Preface

Considerable research has been conducted on milkfish in the Philippines. However, the available publications are scattered, and no attempt has been made in recent years to consolidate this information so that a concise appraisal can be made of the entire milkfish resource system, from fry gathering through dealers and nursery, rearing pond, and fishpen operators to marketing. The dual purpose of this paper is to provide such an overview of the Philippines milkfish resource system and to evaluate its efficiency.

We benefited considerably from the suggestions of our colleagues at the International Center for Living Aquatic Resources Management (ICLARM) and several anonymous reviewers, and hope we have done justice to their comments. Responsibility for the paper as it now stands is, of course, ours.

Finally, we would like to point out that use of brand names in this paper is not meant to imply any endorsement of any particular product.

Manila
August 1981

Abstract

The authors have assembled a unified body of information on milkfish (Chanos chanos) aquaculture in the Philippines to pin-point where further efficiencies of resource use in the milkfish system can be obtained. Each of the subsystems-procurement, transformation, and delivery-is examined in turn.

The major inefficiencies in the Philippine milkfish resource system occur in the transformation sub-system rather than in the fry procurement or delivery sub-systems. Reduction in mortality rates during rearing and increased application of supplementary inputs such as fertilizers are the two major means by which the existing system can substantially increase the supply of milkfish available to consumers in the Philippines.

1. Purpose

The dual purpose of this paper is to synthesize available information on the milkfish (Chanos chinos) resource system of the Philippines and to evaluate its economic efficiency. Improvements in efficiency of food resource systems are important because, by reducing the average cost of production and distribution, increases in consumer prices of food items such as milkfish can be minimized.

Why analyse the milkfish resource system, rather than that of another species? Culture of milkfish is extensive in the Philippines, Taiwan, and Indonesia (table 1). In these three countries, 365,000 ha of brackish-water ponds and 7,000 ha of fishpens produce approximately 230,000 tonnes of milkfish annually. In fact, in the Philippines, milkfish from ponds and pens represents approximately 10 per cent of total fisheries production' and 18 per cent of the total fresh and frozen fish consumed.2 Other countries in the Indo-Pacific region, where milkfish is not yet a popular food fish, are also introducing milkfish husbandry to their people. Milkfish has become one of the major cultured species in the Indo-Pacific region.

Beyond its importance, the Philippine milkfish resource system is of interest because it is alleged to be inefficient in numerous ways. Fry mortalities during catching and transport are alleged to be high. Extensively operated fishfarms that use no supplementary inputs, because their productivity per hectare is much lower than intensively operated fishfarms, are alleged to be inefficient. Even the intensively operated farms are reportedly inefficient. Annual fry catch is believed to be inadequate to meet annual fishpond and fishpen stocking requirements. Finally, the marketing activities of middlemen are thought to result in excessively high price mark-ups, both between fry grounds and fishponds and between fishponds and consumers.

These and other questions will be addressed in this paper. Not all allegations of inefficiency can be definitively resolved with available data, but at the least this paper will provide the first consolidated economic analysis of the entire Philippine milkfish resource system from fry gathering to consumer.

TABLE 1.Milkfish Production in the Philippines, Taiwan, and Indonesia

	Production area (ha)	Production (tonnes)	Productivity per ha (kg) (all species)	Milkfish as percentage of total production	Estimated milkfish production (tonnes)
Philippines (1977)
- Brackish-water ponds	176,231	115,756	657	90a	104,180
- Freshwater pens	7,000	47,000	6,714	100	47,000
Taiwan (1975)
- Brackish and freshwater ponds	16,802	44,652	2,658	75	33,490
Indonesia (1978)
- Brackish-water ponds	171,544	87,995	513	55	48,400
Totals/Average:	371,577	295,403	681	79	233,070

Sources: See note 3.
a. Authors' estimate.

2. Overview of the resource system

Ruddle and Grandstaff4 define a resource system as the entire chain of events via which a resource passes from its source, through technological transformation, to the creation and delivery of an end-product that satisfies a human need. A typical resource system has sub-systems of procurement, transformation, and delivery. Each of these sub-systems is well represented in the milkfish resource system of the Philippines (fig. 1). In fact, aquacultural systems such as that for milkfish provide excellent illustrations of how such systems provide the space, form, and time utilities necessary to satisfy consumers. Aquacultural systems are so illustrative because analysis can concentrate on the fish itself as the major input to the transformation sub-system, since the purpose of the whole system is to grow (transform) fry to market size for consumers in a managed, controlled environment. A similar focus on "seed" for an agricultural crop system would not be so illustrative because "seed" is only a minor input in that transformation sub-system. In the milkfish resource system, in contrast, "seed"-or fry in this case-is a major input, and seasonal price fluctuations for fry have a major influence on producer decision-making and production practices.

Fig. 1. The Milkfish Resource System. All elements except hatcheries are at present operational.

TABLE 2. Development of the Milkfish

Name
English	Pilipino	Length	Weight	Age
Fry	kawag-kawag or semilia	12-16 mm	0.002-0.008 mg	3-14 days
Fingerling	hatirin	5-10 cm	1.2-5 g	4-8 weeks
Marketable	bangos	30-40 cm	200-300 9	6-9 months
Adult	sabalo	up to 1 m	up to 20 kg	5-6 years

The various stages of growth through which milkfish pass from egg to adult are shown in figure 2. Important distinctions are made among fry, fingerling, marketable size, and adult milkfish (table 2). Although there is disagreement as to the exact age at which fry are caught, their anatomical structure at catch is roughly equivalent to stage D in figure 2. Transported in containers of oxygenated water for distances of up to 1,200 km, the fry pass through a network of buyers and sellers before reaching the fishponds in which they are stocked.

Milkfish is one of the fishes best suited to brackish-water pond culture. It is euryhaline, that is, adaptive to varying salinity levels ranging from saltwater to freshwater, is disease resistant, feeds near the bottom of the food chain, mostly on algae, grows rapidly, and is of high quality as a food fish. Large numbers of fish can be supported in a restricted area. A major disadvantage, however, that sets it apart from some other fish such as tilapia, is that it will not reproduce naturally in brackish-water grow-out ponds.

Fig. 2. Stages of Milkfish Development (not drawn to scale). Sources: See note 5,

Fig. 3. Annual Productivities of Fishponds.Source: See note 8.

Bardach6 states that milkfish farming probably originated in Indonesia, where saltwater farming has been practiced for more than 500 years. Herre and Mendoza7 claim that extensive nipa swamps, which at first were exploited for the nipa thatch and for the alcoholic beverage made from nipa sap, were walled off by dikes to form natural enclosures at high tide. These enclosures were initially stocked by free entrance of fry, but later stocking was done deliberately with fry caught along the coasts.

After the initial development of fishponds in Java, the business probably spread to Taiwan and to the Philippines. Early fishponds in the Philippines were concentrated around Manila Bay. In 1929, Herre and Mendoza7 report 3,193 ha in Rizal Province, 16,700 ha in Bulacan, 14,200 ha in Pampanga, and 4,000 ha in Bataan, totals that are not so different from those of today. The rapid growth in hectares of fishponds in recent years (28 per cent in the past decade) has occurred as fishponds have spread to other areas of the country, particularly the Visayas and Mindanao areas. However, wide variations in productivity still exist (fig. 3).

The various producers, intermediaries, and consumers in the milkfish resource system must be identified. The system has numerous interacting components. Since fry and fingerlings are, under certain conditions, substitutable as stocking materials for rearing ponds, and fry demand is, in part, derived from fingerling demand, both fry and fingerling activities will be viewed as part of the procurement subsystem. The procurement sub-system consists, first, of fry gatherers as "producers" of fry and of the various middlemen that link these producers to nursery- and rearingor grow-out pond operators. An important component in the fry distribution network is the concessionaire, who has exclusive rights to purchase all fry from a particular fry ground under a licence awarded by the local municipality. Secondly, nurserypond operators who rear fry to fingerling size for sale to fishpen and fishpond operators are also part of the procurement subsystem in that they provide stocking materials in the form of fingerlings. Nursery-pond operators are thus a key element as consumers of fry and as producers of fingerlings.

The fishpen and fishpond operators who transform fry or fingerlings to market-size milkfish make up the transformation sub-system. The delivery sub-system consists of marketing intermediaries and the final consumers, both domestic and foreign.

Figures 4-19 depict the various activities in the resource system. Important functionaries are defined in the Appendix.

As milkfish do not spawn in captivity, the entire resource system described in the preceding paragraphs is dependent upon wild stocks of milkfish, the fry of which are gathered along the coastline. Milkfish are well known throughout the Indo-Pacific region, being distributed from the east coast of Africa to California and from southern Japan to New Zealand.9 Despite its widespread distribution, however, very little is known about the biology or possible migratory habits of this fish.

3. Methodologies

While providing a broad overview of the Philippine milkfishresource system, this paper will examine questions of technical and economic efficiency on the one hand, and of equity on the other. Each of the sub-systems of procurement, transformation, and delivery will be examined in turn, with the emphasis on efficiency considerations. A common element will be to examine to what extent the system's efficiency departs from the predictions of certain behavioural assumptions and economic models of perfect competition, whereby factors of production (and other "creators" of utility) are rewarded according to their contribution to the total value of output. The model is useful because it allows predictions as to the expected relationship among costs and prices in all these sub-systems. The analysis that follows contains examination of both technical and price formation efficiencies in the subsystems.The milkfish resource system presents interesting and challenging avenues for analysis. Elements of fisheries resource economics, microeconomic analysis of production, and spatial economic theory are all drawn on to complete the evaluation of the resource system.Data for this study are taken primarily from cross-sectional data collected by the authors in various field surveys beginning in 1977. Time-series and secondary data on the milkfish resource system are almost non-existent, except for that on brackish-water pond area, production, and wholesale and retail market prices. Consequently many interesting questions related to supply-and-demand elasticities have not been addressed.

1. Introduction

Although secondary data on the annual catch of milkfish fry are not available, they are caught by the hundreds of millions from coastal waters and transferred to brackishwater ponds throughout the country. The Philippines has a total of approximately 176,000 ha of fishponds,13 the major pond areas being in the provinces of lloilo 117,373 ha), Quezon (16,390 ha), Zamboanga del Sur (16,279 ha), Bulacan (16,173 ha), Capiz (11,240 ha), Negros Occidental (10,621 ha), Pangasinan (9,544 ha), and Pampanga 19,209 ha). Annual productivities of more than 800 kg per hectare are achieved in Pangasinan, Pampanga, Bulacan, and lloilo provinces (fig. 3). Because none of these more productive provinces has major fry grounds, fry must be imported from other areas of the country. Figures 20 and 21 indicate the widely dispersed fry grounds and more centralized fishpond areas, and demonstrate the consequent need for domestic trade in fry.

Fig, 20. Fishing Grounds for Milkfish Fry. Sources: See notes 8 and 14.

The procurement sub-system of the milkfish resource system in the Philippines is national in scope with a key role played by nursery-pond operators in the Metro Manila area (primarily Rizal and Bulacan provinces). Not only do a relatively small number of nursery-pond operators ultimately purchase a majority of the fry caught annually in the country, but these same individuals are also a major source of capital for fryground concessionaires and fishpen and fishpond operators. As will be discussed later in this section, the central role of these nursery-pond operators has resulted in a fry procurement sub-system that is well integrated in terms of availability of up-to-date price information. During the frygathering season, demandand-supply conditions are generally well known throughout the country, as fry concessionaires, dealers and nursery pond operators keep informed of the latest market prices through daily telephone and telegraphic communications.

Before discussing the intricacies of the relationships among fry gatherers, concessionaires, dealers and nursery-pond operators, the following section will first describe briefly the methods of fry gathering, since it is upon this activity that the whole resource system depends.

2. Fry-Gathering techniques

There are a number of different passive or active filtration methods used to gather fry, ranging from the simple scissors dipnet (sakag or hudbud in Pilipino) that can easily be used by children, to the more sophisticated bulldozer net which can be operated with a motorized vessel (fig. 22).

By far the most common method used by gatherers is sagap (sapysp in Visayas), a seine of up to five metres in length. In certain parts of the country, the sagap has been replaced by the more recently developed fry trawl, bulldozer, and sweeper, all of which produce a higher annual catch per gatherer. Antique Province in Western Visayas has been the centre of these technological improvements, the fry trawl having been introduced 20 years ago, the bulldozer 10 years ago, and the sweeper just 5 years ago.

Fig. 21. Distribution of Fishponds, 1969. Source: See note 8.

Fig. 22. Milkfish Fry Fishing Gear (on Panay Island). The modifications and apparent trends of development are indicated. Source: See note 15.

Gatherers work in teams, the composition of which depends upon the gear used. Sagap requires two members to use the net, and an optional third member to carry fry from the net to a basin on shore in which fry are temporarily stored, and to sort out predators and other unwanted species. The attractiveness of the sakag or hudhud and the sweeper comes from their being easily handled by a single gatherer. Bulldozer nets are used primarily at night with lanterns and propelled by bamboo poles by a pair of gatherers at depths of up to three metres. The bulldozer can, therefore, operate beyond the reach of sakag, sagap, and sweepers, all of which are limited to wading depth. A filter net fixed in creek mouths, and known as saplad or tangab, is most efficient during the twice-monthly high tide periods, when it is often operated 24 hours per day by teams of gatherers. Three eight member teams who used a single saplad in Antique were able to catch 3 million fry in three days of consecutive high tides in May 1977.^12b

Revenue from the daily catch is usually divided equally among team members, with an extra share going to the owner of the gear. Of all the gear types, the fixed filter trap (saplad or tangab) appears to be the most productive per gatherer followed by the bulldozer and then sagap.16 Most gatherers are part-time fishermen, with fry gathering contributing only 22 per cent to total household income. Fry gatherers, similar to the majority of Philippine smallscale fishermen, have household incomes well below the poverty thresholds established by the Development Academy of the Philippines.¹⁷

Kumagai et al., 15 have recently completed an in-depth study of fry-gathering gear on Panay Island, Western Visayas, in part to determine the extent of mortality and damage to fry during gathering and before storage, prior to shipment. They estimate an average 14.3 per cent mortality during the gathering operation, and also report a high percentage of injured fry irrespective of gear type, place, and sea conditions.

Fry are scooped from the net with a white porcelain basin, against the background of which the eyes of the almost transparent fry can be seen. After being stored temporarily on the beach, fry are either delivered to the concessionaire, to be counted so that the gatherer can be paid for the day's catch, or stored by the gatherer for later sale. Counting fry is done by a two-member team. One scoops out a few fry with a small bowl or clam shell and calls out the number to the second person, who separates a corresponding number of shells, pebbles, or stones of similar size. After 1,000 5,000 fry have been thus counted, their density can be used as the basis for comparison for the separation of the rest of the catch into lots of similar size. Counting is, therefore, tedious and imprecise when large numbers of fry are involved.

While fry are being temporarily stored in clay pots or plastic basins (50 cm diameter) predatory and competitive species are sorted out and discarded. At this early stage of development, it is extremely difficult to distinguish between milkfish fry and the fry of other species. The experienced sorter, however, can pick out an astonishing number of unwanted species, among them the Hawaiian bid-bid or tenpounder (Elope hawailensis), buan-buan or tarpon (Megalops cyprinoides), and bagaong or grunter (Therapon sp.). The bidbid and buan-buan are particularly voracious predators of the young milkfish fry according to gatherers, concessionaires, and pond operators. Unwanted fish are most often discarded on the beach rather than returned to the sea.

Concessionaires, once they have purchased the fry, store them for an average of four to five days and it is during this period that feeding usually begins. The yolk of a boiled egg mixed with water is sufficient to feed approximately 50,000 fry, or ten basins of fry per day. Two hours after feeding, the water must be changed to avoid contamination from uneaten egg yolk and from excrete. Concessionaires report a further 5.8 per cent mortality of fry during this period while awaiting resale to subsequent buyers. Mortality rates dramatically increase after 15 days' storage despite continued feeding, reaching 20 - 30 per cent after 21 days and 30 - 60 per cent after 30 days. Consequently, concessionaires make every effort to sell their fry within the first week after capture.

3. The concession arrangement

The milkfish fry of the Philippines are essentially an open access common property resource. The national government has empowered coastal municipalities to grant local "monopsonies"¹⁸ to concessionaires in the form of exclusive rights of first purchase of fry. These concessions are generally awarded through a public bidding process. Access to fry gathering, however, is not restricted in any way, as long as the gatherer sells to the designated concessionaire.

Income from the concession licence fee goes directly to the municipality. Because fry grounds are, for the most part, in rural areas, municipalities with fry grounds often have very limited income from other sources. The high value of a concession compared with other components of municipal income has thus resulted in the vast majority of fry grounds in the country being managed under concession licence fees. Concessionaires are free to dispose of their fry as they please provided they comply with the government auxiliary invoices required for interregional shipment of fry.

The concession arrangement has a major effect on the incidence of risk in the short run. Because annual bidding for concession rights is held before the fry season begins, the risks of poor catch (and windfall profits in good years) are very neatly passed from the municipality to the entrepreneur who is awarded the concession. In the long run, of course, these risks and windfalls would be taken into account by prospective concessionaires before they bid for the concession. Since the municipality collects from a single entity for each fry ground or fry zone, the risk of lost income to the municipal government, due to collection difficulties, is also much reduced. The system of awarding concessions also provides incentive for the development of new fry grounds, as the initial investment of the concessionaire is protected through a one- to three-year contract of exclusive rights granted him by the municipal council.

The concession arrangement severely restricts the level of competition at the early stages after fry catch. Large capital requirements to finance concession fees in excess of US$40,000 for the most sought-after fry grounds have encouraged vertical integration in the industry as nurserypond operators, in particular, have sought to assure supply of fry for their ponds. However, the existence of smuggling, more prevalent in certain areas, notably Mindanao, provides for a competitive fringe that tempers the abilities of concessionaires to take advantage of their local monopsonies.

There are important issues of economic efficiency and equity involved in an evaluation of the concession arrangement. The concession licence fee reflects municipal ownership of the resource, and in the long run incorporates the expectations of concessionaires regarding risks and windfall profits from bad and good fry seasons. In the long run, therefore, competitive bidding for the fry concession should result in the municipality receiving the full amount of the resource rent and with gatherers and concessionaires receiving the full amount of their opportunity cost. Municipalities would have the choice of how to distribute the added benefits obtained from the licence fee. These conclusions can best be seen with the use of a diagram which depicts the widely accepted static fishery economics model based on the Schaefer-type logistic curve from which a sustainable yield curve can be derived.¹⁹

Figure 23 depicts total cost (TC) and total revenue (TR or TR') curves and the effects of a concession licence fee (L) upon gathering effort (E). Two cases are depicted. If one assumes, on the one hand, that biological overfishing of the fry resource is possible within the relevant range of gathering effort, the shape of the total revenue curve will approximate TR. If, on the other hand, biological overfishing of the fry resource is not possible (given present costs of gathering effort) the shape of the total revenue curve will approximate TR'; that is, it will not turn down before the open access equilibrium (TC=TR') is reached. Although the effect of a concession licence fee on opportunity costs of gatherers and concessionaires and on municipal income (the resource rent) does not differ in the two cases, there are differences in interpretation regarding the effect on total revenue (and hence total catch of fry), and the amount of reduction in gathering effort brought about by the concession fee.

In the first case where biological overfishing is possible, open-access equilibrium where total cost (TC) equals total revenue (TR) will be reached in the long run when gathering effort equals E₁. At this level, all rent (or pure profit) from the resource is dissipated and fry gatherers on the average are operating where their average cost (including their opportunity cost) equals their average revenue. Because the same level of total revenue (OA) could be earned with a reduced level of gathering effort, the fishery is described as economically inefficient at the open-access equlibrium.²⁰

The effect of a concession licence fee (L), which is a fixed cost not dependent upon output or gathering effort, is to increase total costs to the line designated TC + L.

Fig. 23. Hypothetical Relationship

Hypothetical Relationship between Gathering Effort (E), Total Revenue (TR or TR'), and Total Cost (TC), with and without Concession Licence Fee (L). The total revenue curve, TR, assumes biological overfishing can occur with increased gathering effort. The other total revenue curve, TR', assumes biological over" fishing cannot occur within the relevant range of gathering effort where TC <=TR'.

Assuming knowledge of historical returns and costs, in the long run, on average this new cost line will be tangential to the total revenue curve. This is because prospective concessionaires will be willing to bid just high enough so that their expected returns cover their fixed and variable costs, their opportunity costs, and the concession licence fee. This is the same thing as saying that in the long run, the owner of the resource (the municipality) will be able to extract the maximum resource rent (in the form of the concession fee, L) which is equal to the maximum difference between total revenue (TR) and total cost (TC). Effort will be reduced to E₂, and total revenue will increase to OC.

In terms of the mechanism for reducing effort, however, the concession arrangement is not the same as granting sole ownership rights. A sole owner would limit his own gathering effort to E₂ so as to maximize his profits from the fishery. Since access to fry gathering remains open (the concessionaires make no direct attempt to restrict entry or to limit purchases) how does the desired reduction in gathering effort from E₁ to E₂ come about and what is the effect upon the opportunity cost, or net return of those gatherers who remain?

