producing regions divided by the log difference of an index of outputs.  Alternatively, it can be interpreted as the exponentiation of the log difference in an index of outputs minus the log difference in production costs minus the log difference in an index of input prices.  Consistent with Capalbo and Antle, interspatial productivity differences arise not due to the dynamic forces of technological change but from static technological differences across producing regions (Hazilla and Kopp, 1988). Qualitative and quantitative differences in resource endownments among regions dictate different types of technological development as well as different development strategies (Easter, Abel and Norton, 1988).

REGIONAL TFP DIFFERENCES

The earliest regional comparative study for the Philippines was by Oña and Hsieh in 1968 where they analyzed the output growth of rice and corn for the country from 1946 to 1966. They found out that all the then nine (9) regions exhibited positive trends in production though the rates of increase varied across regions.  For rice, the regions with relatively rapid increases in output were also those that manifested higher rates in area expansion.  Similarly, for corn, the trend in hectarage in different regions almost followed the production pattern.  Production of both crops increased significantly due to area expansion which characterized the development stage of Philippine agriculture, then an expansion oriented and not a productivity oriented agricultural economy.

Antonio (1979) conducted a fact-finding analysis of agricultural productivity in the Philippines at the regional and national levels. The study found that the relative contribution of total input growth was higher (55.6%) than the relative contribution of total factor productivity growth (44.4% to total output growth in 1948 to 1975.  This highlighted the continuous dependence of agricultural growth on increased input use. 

From a regional perspective, wide variations existed in the factor proportions and the composition of agricultural production. There were also wide income inequalities across regions. For instance, Ilocos, Bicol and Eastern Visayas regions had incomes below the national median income. It was inferred that the uneven nature of growth across region was a function of differences in regional resource allocations. Central Luzon and Southern Tagalog were beneficiaries of irrigation, credit and transportation enhancement, while the same services were wanting in most Visayas and Mindanao regions during the period.

Limbo (1997) conducted a study on cross-regional productivity differences for rice and corn to determine the effects of Operation Land Transfer (OLT) on rice and corn productivity in the Philippines. Regional TFP indices for rice and corn were constructed using 1991 data and the effects of OLT, other services and regional factors on TFP were determined. The constructed input, output and TFP indices show how the values differ as affected by price and quality aggregation. 

In terms of regional differences, it was observed from the indices that outputs varied more widely than inputs across regions. The regional variation in TFP could be attributed more to output than to input.  In general, there were variations in the relative sizes of input and output indices across regions, but in terms of TFP indices, the relative position of each region with respect to the base did not vary widely.

Southern Mindanao and Central Luzon exhibited the highest aggregate TFP although the output index was higher for Central Luzon. Aggregation affected the regional ranking of regions in terms of TFP. For rice, Southern Mindanao, Cagayan Valley and Central Luzon regions led while for corn, Central, Southern and Northern Mindanao regions dominated. In general, aggregate TFP values lay between rice and corn TFPs, except for a few cases.

Based on the Ordinary Least Squares (OLS) regression results, OLT had a positive overall effect upon rice and corn aggregate TFP.  The results were relatively better for rice than for corn. This was mostly because most of OLT land distribution and the corresponding support services, like irrigation and including those which were not part of the Comprehensive Agrarian Reform Program (CARP), were extended to rice regions which had a larger share of the program. Also from the OLS, the irrigation variable showed significant effects for rice TFP while the effects of credit and rainfall were not significant.

The results also suggested some evidences of scale differences. For rice, scale effects were considered to be in favor of Central Luzon region which had the highest average parcel size. However, Southern Mindanao region had a higher rice TFP implying that the effect of regional factors other than parcel size dominated TFP. For corn higher TFPs were obtained for the Northern, Southern and Central Mindanao regions which had larger areas planted to the crop.

Teruel (2011) estimated the TFP growth in Philippine agriculture using the productivity measurement procedure proposed by Dumagan and Ball (2008) and investigated on the determinants of agricultural productivity using the panel data analytic models such as the constant coefficients, the fixed effects, and the random effects model.

Their procedure employed decomposition of growth in revenues into output price and output quantity growth, and then the latter into input quantity growth and a residual term representing TFP growth using a data set covering 12 administrative regions and years 1974-2004.