Effort is reduced through the pricing mechanism. The imposition of a concession licence fee reduces effort by fry gatherers because the price paid by the concessionaire to gatherers is lower than that which would be received by them under open-access equilibrium. This is because the concessionaire will want to recover his concession licence fee. Those that remain in fry gathering are those whose individual opportunity cost is equal to or less than the return from fry gathering. Those that remain include those whose efficiency in fry gathering is sufficiently high to allow them to earn at least their opportunity cost and also those fry gatherers with no or few alternatives whose opportunity cost is minimal. Those whose opportunity costs are higher will leave fry gathering for other activities. The average fry gatherer will however, earn his opportunity cost in the long run and no more, just as the average fry gatherer earned his opportunity cost at the open-access equilibrium. The opportunity cost (and hence net returns) of fry gatherers will, however, be higher on the average at open-access equilibrium than with the concession arrangement.²¹ The lower limit to prices paid by the concessionaire would be that which is able to "bring forth" gathering effort of E₂. A price below this limit would reduce gathering effort below E₂ and the concessionaire would be unable to recover his licence fee, L.

In this first case, then, the imposition of the concession fee represents a gain in economic efficiency because it results in optimum allocation of resources, with the municipality earning the maximum resource rent and gatherers and concessionaires earning their opportunity costs. Changing the assumption, as in the second case, to allow for the impossibility of biological overfishing, would not change the conclusions regarding these gains from economic efficiency. It does, however, indicate an alternative management approach for the municipality if its goal is not maximizing its rent from the resource but rather maximizing numbers of gatherers employed, while still not encouraging biological overfishing.

In the second case, the sustainable yield curve and hence the total revenue curve (TR') continue to increase in the relevant range of gathering effort though at a decreasing rate. Open-access equilibrium (TC=TR') is reached before biological overfishing occurs, at gathering effort E3 and a total revenue of OB. This level of total revenue cannot, in contrast to the first case, be produced with lower levels of fishing effort. If the sole criterion, however, is economic efficiency, bidding for the concession at regular intervals will again produce optimum allocation of resources at a gathering effort of E₂.

Instead of maximizing the resource rent and collecting it through a concession licence fee, the municipality may choose to let the fry resource sustain the largest possible number of fry gatherers, while at the same time avoiding biological overfishing. In the first case with biological overfishing possible, this objective would be satisfied at a level of gathering effort more than E₂ but less than E₁; that is, at the level where sustainable yield and total revenue (TR) is maximized, or E₄. This would require the municipality to impose some restrictions on the number of gatherers who could enter the fishery to avoid expansion of effort to El. In the second case, numbers of fry gatherers (assuming approximately equal units of effort per gatherer) would be maximized at the open-access equilibrium, E₃, thus sustaining a larger number of fry gatherers than in the first case.

Is there any empirical evidence to support either of the two cases such that the shape of the sustainable yield or total revenue curve can be approximated? Since fry catch and effort data have never been collected on a regular and sustained basis in the Philippines, assessment of milkfish fry stocks is not possible. Even if such data were available on a time series basis, it is unlikely that a clear cut stock recruitment relationship could be established. With natural mortality from egg to adult certainly exceeding 99.99 per cent, a fishery based on capture of unmetamorphosed stages, no matter how intensive, would probably have only a negligible impact on total mortality.²² Fluctuations in adult milkfish stocks thus may have no relationship whatsoever to fishing intensity for fry especially in the absence of a fishery on the adults. Although it is not possible to state with certainty, in the relevant range, an ever-increasing sustainable yield curve and total revenue curve, similar in shape to TR', do indeed seem possible.

Rather than trying to specify a sustainable yield curve and to determine from this optimum fry-gathering effort, a more practical alternative for those municipalities that choose to redistribute the benefits of the fry resource in favour of fry gatherers is to encourage these gatherers to bid collectively for the concession. Since gatherers will earn their average opportunity cost both at the open-access equilibrium level of effort and at the level of effort brought about by the concession system, the only way their share of the resource rents can be increased is if they either control effort or act as concessionaires themselves. There is one such example in the Western Visayas region of the Philippines, where a gatherers' co-operative has been granted concession rights at a reduced rate.

During 1976 and 1977, gatherers who were members of the San Jose Fisherman's Cooperative in Antique Province, which was awarded the fry concession at a licence fee lower than that which could have been obtained through public bidding, received an average price of 30.7 pesos per thousand fry (US$1=P7.50). Gatherers from neighbouring fry grounds who sold directly to their concessionaires received only P20.6 per thousand fry .^12b The higher price received is a reflection of the fact that the gatherers in San Jose have been able to extract for themselves part of the resource rents that formerly accrued to the municipality and concessionaire.

The lack of a concessionaire does not, however, always assure that a higher price is received. Fry gatherers in the lloilo City open-access "free zone," for example, during the same period received a price comparable to that paid by concessionaires because the dealers to whom they sold had colluded to set the price paid at P20 per thousand. Other "free zones" in southern Mindanao and Luzon were not controlled by dealers in such a manner, and gatherers received higher prices. Offsetting the benefits of higher prices that are possible under open-access were, first, the lack of a credit source from which money to purchase fry gathering gear could be borrowed, and, second, the exposure to wider fluctuations in price received. To many gatherers one advantage of the concession arrangement was the relative stability of price received, despite the lower net returns to fry gathering.

4. Distribution of fry

The foregoing discussion implies that the gatherers concessionaire arrangement works as the concession regulations require. However, this is far from the case. Although concessionaires are granted a legal monopsony, fry gatherers can circumvent concessionaires and thereby undermine the concession system, by selling their catch to fry smugglers, known locally as runners, or by smuggling fry themselves. (Runners are smugglers of fry who act either as dealers or as commissionmen financed by a particular buyer.) Because in some locations the price received for smuggled fry is 50 to 100 per cent higher than the price paid by concessionaires, smuggling is an attractive alternative for fry gatherers. Smuggling has its risks, however, ranging from confiscation of the smuggled catch by the Philippine Constabulary or the Army, to being shot by guards hired by concessionaires to enforce their monopsony rights to the fry catch.

During 1977, concessionaires in southern Mindanao, though all publicly claiming that smuggling was their biggest problem, were all actively engaged in smuggling from each other. All concessionaire-respondents in this region employed runners to whom cash advances were given to purchase fry from gatherers in other fry grounds. The result was that a staggering 50 per cent of concessionaire purchases in southern Mindanao were smuggled fry. It was estimated that individual fry grounds lost up to 80 per cent of their total catch to this extra-legal channel. In Western Visayas, concessionaire smuggling was not so prevalent, with only 6 per cent of concessionaire purchases coming from runners; however, the total estimate of fry smuggled from concessionaire fry grounds in Antique and lloilo provinces was 16 per cent. In the Bicol region and in llocos Sur and llocos Norte, concessionaires estimated that they lost 26, 7, and 30 per cent, respectively, of their fry smuggled to dealers. These estimates of losses made by concessionaires are only rough approximations. However, it does appear that a large portion of the 1976 fry catch was smuggled.

A second smuggling category involves the shipment of fry between regions without the necessary auxiliary invoices. In 1976, more than 50 per cent of interregional shipments were estimated to be smuggled this way, either without the necessary papers or, more commonly, in the form of understatements in the invoices. To estimate total interregional trade in that year, records were adjusted upwards, based on smuggling estimates provided by sh ippers.

Finally, there is smuggling of fry from the Philippines to other countries in South - East Asia, particularly Taiwan and Hong Kong, as evidenced by occasional confiscation of fry at Manila International Airport. Alternative routes are by air through Singapore, and by boat through Sabah, or north from llocos Province in the northern Philippines. Private milkfish fry dealers in Tainan, Taiwan, estimate that 50-60 million fry are illegally imported from the Philippines each year.23

Although a small quantity of fry are transported interregionally by sea and overland, the vast majority are transported by air. Over short distances the fry are carried by hand in buckets or clay pots called palayok. For longer trips, the fry are packed in oxygenated water in plastic bags measuring 50 cm wide, 83 cm long, and with a thickness of 0.0075 cm. Using double bags as a precaution against inadvertent rupture and leaks, the fry are then packed inside a bayong or bag of woven palm leaves for transportation by land or water, or styrofoam boxes for transportation by air. The capacity of each bag is 4,0006,000 fry, depending upon the time to be spent in transit. Twenty-four hours without reoxygenation is the maximum period without risking mortality of the entire batch.

Timing is important and unscheduled delays, diverted flights, or off-loadings present serious problems to shippers. Close cooperation between shippers, commissionmen, and consignees is essential and telegraphic communications are extensively used. Large shipments of more than 500,000 fry are often accompanied by the shipper himself or consignee's agent to ensure the delivery. Interregional fry shipments within Luzon are primarily handled overland. Jeeps, with a capacity of 100 woven pandan bags (500,000 fry), can be hired on a daily basis to transport fry.

The fry-trading regions in the Philippines shown in table 3 are based essentially upon the country's 12 administrative regions. However, two modifications were made to bring the number of fry-trading regions to 15. First, the provinces of Bulacan and Rizal were combined into a single trading region, and second the islands of Palawan and Mindoro were established as trading regions in their own right.^12a

Discounting the re-exports from Bulacan and Rizal to other trading regions, it is estimated that the total number of fry involved in interregional trade in 1976 was 745.0 million. This represented approximately 65 per cent of the total catch in that year, the 35 per cent balance moving only intraregionally. The first quarter of that year accounted for 79.9 million (10.7 per cent); the second, 492.1 million (66.1 per cent); the third, 111.3 million (14.9 per cent); and the last 61.9 million (8.3 per cent). These interregional trade flows are summarized in table 3 and are graphically shown in figures 24 - 27 (without discounting Bulacan and Rizal re-exports). Major observations that can be drawn from these figures are:
- Mindanao is the major fry exporter, accounting for 62.3 per cent of 1976 interregional trade; Bulacan and Rizal are the major importers, accounting for 82.1 per cent.
- Fry are available throughout the year from one area or another (table 4). Fry are caught in large quantities first in Mindanao and then in more northerly locations as the year progresses. By the end of the year, Mindanao is again the major source of supply.

Concessionaires and the dealers who buy from them are, theoretically, free to exploit market opportunities based on prevailing prices throughout the country. However, three major factors-fry perishability, mistrust, and financial obligations-limit the extent to which this is possible or desirable.

TABLE 3. Interregional Fry Trade, 1976

Receiving regions (imports in thousands)
Region	Ilocos	Cagayan Valley	Central Luzon	Rizal and Bulacan	South Tagalog	Mindoro	Palawan	Bicol	Western Visayas	Central Visayas	Eastern Visayas	Western Mindanao	Northern Mindanao	Southern Mindanao	Central Mindanao	Export subtotals	Percentage including re-exports
Ilocos	-	-	1,363.2	26,647.8	-	-	-	-	-	-	-	-	-	-	-	28,011,0	3.55
Cagayan Valley	1,722.0	-	438.0	-	-	-	-	-	-	-	-		-	-	-	2,160,0	0.27
Central Luzon	5,000.0	-	-	-	-	-	-	-	-	-	-	215.2	-	-	58.7	5,000.0	0.63
Rizal and Bulacan	-	-	42,026.7a	-	1,187.3a	-	-	508.6a	-	-	-	-	-	-	-	44,996.5	5.70
South Tagalog	-	-	-	6,924.0	-	497.4	-	-	399.6	-	-	-	-	-	-	7,821.0	0.99
Mindoro	-	-	-	14,975.2	-	-	-	-	-	-	-	-	-	-	-	14,975.2	1.90
Palawan	-	-	-	12,545.1	-	-	-	-	11,935.0	-	-	-	-	-	-	24,480.1	3.10
Bicol	245.5	-	-	1,584.4	14,946,0	133.0	-	-	5,000.0	-	-	-	-	-	-	21,908.9	2.78
Western Visayas	-	-	-	89,562.2	-	-	-	-	-	304.3	275.3	-	-	-	-	90,141.8	11.42
Central Visayas	-	-	-	29,835.9	-	-	-	768.0	18,888,5	-	989.9	7.2	731.6	114.5	-	51,335.6	6.50
Eastern Visayas	-	-	-	342.4	-	-	-	-	-	6,098.3	-	-	-	-	-	6,440.7	0.82
Western Mindanao	-	-	-	43,440.5	-	-	-	-	1,664.1	790.3	-	-	3,146.0	-	45.0	49,086.5	6.22
Northern Mindanao	-	-	-	1,934.9	-	-	-	-	-	-	-	-	-	-	-	1,394.9	0.25
Southern Mindanao	-	-	7,082.4	302,486.4	860.8	-	-	-	10,599.9	-	-	-	1,594.8	-	-	322,624.3	40.88
Central Mindanao	-	-	-	117,439.8	-	-	-	-	887.6	-	-	-	-	-	-	118,827.4	14.99
Import subtotals	6,967.5	-	51,472.3	648,156.6	16,994.1	630.4	-	768.0	49,883.3	7,192.9	1,265.2	222.4	5,472.4	114.5	104.3	789,243.9	Total fry traded (1976)
Percentage including re-exports	0.86	-	6.52	82.12	2.15	0.06	-	0.10	6.32	0.91	0.16	0.03	0.69	0.02	0.01

Source: See note 12 (a).
a. Re-exports by permittees in Bulacan and Rizal.

Fig. 24. Total Interregional Trade of 84,821,100 Milkfish Fry, January-March 1976. Source: See note 12(a).

Fig. 25. Total Interregional Trade of 521,592,800 Milkfish Fry, April-June 1976.Source: See note 12(a).

Fig. 26. Total Interregional Trade of 117,021,400 Milkfish Fry,July-September 1976. Source: See note 12(a).

Fig. 27.Total Interregional Trade of 65,808,600 Milkfish Fry, October-December 1976. Source: See note 12(a).

The likelihood that fry will die during storage is a continuous threat to the concessionaires and dealers. Fry fed with the yolk of hardboiled eggs can be maintained with minimal loss only for periods up to two weeks, at the end of which they need the natural feeds obtainable in fishponds. Increasing fry mortality, therefore, restricts the opportunities to sell selectively, and ten-day-old stock is often sold to the first available buyer regardless of price.

The lack of a method of counting accurately large numbers of fry creates, not surprisingly, mistrust between buyers and sellers at all levels in the marketing channels. The small transparent fry or kawag are counted individually by the fry gatherers for sale to concessionaires, but this is impractical as the number accumulates. Consequently, the less precise comparative-density technique is used. The widespread belief in the opportunistic behaviour of others (especially overcounting the number of fry actually supplied) leads to marketing decisions greatly influenced by the degree of trust between buyer and seller. This is particularly true for unaccompanied shipments by air where the seller must accept the word of the buyer regarding mortality in transit, and the actual number delivered. Similar difficulties occur when shipping fry and fingerlings in the United States,24 so the Philippines is far from being alone in this regard. Partnerships or associations with relatives alleviate some of the risks of marketing due to this difficulty in counting fry. The result of such action by buyers to avoid opportunists is to concentrate the fry procurement subsystem in the hands of fewer individuals with a higher degree of vertical integration.

TABLE 4. Monthly Interregional Fry Trade, 1976 (Including Re-exports)

Month	Quantity (thousands)	Percentage of annual trade
January	1,596.2	0.2
Februarya	802.6	0.1
March	82,422.3	10.4
April	155,788.5	19.7
May	227,927.9	28.9
June	137,876.4	17.5
July	66,370.8	8.4
August	27,027.1	3.4
September	23,623.5	3,0
October	29,200.7	3.7
November	28,332.4	3.6
December	8,275.5	1.0
Total	789,243.9	100.0

a. This is an understatement of February trade. Unfortunately, the auxiliary invoice records from southern Mindanao for that month were incomplete and provided no basis for an estimate of exports.

Fig.28. Fry Marketing Channels, Indicating Percentage Exchange. Source: See note 12(b).

Financing is a third limiting factor of marketing. Buyers, particularly nursery-pond operators in Bulacan and Rizal, use cash advances and partnerships to ensure continuous deliveries of fry and receive priority from sellers. Cash advances are required by concessionaires who pay their concession fee early in the fry season. These financing arrangements, though mutually beneficial to buyers and sellers, narrow the choice of marketing outlets.

The net result of these factors is a fry procurement subsystem that is highly efficient with a small average number of transactions in the marketing chain. The length of the marketing chain (defined as the average number of title exchanges) is estimated to be 2.7 only; 0.7 more than the minimum 2.0 (gatherer-concessionaire-pond operator) required by law. These 0.7 transactions are, for the most part, legitimate bulking operations performed by dealers, who buy from concessionaires (legally), and on occasion from fry gatherers and runners (illegally). The involvement of runners, for example, can be seen as lengthening the fry marketing chain, on the one hand, but also tempering the potential monopsony power of the concessionaires, on the other.

The fry-marketing channels, indicating the functionaries involved and the percentage of the total fry catch handled by each, are depicted in figure 28. An important economic distinction is made among title exchanges, simple physical exchanges (e.g., by commissionmen), and facilitating exchanges where no change of title and no physical handling of the fry occur (e.g., brokers). The distinction is important because inclusion of physical and facilitating exchanges, while lengthening the marketing chain to an average of 3.4 transactions, overstates the prospects for success in shortening the chain, as often espoused by marketing critics. In fact, the involvement of commissionmen and brokers adds little to the costs of

TABLE 5. Summary of 1976 Fry Gathering and Marketing Costs per Thousand Fry. Net return is defined as return to the functionary's labour, capital, management, and risk marketing while bringing benefits of added market outlets and exposure to more sources of price information to buyers and sellers alike.

Item	P	Percentage of total
Gatherers
Net return to gatherers	19.0	32.7
Depreciation on gathering gear	2.1	3.8
Miscellaneous gathering expenses	0.8	1.3
Runners
Net return to runners (dealers)	1.2	2.0
Net return to runners (commissionmen)	1.0	1.7
Concessionaires
Net return to concessionaires	1.6	2.7
Concession fee	10.5	18.1
Miscellaneous gathering expenses	1.0	1.7
Storage	0 3	0 5
Transport	2.5	4.3
Labour	3.6	6.2
Bad debts	1.3	2.3
Depreciation	0.9	1.6
Dealers
Net return to dealers	4.6	8.0
Net return to manager/labourers	2.1	3.6
Storage	0.1	0.1
Transport	1.6	2.8
Labour	0.6	1.1
Bad debts	0.7	1.2
Depreciation	0.5	0.8
Others
Net return to brokers	0.2	0.4
Net return to commissionmen	1.0	1.7
Pond operators' transport expense	0.8	1.3
Totals	58.0	100.0

In 1976, the average cost to pond operators was P58 per thousand fry. Of that total, P32.9 (57 per cent) can be attributed to gathering costs and P25.1 (43 per cent) to storage and transport related costs. The marketing bill thus represents a 76 per cent mark-up over the costs of gathering (table 5). The various net returns (incomes) to market functionaries have been shown separately. in 1976 the total net return to all entrepreneurs in the fry procurement sub-system, including gatherers, was P28.6 per thousand, or 49.3 per cent of the cost of fry to rearing and nursery-pond operators. Not including gatherers, total net return to entrepreneurs was P9.5 per thousand, or 16.4 per cent of the fry retail price. Since 1976, fry prices have increased to P70 - 90 per thousand, but there is no recent information on marketing costs.

In contrast to the fry procurement sub-system, the fingerling sub-system is quite straightforward (fig. 29). Specialist nursery-pond operators, located primarily in the provinces of Bulacan, Rizal, and Pampanga just north of Metro Manila, supply most of their fingerlings (62 per cent in 1976) to fishpen operators in nearby Laguna de Bay and the remainder to fishpond operators. Commissionmen play a minor role.

Fig. 29. Fingerling Marketing Channels, Indicating Percentage Exchange. Source: See note 1 2(b).

Fishpond operators in the vicinity of Bulacan thus have a choice of stocking fry and growing their own fingerlings, or stocking fingerlings grown by specialist nursery-pond operators.

continue

5. Efficiency of the procurement sub-system

The performance of the fry and fingerling procurement subsystem can be evaluated according to several technical and economic criteria:
- Adequacy and responsiveness of annual fry catch to meet annual stocking requirements.
- Mortality rates in gathering, storage, and distribution.
- Allocative efficiency of prices in fry distribution and fingerling rearing.

An earlier study, which applied these three criteria, concluded that there was no shortage of fry in the economic sense in the Philippines in 1974, 1976, or 1977. The fry procurement sub-system was judged to be technically efficient, but it was found that high mortalities occur once fry are deposited in fishponds. The fry distribution network was found to be highly price efficient, but the fingerling rearing business was found to be much less price efficient, with high profit rates accruing to nursery-pond operators. The major findings of this earlier study are summarized here, updated with more recent fry and fingerling price data and with the findings of other recently concluded studies. No data are available for the other years since 1974.

Adequacy of Fry Supply

It is commonly alleged that there is a shortage of fry in the Philippines, and that production of market-size milkfish is consequently constrained.²⁵ The term "shortage" can lead to confusion unless it is clearly defined. In the usual economic sense, a shortage can only arise if some external factor, such as government price control produces market distortions, and makes it impossible for demand and supply to achieve market equilibrium. Shortage develops when consumers demand larger quantities of the commodity, at the price set by the government, than producers would be willing to supply. With the release of price from control, equilibrium price would again be restored where quantity demanded would equal quantity supplied, and the shortage would be removed.

In the Philippines allegations of fry shortage do not conform to the above concept of shortage. Fry price is not effectively controlled despite Presidential Decree 704 which sets a maximum price of P80 per thousand fry. Price freely moves to market equilibrium, eliminating shortage in the economic sense. Prices range from P50 or less during the peak season to over P100 during lean months. The reported fry shortage refers simply to the allegation that the annual catch of fry is less than the quantity recommended by biologists to maximize production from existing pond sites. Shortage in this sense, therefore, is not due to market distortions.

The recommended annual stocking rate commonly used to project fry requirements is 10,000 fry per hectare.26 Based on 176,000 ha of fishponds in the country, extrapolated annual fishpond fry requirements would be 1.76 billion fry. When the fry required by nursery-pond operators to supply fingerlings to fishpens are added to this figure, annual fry requirements would reach approximately 2 billion. Until the late 1970s the most widely accepted estimates of Philippine fry catch ranged from 300 - 900 million.¹⁴ From these estimates, catch appears to fall far short of requirements as recommended by biologists.

However, it appears that this shortage has been highly exaggerated. To begin with, the recommended 10,000 fry per hectare assumes that optimum pond designs and conditions exist throughout the country, and this is clearly not the case. Additionally, fry catch in 1974 and 1976 was considerably higher than earlier estimates. Dealing first with the catch estimates, it is possible to estimate catch by extrapolation from observed stocking rates in fishponds and fishpens.

Based upon stocking rates per hectare of rearing area as reported by Librero et al.,²⁷ it can be estimated that in 1974 approximately 640 million fry were stocked in rearing ponds, representing an average annual stocking rate of 3,640 fry per hectare of total fishpond area (176,000 ha includes undeveloped areas) or a rate of 4,500 fry per hectare of actual operational area. Both of these figures are considerably lower than the 10,000 fry per hectare commonly used to project annual fry requirements. An additional 510 million fry were stocked in nursery ponds to supply 125 million and 208 million fingerlings to rearing ponds and 7,000 ha of fishpens respectively. The total quantity of fry stocked in rearing and nursery ponds in 1974 was thus 1.15 billion. To estimate 1974 fry catch from this stocking figure, one must adjust for mortality in gathering and storage prior to transport (5.6 per cent) and during transport (11 per cent) as observed by Librero et al.,¹⁶ to reach an estimated 1974 catch of 1.35 billion fry.

If one assumes approximately the same stocking rates in 1976 as in 1974, and adjusts for the reduction in Laguna de Bay fishpen area due to typhoons from 7,000 to 4,000 ha, total fry stocked would have been lower by 160 million, or equal to a catch of 1.16 billion fry.

Stating that actual stocking rates are less than recommended rates still begs the question of whether actual rates are in fact optimal in terms of maximizing profits (not maximizing yield) of producers. Economic not biological criteria must be applied to determine the optimum stocking rate. Given 1978 prices of inputs and output, the optimum annual stocking rate was estimated to be approximately 6,700 per hectare of actual operational area (see chapter l l l). Observed stocking rates in 1978 were almost 6,000 fry per hectare for those farms using inputs; a rate lower than the optimum rate. However, given present pond design and total area, biological limitations to natural food production in ponds, and the current production techniques, it will be several Years or more before the majority of fishponds can apply this optimum rate. In the meantime, a fry shortage does not appear to exist.

Indirect evidence also provides support to the argument that the Philippines has not Yet reached the maximum sustainable yield of its fry resource and that the industry adequately transmits demand and price shifts back to gatherers and concessionaires. The rapid decline in fry prices in 1977 (fig. 30) with lows not experienced since 1971, can be traced to the reduced fingerling demand from Laguna de Bay fishpens. With reduced fingerling demand because of widespread destruction of fishpens by typhoons in late 1976, these low prices indicate an adequate supply for 1977.

This conclusion was confirmed by information obtained from gatherers and pond operators.12b First, fry gatherers in llocos and Mindanao stopped gathering in July 1977, claiming that prices had fallen to a level insufficient to reward their efforts. Second, nursery-pond operators were forced temporarily to stop purchasing fry in the same month because their nursery ponds were fully stocked. Third, only a minority (20 per cent) of rearing-pond operators claimed to have been unable to stock the quantity of fry they desired in 1976. Close examination of the reasons for these difficulties showed that 11 per cent had difficulty restocking ponds that had been flooded by the same typhoon that prematurely halted the llocos fry-gathering season in late May 1976. Six percent had insufficient capital to make the desired purchase, the remaining 3 per cent believed that the development of lab-late (microbenthic algae) was insufficient to support their normal stocking rates. None said fry were simply not available at any time of the year.

Fig. 30. Average Monthly Prices per Thousand of Fry and Two-to Three-lnch Fingerlings in the Manila Area, January 1976-September 1980. Source of data: Records of nursery-pond operators.

Similarly, Chong and Lizarondo 28 report that only 13 per cent (n=324) of the milkfish producers interviewed in 1979 complained of a fry shortage. In many cases, these complaints appear to be complaints of high fry prices rather than claims of non-availability. Finally, it should be pointed out that the 1970s saw an almost 50 per cent increase in output of milkfish due to the added output from fishpens (table 1), and continued growth in output from fishponds.

Therefore, both direct and indirect evidence lead to the conclusion that the fry industry was able to supply sufficient fry to meet the stocking requirements of rearing- and nursery pond operators during the late 1970s. Severe weather problems such as early typhoons that curtail the fry season in llocos and cause floods in Luzon, can cause temporary shortages, however. Substantial growth in fishpen area might also jeopardize the procurement sub-system's performance, but at present, catch from the natural fishery appears adequate.

Stating that fry catch is at present adequate, does not imply of course that it will be adequate in the future. Unfortunately, it is not now possible to determine how close present fry catch is to its maximum potential. As discussed earlier, fry gathering costs and the shape of the sustainable yield curve may cause open-access equilibrium to be reached before biological overexploitation occurs. Comparisons made between Taiwan and Philippine milkfish-pond productivity per unit of fry input often tacitly assume that fry catch can be greatly expanded. For example, it has been reported that Taiwanese fishpond operators, farming approximately 15,000 ha, have been able to achieve relatively stable Yields despite wide fluctuations in annual fry catch.²⁹ For every 1 million fry stocked, Taiwan was able to produce an average of 140 tonnes of marketable milkfish during the 1963-1974 period. In contrast, in the Philippines, 80 tonnes were produced for each 1 million fry stocked in 1974. From this information it is tempting to conclude that Philippine production can be increased significantly with no further increase in fry catch.

Unfortunately, it is not quite that simple. To begin with, milkfish in Taiwan are generally marketed at larger sizes than are Philippine milkfish. In fact, the higher average weight per fish in Taiwan (350 - 450 grams compared with 200- 250 grams in the Philippines) explains most, if not all, of the 60tonne difference per 1 million fry stocked. Therefore, one might conclude that the Philippine milkfish system could be similarly productive, if only larger fish were grown. However, Philippine consumers generally prefer smaller not larger fish. This preference is indicated by the fact that market price per kilogram generally declines with size (see chapter V). Consequently, it may be less profitable for producers to grow larger fish. Although no thorough economic analysis of the costs and benefits of growing larger fish has been performed it is worth hypothesizing that increased productivity from Philippine fishponds, given current consumer preferences, can only be obtained through intensification of production techniques. This intensification would necessitate added input use, including increased stocking rates. For this expansion in productivity, fry catch from the natural fishery may not be adequate.

Mortality Rates

Estimates of mortality rates in the milkfish resource system, including the fry and fingerling procurement sub-system, have been made by various researchers. 12b,15,30 Smith estimated that of every 1,000 fry caught alive only 378 are eventually harvested at marketable size (fig. 31).

Fig. 31. Milkfish Survival

Milkfish Survival: Fry Gathering to Harvest, 1976. Percentages in parentheses are survival rates during the particular activity. Percentages in boxes are percentages of original catch surviving at that stage. (Notes: a. 47 per cent of fry are stocked in nursery ponds and 53 per cent are stocked in rearing ponds. b. 62 per cent of fingerlings are stocked in fishpens and 38 per cent are stocked in rearing ponds. Overall survival, catch to harvest: 37.8 per cent. Overall mortality, catch to harvest: 62.2 per cent. Source: See note 12(b).

Mortalities in storage and transport were estimated at 8.7 per cent and 6.6 per cent respectively. Further, transport mortality was shown to be significantly correlated with time in transport and the use or non-use of oxygenated water.³¹ It was also found that a six-hour trip by air was likely to produce no higher mortality than a six-hour journey by road, though covering a much longer distance. Kumagai et al.¹⁵ have observed higher mortalities (14.3 per cent) during catch than the 5 per cent estimate reported by Smith.^{12 b} However, a rigorous examination of the relationship between stress caused by transport and mortality after stocking has not been made. Nor has an adequate assessment been conducted of the added costs that would be incurred to bring about reductions in mortality during gathering, storage, and transport. It is possible that the added costs may outweigh the benefits.

While small increases in survival rates may be possible in the procurement subsystem, there appears to be more room for improvement in the transformation sub-system. In fishponds, for example, survival during rearing from fry to market size is less than 50 per cent. In fishpens, survival during rearing from fingerling to market size is less than 45 per cent. While these survival rates in absolute terms may appear reasonable, the range in survival rates from one fishpond to another is sufficiently great (30 - 85 per cent) to indicate that the rates could be increased for most fishfarms. The general lack of acclimatization of fry and fingerlings by fishpond and fishpen operators after transport, but before stocking, has been widely observed. After purchase, many pond operators place their fry directly into their pond, disregarding salinity or temperature differences between transport containers and the pond. Improvements beyond the 80 tonnes of harvest per 1 million fry caught thus appear to be possible through improvements in care and handling of stocking materials by entrepreneurs in the transformation (rearing) sub-system. In contrast, the technical efficiency of the procurement sub-system in terms of reasonable survival rates in storage and transport appears high.

Allocative Efficiency of Prices

Another criteria by which the procurement sub-system has been evaluated is through measures of pricing efficiency. In other words, how well does price perform its allocative function in dimensions of space,time,and form? Because of the seasonal nature of fry supply, fry prices fluctuate widely each Year (fig. 30). The allocative tasks of the market price mechanism are thus not easy, especially during periods of rapidly falling prices early in each fry season.32 Implied is the need for rapidly available price information from various locations around the country. Such information would reflect the prevailing supply- and-demand conditions. If the ability of middlemen to act on these relative prices and to engage in arbitrage is high, spatial equilibrium among the various markets would result. Despite this difficult task, the spatial efficiency and degree of market integration of the fry procurement sub-system is high. Prices in 11 major fry markets from January 1976 to August 1977 (representing 17 routes} were found to be highly correlated, indicating adequate flow of information among the markets (table 6). For individual routes, however, there were occasional price differentials significantly in excess of the transfer costs between markets.33 The spatial pricing efficiency of the fry procurement subsystem was high during the peak fry season (MayDecember), but less so during the non-peak winter months (January - April).

In addition to high correlation on most trading routes, a constant mark up was observed on 14 out of the 17 routes, allowing the inference that monopsony behaviour of middlemen is not prevalent in the system. A constant absolute marketing margin between buyers and sellers in the various markets studied would not be consistent with middlemen's monopsony behaviour, but would instead be consistent with the competitive market model in which scale economies are limited and the marginal cost of providing the marketing services is horizontal over the relevant range.34 Fry procurement services are labourintensive, and no specialized storage or transport facilities are required; thus, the assumption of a highly elastic marketing services supply function is quite reasonable.

Temporal and form dimensions of price allocation are inherently interwoven because fry are generally not stored (by stunting) for future use. Unlike Taiwan, where overwintering of fry is practiced, in the Philippines holding of fry in ponds is most usually associated with their growth to fingerling size. Therefore the form and temporal efficiency aspects of the procurement sub-system can be treated as one, and related primarily to the nursery-pond operations in which fry are transformed to fingerlings. In contrast to the high spatial price efficiency, the sub-system's form price efficiency is much reduced. A high degree of correlation existed between fry and fingerling prices for the period January 1976 - July 1977 (table 7). The mark up in prices from fry to two-, three-, and four-inch fingerling was also found to be constant. Fingerlings are measured by finger-width. A two-inch fingerling, for example, is two finger-widths long, or approximately five centimetres. However, profit rates of nursery-pond operators, representing the excess by which the differential between fry and fingerling price exceeded the transformation (fry to fingerling rearing) costs involved, far exceed what one would predict as likely under conditions of perfect competition {table 8). Based on deducting fry to fingerling transformation costs from the appropriate lagged price differentials, net returns (the residual) to nursery-pond operators' capita!, own and family labour, and management were P13.9,P15.7 and P34.2 per thousand two-, three-, and four- inch fingerling respectively.

TABLE 6. Intermarket Price Relationships among Major Cities in the Philippines

Route	Number of months	Pj = a + bPi + ei a	Rb	Mark-upc
General Santos-Davao	19	Pj =16.80+0.87Pi	0.91	constant
General Santos-Iloilo	20	Pj=4.74+1.39Pi	0.93	percentage
General Santos-Manila	21	Pj =13.48+1.22Pi	0.88	constant
Davao-Iloilo	18	Pj =- 5.54+1.31Pi	0.86	constant
Davao-Manila	19	Pj =2.75+1.20Pi	0.83	constant
Zamboanga-Iloilo	12	Pj =8.33+0.91 Pi	0.83	constant
Zamboanga-Manila	13	Pj -10.34+ 0.92Pi	0.90	constant
Cagayan de Oro-Manila	6	Pj = - 37.60+2.39Pi	0.97	percentage
Antique-lloilo	15	Pj =22.83+0.77Pi	0.81	constant
Antique-Roxas	15	Pj =6.91+0.98Pi	0.90	constant
Antique-Manila	15	Pj =15.14+1.01Pi	0.91	constant
Iloilo-Roxas	15	Pj =3.05+0.98Pi	0.87	constant
Iloilo-Manilad	20	Pj =15.33+0.80Pi	0.90	constant
Bicol-Manilad	7	Pj =17.12+0.76Pi	0.88	constant
Laoag-Dagupan	10	Pj =- 5.65+1.35Pi	0.97	percentage
Lacag-Manila	12	Pj =6.63+0.96Pi	0.93	constant
Dagupan-Manilad	10	Pj =6.28+1.13Pi	0.97	constant

Source: See note 12(b).
a. P_i = price in exporting market.
P_j = price in importing market.
b. All correlation coefficients are significant at the 1-per cent level.
c. Rejection of H₀: b = 1 implies that the slope (b) is significantiv greater than 1 at the 5-per-cent level and that the price mark-up between the two markets is not constant, but is a percentage mark-up.
d. Trade between these markets is reversed at certain times of the year.

TABLE 7. Fry and Fingerling Price Relationships

Product forms	Pfing = a+ bPfry + ej	Ra	Mark-up
Fry-2" fingerling	P2 " =55.9 + 0.99Pfry (0.21)	0.75	constant
Fry-3" fingerling	P3" =88.5 + 0.89Pfry (0.12)	0.86	constant
Fry-4" fingerling	P4" = 110.9 + 1.32Pfry (0.23)	0.81	constant

Source: See note 12(b).
a. All correlation coefficients are significant at the 1-per-cent level.

Little evidence of collusive behaviour among Bulacan and Rizal nursery-pond operators that might explain these high net returns was found, however. Though primarily centred in and around the town of Malabon, Rizal, nursery-pond operators claim to have contact only when purchasing from each other to fill large orders or when renting each other's boats for fingerling transport. Those who sell their fry to nursery-pond operators claim, however, that experienced buyers can use the comparative-density counting technique to their advantage. They do so by selecting containers with less than the average number of fry as the basis for counting the number of fry in the whole shipment. These allegations are really no more than innuendos, but certainly disagreements between buyers and sellers over quantities of fry traded are frequent.

Nursery-pond operators appear to have benefited both from their control of the fry resource through the provision of credit to concessionaires and from their ability to capture high rates of return for their fingerling-rearing operations. These rates of return, however, do not appear to be the result of discriminatory barriers to entry, but rather due to factors within the fishpen business working in favour of established nurserypond operators. The unexpected increase in fingerling demand due to fishpen operations in the early 1970s provided the opportunity for the larger nursery-pond operators to consolidate their positions. Several years passed before new entrants to the fingerling business could become established, and then, fishpen area and fingerling demand began to decline for numerous reasons elaborated upon in chapter IV. Rapid shifts in fingerling demand during the 1970s thus made it difficult for price to perform efficiently its form allocation function.

6. Some implications of a milkfish hatchery

TABLE 8. Net Return (Loss) to Nursery-Pond Operators for Rearing Two-, Three-, and Fourd-Inch Fingerling, January 1976-July 1977 (Pesos per Thousand)

	Net returns (loss)a
	For 2" fingerling	For 3" fingerling	For 4" fingerling
1976
January	76.0	15.5	11.5
February	42.3	(8.9)	(13.2)
March	28.6	(18.6)	179.9)
April	28.6	0.5	(18.2)
May	13.1	25.5	34.4
June	14.8	39.9	71.8
July	0.8	42.5	71.4
August	(8.3)	45.8	97.7
September	(5,9)	59.1	77.6
October	(4.3)	54.2	90.3
November	1.9	57.5	88.2
December	(8.2)	49.1	108.4
1977
January	1.4	19.2	n.a.
February	21.7	(16.9)	n.a.
March	3.2	(31.8)	n.a.
April	17.8	(1.5)	(5.1)
May	(0.4)	(18.7)	23.9
June	12.2	(6.4)	47.8
July	27.9	6.3	n.a.
Weighted average for whole period	13.9	15.7	34.2

Source: See note 12(b).
a. Net return (loss to nurserypond operator's capital, own and family labour, and management).
n.a. = not available.

Laguna de Bay will continue to influence fry demand, a more dramatic impact on the existing fry-procurement sub-system in the future is likely to come from the supply side in the form of milkfish fry hatcheries. Some limited success has already been achieved in inducing pond-raised milkfish to spawn in captivity. Although commercial hatcheries are probably several years, if not more than a decade, in the future, it is useful to comment briefly here on possibilities for their development and management.

While it was earlier argued that fry catch is adequate to meet present stocking requirements, it was also pointed out that increased production from existing pond areas will require more intensive production techniques, including increases in stocking rates. Since it is not possible at present to determine the true extent of the fry resource, it is difficult to say whether or not milkfish hatcheries will be required. However, if they can produce lower-cost fry, they will be a boon to milkfish producers, and ultimately to consumers.

The long-term success of hatcheries depends upon whether they can supply fry in large quantities at a competitive price and of a quality equal to those available from the natural fishery. Because of the highly seasonal nature of fry supply from the natural fishery, and consequent price fluctuations, it is possible that hatcheries will only be able to compete during the off-peak fry season when prices exceed P90-100 per thousand. For purposes of rough comparison, hatcheryproduced fry of tilapia (Sarotherodon niloticus) are currently selling for P110-200 per thousand depending on size. If fry are available from hatcheries in this manner, hatcheries could have a stabilizing effect upon fry prices that would greatly benefit the milkfish industry and aid intensification programmes that require multiple stockings. In addition, they could provide fry even after typhoons, a form of insurance stock that would also greatly benefit the industry.

The extent to which hatcheries will displace those at present dependent upon the natural fishery depends on the location of hatcheries and the timing of their production. There is the opportunity, if hatcheries are government regulated, to phase their production so that the displacing effects are gradual, allowing for adjustment within the natural fishery. For example, hatcheries could be used primarily as a price stabilization and insurance scheme rather than one that would totally replace the natural fishery. If hatcheries are privately owned and are able to produce large quantities of competitively priced fry, one can expect the impact on gatherers, municipalities, and middlemen depending on the natural fishery to be more rapid and dramatic. Since the procurement sub-system at present supports approximately 175,000 persons, careful planning of hatchery development is of major importance and will require continued monitoring of progress towards artificial propagation of milkfish so that the impact on the natural fishery and the milkfish industry can be managed for maximum social benefit.

1. Overview

The majority of tidal flats in the coastal zone of the Philippines have been developed for milkfish aquaculture. Three different methods can be used to rear milkfish in brackish-water ponds. The deep-water method, which basically depends on plankton is not common because most fishponds in the Philippines are 70 cm or less deep. The basis of production of the remaining two methods is either blue green microbenthic algae (late-lab in Pilipino) or filamentous green algae (Iumut in Pilipino). A combination of these two methods is usually practiced during a season, in spite of the ecological incompatibility of the benthic and filamentous algae in a onepond environment.36 During the dry season from February to May, when pond salinity is higher, benthic algae thrive. In the rainy season, however, benthic algae die off due to the lower salinity, and filamentous algae become established.

Milkfish culture in the Philippines is largely traditional, with most producers using very few supplemental inputs, such as fertilizers. There are basically two systems of production, those which use no supplemental inputs at all (traditional or extensive) and those which use supplemental inputs (either semi-intensive or intensive}. Productivity per unit area is relatively higher in semi-intensive or intensive systems.

Pond operators stock fry or fingerlings or some combination of these. In many cases where fry are used, the farm is divided into nursery, transition, and rearing ponds through which the stock is progressively moved until it reaches market size four to six months later. The average sizes of each type of pond in seven selected provinces are shown in table 9. For purposes of this discussion, operators of these ponds that rear marketsize milkfish are referred to as rearing-pond operators to distinguish them from the nursery-pond operators who specialize in growing fingerlings.

In addition to using tidal flats, large water bodies (usually fresh rather than marine or brackish) can also be used to grow milkfish in bamboo and net enclosures called fishpens, but so far this has been limited to Laguna de Bay, near Manila. Yields per hectare from fishpens are five to six times higher than those from ponds (see chapter IV).