Results showed that output prices contributed on the average 7.55% to revenue growth of 10.71% for the entire period, or about 70% of the growth of revenues. This was considered significantly higher than the average contribution of input quantities and TFP of 0.97 (9.03%) and 2.19 (20.47%), respectively. The substantial contribution of output prices to revenue growth could be attributed to the growth rates in the prices of rice (1.70%) and meat (2.54%).

Estimations from the same study revealed that all inputs of production contributed just about 1% to revenue growth implying that output growth in Philippine agriculture has been mainly driven by productivity and minimally by the inputs of production. This was observed not only at the national level but also across the different regions.

In terms of regional productivity differences among the regions, Central Luzon was noted to be the most productive while Bicol was noted as the least. Generally, regional production areas in Luzon were observed to be more productive than in Visayas and Mindanao. Based on temporal trend, TFP growth was highest in the late 1970s, followed by the deceleration in the 1980s and resurgence in the 1990s until the early part of the recent decade. It was considered that the extent of the recent improvement in TFP growth was not enough to achieve the level of the late 1970s.

Lastly the study noted that the highest TFP growth rate recorded so far has not been paralleled despite government efforts to revive the less dynamic agricultural sector. One of the major efforts is the Agriculture and Fishery Modernization Act (AFMA) implemented in 1997. Across time, revenue growth was also seen to be declining. Attribution was made on the decrease in the growth contribution of output prices that remained relatively large and to the decrease in the growth contribution of input quantities that was relatively small. The study recommended to further examine the role of output prices in determining farm incomes and undertaking initiatives to boost agricultural productivity through investments in infrastructure and research and development.

CONCLUSION

The regional-oriented studies reviewed in this article adopted systematic methods of employing cross-sectional data to estimate regional TFP given data limitations. They had similar findings on the relative edge in total factor productivity of certain regions, especially Central Luzon over the others. The findings should provide bases for regional agricultural planners to implement crop-based productivity programs and support the production of crops based on regional suitability maps that have been institutionalized by the Department of Agriculture. 

REFERENCES

Antonio, M.C., 1979, A Study on Philippine Regional Productivity in Agriculture, MEc. Dissertation, UNE, Armidale, NSW, Australia.

Capalbo, S. and J.M. Antle, 1988, Agricultural Productivity Measurement and Explanation, Resources for the Future, Washington, D.C., U.S.A., R

David, C.C., R. Barker and A. Palacpac, 1984, The Nature of Productivity Growth in Philippine Agriculture, 1948-1982, Paper Presented at the Symposium on Agricultural Productivity Measurement and Analysis, Asian Productivity Organization, Tokyo, Japan.

Easter, K.W., M.E. Abel and G. Norton, 1977, Regional Differences in Agricultural Productivity in Selected Areas of India, In: American Journal of Agricultural Economics, U.S.A.

Hazilla, M. and R.J. Kopp, 1988, Intertemporal and Interspatial Estimates of Agricultural Productivity, In: Agricultural Productivity Measurement and Explanation, Capalbo S. and J.M. Antle (eds), Resources for the Future, Washington, D.C. U.S.A.

Hooley, R.W., 1968, Long-term Growth of the Philippine Economy, 1902-1961, In: The Philippine Economic Journal, 7(1) 1-24, Philippines.

Lanzona A. Jr., et.al., 2021, From Tenancy to Ownership: Lessons from the Agrarian Reform Programs from the Commonwealth to Contemporary Periods (1935-2015) Volume I, National Historical Commission of the Philippines and Department of Agrarian Reform, Philippines.

Limbo, R.C., 1997, Cross-regional Productivity Differences and the Effect of A Government Program: The Case of Philippine Rice and Corn and the Operation Land Transfer (OLT). Master’s Dissertation, University of New England, Armidale, NSW, Australia.

Oña P.L and S.C. Hsieh, 1968, Output Growth of Rice and Corn in the Philippines, In: The Philippine Economic Journal, 2 (1), Manila, Philippines.

Teruel R.G. and J.C. Dumagan, 2011, Measuring and Explaining Total Factor Productivity (TFP) Growth and Patterns in Philippine Agriculture: A Regional Panel Data Framework, Paper presented to the Asian Society of Agricultural Economists (ASAE) Conference, October 13-15, 2011, Hanoi, Vietnam.

USDA, 2021, International Agricultural Productivity, USDA Economic Research Service, U.S.A.

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