TABLE 9. Size Distribution of Milkfish Ponds in Seven Selected Provinces

	Average size (ha)a
Province	Farm	Nursery pond	Transition pond	Rearing pond (all farms)
		(those having nursery and transition ponds)
Cagayan	4.50	0.20	0.60	4.30
Pangasinan	2.90	0.40	0.50	2.00
Bulacan	23.70	2.90	5.50	17.10
Masbate	23.80	0.50	2.20	22.40
Iloilo	37.50	1.80	5.90	30.20
Bohol	9.60	0.40	2.10	8.30
Zamboanga del Sur	14.60	0.60	2.30	13.10
Philippines	16.30	1.00	3.00	13.30

Source: See note 28.
a. Note that average area of nursery and transition ponds is reported only for those farms using this type of devout.
Consequently, farm size by province does not necessarily equal the sum of nursery, transition, and rearing ponds.

There are at present about 176,000 ha of brackish-water ponds devoted to milkfish husbandry in the Philippines. The 1973-1979 average milkfish production from ponds per year was about 115,000 tonnes37 or 650 kg per hectare. In Taiwan, the average is 1,500- 2,000 kg per hectare per year. In the preceding section it was pointed out that the milkfish yields in the two countries per 1 million fry caught are approximately the same. The different yields per hectare, therefore, reflect the more intensive use of land in Taiwan. The low national average yield has been a major concern of the Philippine government agencies responsible for aquaculture development.

Although yields comparable to those of Taiwan have been duplicated by Philippine research facilities and a few private producers, one must be careful not to generalize claims of higher yields to the whole industry. Claims of three- or fourfold increases over the national average yield of 625 kg per hectare per year are misleading, because they reflect the accomplishments of a very small group of successful and innovative farmers. For example, the views of the officers of the Philippine Federation of Fishfarm Producers (renamed the Philippine Federation of Aquaculturists in 1981) are often looked upon as representative of all pro" ducers. Although they do play the role of spokesmen for their industry, one should be cautious in generalizing their public statements to the whole industry. Most milkfish producers have a long way to go before they can produce 2 tonnes per hectare per year from milkfish ponds.

In the past two decades, opening up new lands and production intensification from existing ponds have added equally to increased annual milkfish production. However, recent satellite imagery has shown that there are few areas left which can be brought into production without adverse effects upon other activities in the coastal zone. Contrary to previous estimates made by much less sophisticated means, which indicated that about 500,000 ha of swampland and mangrove are still available for development, the satellite results indicate only 125,000 ha remain. Consequently, measures have been taken to limit the conversion of mangrove areas.

Past government programmes for aquaculture have tended to be predicated upon the assumption of readily available area for expansion. Because of this early emphasis, production intensification methods have only recently been actively promoted by the government, much less adopted by the milkfish farmers. In fact, a close examination of the various credit programmes by the government through the Development Bank of the Philippines and other institutions reveals the almost exclusive emphasis on loans for pond construction, development, and improvement, and little for operating costs, such as the purchase of supplemental inputs.

Because of this heavy infrastructure emphasis, it is not surprising to find studies by various investigators such as Librero27 and Chong38 showing that Philippine milkfish ponds are still largely underutilized. Given the recent satellite finding, the necessity for a shift in the pattern of production and resource use is indicated. Output- or yield-increasing techniques of production from the existing pond area will be needed to boost production.37 _41 This essentially means the adoption of production intensification methods such as the greater use and application of fertilizers. To achieve higher production fertilizers can, within limits, substitute for land. The problem is, therefore, one of attempting to increase the production of milkfish from a more or less fixed land base.

Production intensification methods are basically knowledgeintensive methods of production and these are needed on a global scale if present population trends continue. The production function analysis reported at the end of this section is an attempt to provide timely information on the most profitable input combinations and the corresponding output level. This information would facilitate improvement in resource-allocation efficiency at both the farm and national level, resulting in higher output.

Shang⁴¹ reports that the rapid increase in the cost of fry and fertilizers has imposed a problem on Philippine milkfish producers. Because of this, it is likely to discourage fishpond operators from adopting intensive farming techniques. However, he argues that although the use of inputs can be expensive, their use, if properly carried out can be profitable.

Although supplemental inputs have to be used to improve the productivity of milkfish ponds, the uncertainty of output response due to additional inputs affects a producer's decision on the use, and rates of use, of such inputs. As a result, the producer is naturally interested to know the risks, costs, and benefits involved in using inputs and the possible pay-offs he can expect. In this section, we demonstrate the responses of milkfish output to the various inputs applied.

Note, however, that although inputs are used, they are not uniformly applied throughout the country. Because of this, there is considerable variation in output from province to province. The focus of this section is to explain output variability in terms of the use of inputs. An attempt will also be made to identify the factors which limit the use of inputs. Other possible causes of output variability, which are not discussed in detail here, are differences in environmental conditions such soil type, climate, and pH. This section is based primarily on a survey of 324 milkfish producers in seven provinces conducted in 1979 by the International Center for Living Aquatic Resources Management (ICLARM), the Bureau of Agricultural Economics (BAECON), and the Fishery Industry

Fig. 32. Map of the Philippines Showing the Types of Climate of the Seven Provinces Selected for Survey, 1979.

Development Council (FIDC) (fig. 32). This survey, hereafter referred to as "our survey," covered farms that are intensively operated (i.e., use supplementary inputs).

2. The physical environment

Physically, most conditions of climate (with the exception of periodic typhoons), soils (with the exception of acid sulphate soils), water, and other natural environmental conditions in the Philippines are generally favourable for the development and growth of the local milkfish industry. But institutionally and socio-economically, conditions have not permitted the attainment of such development and growth.

The milkfish industry is characterized by the existence of well-established ponds and newly developed ponds. Newly developed ponds are reportedly less productive than well established ponds because they suffer from acid sulphate soil conditions, whereas soils in older ponds are more stabilized.

Scattered throughout the Philippine Islands are flat coastal and alluvial plains, where brackish-water ponds are found. The soils of brackish-water ponds are mostly hydrosol, either of clay, peaty clay, or silty clay. In general, these ponds are adequately supplied with seawater and freshwater. Annual rainfall ranges from a low of 89 cm to a high of 549 cm, the average being 305 cm. The average annual temperature is about 30 C. The Philippines has a year round growing season However, many of the ponds, particularly in Luzon and other islands in the Visayas, are occasionally subjected to flooding during adverse weather. Most of these ponds are excavated to a depth of 50 cm and their embankments are not substantial, making them vulnerable to flooding.

A further physical disadvantage which the Philippines suffers from is the intermittent setbacks from the occurrence of typhoons each year, beginning in June and continuing through September. Typhoons are very destructive to milkfish culture. Not only are valuable stocks of milkfish lost but algal beds and other natural fishfood are also destroyed. Milkfish farmers report that certain algae and other natural fishfood do not thrive after a heavy rain. On the average, the Philippines experiences about 19 typhoons each year, with the northern and eastern parts of the country being most affected. Typhoons in Mindanao are rare.

Although Taiwan and Indonesia are also affected by typhoons, milkfish production in the Philippines is relatively more precarious. The total loss of milkfish in 1978 from 324 farms due to typhoons and floods is estimated at P2,065,626 or an average loss of P6,375 per farm or P400 per hectare. The average loss per farm of the 97 (30 per cent) farms that reported losses is much higher, at P21,295.

Besides the loss of milkfish, costly damage is inflicted upon pond embankments, dikes, and sluice gates. Because of the weather-related damage to the ponds, repair and maintenance have to be done more often. It is, however, difficult to separate the annual repair and maintenance costs arising from normal wear and tear, which is part of the normal costs of milkfish production, from the costs of repair and maintenance incurred due to typhoons. Producers often try to reduce losses by harvesting early before the flooding begins. The cost of raising the height of embankments, according to producers, is probably more than the added benefit, given that their loss is the difference between the price they receive when harvesting early, and the price they would have received had they waited until the full rearing period was over.

The occurrence of acid sulphate soils is a further complication. Acid sulphate soils are characterized by a high content of sulphur-based compounds that produce acidity on oxidation. The chronic, sublethal effects of acidity that inhibit pond biota can result in low output of milkfish.⁴² Although remedial measures have been worked out, much of this information is not reaching the milkfish farmers. Apparently, many milkfish farmers do not recognize their low output as linked to an acid sulphate soil problem, because liming, to counteract acidity, is not a widely accepted practice. Some milkfish farmers interviewed realized that there is something wrong with their pond water but did not know the causes.

Not all Philippine milkfish farms are endowed with the same set of natural conditions, and certainly not all suffer from the problems itemized above. Differences in topography, soil and climate among farms give rise to differences in yields even if the same set of inputs is applied.

In the milkfish industry a balance must, therefore, be fostered among the prevailing physical and socio-economic conditions. On the one hand, the favourable environmental conditions must be capitalized upon; on the other hand, the institutional and socio-economic constraints confronting milkfish farmers must be overcome so that the available technology can be more widely adopted. Once the nature of these constraints is documented it is possible to legislate or introduce changes within the system.

3. The socio-economic/cultural environment

Culturally, fish is important in the diet of the Filipino. Fishing and fish farming are, therefore, important activities in their way of life. Fish farming in the Philippines as it is practiced today has evolved over time under essentially laissez-faire conditions. In general, it is observed that most of the brackish-water ponds in the country have been developed haphazardly without the benefit of sound technical planning or engineering advice. Any person having access to a suitable piece of land can develop it into a fishpond. Because ponds are often haphazardly designed, production costs are high and yields and net returns are low. This economically "fragile" picture of milkfish production is further exacerbated by the periodic occurrence of typhoons, as discussed earlier.

Although it does not involve large areas, milkfish farmers commonly squat on government land. Another form of squatting which is common is the extension of milkfish ponds on to government property by construction of dams across small rivers, creeks, and waterways. This illegal encroachment on waterways which are under government jurisdiction often causes flooding in the vicinity. The lack of law enforcement in the past and misunderstanding as to which government body is responsible for administering government land for milkfish production have partly contributed to this illegal diking and squatting. Measures to remedy the situation have now been instituted.

Philippine milkfish ponds are in various stages of development, which due to the acid sulphate soil problem cited earlier, greatly influence yields. A useful categorization distinguishes established ponds which are more than 20 years old, developed ponds which are between 5 and 20 years old, and newly developed ponds which are less than 5 years old. In Indonesia, tambaks or milkfish ponds are not stocked with milkfish for the first 3 to 4 years.43 However, according to Liang and Huang,44 tidal land can evolve to become very productive, with annual yields reaching 2,000 kg per hectare per year within about 5 years.

Another feature of the local milkfish industry is that very few of the milkfish farmers keep any semblance of records on inputs used and production activities performed. Those few that keep records only have information on the total costs of inputs purchased. Without properly kept records, it is not easy to evaluate the performance of the production operations. Because records are an invaluable aid for sound management, it is obvious that a large percentage of Philippine milkfish farmers are not aware of the value of management in production.45 As a result, most of them do not have any idea whether or not it pays to use inputs such as fertilizers in milkfish culture. Low levels of supplementary input use are corroborated by Shang's finding41 that stocking materials, interest, labour, and marketing were the most important cost items, and accounted for about 82 per cent of the total production cost, leaving only 18 per cent for other items such as supplementary inputs.

Although the Philippine milkfish industry has been generally characterized as largely stagnant with perennial low yields, nonetheless, several of the milkfish producers contacted for interview are among the relatively well-to-do members of their communities. A similar observation was also made by Villaluz 27 years ago.46 In iloilo, it is said that the fishpond industry is a rich man's business.8 There is no doubt that Philippine milkfish producers are also among the more educated group of fish farmers in the Asian region. In fact, many fishpond operators are either engineers or legal or medical practitioners; less than 2 per cent have no education. More than a third are college educated, but these tend to be concentrated in lloilo Province. In the other provinces, milkfish farmers are mostly elementary and high school graduates.

There are more than 30 fishfarm producer associations federated at the national level, whose membership is drawn largely from the more successful and educated fishpond operators. Membership in the association is voluntary. Benefits of membership are varied depending on the degree of member participation and leadership. For the most part these associations make representation to the government and serve as a source of information and meeting place for their members. Buying and selling on behalf of members is only practiced in a few associations. The most common service is bulk purchase of inputs such as fertilizers.

4. Tenure patterns

There are two major tenurial systems for milkfish ponds: private ownership and government lease. Farm ownership is predominantly private among intensively operated farms; just over 70 per cent own their farms. A large segment of the government leased ponds is not operational yet. There are also those whose applications for government lands have not been approved. In fact, these applicants for government lands constitute a large number of milkfish farmers listed as being in production. Because of this, the reported total pond area under production (176,000 ha) may be an over-estimate. At the same time, there are also those whose ponds are already in production but because of the fear of land reform similar to paddy land reform, the owners are not revealing the real size of their farms.

Prior to 1980, government ponds were covered by two types of lease: Fishpond Lease Agreement (FLA) which is for a period of ten years, and Ordinary Fishpond Permit (OFP) which is good for one year, both of which were renewable. However, after 1980, both the FLA and OFP were consolidated into a single scheme of government leased ponds with leases valid for 25 years and renewable.

The nature of the lease arrangement, whether it is for private or government land, short- or long-term, renewable or non-renewable, affects the lessee's decision on the utilization of inputs. If it is short term and non-renewable, lessee operators seldom would invest in inputs whose expected benefits span a longer period. Under such circumstances they expect the owners to pay for the inputs unless an arrangement has been made for equitable sharing of benefits between owner and lessee. Milkfish producers agree that privately owned milkfish ponds are better developed and have higher yields than leased ponds.

Because the 324 milkfish farms chosen for the survey purposely excluded those that used no inputs, the results are indicative of the extent of input use between private and government-leased farms. Inputs are more widely used on private farms than on government-leased farms. More privately owned farms are found in the three leading milkfish production centres of lloilo, Bulacan, and Pangasinan than in provinces with lower average production per hectare (table 10). Occasional uncertainty surrounding the legitimate lessees of government-leased land can also contribute to the reluctance of lessees to use inputs. It is reported that a piece of government land can have more than one applicant because application papers may have beer filed with either the same government bureau in different localities or with different government agencies. Because of the uncertainty regarding the legitimate lessees of the land, farmers are understandably reluctant to incur expenses for production purposes. Additionally, the inability of many farmers to show the proper papers and documentation to support their tenure on government lands has also led to low participation rates in government credit programmes.

5. Alternatives for increasing

Production Increases in milkfish production can result from both expansion in area and intensification of production methods in a given pond. However, in the short run, the area available to each producer for growing milkfish is fixed. In the long run, individual producers can add to their area under production. While at the national level since 1952, hectarage expansion and production intensification have each contributed about 3 per cent growth annually to the industry (table 11), future growth will have to come from intensification because land area for expansion is limited.

TABLE 10. Tenure Status of Intensively Operated Milkfish Farms, 1978 (Percentages)

Province	Private	Government
Cagayan	42	58
Pangasinan	99.7	0.3
Bulacan	100	0
Masbate	43	57
Iloilo	84	16
Bohol	40	60
Zamboanga del Sur	55	45
Philippines	73	27

Hectarage Expansion

Although milkfish farmers cited several problems they face at present (e.g., inadequate capital, lack of technical assistance, and high fry mortality rate), more than half (56 per cent) showed strong inclinations to expand their present production area. Of the 56 per cent who were inclined to expand their operations, half had definite plans to do so.47 The other half stated that their plans for expansion would greatly depend on the availability of land, capital, time to attend to the milkfish operations, and technical know-how. About 34 per cent of the milkfish farmers intended to maintain their present level of operations, due primarily to the lack of land to expand and lack of capital; the remaining 10 per cent were either undecided or had no response.

TABLE 11. Total Area and Production of Milkfish in the Philippines, 1952-1979

	Area (ha)	Production (tonnes)	Average yield/ha kg/ha/yr
1952	88,681	31,038	350
1953	95,633	33,472	350
1954	100,097	35,034	350
1955	104,952	36,734	350
1956	109,799	38,480	350
1957	112,611	39,414	350
1958	116,546	59,624	512
1959	119,582	58,090	486
1960	123,252	60,119	488
1961	125,810	60,825	484
1962	129,062	61,436	476
1963	131,850	62,044	471
1964	134,242	62,680	467
1965	137,251	63,198	461
1966	138,968	63,654	458
1967	140,055	63,912	456
1968	162,807	86,711	533
1969	164,414	94,573	575
1970	168,118	96,461	574
1971	171,446	97,915	571
1972	174,101	98,922	568
1973	176,032	99,600	566
1974	176,032	113,195	643
1975	176,032	106,461	605
1976	176,230	112,761	640
1977	176,230	115,756	657
1978	176,230	118,682	674
1979	176,230	133,595	758

Source: See note 1.

Production Intensification Methods

Besides expanding the physical size of operations (farm) which is becoming increasingly difficult to do, milkfish farmers can increase their output by means of production intensification methods; that is, substituting non-land inputs such as fertilizers and feeds for land.45 About 5 per cent of the country's milkfish farmers are interested in expanding their operations by this production intensification method. This revelation has disturbing implications. First, it reveals that not only are milkfish farmers at present using low levels of inputs, they are, by and large, not aware that production and profits can be increased by intensifying the use of inputs. Even in lloilo where milkfish producers are more progressive and innovative, only 12 per cent would adopt the use of more inputs. Note that the sample for this study included only those milkfish producers who use inputs. Based on the observed low levels of input use, one might be tempted to conclude that, given the prevailing prices of inputs and output, Philippine producers are already optimizing their returns. However, the production function analysis reported later in this chapter, indicates that milkfish producers could increase their profits by increasing input use. There is clearly an educational role for the extension service to play in contrasting the difference between increasing production through hectarage expansion or through intensification of input use.

A combination of factors appears to be at play here. Until the recent moratorium on conversion of mangrove areas to fishponds, land rental values were relatively low. With capital, not land, the limiting factor, it is hardly surprising that milkfish producers would favour hectarage expansion over production intensification. With the moratorium, however, land values can be expected to rise as it becomes relatively more scarce, thus encouraging producers to favour production intensification instead. Sociological factors also play a role in the producer's decision to favour hectarage expansion, as can be seen by the observed tendency to value highly visible or tangible attributes, such as expanse of land, over less tangible or less visible quantities such as gains in productivity per unit area.

Operators of small farms with low productivity, though evaluated as economically inefficient, are also guided in their production decisions by strong sociological factors.

The security and subsistence that is derived from land ownership, the family nature of many of these small farms, and the festivities that characterize Filipino family gatherings at harvest time all temper the goal of profit maximization. For example, it is not uncommon to find family-owned farms being managed on a rotational basis, or cases where absentee owners leave the management of the farms to relatives.

6. Size of operations

Milkfish farms vary in size from 100 sq m to 200 ha and more. The average farm size in the whole country is 16 ha (table 9), with the largest average size farm found in lloilo Province. According to the results of the survey, the smallest farm is 0.1 ha while the largest is 250 ha.

For purposes of this paper, size of farm operations is defined as follows: below 6 ha is small; 6-50 ha is medium; and more than 50 ha is large.⁴⁹ On the basis of these definitions, most milkfish farms in the country are of either small or medium size, constituting 43 per cent and 50 per cent of all farms in the sample respectively. Only 7 per cent of the farms are classified as large farms. These size distinctions are important to keep in mind because there are significant differences in yields (productivity per hectare) among farm sizes.

It should be noted that in some parts of the country such as Bulacan which was one of the first provinces in the Philippines to be affected by land reform in 1962, it is not too surprising that, by and large, milkfish farmers are hesitant to reveal their true farm sizes. It is quite common to find that ownership of large farms is "disguised" under several names.

continue

7. Technique of production and average yields

Although the basic techniques of milkfish production which rely on lab- lab and lumut as feed rather than plankton, have remained essentially unchanged over the years, relative intensities of inputs used have changed. These changes are sometimes incorrectly perceived as different techniques when they are really only differences in input combinations. For example, the more progressive farmers, who move their fish at regular intervals from one rearing compartment to another as they grow so as to more closely align stocking densities with pond-carrying capacity, depend on labdab or lumut. Moving enriched water to rearing ponds from "kitchen" ponds, where natural feeds are grown, also does not represent a change in technique.

In this paper, only the conventional technique which relies on lab-lab or lumut, and which is common to most farms, is examined. Homogeneity of husbandry practices for the sample is required in order to specify a theoretically meaningful input-output relationship from the various input and output data collected from each farm.

The conventional technique of milkfish production in the Philippines involves the application of inputs such as organic fertilizers to the pond bottom before stocking to increase the nutrient content of the pond to encourage the growth of algae. In contrast, Taiwanese techniques rely primarily on supplementary feeding instead of growing fishfood in the pond. Producers there are also beginning to experiment with two to three metre-deep ponds in hopes of increasing production per unit of land area, which is more scarce than in the Philippines.

In the Philippines, pesticides are sometimes used to eradicate pests and predators. Pond preparation including soil conditioning and fertilization takes about one to two weeks, followed by regular maintenance of the dikes, embankments, and gates. The success of Philippine milkfish culture is heavily dependent on the growth of various algae since direct feeding is not widely practiced. These algae can be either filamentous green, blue-green microbenthic or planktonic. The three types of algae are depth-dependent: Planktonic forms require deep water; filamentous green and blue-green microbenthic forms can grow in shallow ponds. Tang,50 has shown that ponds with average depths of less than 70 cm (typical of most Philippine ponds) can only be managed profitably by using filamentous green or blue green microbenthic algae as fishfood, because the quantity of plankton produced is insufficient to support a high level of fish production. Thus, either filamentous green or bluegreen microbenthic algae is the biological basis of milkfish production in the Philippines, here referred to as the conventional technique.

TABLE 12. Per-Hectare Yield of Milkfish Farms by Province, the Philippines, 1978

Province	Average yield kg/ha/year (all farms)	Average yield kg/ha/year (high-yielding farms)	Average yield kg/ha/year (low-yielding farms)
Cagayan	253	424	153
Pangasinan	589	900	341
Bulacan	1,066	1,886	560
Masbate	95	432	35
Iloilo	1,110	1,616	621
Bohol	308	962	177
Zamboanga del Sur	204	427	116
Philippines	761 (n=324)	1,429 (n=97)	266 (n=227)

Note: High yields and low yields have been defined relative to the average yield. Those farms with aboveaverage yield are grouped as high-yielding farms and those with below-average yield are grouped as low-yielding farms.

TABLE 13. Per-Hectare Yield of Milkfish Farms by Size and by Province, 1978

Province	Small farms (< 6 ha) kg/ha/year	Medium farms (6-50 ha) kg/ha/year	Large farms (> 50 ha) kg/ha/year
Cagayan	296	239	-
Pangasinan	527	666	-
Bulacan	796	1,136	987
Masbate	337	113	16
Iloilo	433	905	1,195
Bohol	149	327	-
Zamboanga del Sur	163	207	-
Philippines	423	580	1,056

TABLE 14. Farm Yields per Hectare by Province, as a Percentage of the Total, 1978

Province	Number of respondents	Percentage of farms kg/ha/year
		< 500	500-1,000	> 1,000
Cagayan	27	63	15	22
Pangasinan	81	51	33	16
Bulacan	52	29	29	42
Masbate	31	90	7	3
Iloilo	53	30	32	38
Bohol	42	88	10	2
Zamboanga del Sur	38	90	8	2
Philippines	324	60	21	19

Our survey data show that average annual milkfish production per hectare from intensively operated farms is approximately 760 kg. This estimated yield is higher than the reported national average of 650 kg per hectare per year because the survey data consists of production data only from farms using inputs. With proper husbandry and management, milkfish yield can be increased to at least two tonnes, about three times higher than the present average. It can be inferred that if increases in output are to come from hectarage expansion, it will require two additional hectares of land to produce the additional 1.4 tonnes of milkfish which could be produced in one hectare with proper management and husbandry techniques. Which of the two alternatives would be more profitable depends upon the relative costs of land vis-a-vis other supplementary inputs. In this connection, the low leasehold fees for government land may have partly contributed to the observed bias of producers to favour hectarage expansion over production intensification. This question is not definitively answered in this paper; however, available data are used to determine if existing farms could increase their profits by increasing the input quantities applied.

Geographical differences in yield can provide a picture of variations among milkfish farms in the Philippines. To estimate the annual milkfish production per hectare, the total reported production is divided by the total active farm size; undeveloped area within the farm is excluded.⁵¹ Of the seven provinces, the lowest average per hectare yield was found in Masbate Province and the highest averages found in lloilo and Bulacan provinces (table 12). The contrast between the yields of high-yielding and low yielding farms is significant. The average yield of highyielding farms in three of the seven provinces (Cagayan, Masbate, and Zamboanga del Sur) is even lower than the average yield of the lowyielding farms in Bulacan and lloilo. Note also that the average yields in the low-yielding farms in Cagayan, Masbate, Bohol, and Zamboanga del Sur do not even reach 200 kg.

Yield differences among small, medium, and large farms are also significant (table 13). In general, there is a trend of yield increases with an increase in farm size. Wide variations in productivity of individual milkfish farms are also noticeable. For example, the highest yield recorded for any one farm among the high-yielding farms in each province ranges from 1,111 kg per hectare per year in Masbate to 3,472 kg per hectare per year in Bulacan.

Increasing productivity per hectare as farm size increases was evident in the major production centres of Pangasinan, Bulacan, lloilo, and Zamboanga del Sur; however, there was a levelling off beyond medium-sized farms in Bulacan. In Cagayan and Masbate, productivity declined with size.

At the national level, about 60 per cent of the milkfish farmers interviewed produce less than 500 kg per hectare per year; 21 per cent produce between 500 to 1,000 kg per hectare per year while only 19 per cent produce more than 1,000 kg per hectare per year (table 14). As expected, Bulacan and lloilo provinces have the highest proportion of producers who produce 500 or more kg per hectare per year. However, even in these two provinces, almost one third of the producers still fall into the lowest category.

Almost half of the producers in Pangasinan have yields over 500 kg per hectare per year. It is also important to bear in mind that the distribution reported here is for the sample which, by design, was skewed in favour of intensive systems. For the country as a whole, an even higher proportion than shown here would have productivity less than 500 kg per hectare per year.

In the other four provinces surveyed, the picture is a very discouraging one. In fact, the average producer using inputs in these four provinces is operating at a loss (table 15). Masbate, Zamboanga del Sur, and Bohol have large proportions of milkfish farmers (exceeding 85 per cent) who are still producing less than 500 kg per hectare per year. In Cagayan and Pangasinan the figures are 63 per cent and 51 per cent, respectively. It is apparent, therefore, that a potential exists to tap this unused capacity to produce higher output.

8. Input use

Producer's decisions regarding selection and combination of inputs are influenced by: knowledge of what inputs to use, the expected contribution of inputs to total output and profits; availability of inputs; prices of inputs and output; and the liquidity position of the producer.

Although some milkfish producers recognize the important role of supplementary inputs such as fertilizers in the production of milkfish, the majority only apply minimal quantities. Input utilization also varies among provinces and among farms within the same province. Iloilo is one of the few provinces where all milkfish producers surveyed use inputs. This is in contrast to Cagayan where large numbers of producers who do not use any inputs, above and beyond the labour and fry or fingerlings needed, were, consequently, not included in the sample. In Pangasinan, milkfish producers claim that their ponds are still fertile and inputs are, therefore, not required. However, lumut or filamentous green algae are purchased from suppliers (fig. 14) to increase the available food supply in the ponds. The most commonly used inputs are chicken manure, all-ammonium sulphate (18-46-0), monoammonium sulphate (16-20-0), urea (45-0-0), rice bran, and pesticides such as Aquatin, Gusathion, and Brestan.

Input price variations are inevitable due to market differences of supply and demand from province to province (table 16). For example, while the national average price of organic fertilizers (primarily chicken manure) is 40.29 per kg, the average cost by province displays wide variation. In lloilo, where milkfish farmers are paying the highest price for organic fertilizer (40.57 per kg), they also complain of a shortage of chicken manure.

TABLE 15. Average Per-Hectare Costs and Returns of Milkfish Production in Seven Provinces, 1978

Per-ha basis
Province	Returns	Costs	Residual
Cagayan	P1,951	P4,156	(P2,205)
Pangasinan	5,206	3,036	2,170
Bulacan	7,457	4,320	3,137
Masbate	545	1,859	(1,314)
Iloilo	6,383	3,850	2,533
Bohol	1,577	2,536	(959)
Zamboanga del Sur	1,203	1,732	(529)
Philippines	4,772	3,394	1,378

Note: Milkfish production costs comprise material inputs, labour, and miscellaneous operating costs. However, an imputed cost for land has not been included for owner operated farms.

TABLE 16. Input Price Variations by Province (P/kg)

Province	Organic fertilizera	Inorganic fertilizerb	Supplementary feedsc
Cagayan	0.11	1.56	0.63
Pangasinan	0.15	1.57	1.47
Bulacan	0.18	1.71	0.98
Masbate	0.18	1.48	0.67
Iloilo	0.57	1.67	0.50
Bohol	0.29	1.63	0.90
Zamboanga del Sur	0.10	1.71	0.57
Philippines	0.29	1.66	0.66

a. Primarily chicken manure.
b. Primarily 18 46-0.
c. Primarily rice bran.

Price differences are smaller in the case of inorganic fertilizers, ranging from P1.48 to P1.71 per kg, with an average price of P1.66.

There are many different kinds of supplementary feeds used in milkfish production. These are rice bran, breadcrumbs, broken ice-cream cones, booster feeds, and hog mash. Because of this, an average price for supplementary feed was estimated based on their individual prices Milkfish farmers pay an average price ranging from P0.50 to P1.47 per kg. The high costs in Pangasinan could be attributed to the inclusion of lumut as a form of supplementary feed.

Aquatin, Endrin, Gusathion, and Brestan are commonly used pesticides most often applied to the pond bottom before stocking. In the case of Brestan, price variations among the seven provinces are minimal, the average price being about P120 per kg. However, Zamboanga del Sur is an exception where the price is P249 per kg. Tobacco dust, used in only two provinces, has an average price of P0.28 per kg (Bulacan) and P0.50 per kg (Zamboanga del Sur). Costs of liquid chemicals such as Gusathion, Aquatin, and Endrin vary from P31.40 (Pangasinan) to P66.00 per liter (lloilo). The national average price is P56.30 per litre. The Zamboanga del Sur, Bohol, Masbate, and Cagayan prices for liquid pesticides are close to the national average price, while the Bulacan price is higher.

Philippine milkfish producers cited several problems in connection with the use of inputs. Except in Cagayan, milkfish producers complained of high input costs, especially of fertilizers and pesticides. Unlike agricultural farmers, milkfish producers receive no preferential treatment to encourage the use of supplementary inputs, and government price subsidy for inputs was cited by producers as a possible solution to this problem.

Because of input-output price variations from province to province, producers will make differing decisions regarding added input use, because it will be profitable to use an input only if the value of its marginal product exceeds its cost. For example, if the hypothetical value of the marginal output from an added kilogram of chicken manure is P0. 30, it will be profitable for producers in Zamboanga del Sur to apply this added kilogram at a cost of P0. 10 per kg while in lloilo where the cost is P0.57 per kg it would not pay to do so. In the final subsection of this chapter, the value of the marginal product for the various inputs is determined, in order that they can be compared with input price, thus indicating the degree of economic efficiency in the transformation sub-system.

Theoretically, the capital and liquidity position of a producer can be classified as either unlimited or limited. With two different capital positions, there are two solutions to the problem of determining the most profitable combinations of inputs and level of output. The producer with unlimited capital would produce at the point where his marginal product is equal to the input-output price ratio, that is where marginal revenue equals marginal cost. However, the producer with limited capital maximizes his profits if he allocates inputs such that the return on the last peso spent on each input is equal. In the case of the Philippine milkfish industry, the latter condition is widespread.

It is for this reason that past and present government programmes for aquaculture development have emphasized credit. However, credit to purchase inputs has not been given emphasis because loans have generally been restricted to capital improvements only. Surprisingly, even though a large number of milkfish farmers are short on capital, the rate of participation in the government-sponsored credit programmes is poor. Two possible explanations are that either these farmers are not under economic pressure to obtain higher output, or the procedures for loan application inhibit participation.

continue

9. Measures of efficiency

The relationship between inputs and output in fishponds can be described mathematically through a production function of the following generalized form:

Y = f (X₁,....................... X_n)

where Y = output
X_j =inputs

Various specifications of the functional form could be used, including linear, polynomial, or power functions. For this paper, a Cobb-Douglas form was specified for the input/output relationship:

e

It was hypothesized that variation in output could be explained by 11 explanatory variables (inputs) as follows:

X₁ = age of pond (years)
X₂ = quantity of milkfish fry stocked (pieces)
X₃ = quantity of milkfish fingerlings stocked (pieces)
X₄ = acclimatization time before stocking (hours)
X₅ = hired labour (man-hours)
X₆ = miscellaneous operating costs (P)
X₇ = milkfish culture experience of operator (years)
X₈ = pesticides,(P)
X₉ = organic fertilizers (kg)
X₁₀ = inorganic fertilizers (kg)
X₁₁ = farm size (land in ha)

= production coefficients to be estimated
e = error term

The absolute values of the production coefficients (Sb_i) can be interpreted as the respective elasticities of production. The sum of the coefficients (Sb_i) indicates returns to scale. Finally, the value of the marginal product (VMP_j) for each input can be compared with the input price (P_i) to determine the efficiency of the transformation sub-system. If VMP_j <> P_i, the sub-system is not efficient; that is, additional profits could be earned if the quantities of input are changed. If VMP_j = P_j, the level of use of input i is optimal.

Based on data collected from 324 producers in seven selected provinces, production functions were estimated on a per-farm and per-hectare basis, first for each of the seven provinces, and second, for the whole country. The latter national production functions are summarized in tables 17 and 18. Both the per-farm and per-hectare production functions are reported here to demonstrate that they are equally valid and have similar coefficients.

Before discussing the individual explanatory variables, their respective production coefficients, and their significance or insignificance, it is helpful to examine the nature of the estimated production functions. The predictive value of the estimated production functions is satisfactory (given they are based on cross-sectional data), as measured by the R² values, which range from 0.39 to 0.77. The overall "fit" of the model, judged by the F-values, is also very good. The absolute values of the estimated production coefficients (not to be confused with their significance level) are low, implying that the response of milkfish output to the application of supplemental inputs is low.

Of the 11 explanatory variables hypothesized to explain variation in milkfish output, six are significant in the per hectare specification and seven in the per-farm specification. These are age of pond, milkfish fry, and fingerlings, miscellaneous operating costs, and organic and inorganic fertilizers. The seventh is farm size (land). The following discussion will focus on the two national functions estimated on a perfarm and per-hectare basis. Each of the significant explanatory variables will be first discussed in turn.

Age of Pond (X₁):

Age of pond is a significant variable in explaining variations in milkfish output. Based on the national production functions, it contributes 0.27-0.28 per cent to output for every 1 per cent increase in the age of pond, assuming that other inputs are held constant. The positive value of the coefficient is consistent with the general experience of milkfish producers. According to them, the older the ponds, the more productive they become. They attribute this to the organic matter build-up on the pond bottom, and the gradual reduction in the acidsulphate soil problem through pond draining, drying, and leaching. Some producers have even attempted to shorten the ageing period for the pond by incorporating mud press from sugar mills into their ponds, and claim that their milkfish ponds are positively affected. Mud press is the dirt accumulated from washing and processing the sugar-cane brought in from the fields, If this tendency as observed is useful, as claimed, one would then expect that as the pond becomes older, the need for fertilizers may level off to a certain extent with proper management of the pond system. It is only necessary to replenish the nutrients which have been removed from the pond in the process of rearing and harvesting fish.

Milkfish Fry (X₂):

Milkfish stocking rates of fry are highly significant in explaining milkfish output. This is to be expected since milkfish fry are the primary inputs in the production of milkfish. The estimated production coefficients for milkfish fry are 0.18 and 0.14 for the per-hectare and per-farm functions respectively. Again, this implies that for every 1 per cent increase in the milkfish-fry stocking rate, a 0.140.18 per cent increase in milkfish production can be expected, ceteris paribus.

Milkfish Fingerling (X₃):

Similarly, milkfish fingerlings as stocking materials are found to be significant in explaining milkfish output, For every 1 per cent increase in stocking rate, an increase of 0,10-0.14 per cent in output can be expected.

Miscellaneous Operating Costs (X₆ ):

On the basis of the estimated production coefficient for miscellaneous operating costs, an increase of 1 per cent in expenditure of miscellaneous operating cost will increase milkfish output by 0.16-0.17 per cent. Because miscellaneous operating costs cover a wide variety of items such as repair and maintenance costs, food for labourers (but not labourer wages), depreciation, interest, rental, taxes, and other fees, it is not easy to pin-point the profitable use of additional expenditure on this input category, that is, which of the seven items to single out for additional expenditure. Miscellaneous operating costs as an input is, however, important in the production model because it represents 22 per cent of the production costs of milkfish. Stated differently, if this expenditure is reduced by 1 per cent, it means that output will be reduced by 0.160.17 per cent. The importance of this input category is, therefore, immediately apparent.

Organic and Inorganic Fertilizers ( X₉, X₁₀ ):

To some extent, organic fertilizers can be used in place of inorganic fertilizers in milkfish production. In general, the absolute values of the estimated production coefficients for organic and inorganic fertilizers are small, though significant, implying that the application of fertilizers is not only not widely practiced but they are not generally being used in large enough quantities to affect yield in a big way. The estimated values for the two inputs range from 0.030.04 for organic and 0.09-0.12 for inorganic fertiIizers.

TABLE 17. Estimated Per-Hectare Production Function (Cobb-Douglas), Sample Means, and Estimated Output for the Philippines

	Explanatory variables	Production coefficients	Standard error	t-value	Significance level	Input Mean ( )
						GM	AM
a	Intercept (antilog)	7.01
X1	Age of pond	0.27*	0.05	4.56	0.0001	12.84	21.57
X2	Fry	0.18*	0.02	6.22	0.0001	3,543	5.940
X3	Fingerlings	0.14*	0.02	4.88	0.0001	2,346	5,892
X4	Acclimatization	0.05	0.04	1.22	0.22	3.74	14.09
X5	Hired labour	-0,01	0.02	- 0.35	0.72	123.26	228.71
X6	Misc. operating costs	0.17*	0.05	3.36	0.0009	639.56	1,033.1
X7	Culture experience	0.04	0.06	0.55	0.58	10.28	15.72
X8	Pesticides	0.02	0.03	0.46	0.64	27.79	62.46
X9	Organic fertilizer	0.04**	0.01	2.24	0.02	630.44	2,178.8
X10	Inorganic fertilizer	0.12*	0.03	3.43	0.0007	74.77	172.3
X11	Farm size	-0.02	0.04	- 0.57	0.57	6.16	16.20
Sbi	Returns to scale	1.00
R2	Coeff. Of determination	0.39
Estimated output at = 1351.44

F-value = 18.3.
Note: GM is the geometric mean AM is the arithmetic mean,
* Significant at 1 per cent.
** Significant at 5 per cent.

TABLE 18. Estimated Per-Farm Production Function (Cobb-Douglas), Sample Means, and Estimated Output for the Philippines

	Explanatory variables	Production coefficients	Standard error	t-value	Significance level	Input Mean ( )
						GM	AM
a	Intercept (antilog ?)	10.91
X1	Age of pond	0.28*	0.05	4 70	0.0001	1 2.84	21.57
X2	Fry	0.14*	0.02	5 37	0.0001	3,543	5,940
X3	Fingerlings	0.10*	0.02	4.25	0.0001	2,346	5,892
X4	Acclimatization	0.04	0.04	1.00	0.32	3.74	14.09
X5	Hired labour	-0.01	0.02	- 0.29	0.77	123.26	228.71
X6	Misc. operating costs	0.16*	0.05	3.21	0.001	639.56	1,033.1
X7	Culture experience	0.04	0.06	0.65	0.51	10.28	1 5.72
X8	Pesticides	0.03	0.02	1.09	0.27	27.79	62.46
X9	Organic fertilizer	0 03**	0.01	1.96	0.05	630.44	2,178.83
X10	Inorganic fertilizer	0.09*	0.02	3.42	0.0007	74.77	172.3
X11	Farm size	0.57*	0.06	9.26	0.0001	6.16	16.20
Sbi	Returns to scale	1.47
R2 Coeff. of determination		0.77

Estimated output at

= 2,577
F-value = 95.3
Note: GM is the geometric mean; AM is the arithmetic mean,
* Significant at 1 per cent.
** Significant at 5 per cent.

Farm Size (X₁₁):

In the per-farm model, farm size contributes 0.57 per cent to total output for each 1.0 per cent increase in land area. This coefficient is significantly different from zero. However, as discussed earlier, fertilizers can be made to substitute for land to a certain extent. Since Landsat imageries have shown that the scope for hectarage expansion is limited, the application of larger quantities of fertilizers is, therefore, suggested instead of bringing new areas under production.

Both dummy variables and independent specifications stratified by group were used to explain differences in productivity by province, climate type, ownership patterns, and farm size.

For comparisons among provinces, lloilo Province was used as the bench-mark. Productivity was lowest in Cagayan Province (37 per cent of lloilo's productivity). Milkfish producers in Pangasinan, Bulacan, Masbate, Bohol, and Zamboanga del Sur produce, respectively, 14, 4, 28, 43, and 34 per cent less than milkfish producers in lloilo. Although each province has its own inherent advantages or disadvantages, scope is available for milkfish producers in these six provinces to increase materially their per. hectare yields by using larger quantities of inputs. The above interprovincial output variations have conclusively shown that lloilo is the premier province in the country with the highest per hectare productivity. Interestingly, Bulacan milkfish farmers, contrary to some expectations that they would be more productive, produce slightly less than lloilo milkfish producers.

As expected, due to favourable climate, technical efficiency of milkfish producers in climate I is higher than that in climates III and IV (fig. 32). Technical efficiency in this case is interpreted as the difference in antilog of intercept (a) values for the production functions in each climate zone. In other words, the same level of input application in all three climate zones results in higher productivity per hectare in climate 1, due to inherent physical advantages of the climatic zone and/or to better management by producers Based on the antilog values of the intercepts, the inherent advantage (that is without supplementary inputs) of climate I over climates III and IV is approximately 50 kg and 48 kg per hectare respectively.

Milkfish producers owning private farms are also more technically efficient than producers leasing farms from the government. In addition, while a 1 per cent increase in farm size of privately-owned farms would increase output by 0.65 per cent, a 1 per cent increase in farm size of governmentleased farms would only increase output by 0.42 per cent. Besides, diminishing returns occur sooner on governmentleased farms than on privately-owned farms.

The difference in technical efficiency in terms of productivity per hectare between small farms (<6 ha) and large farms (> 50 ha) is substantial. However, further expansion of farm size in the latter category results in diseconomies of scale while expansion of small farms is economically desirable. Overall, using the national per farm specification, economies of scale are definitely positive (Sb_i= 1.47). This means that the average size farm (16.3 ha) can achieve economies of scale and increased profits by expanding the level of input use.

While technical efficiency can be determined by a comparison among the intercepts of the various production functions specified, economic efficiency is determined for a given production function by comparing the marginal product with the input-output price ratio. At the point of optimum input combination, which maximizes net return, given a capital constraint, the ratio of the input output prices to marginal product must be the same for each of the inputs used. If capital is not a constraint, the value of the marginal product must be equated to the input price. This is written algebraically as follows:

or Mp_i x P₀ =P_j
or VMP_i=P_i

where
MPj= marginal product of input i
Pj = price of input i (e.g., milkfish fry)
P₀ = price of output (milkfish)
VMPi = value of marginal product

Both the prices of inputs and output are known and the marginal products are obtained by taking the first partial derivative of the estimated production function with respect to the input i. If the value of the marginal product (VMPj) is greater than the input price (Pi), then the use of that input should be increased. If VMP_i < P_i, the use of input i should be decreased. If VMP_i = P_i, producers are economically efficient.

In the case of three of the four inputs for which prices are readily available (milkfish fry, organic fertilizer, and inorganic fertilizer), the value of marginal product is greater than the input price (table 19). For the country as a whole, application rates of these three inputs should be increased to raise the efficiency and profits of producers. The stocking rate of fingerlings is found to be optimum because the MVP of fingerlings and price of fingerlings is nearly equal. However, in the case where capital is limited, the above results show that the producer obtains a higher return from using inorganic fertilizer first and then organic fertilizer. This is because the use of P1 worth of inorganic fertilizer provides a higher return than a peso worth of organic fertilizer.

TABLE 19. Value of Marginal Products and Input Prices for Selected Inputs

Input	VMPi	Pi	Optimum rate/ha
Milkfish fry	0.69	0.36*	6,790 pieces
Organic fertilizer	0.82	0.29	1,750 kg
Inorganic fertilizer	20.20	1.66	1,124 kg
Milkfish fingerling	0.69	0.72*	2,154 pieces

* To be comparable with VMPi, which is based on output price per kg (4 pieces/kg), fry and fingerling prices shown are for 4 pieces. Individual fry and fingerling prices are P0.09 and P0.18 respectively.

The empirical analysis of the performance of the fishpond transformation sub-system using the input-output methodology, therefore, points to a general conclusion: Milkfish production in the Philippines can be more efficient and yields can be substantially increased. Present production methods with limited use of supplemental inputs grossly under-utilize the milkfish ponds under cultivation at present.

At the present low rates and levels of input application, the use of supplemental inputs show low marginal products for each of the inputs applied. The input-output relationship described, therefore, represents a lower production frontier than if the rates of input application were increased. In other words, if the use of all the inputs is increased at the same time (in either fixed or variable proportions), higher marginal products can be obtained. This is because, with the higher levels of input use, a higher input-output relationship is described. So instead of moving along the same production frontier there is a shift upwards to a new production frontier.

Diminishing marginal returns set in only when one input is increased without a simultaneous increase in all the other inputs, that is, a movement along the same production function. The implication is that if the milkfish producers in the country switch to the use of larger quantities of all supplemental inputs, output will likewise increase as they move up to a new production frontier.

10. Insignificant variables and measurement problems

Having discussed the significant explanatory variables found in the model, we now turn to a discussion of the insignificant variables. An insignificant variable is one for which the coefficient is not significantly different from zero. Increases in these inputs will, therefore, have no significant impact on output. In some cases, however, these results may be due to difficulties in measuring accurately the inputs in question.

Take, for instance, the process of acclimatizing the seed stock (X₄₎ which is found to be insignificant in explaining variations in milkfish output. Discussions with experienced farmers revealed that milkfish fry and fingerlings are very sensitive to changes in their environment. Small differences in temperature, pH, salinity, and other water conditions result in shock and lead to unnecessary stress to the young milkfish. From the above, we would expect that the number of hours of acclimatization would help to explain output variation. However, the insignificance of the coefficient implies that number of hours may not measure the required process of acclimatization adequately. Also, the purpose and process of acclimatization is not clearly understood by the farmers who practice it. If properly carried out, acclimatization can affect yields.

Another variable which is found to be insignificant is hired labour (X₅ ) because it has been narrowly defined, and does not include all the labour employed on the farm. For example, it does not include the operator's labour, family labour, and caretaker's labour, because it was not possible to determine the number of hours of work actually performed on the farm by these three categories of labour. Respondents were only able to provide information on the available labour hours. Hired labour is, thus, not a satisfactory measure of the total labour input. Total labour may, in fact, have a significant effect on output if there were a way to measure it accurately.

It is not altogether surprising to find that years of milkfish culture experience (X₇) is not significant in the model. Experience was chosen as a proxy variable for management. Although technical know-how is known to affect milkfish production, years of experience is apparently not an adequate measure of technical knowledge or management ability. To an extent this finding reveals that producers' experience is based primarily on knowledge of traditional methods of culture, and not on the more recent technology. Recent information on improved methods of production is, apparently, either not reaching the majority of milkfish producers, or not being adopted by them. Field observations show that information dissemination in the country could be improved to update producers' knowledge of improved techniques based on the increased use of supplementary inputs.

Lastly, the application of pesticides (X₈) to protect the milkfish stocked from predators and pests competing for the same food has no significant effect on the final harvest. The incorrect and low levels of pesticide application have partly contributed to its insignificance. Predation on milkfish is reported as a common problem, yet necessary measures taken to rid the ponds of these predators are apparently not adequate.

In summary, of the 11 explanatory variables hypothesized to explain variation in milkfish output the following are significant: age of pond, milkfish-fry and fingerlings stocking rate, miscellaneous operating costs, organic and inorganic fertilizers, and farm size. Pesticides, milkfish culture experience, acclimatization, and hired labour, as we measured them, are not significant in explaining output.

All but three production coefficients (milkfish fry, farm size, and miscellaneous operating costs) have values less than 0.50 in every case. The estimated production coefficients in the two national production functions are consistent with respect to the magnitudes, signs, and significance levels. Profits of the average producer can be increased if fry stocking rate and use of organic and inorganic fertilizers are increased.

1. Introduction

An alternative method of rearing market-size milkfish entails transformation from fingerlings in bamboo and net enclosures (fig. 33). In contrast to rearing in brackishwater ponds, fishpens are operated in bodies of freshwater, where the operator has much less control over the fishrearing environment. Although the pen concept has resulted in experimental operations in many small lakes in the country, the only large-scale commercial activity is in the shallow 90,000-ha Laguna de Bay, adjacent to Metro Manila (fig. 34). Although Laguna de Bay is a reasonably productive eutrophic lake, it is not as productive as many other tropical lakes, such as Lake George in Uganda.⁵² In 19701971, the Laguna Lake Development Authority (LLDA) successfully introduced the pen method of fish culture, achieving yields of close to 4 tonnes per hectare per year relying solely on the abundant natural food available in the lake.

By 1973, the fishpen sub-sector was producing annual harvests valued at P77 million from 4,800 ha of fishpens.53 BY early 1976, pen area had grown to over 7,000 ha, and estimated total milkfish production to 47,000 tonnes (table 20): quite remarkable growth for only a seven-year period. The rapid growth in fishpen area in the early 1970s is indicative of the dynamism of the private sector in the Philippine economy and its willingness to take risks with a new venture.

Despite the attractiveness of fishpens to private investors because of the high rate of return on investment that can be achieved, numerous problems have surfaced. These problems relate, on the one hand, to environmental factors beyond the control of fishpen operators, such as the weather, aquatic macrophytes, and plankton blooms that result in fish kills and, on the other hand, to socio-economic factors brought about by the alleged impact of fishpens on the capture fishery that has existed in the lake for centuries. These problems combined to reduce fishpen area in 1976-1977 to approximately 4,000 ha.

Plankton blooms, most probably caused by the enriched inflow from the heavily fertilized rice-fields of Laguna Province and from sewage wastes of urban communities, result in rapid reductions in dissolved oxygen which cause fish kills in several parts of the lake. In 1973, for example, the loss of an estimated 1 million fish was recorded; some owners lost 90 per cent of their stock.⁵³

A typhoon that occurred unseasonably early in 1976 resulted in widespread destruction of fishpens, further discouraging the large number of lawyers, doctors, and even movie stars who had rushed to invest in fishpens after LLDA's success became known. Water hyacinth, driven by high winds, damaged the bamboo and netting materials, allowing large quantities of fish to escape to the delight of the small-scale fishermen living around the lake who then caught them with their gill nets. Similarly, major typhoons occurred in 1978, but the three years since have been characterized by relatively calm weather.

Serious as these risks from typhoons were for the fishpen entrepreneurs involved, socio-economic problems were just as pressing. While fishpen production continued to climb, catch from the lake capture fishery was declining (table 20). The capture fishery had actually been declining continuously since 1963 so it is not possible to ascribe the decline exclusively to the presence of fishpens. However, the initial uncontrolled erection of fishpens in the lake produced conficts with the small-scale fishermen, who claimed that fishpens had reduced their fishing area and in extreme cases had even blocked access to the water. Sabotage of fishpen nets became common, and most fishpens now have guard houses at regular intervals along the perimeter of the pen to guard against these surreptitious acts.

Controlling the location of fishpens of private investors has been a major problem for LLDA. Jurisdictional disputes between LLDA, the Bureau of Fisheries and Aquatic Resources (BFAR), and the municipalities around the lake have only recently been resolved in favour of LLDA, which now has exclusive licensing authority. A 15,000-ha fishpen belt has been designated within which all pens must be located (fig.34).

Laguna de Bay, like any other body of water, has a certain carrying capacity based upon its primary productivity. Delmendo and Gedney⁵³ have made the only estimate of the lake's potential productivity (63,000 - 270,000 tonnes), based on conditions prevailing in 1973. What effect fishpens may have on the lake's productivity is debatable.

Fig. 33. Details of Fishpen Enclosures. Source: See note 53.

Increased stocking of milkfish in pens may even increase carrying capacity if they crop phytoplankton that is left untouched by other species. Construction of fishpens has certainly reduced fishing areas; however, one cannot ascribe the declining capture fishery catch solely to fishpen expansign, since it had been declining for several years before the first fishpens appeared. From 1963 to 1973, while the number of small-scale fishermen increased from 13,000 to 16,000 and shrimp catch increased by 25 per cent, catch of fish from the capture fishery declined by more than 75 per cent, and snail harvest declined by almost 75 per cent. Total production in Laguna de Bay declined from almost 350,000 tonnes in 1963 to only 120,000 tonnes in 1976.57 In part, therefore, declining capture fishery catch is due to overfishing.

While the value of production from the lake increased from P77.2 million in 1968 to P149.1 million in 1973, all of this increase in revenue accrued to the owners of fishpens. The value of the capture fishery (fish, shrimp, and snails) actually declined over the period from P77.2 million to P72.3 million. The decline in value in real terms was even greater. Except on those occasions when milkfish escape from fishpens after typhoons, and are subsequently caught by municipal fishermen, or when fishermen are employed as fishpen labourers, the fishpen business has apparently had little positive impact on the many fishermen living around the lake.58

To deal with the need to involve former small-scale fishermen in more than simply providing labour to fishpen owners, the LLDA has recently embarked on a project with financial support from the Asian Development Bank to develop 2,500 ha of fishpens in 2.5-ha, 5.0-ha, and 10-ha modules that would be managed by former fishing families or groups of families.59 The project has both milkfish and tilapia components, the tilapia to be raised in cages rather than pens. Tilapia cage culture, based primarily on supple mental feeding-in contrast to milkfish in pens, which feed on the lake's natural production-is already practiced by many fishing households. The nutrient flow and detrital production from the lakeside duck farms has undoubtedly aided tilapia production from cages near the shoreline. Participation in the project is limited to families with annual incomes less than P9,000, and the loan to participants carries a 14 per cent interest rate and is payable in five years through deductions from proceeds of sales of milkfish through LLDA.

Fig.34. Laguna de Bay, Showing the Fish Sanctuary and the Fishpen Belt. Source: See note 54.

Three problems, however, must be overcome for the milkfish component of this project to succeed. First, reliable supplies of large quantities of fingerling must be found (the 2,500 ha to be developed will require approximately 75 million milkfish fingerlings annually). Secondly, a way must be found for the small 2.5-5.0-ha modules to remain profitable despite economies of scale that favour larger pen sizes. Finally, the project may experience difficulties in persuading fishermen with low incomes to invest in the capital-intensive fishpens.

Managing the capture fishery to reduce overfishing and allow stocks to recover to produce higher sustainable yields is an alternative approach that might be considered to assist the small-scale fishermen. A second alternative may place added emphasis on tilapia cages with their lower investment requirements, rather than requiring fishermen co-operators in the project to invest in both milkfish pens and tilapia cages concurrently.

2. Some efficiency measures

How profitable are the milkfish pen operations? Unfortunately, no economic analysis has been conducted since the mid-1970s. It is, therefore, not useful to report here any detailed costs and returns analysis.

TABLE 20. The Laguna de Bay Fishery, 1963, 1968, 1973, and 1976

	1963	1968	1973	1976
Number of fishing households	6,511	7,812	7,839	n.a.
Approx. number of fishermen	13,000	16,000a	16,000a	n.a.
Number of fishing gear units	9,740	n.a.	n.a.	n.a.
Capture fishery catch (tonnes)
Fishb	82,882	39,055	20,723 1	36 678
Shrimp	19,096	27,552	23,597
Snails	247,770	96,483	77,560	36,228
Total	349,748	163,090	121,880	72,906
Fishpen harvest (tonnes)	-	-	19,204	47,020
Total production	349,748	163,090	141,084	119,926
Production per hectare (kg) from capture fisheryd
Fish	921	433	246
Shrimp	219	306	274	426
Snails	2,753	1,072	902	421
Total	3,893	1,811	1,422	847
Value of production (million pesos)	n.a.	77.2	149 1c	n.a.

Sources: 1963 data-see note 55; 1968 and 1973 data-see note 56;
1976 data-the statistics section, BFAR, Manlia (c. Ramos, personal communication)
- = none
n.a.= not available

a. Calculated based on approximately two fishermen per household, as implied by 1963 data,
b. Excluding fishpen harvest
c.51 per cent of value comes from fishpens. Value from capture fishery declined to P72.3 million.
d. Adjusted to reflect use of 4,000 ha of lake for fishpen purposes in 1973, leaving 86,000 ha for capture
fishery.

Nevertheless, for 1974, the rate of return on investment was variously estimated at 27 per cent 53 and 60 per cent.60 Ramirez61 estimated a 35 per cent internal rate of return for the same period. There are significant economies of scale in fishpen construction costs because the major fixed cost is the double net and bamboo perimeter of the enclosure (fig. 33). Pen area can be quadrupled by only doubling the perimeter. Consequently, the smaller pen sizes appear to be uneconomical, with the largest pens in the lake in 1980 exceeding 100 ha. In 1974, construction costs were estimated at P78 per metre, or P98,600 for a 10-ha pen. The cost of bamboo has more than doubled since that time, but the continued expansion of the area under production indicates that profits are still being made.

Few details are available regarding the economic efficiency of the fishpen sub-sector, although Ramirez61 estimated the input-output relationship of milkfish production in pens using a Cobb-Douglas production function. On the basis of the data of Nicolas et al.,62 Ramirez concluded that the average-size pen in 1974 (6.5 ha) was too small and that stocking rate and labour inputs per hectare should be increased to maximize profits.

If one wishes to make comparisons between the fishpen and fishpond sectors, it is important first to distinguish between "production maximization" and "profit maximization." Due to diminishing returns, the maximum production per unit area is not the same level of production that maximizes profits. Similarly, it is profit potential, not production potential, that determines to which sector additionally available inputs should be applied. The basic rule is that society will benefit the most if the inputs are used in that sector where their contribution to total returns (the value of the marginal product) is the greatest. If the added value derived from the marginal input (i.e., fingerlings) is higher in one sector than in another, a disequilibrium condition exists, assuming each sector pays the same input price.63 This point can be clearly illustrated by comparing the output response to added fingerling input in fishpens as compared to that in brackish-water fishponds.

Fishpen producers are able to achieve high rates of return, despite mortalities during rearing that approach 45-50 per cent.⁶⁴ The mortality rate for fingerlings reared to market size in brackish-water ponds is lower at approximately 35 per cent.²⁸ Based on these average (not marginal) mortality rates, each 1,000 fingerlings stocked in fishponds will produce, on average, approximately 162.5 kg of market size milkfish (four pieces per kg). The same quantity of fingerling stocked in fishpens will, on average, produce only 137.5 kg (four pieces per kg). If one looked only at the average products above, one would incorrectly conclude that society would benefit more by stocking fingerlings in fishponds rather than in fishpens.

The relevant principle for maximizing profits, however, is a marginal, and not an average concept. In other words, it is the response of output to the added (marginal) input that is important. The production elasticities (which measure the responsiveness of output to the marginal input) of fingerling in the fishpond and fishpen sectors are 0.14 and 0.52 respectively.65 These elasticity estimates imply that a 10 per cent increase in the stocking rate in fishponds will result in only a 1.4 per cent increase in output; in fishpens, a 10 per cent increase in stocking rate will result in a 5.2 per cent increase in output, ceteris paribus. These results are consistent with the findings reported earlier that while the average stocking rate of fingerlings in fishponds is roughly optimal, in fishpens it is too low. Profits as a whole (and benefits to society) could be increased if the fingerling stocking rate in fishpens were increased, even if it had to be at the expense of reduced supply of fingerlings for fishponds.

The fact that this situation prevails is indicative of disequilibrium in the transformation sub-system. Ten years ago, before fishpens were introduced to Laguna de Bay, 100 per cent of fingerlings produced were stocked in fishponds; currently only 35 per cent of fingerlings produced are stocked in fishponds, with the remaining 65 per cent stocked in fishpens. Given the relatively short period involved since the introduction of fishpens, and the occasional typhoons that have heavily damaged them from time to time, it is still fair to characterize the fishpen sector as an "infant industry." In this sense, the division of fingerlings between fishponds and fishpens is in a transitional stage, responding to the relative economics of the two sectors. Given the higher profits (due apparently to lower average costs of production) and the higher production elasticities in fishpens, one can expect that as time passes an increasingly larger proportion of fingerlings will be stocked in fishpens until equilibrium (equal value of the marginal product) between the two sectors is attained.

Earlier, we argued that the supply elasticity of fry was high; in 1974-1977 fry supply appeared to respond to the added demand for fingerlings to stock the fishpens. If fry are not a constraint, fishpen production, with its lower average productivity per 1,000 fingerlings stocked but higher profits, will benefit society as a whole because total milkfish production in the Philippines will have increased, and at a lower average cost of production. In fact, fishpens have increased total milkfish supply by over 45,000 tonnes, or approximately 45 per cent, since 1971.

We also carefully pointed out, however, that fry supply response cannot be predicted in the face of more recently expanding fishpen area and higher stocking rates in fishponds. If fry (and hence fingerlings) are a constraint, the current preference for stocking fingerlings in fishpens instead of fishponds should be a matter of concern, from the point of view of both nutritional standards and income distribution. If fishpens expand to the full 15,000 ha allowable in Laguna de Bay, they will require 450 million fingerlings for stocking, possibly more than the procurement subsystem can supply and still meet recommended fishpond requirements. For nursery-pond operators to rear this quantity of fingerlings will require 682 million fry (survival from fry to fingerling in brackish-water ponds is 66 per cent), or over one-half of the annual fry catch in 1976. If the fishpen and fishpond requirements cannot both be met, the matter will be resolved by the price system, and the relative economics of the two sub-sectors will determine to which of the two the available fingerling supply will be allocated. Current relative economics would favour the fishpens, in which case the absolute quantity of milkfish produced (assuming current survival rates) would be reduced. Private entrepreneurs who can afford the sizeable capital investment required for fishpens would benefit, however.

To some extent, higher prices of fry and fingerling are a blessing in disguise. To begin with, assuming no biological overfishing, supply of fry will be higher at higher prices. (Fry gatherers stopped gathering in mid-1977 because of low prices.) More important, higher fry prices will encourage fishpond producers to become more efficient and to lower their average costs of production. In particular, higher fry prices may encourage entrepreneurs in the transformation subsystem to increase the survival rates of their fry and fingerling through better handling and acclimatization.

These questions regarding the impact of the fishpen industry on both the milkfish resource system and the Laguna de Bay capture fishery are complicated by the fact that there are several alternative uses for the water of Laguna de Bay, of which fisheries are only one. In addition to seeing it as a possible water source for Manila, LLDA also envisions pumping lake water to nearby Cavite Province for irrigation purposes. To a certain extent, both of these uses could still be complementary to the capture fishery and to pens and cages. A potentially more serious problem for the fishpens is related to the building of a hydraulic control structure at the confluence of the Pasig and Marikina rivers just north of the Bay, designed to minimize flooding in Manila by diverting the Marikina River into Laguna de Bay when necessary, and to prevent saltwater intrusion to the lake through the Pasig River during the dry season when the water level of the lake is low. The Pasig River links Laguna de Bay with Manila Bay and runs through the heart of the city.

There is a debate as to what effect this hydraulic control structure will have on the milkfish pen industry, however.

As pointed out earlier, milkfish (unlike the hardier tilapias) are particularly susceptible to stress when low levels of dissolved oxygen occur. Algae growth is beneficial to production, but only to a point. When algae blooms collapse and dissolved oxygen levels fall, fish kills may result. The occurrence of algae blooms is a function of temperature, light, and nutrient loadings, the first two of which are beyond human control. In making their case for construction of the hydraulic control structure, LLDA stated that it would prevent nitrogenous wastes in the Pasig River from entering the lake, thereby removing approximately 30 per cent of the current nitrogen loading.⁶⁶ Their belief was that nitrogen limits phytoplankton production and hence, in addition to its other uses, the structure would benefit the fish industry. An internal rate of return of 24.7 per cent was estimated for the structure, based in part upon the added benefits expected to accrue to the Laguna de Bay fisheries, including fishpens.

An alternative point of view, put forward by Nielsen et al.,⁵² is that nitrogen is not the limiting factor and, therefore, the assumed benefits of excluding nitrogenous wastes are based upon a false assumption. Moreover, Nielsen et al. believe that periodic intrusions of saline water are essential to maintain a balanced production of the plankton on which the fishpen industry depends and that such intrusions reduce the likelihood of fish kills caused by collapsing algae blooms. Saltwater intrusions clear inorganic turbidity from the water column, and Nielsen et al. conclude that turbidity, not nitrogen, is the limiting factor. They cite the negative correlation between saltwater intrusion and fish kills in support of their argument. However, it should be pointed out that correlation does not necessarily imply causality.

These ecological questions are extremely complex, and detailed discussion of them is beyond the scope of this paper. Suffice it to say, however, that if Nielsen et al. are correct, the hydraulic control structure may have a negative impact on production of milkfish and other species susceptible to low levels of dissolved oxygen, with a consequent reduction in milkfish fingerling demand.

It is quite apparent from the foregoing discussion that the potential impact of the fishpen sub-sector on the milkfish resource system is considerable. Continued expansion of fishpen area, if it produces higher fry prices, will lend added impetus to the development of milkfish hatcheries. However, many of the foregoing predictions remain hypotheses. Further research on the biological and economic impact of fishpens on the milkfish resource system, on the Laguna de Bay capture fishery, and on the ecology of the lake would appear to be most worthwhile.

1. Marketing practices and structure

The bulk of the milkfish produced in the Philippines is consumed fresh, although small amounts of canned milkfish are now appearing on the market. As they do for most fishery products, brokers play a key role in the disposition of milkfish. They provide the crucial link between producers and fish buyers, performing important facilitating functions such as selling, pricing, and, often, supplying credit. About 60 per cent of milkfish farmers in the country use brokers. Nevertheless, the husbandry of milkfish calls for the producer to assume some marketing functions also, before the milkfish reach the brokers. For example, at the farm level, some sorting and grading take place, as many farmers believe these practices attract buyers and allow producers to take advantage of price differentials by size and grade. Consequently, some value is being added to the product before it leaves the farm.

To protect fish from fast deterioration or spoilage, proper packing and storage in ice are necessary. When milkfish are brought to landing centres in the provinces with bancas (small outrigger boats), packaging the fish in containers like tubs and boxes is seldom practiced. However, transport by land from these landing centres usually entails icing. In Manila, it is the practice to ice fishpen harvest as it is loaded into the petuya (boat} for shipment to the Navotas fishport.

When fish are not picked up by buyers, the milkfish producers take charge of transporting the fish from their ponds to the trading centre or landing area. Milkfish producers present their product to the brokers in the latter's respective areas of operations where bidding takes place. In general, exchange is finalized through outright cash payments, but the practice does not hold true for all transactions. Fourteen per cent of producers indicated that their harvests are committed to particular buyers. Such obligations occur due to advance payments received by the producer, or more often because the buyer provided stocking materials on credit. Personal factors, such as compadre relationships, also influence the producer's marketing decision. The practice of giving and/or receiving advanced payments is less common than that of consignment with delayed payment to producers. Usually, terms of consignment range from one day to a week, but the grace period could be as long as 10 to 15 days.

The value of the fish received by the farmer is a product of the market process where the forces of supply and demand interact. Two-thirds of the producers rely entirely upon the broker (for whose services they pay a 5-7 per cent commission of the value of the sale), and they do not attempt to participate in the pricing process themselves. Price received is determined by supply-and-demand conditions (the prevailing price) and the size of the fish and its degree of freshness.

Awareness of the market condition by both buyers and sellers is a prerequisite for efficient marketing. The majority of the milkfish farmers (89 per cent) are cognizant of prevailing market prices. Their almost exclusive sources of this information are, however, the brokers and the buyers. Because producers come in contact with these marketing intermediaries only during the times when they harvest and sell their milkfish, there is the potential here for prices to be biased in favour of buyers. This would be particularly true for those transactions that take place at the farm gate.

Selling of milkfish through brokers is characterized by a system of bidding, most often of the "whisper" type rather than open. This traditional Filipino method of conducting transactions, known as bulungan, is alleged to provide leeway for cheating and chicanery.⁶⁸ It takes some time for the prevailing prices to be known, and producers complain that in many cases they are left ignorant of the actual price at which their harvest is sold. However, no thorough evaluation of the bulungan bidding practice has been conducted, and until such time as a study of this type emerges, it is impossible to resolve the allegations that brokers manipulate the system to their advantage.

Wholesalers, wholesaler-retailers, and retailers, offering bids to the brokers, are at the next stage in the marketing chain. The majority of retailers who bid with brokers are operating in the nearby public markets. The wholesalers and whole-salerre-tailers are mostly doing business in other provinces. The retailers who make transactions with either the wholesalers or wholesaler-retailers do not usually bid for their purchases through brokers. Instead, bargaining takes place directly between buyer and seller until a mutual agreement on price and quantity is reached.

Among fish traders, the practice of consignment with delayed payment is widespread. Payment could be within the day after the buyer has resold the fish or, on occasion, could take up to a week. Payment must, of course, be made before the next consignment of fish is secured. This system is commonly known as suki and involves favoured treatment of particular buyers or sellers. Often, credit is the basis of the suki system, but a more important benefit to seller and buyer alike is the assured outlet and source of supply that the suki relationship makes possible.⁶⁹

Although marketing channels differ somewhat from one region of the country to another (figs. 35-37), brokers play a prominent role in all cases.2 Although only 61 per cent of producers provide their milkfish harvest to brokers, because numerous wholesalers also use these intermediaries, the percentage of total volume handled by brokers ranges from 65 per cent in Mindanao to 89 per cent in the Visayas. A negligible quantity moves directly from producer to consumer. With fishponds geographically dispersed throughout the country, this prominent role for middlemen in the delivery sub-system is not at all surprising.

The delivery sub-system, except at the retail level, can be characterized as oligopolistic: that is, characterized by a small number of buyers and sellers. Typically, the number of brokers (and thus outlets available to producers) at any one location is low. Barriers to entry are high. For example, Navotas fish landing in Metro Manila, which handles approximately 30 per cent of the country's commercial catch, has 26 brokers. In contrast, the number of producers supplying these markets and the number of retailers and consumers buying from them are very large.

However, there is also concentration of market shares at the producer level. The preceding section has referred to the existence of a relatively small number of very successful producers. Our 1979 survey indicates that the top 10 milkfish producers in the sample of 324 producers have garnered 44 per cent of the sample's total market. The top 20 producers share 60 per cent of the sample's market. Nevertheless, while the industry may be considered concentrated due to the large market shares of few producers, these producers do not have a strong hold over the prices and quantity of the product in the market place. Milkfish is a highly perishable commodity, and while there may be some impact on prices at the local level by the actions of the large producers, the availability of supply from throughout the country dampens these effects. Furthermore, there exist other goods that are highly substitutable for milkfish, such as marine species and tilapia. Consequently, the market power of producers is rather limited.

Fig. 35. Milkfish Marketing Channels in Luzon, 1974. Numbers represent percentage of fish transacted. Source: See note 2.

Fig. 36. Milkfish Marketing Channels in Visayas, 1974. Numbers represent percentage of fish transacted. Source: See note 2.

Fig.37. Milkfish Marketing Channels in Mindanao, 1974. Numbers represent percentage of fish transacted. Source: See note 2.

The milkfish market is also characterized by the existence of some degree of product differentiation; producers, brokers, the various middlemen, and consumers differentiate between milkfish as they are traded in the market. The majority (70 per cent) of producers in the sample, however, contend that their product is similar to the product of other producers. The minority (30 per cent) were divided almost equally between those who thought their product was superior and those who thought their product was inferior. Judgements were principally based on such criteria as size, degree of freshness, and locality differences. (Milkfish produced in some areas, such as Pangasinan Province, are reportedly better than those produced in other places.) Producers attribute the differences in product quality to effective fertilizer application, type of lumut (feed), advanced technology, and proximity of farm to trading centres.

The primary criterion by which milkfish are differentiated is size, and there is a price premium outside Metro Manila for smaller fish (table 21). This consumer preference for smaller fish (125-200 grams) applies to other species in the Philippines also, and is often attributed to the desire of consuming households for each individual serving to contain a whole fish, rather than only a part of a fish. In Manila, however, this relationship between size and price per kilogram is reversed for fish over one kilogram, where the export market begins.

Aside from supplying the trading centres in their respective areas, fishpond producers also provide milkfish to trading centres in neighbouring provinces and even to provinces in other regions of the country. The bulk of the produce is brought to local markets. In our survey of seven provinces in the country, 59 per cent of the producers claimed that their fish, either partly or wholly, go to local markets. This implies, however, that large volumes are shipped to the various regions of the country. Metro Manila markets are popular outlets for milkfish being raised from almost all the fishpondproducing provinces in the country.

TABLE 21. Average Price of Milkfish by Average Weight, the Philippines, 1978

Average weight (grams)	P/piece	P/kg
333	2.03	6.10
250	1.65	6.60
200	1.65	8.25
167	1.27	7.60
143	1.17	8.18
125	1.02	8.16

Metro Manila, with more than 15 per cent of the country's population and the major market in the country, also serves as a redistribution centre from which milkfish are shipped to other inland provinces in Luzon where milkfish are not grown, and to export markets in Guam, Hawaii, and California. Manila is also the major market for milkfish produced by fishpen operators in Laguna de Bay.

2. Marketing costs

Because producers undertake some of the initial marketing functions, costs are incurred before the milkfish are first sold. These costs are in addition to the brokerage fees paid by producers, which in 1978 equalled P0.35 per kilogram, based on an average wholesale price of P7.00. If engaged in transporting their catch to trading centres, producers can expect from P0.31 to P0.65, or an average P 0.50 for equipment depreciation, to be added to the per-kilogram value of their milkfish. Equipment used for transport includes bancas (motorized and unmotorized), jeeps, and trucks. When milkfish producers do not own the necessary transportation equipment to bring their produce to the market, they have to resort to the hiring of vehicles. Annual rental expenditures by those operators who incurred such expenses in 1978 ranged from P22 for tricycles to P171-P480 for unmotorized and motorized boats and P2,264 for trucks. Average rental cost to producers is approximately P0.05 per kilogram of milkfish produced.

Additionally, producers purchase various types of containers ranging in cost from P1.45 to P94 per container. The cheaper containers are sacks and baskets, such as tiklis and bayong, all with costs of less than P10 per unit. The more expensive containers include styrofoam boxes at P94, wooden boxes at P45, cases at P52, tubs at P20, and plastic bags at P 18. By far the most commonly used container is the basket, with an average cost of P10 per piece. Annual depreciation values of these various containers add approximately P0.08 to the per-kilogram value of producers' harvest.

Only a small number of the larger producers have invested in storage houses ( P9,242 per unit), chilling tanks ( P1,150 per unit), or ice crushers (P1,933 per unit). The corresponding yearly depreciation costs are P570 for the chilling tank and about P300 for the other two equipment items, or a value added of P0.05 per kilogram. Icing adds a further P0.16 perkilogram, making this the second largest cost item next to transportation. Finally, various labour expenses for loading, delivery, and unloading add a further P0.15 to the per kilogram value. These marketing costs borne by producers are summarized in table 22. It should be pointed out that not all of these expenses are incurred by all producers. The average marketing cost for all producers in 1978 was P0.54. In 1974, it was found by Guerrero and Darrah2 that producer marketing costs were only P0.16-0.20 (table 23).

TABLE 22. Summary of Marketing Costs (Excluding Brokerage Fee) Borne by Producers, 1978

Item	Average cost per kg
	For those incurring the itemized cost	For all producers
Depreciation
Transport equipment	0.50
Containers	0.08
Storage facilities	0.05	P0.54a
Icing	0.16
Labour (loading, delivery, unloading)	0.12
Rentals	0.05

a. The average cost for all producers is less than the sum of itemized costs because not ail producers incurred these costs.

TABLE 23. Marketing Margins for Last Purchase/Receipt and Sale for 114 Milkfish Dealers, the Philippines, 1974

Item	Pesos per Kilo			Percentage of retail price
	Luzon	Visayas	Mindanao	Luzon	Visayas	Mindanao
Farm gate price	3.63	3.19	3.46	64	70	66
Producer's marketing cost	0.19	0.20	0.16	3	4	3
Producer's selling price	3.82	3.39	3.62	67	74	69
Intermediaries between producers and retailers:
Marketing cost	0.24	0.13	0.08	4	3	1
Gaina	1.05	0.26	1.05	19	5	20
Retailers:
Marketing cost	0.23	0.35	0.20	4	8	4
Gaina	0.33	0.45	0.30	6	10	6
Retail price	5.67	4.58	5.25	100	100	100
Marketing margin	2.04	1.39	1.79

Source: See note 2.
a. For intermediaries, labour, management, profit, and risk.

Middlemen (brokers, wholesalers, wholesaler-retailers, and retailers) incur marketing costs for transport, labour, ice, and market fees. In 1974, these costs per kilogram were calculated to range from P0.28 in Mindanao to P0.47 in

Luzon and P0.48 in Visayas (table 24), excluding producer marketing costs. A 1979 survey of traders in Bulacan Province estimated the average per kilogram marketing costs to be P0.53. These costs do not include interest on the shortterm credit that is used at various stages in the marketing chain, nor do they include return to the intermediaries' labour, management, or risk.

TABLE 24. Percentage Shares of Milkfish Retail Prices for Producers and Marketing Intermediaries, the Philippines, 1978

Province	Average price received by producersa (P)	Average retail priceb (P)	Producer share (%)	Marketing group share (%)
Pangasinan	7.84	11.34	69.1	30.9
Cagayan	6.78	10.82	62.7	37.3
Bulacan	6.10	8.74	69.8	30.2
Iloilo	4.94	7.11	69.5	30.5
Bohol	4.32	6.34	72.6	27.4
Zamboanga del Sur	4.84	6.67	72.6	27.4
Philippines	5.80	8.50	68.2	31.8

a.Source of price data: BAECON/FIDC/ICLARM 1979 survey of producers. Net of producer marketing costs and brokerage fees.
b. Source of price data: Market Intelligence Section, AMSD, BAECON, Manila.

In 1974, the marketing margin per kilogram of milkfish (retail price less farm-gate price) ranged from P1.39 in Visayas to P1.79 in Mindanao and P12.04 in Luzon (table 23). These margins represent 30 per cent, 34 per cent, and 36 per cent respectively of the retail price, or an average mark-up of 51 per cent over the farm-gate price. By 1978, in six selected provinces, the marketing margin, though increasing to an average of P2.70, still represented approximately the same percentage of the retail price, 32 per cent (table 24).

3. Prices and pricing efficiency

Analysis of the 12-month moving average of milkfish prices in the country confirms that prices at the wholesale and the retail level behave similarly (fig. 38). For the 11-year reference period (1969-1979), there is strong correlation between the wholesale price and the retail price.70 While the general direction of both wholesale and retail prices is upward, there were two periods when the upward trend stalled. The first, in mid-1972, was characterized by a levelling-off of prices (except in Central Visayas and Southern Tagalog) that continued for 12 months. By May 1973, an upswing of prices in all regions was observed. A similar situation occurred in 1973 and 1976. Data by region show that retail prices are usually highest in Cagayan Valley and lowest in Western Mindanao, reflecting their status as net importing and net exporting regions respectively.

Although the increase in milkfish retail prices since 1969 has been dramatic, the rate of increase is actually less than that observed for "all fish" and "all items" as reported by the Central Bank of the Philippines (table 25).

The country's monthly seasonal indices for wholesale and retail prices show the seasonal nature of both (fig. 39). Prices generally reach their peak during January and February, falling below the seasonal average from May to November. Not only are May to November the primary producing months for milkfish; they are also months of fair weather with consequent above-average landings from the capture fisheries. Western Mindanao wholesale and retail prices exhibit seasonal fluctuations that are the reverse of those in the rest of the country. But here, as well, these seasonal fluctuations are highly correlated with seasonal capture fishery landings. The observed seasonal fluctuations of prices are, thus, generally consistent with overall fish supply-and-demand conditions.

As with the analysis of the procurement sub-system (see chapter 11), it is possible to evaluate the pricing efficiency of the delivery sub-system. First, market co-ordination can be judged by computation of the degree of correlation among regional milkfish prices. Second, the observed price differential between average wholesale and retail prices can be compared with the marketing costs between wholesale markets and retail markets.

Regarding the first criterion, the extent of market coordination is high, and, as in the case of the procurement sub-system, a high degree of effective flow of market information is implied. The correlation coefficients (R) among regional prices are all significant at the 1 per cent level, ranging from 0.89 to 0.98 (table 26). This high correlation, based on average monthly prices for the 19691980 period, is found even among regions which are not active trading partners. In the case of Metro Manila, which serves both as a popular outlet for milkfish from the different regions and as a redistributing centre, the price relationship with the major sources, e.g., llocos region, Central Luzon, Southern Tagalog, and Western Visayas, is notably high, with correlation coefficients computed at 0.96 to 0.98.

Fig 38 National Trends in Milkfish Wholesale and Retail Prices, 1969-1979 (12-month moving averages).

Fig. 39. Seasonal Variations in the Wholesale and Retail Prices of Milkfish,the Philippines, 1969-1979.

TABLE 25. Comparisons of Price Indices for Milkfish, All Fish, and All Items, 1969-1979 (1972 = 100)

Year	Milkfisha	All fishb	All itemsa
1969	61	54	64
1970	63	65	74
1971	88	87	89
1972	100	100	100
1973	107	106	114
1974	153	153	157
1975	164	170	167
1976	173	186	177
1977	191	202	190
1978	196	222	206
1979	233	280	245

a. source of data: Bureau of Agricultural Economics, based on national moving averages of retail prices.
b. Source of data: Central sank of the Philippines. indices are retail prices in Metro Manila.

These findings imply that prices are efficient in directing the flow distribution of milkfish among regions in the country. The existence of interregional trading is a result of arbitrage to adjust for differences in market supply and demand in the various regions. The delivery sub-system appears to be highly integrated on a national scale.

Given the diverse routes over which milkfish are marketed, the second criterion (wholesale-retail margins and costs) is more difficult to apply, because national aggregation of price differentials and marketing costs most likely cover up inefficiencies that may exist on any given routes or at certain times of the year. An evaluation of the monthly average price margins (per kilogram) of milkfish over an 11-year period (1969-1979) showed that there are no particular months when price differences from the wholesale to the retail markets are consistently wide or small. From 1969 to 1972, the price margin did not reach the P1.00 mark, but during the middle part of 1973 it began to increase. By 1979, average price margins range from P1.57 (July) to P4.61 (January). Contrary to expectations that margins would be higher when prices are higher, there appears to be no seasonal correlation between margins and prices. On the contrary, there are occasions in June, October, and November (with lower than average prices) when the margins, expressed in terms of a seasonal index, are 114, 112, and 108 per cent, respectively. Price margins tend to be more erratic than are either wholesale or retail prices.

TABLE 26. Coefficients of Correlation of Average Monthly Prices between Regions, the Philippines, 1969-1980

Region	MM	IR	CV	CL	ST	BR	WV	CEV	EV	WM	CM	NM	SM
Metro Manila (MM)	1.0
Cocos Region (JR)	0.98	1.0
Cagayan Valley (CV)	0.97	0.98	1.0
Central Luzon (CL)	0.96	0.98	0.97	1.0
Southern Tagalog (ST)	0.97	0.97	0.97	1.0
Bicol Region IBR)	0.93	0.96	0.95	0.94	0.95	1.0
Western Visayas (WV)	0.97	0.97	0.97	0.96	0.96	0.93	1.0
Central Visayas (CEV)	0.90	0.91	0.91	0.90	0.92	0.90	0.89	1.0
Eastern Visayas (EV)	0.90	0.94	0.93	0.93	0.94	0.95	0.93	0.88	1.0
Western Mindanao (WM)	-	-	-	-	-	-	-	-	-
Central Mindanao (CMO	0.94	0.95	0.96	0.94	0.96	0.96	0.95	0.92	0.94	-	1.0
Northern Mindanao (NM)	0.94	0.95	0.95	0.95	0.96	0.94	0.94	0.94	0.92	-	0.95	1.0
Southern Mindanao (SM)	0.95	0.95	0.97	0.95	0.97	0.96	0.96	0.93	0.94	-	0.98	0.96	1.0

Source of regional price data: The Market Intelligence Section, Bureau of Agricultural Economics, Manila.

Geographical price margins should just account for the cost of transfer plus a reasonable amount of profit for the market intermediary. Observations in the local markets of fishpondproducing provinces indicate that price differences are occasionally far higher than the cost of marketing the fish. However, there are occasions when the price margins become negative, implying that retailers have sold milkfish at a price lower than the price paid to the wholesalers. On the other hand, it is interesting to note that there are cases (e.g., Pangasinan and Bulacan) where local retail prices are higher than those in Metro Manila, which is a popular outlet to both. To cite an instance, in the 1979 survey, Pangasinan retail prices averaged from P9.13 to P13.20 per kilogram of milkfish, while in Metro Manila, prices were from P7.29 to P 10.12. There are two possible reasons for this. First, a premium is often paid for Pangasinan milkfish because they have a national reputation for being"sweeter" than the milkfish produced in other provinces. In particular, they are preferred over milkfish from Laguna de Bay, which is the source of much of the Metro Manila supply. Secondly, suki obligations may lead to shipments to the Manila markets leaving local pockets of higher prices in producing provinces. As such, they reflect inefficiencies in the delivery sub-system. In general, retail prices are lower in the milkfish-producing provinces than in Metro Manila.

In terms of expenses incurred in marketing milkfish, our calculations show that an average of P0.53 per kilogram is spent from the point of first sale to the retail level. During the same period (1978) the average price margin between wholesale and retail was P1.38, although the range was P0.54 to P2.64 for the year. The return to labour, capital, management, and risk of intermediaries thus averaged P0.85 per kilogram in 1978, or 10 per cent of the average retail price. This rate of return does not appear unreasonable, implying a fair degree of pricing efficiency in the delivery sub system.

Nevertheless, there is room in the sub-system for reducing costs. There are complaints among fish producers about the lack of transport facilities, which are indispensable in the fast delivery of fish. The perishability of this product calls for not only adequate transport facilities but also storage to preserve its utility. Furthermore, there are milkfish farmers who claim that ice is sometimes insufficient in addition to being an expensive marketing input. However, the lack of fish-storage facilities apparently does not impede the availability of milkfish all year round. Notwithstanding the seasonal availability of fry, milkfish producers are able to supply the market continuously, as shown by data from the Bureau of Agricultural Economics (BAECON ) Commodity Intelligence Group.

In summary, it can be said that, while the marketing system exhibits a fair degree of price efficiency, certain technical inefficiencies, such as ice shortages, increase the cost of the product unnecessarily.

VI. Discussion and conclusion

The milkfish resource system analysed in the preceding chapters is entirely dependent upon the occurrence and capture of milkfish fry along the coastline. Though found to be economically efficient, the concession arrangement under which the fry fishery is managed is of little benefit to fry gatherers unless they can be organized to serve as their own concessionaire. One successful case of a concession co-operative was cited as evidence of the advantages to gatherers from this approach.

Several factors reinforce tendencies toward a hierarchically structured fry procurement sub-system, including nation wide fry demand and more localized supply points, economies of scale in transport, and the nationwide concession system which awards exclusive rights of first purchase to the highest bidders. However, the development of market hierarchies is tempered by risks and uncertainties brought about by price fluctuations resulting from a highly seasonal catch, the perishability of fry, and opportunistic behaviour of buyers and sellers. Strategies of intermediaries to minimize these risks, through vertical and horizontal integration and various financing arrangements, shorten the marketing chain to an average of 2.7 title exchanges, and have resulted in a very prominent role played by Manila area nursery-pond operators.

Comparisons of rates of return to participants in the procurement sub-system indicate a high degree of correlation between rates of return and sub-sector concentration ratios. Rates of return are lowest in the fry gathering sub-sector, where thousands of fry gatherers participate, and highest in the nursery-pond sub-sector, where the activity is concentrated in the hands of a relatively small number of individuals.

Monthly average fry prices (1976-1977) among 11 major trading regions were significantly correlated, indicating a high level of information flow in the procurement subsystem. Spatial price differentials significantly exceeded transfer costs only during the non-peak season. Form price differentials, however, consistently exceeded costs of rearing fry to fingerling. More in-depth analysis of the nursery pond sub-sector is required to identify the causes of high net returns. If these high net returns have persisted since 1977, and can be shown to be consistently above opportunity costs, one could hypothesize that they prevail because of lack of competition among nursery-pond operators.

Besides showing that the transformation sub-system has the capacity to greatly increase its production and profits from existing fishponds, this study has also identified seven variable inputs which are significant in explaining variations in milkfish output from farm to farm. These are age of pond, milkfish fry and fingerling stocking rates, organic and inorganic fertilizers, land (farm size), and miscellaneous operating costs. In addition, to increase profits, the rates of use of the following inputs should be increased: milkfish fry and organic and inorganic fertilizers.

The analysis of the delivery sub-system shows that it is economically efficient in directing the flow of milkfish from fishponds and fishpens to consumers. However, the marketing system can be made more technically efficient if more ice and better means of transportation are made available.

To date, fry supply has shown itself to be highly resilient in meeting the shifting demand from fishponds and fishpens for stocking materials. However, if fishpen expansion continues and stocking rates of fishponds are increased, fry and fingerling prices will undoubtedly increase. A network of fryseed banks and, eventually, hatcheries to supplement supply from the natural fry fishery would be extremely helpful to reduce price fluctuations and assure year-round supply of fry in large numbers.

The milkfish resource system described in the preceding chapters does not, of course, exist in a vacuum. General economic conditions in the Philippines have an effect upon the efficiency of the system, and upon the returns to the various "creators of utility" within each of the subsystems of procurement, transformation, and delivery. Although this paper does not rigorously examine factor shares, returns to the factors of production (land, labour, and capital) in the system approximate the opportunity costs of these factors. This implies that from the social point of view, them factors would not contribute significantly more to the Philippine economy if they were used elsewhere, in a different productive activity. Some changes could be implemented in the interest of equity, however.

The low returns to fry gatherers reflect, in part, the lack of other income-generating opportunities available to them, and also the effect on fry prices of the concession arrangement. Because gatherers are restricted to selling only to the concessionaire, they receive a lower price than would prevail if there were open-access to the fry fishery and they could sell freely in the open market. It can be argued that because the municipalities "own" the resource, they are, thus, theoretically free to spend the rent (licence fee) earned in such a way as to redistribute wealth to benefit gatherers. However, because of the extremely low income levels of most municipalities, fry ground income is most often used to support basic social services in the form of salaries for municipal officials. The result is that fry gatherers, who are among the poorest sectors in the Philippines, are not benefiting from municipal ownership of the resource. One solution to this dilemma is to encourage the formation of gatherer co operatives to be awarded concession rights for a possibly reduced fee, in which case they could earn the profits that formerly accrued to concessionaires plus a share of the resource rent.

In contrast to the fry gatherers who, along with hired labour in the procurement, transformation, and delivery sub-systems, earn the lowest remuneration, returns to nursery-pond operators are high. But, here too, these high returns reflect the presence of other investment opportunities available to nursery-pond operators. The current opportunity cost of capital, particularly in the Manila area where most of the nursery ponds are located, approaches 30 per cent for large scale investments with a fair degree of risk (long-term commercial notes pay approximately 20 per cent). The presence of substantial though non discriminatory barriers to entry in the form of pond development costs and costs of establishing trusted suki relationships with suppliers and buyers also contributes to the high returns to nursery-pond operators, and to the more successful rearing-pond operators. In general, returns to capital and labour in the resource system are highest where such entry barriers exist, and lowest where entry is easiest, such as in fry gathering.

The relative opportunity costs within the milkfish resource system should thus be seen as reflecting the pattern of development in the Philippine economy as a whole, where growth (and hence increased opportunities and returns for the factors of production) has been centred in urban areas, particularly Metro Manila.⁷¹ If development were more rurally centred, opportunity costs of rural factors of production, including labour in the milkfish resource system, would be higher.

The finding of positive returns to scale in the transformation sub-system has special equity implications. The fishpond sector is characterized as having a clear dualistic structure with a small number of highly successful producers and a large number of marginal producers. Indeed, if one values the land of marginal producers at its opportunity cost, many of them are operating at a loss. Not only has the production function analysis of the transformation sub-system found that most milkfish ponds in the country are grossly underutilized, it has also shown that further improvements in production efficiency within this sub-system can also be obtained by taking advantage of the presence of economies of scale in the sub-system. Both intensified production on existing farms and expansion to larger farm sizes suggest the application of larger quantities of supplemental inputs to boost per unit productivity of the milkfish ponds. The extent to which pressures to achieve economies of scale will arise depends greatly upon the relative rates of increase in output price and in costs of production.

For discussion purposes we can assume that the average farm faces a perfectly elastic demand curve, and the average cost (AC) curve for the sub-system is the usual U-shape (fig. 40). If output prices increase faster than costs of production, then the range over which various farm sizes can compete will become larger in the short run. In the long run, these higher profits (average revenue minus average cost) would attract new entrants. However, in the case of the milkfish transformation sub-system, barriers to entry will increase because with limited mangrove area available for fishpond expansion, existing farms of all sizes will be favoured. Land prices should rise, making entry for newcomers more difficult.

Fig. 40. Farm Output, Cost, and Revenue.

The optimum of the competitive farm is to produce at the level where marginal revenue (MR) equals marginal cost IMC). The shaded portion represents profit at the optimum point.

However, if output prices increase slower than costs,⁷² then the range over which differing farm sizes can compete will narrow, and favour those with lower average costs of pro auction. Smaller farms with higher average costs will find it more difficult to compete as profits (AR-AC) decline. An equity issue is a way to inhibit concentration of the transformation sub-system in the hands of fewer producers, while not denying consumers the advantage of milkfish at lowest cost. One possible way out of this problem is to organize group or co-operative farming among the many small producers through the use and management of common resources (i.e., fry or seed banks), bulk purchases of fry and supplemental inputs, and co-operative marketing.

It is extremely difficult to predict future relative price increases of milkfish and of production costs. With capture fishery catches levelling off as the limits to the resource are reached and population expanding, milkfish prices will certainly increase. How much they increase depends, in part, upon the supply and prices of other protein substitutes from the agricultural sector.

What will be the supply response of producers? As the prices of milkfish rise, so, too, will the prices of fry. Increased fry prices may, in fact, be a blessing in disguise in that they should encourage better fry handling and acclimatization practices. They will also lend further support to efforts to breed the milkfish in captivity. The response of producers to higher milkfish and fry prices will depend upon the extent to which they are motivated by economic considerations. As the preceding analysis has shown there are large numbers of marginal producers who are apparently motivated by other considerations. Consequently, it is likely that the large producers will be the first to respond.

Efforts to encourage milkfish producers to apply larger quantities of supplemental inputs must be accelerated by an active extension service. The task of convincing pond operators of the advantages will be made easier as land values increase. In the past, technical information and research results have not been reaching the bulk of the country's milkfish producers. Inequitable access to such technical information has partly been responsible for the perennial low productivity of Philippine milkfish farms. There is, in fact, a tendency for research stations to respond more readily to the information needs of big producers rather than to the information needs of small producers. Since there are less than two extension workers on average per province, this tendency to serve only a small number of producers is not surprising. The problem of technology transfer to the marginal producers is also made more difficult by their reluctance to join the Philippine Federation of Aquaculturists (PFA), which they see as being primarily for the "big-timers." The anomalous situation that these attitudes produce is one in which the small producers only infrequently participate in the information-sharing activities that characterize the PFA, though they are potentially the greatest beneficiaries from such information exchange.

If managed for society's benefit, the milkfish fry fishery is a renewable resource, and the milkfish resource system (procurement, transformation, and delivery sub-systems) which at present depends upon it can be continuously relied upon to supply a part of the protein needs of the Philippines. The authors hope that the preceding analysis of the milkfish resource system will be useful to government planners as they implement programmes and activities that will promote increased milkfish production in the coastal zone and inland bodies of water. In particular, increases in productivity per unit area through intensification in milkfish rearing will lead to increased efficiency in resource use, thus keeping price increases for milkfish to a reasonable minimum.

Appendix: definition of terms

1. Fry gatherer: An individual, usually working as part of a small team, who captures fry along the coastline with various nets and traps.

2. Concessionaire: That individual, partnership, corporation, or co-operative designated by a coastal municipality, usually after competitive bidding, as having exclusive rights to exploit a given fry ground.

3. Dealer: An individual, partnership, or corporation (other than a concessionaire) engaged in buying and selling of fry, or in buying and selling of market-size milkfish. While taking title to the commodity, primary functions of dealers are storage and transport, not transformation from fry to fingerlings. Dealers of market-size milkfish are either wholesalers or retailers, and sell to either domestic or export markets.

4. Commissionman: A buyer's or a seller's representative, who does not take title to fry, fingerlings, or market-size milkfish in his own name, but in the name of the person he represents, and is paid a commission based on the volume of the purchase or sale.

5. Broker: A facilitator of fry, fingerling, or market-size fish exchanges between buyers and sellers, who does not take title to the commodity in his own name. Brokers are of two types, based on the means of payment. The first type acts as broker for the seller, stores the fry or market size fish until a buyer is found, and charges either a flat fee, or more likely, a percentage commission (usually 5 per cent) based on the selling price. The second type, common only in the fry procurement sub-system, represents neither buyer nor seller but arranges the exchange between the two, and has a return based on the spread that can be created between the selling price and the buying price.

6. Runner: A smuggler of fry from fry grounds, who acts as a dealer or as commission man. Frequently, a runner is financed by a particular buyer for whom he is smuggling.

7. Nursery-pond operator: One who specializes in raising fry to fingerling size for sale to fishpond or fishpen operators.

8. Fishpond operator: One who raises either fry, fingerlings, or a combination of both to market size in a pond.

9. Fishpen operator: One who raises fingerlings to market size in a fixed bamboo net enclosure rather than in a pond.

10. Consumer: One who purchases market-size milkfish for consumption purposes.

As in any large scale business activity, functionaries in the milkfish resource system cannot always be as clearly delineated as the above categories imply. Fry gatherers occasionally double as runners. Nursery-pond operators and even commission men also serve as dealers and brokers. However, the broad distinctions among functionaries are necessary to establish the production and marketing chain and the role within it played by each functionary.

Notes and references

1. BFAR. 1977 Fisheries Statistics of the Philippines. Bureau of Fisheries and Aquatic Resources, Manila, Philippines, 1979.

2. C.V. Guerrero and L.B. Darrah. "Bangus Marketing, 1974." National Food and Agriculture Council, Manila, Philippines, 1975.

3. BFAR. See ref. 1; "Fisheries Yearbook, Taiwan Area, 1975," Taiwan Fisheries Bureau, Provincial Govt. of Taiwan, 1976; and "Fisheries Statistics of Indonesia," 1978. Direktorat Jenderal Perikanan, Jakarta, Indonesia, 1980. The production area figures represent gross area. Not all of this area is necessarily fully developed for production purposes. For example, net production area in Indonesia is 145,900 ha. As shown, productivity per hectare estimates are thus understated in Indonesia and probably the same for the Philippines. No firm basis exists, however, to revise these estimates upwards.

4. K. Ruddle and T.B. Grandstaff. "The International Potential of Traditional Resource Systems in Marginal Areas. "Tochnol. Forecast. Soc. Change. 11 (1978): 119-131.

5. Sources of the figures are: A, B. and C from W.H. Schuster, "FishCulture in Brackishwater Ponds of Java." Indo-Pacific Fisheries Council Special Publications no. 1. FAO, Rome, 1952; D and E from D.K Villaluz, Fish Farming in the Philippines. Bookman, Inc., Manila, 1953, 336 pp.; F from H.C. Deleman and J. D.F. Hardenberg, Do Indische Zeevisschen on Zeevisscherij. N.V. Boekhandel en Drukkerij Visser & Co., Batavia-Centrum, 1934.

6. J.E, Bardach, J.H. Ryther, and W.O. McLarney, eds. Aqusculturo: The Farming and Husbandry of Freshwater Merino Organisms. Wiley Interscience, New York,1972.868 Pp.

7. A.W. Herre and J. Mendoze. "Bongos Culture in the Philippine Islands." Philipp. J. Sci. 38(4) (1929): 451-509.

8. G. Ohshima. "A Geographical Study on Aquiculture in the Philippines." Kwansei Gakain University Annual Studios, vol. XXI (1973): 17 pp.

9. W.H. Schuster. "An Annotated Bibliography on the Culture of Milkfish, Chanos chanos (Forskal)." IPFC Occas. Pap. No. 52/3 (1960). Indo.Pacific Fisheries Council, FAO,Rome, and W.H. Schuster (1952): See ref. 5.

10. SEAFDEC. Annual report, 1976. Southeast Asian Fisheries Development Center, Manila, 1979.

11. Philippines Daily Express, April 1 , 1981 , p. 24.

12. This section is drawn primarily from (a) I.R. Smith. F.C. Cas, B.P. Gibe, and L.M. Romillo. "Preliminary Analysis of the Performance of the Fry Industry of the Milkfish (Chanos chanos Forskal) in the Philippines."Aquaculture 14, (1978): 199-219 and lb) I.R. Smith. "The Economics of the Milkfish Fry and Fingerling Industries of the Philippines." (CLARM Technical Reports 1, ( 1981): 155 pp. These two earlier studies wore the result of extensive interviews of representative functionaries in fry gathering and distribution and fingerling rearing conducted during 1977, We gratefully acknowledge the permission of the publishers to reproduce several figures and tables from these earlier publications.

13. BFAR. "Fisheries Statistics of the Philippines, 1975." Bureau of Fisheries and Aquatic Resources, Manila, Philippines, 1976 115 pp.

14. R.R. Deanon, R.A. Ganaden, and M.N. Llorca. "Biological Assessment of the Fish Fry Resources (Bangos, Shrimp, Eel) in Luzon, Visayas, Mindanao." PCARR-BFAR, Manila, 1974,

15. S. Kumagai, T. Bagarinao and A. Unggui. "A Study on the Milkfish Fry Fishing Gear in Panay Island, Philippines." Technical Report No. 6 (1980): 34 pp. Aquaculture Dept. SEAFDEC, Tigbauan, lloilo, Philippines.

16. A.R. Librero, S.P. Dizon, A.G. Tidon, D.G. Ramos, and R.C. Alzona. "Fry Gathering Patterns, Costs and Returns, and Socioeconomic Conditions of Fry Gatherers in the Philippines." SEAFDEC-PCARR Pap. No. 1. (1976a) 124 pp. SEAFDECPCARR, Los Banos Laguna, Philippines, and Kumagai et al. (1980): See ref.15.

17. A.S. Abrera. "Philippine Poverty Thresholds," p. 223-273, in M, Mangahas, ed. Measuring Philippine Development: Report of the Social Indicators Project. Development Academy of the Philippines, Manila, 1976.

18, Monopsony is defined as a market situation where there is only one buyer.

19. M.B. Schaefer. "Some Aspects of the Dynamics of Populations Important to the Management of Commercial Marine Fisheries." InterAmer. Trop. Tuna Comm. Bull. 1 (1954): 25-56.

20. For a detailed exposition on fisheries economics, see L.G. Anderson. The Economics of Fisheries Management. The Johns Hopkins University Press, Baltimore, 1977, 214 W.

21. It is this reduction in average net returns from fry gathering under the concession arrangement that led to the conclusion in an earlier study (Smith 1981, See ref. 12b) that the concession fee represents an "indirect tax" borne by the gatherers. The rationale for this argument is based upon the examination of the monopsony position of the concessionaire. Because of his rights of sole purchase, the concessionaire is able to pass this "tax" back to gatherers in the form of lower prices. Because he is a price-taker when selling fry, the monopsonist cannot pass this "tax" forward to his buyers. In this paper, the terms "licence fee" and "rent', are used in place of "indirect tax." Changing the terminology does not change the conclusions regarding optimum allocation of resources, opportunity costs of gatherers and concessionaires, and returns to the municipality. The change does, however, permit the concession arrangement to be analysed in the context of fisheries economics models so that the impact on sustainable yield and total revenue can be determined.

22. A female milkfish produces in excess of 5 million eggs at each spawning (See ref. 5). If one assumes three spawnings per lifetime, a total of 15 million eggs will be released, of which only two need survive to maintain the size of adult stocks. Natural mortality would thus exceed 99.99999 per cent.

23. The authors conducted interviews with Taiwanese fry dealers in 1980. An economic evaluation of the Taiwanese milkfish resource system is also being conducted by C.S. Lee, National Chung Using University, Taichung, Taiwan.

24. Martin, M. "Plastic Bag Hauling of Small Live Fish, part 2. Aquaculture Mag. 7(2) (1981):42-43.

25. See, for example, J.E. Bardach, J.H. Ryther, and W.O. McLarney,eds. Aquaculturo: the Farming and Husbandry of Freshwater and Marine Organisms (Wiley Interscience, New York, 1972, 868 pp.; G.J. Blanco. "Problem of Fishfeed Production Relative to Intensive Coastal Aquaculture for the Indo-Pacific Area." (1970) FAO, Rome; and A. Mane, D. Vitlalug, and H. Rabanal. Cultivation of Fish in Brackish and Estuarine Waters in rho Philippines. Philippine Fisheries, Manila, 1952.

26. See for example, F.J. Blanco. "Status and Problems of Coastal Aquaculture in the Philippines," pp. 60-67, in T.V.R. Pillay, ed., Coastal Auaculture in the Indo-Pacific Region Fishing News (Books) Ltd., Surrey, England, 1970.

27. A.R. Librero, E.S. Nicolas, A.L. Banssihan R.M. Fabro L.P. Lapis, A.M. Nazareno, and E.O. Vasquez, 'Milkfish Farming in the Philippines: a Socioeconomic Study." SEAFDEC-PCARB Res. Pap. Ser. No. 8 (1977): 367 pp. SEAFDEC-PCARR Research Program, Los Banos, Laguna, Philippines. These extrapolations to determine stocking rates and fry catch are reported in Smith et al. (1978): See ref. 12a.

28. K-C. Chong and M.S. Lizarondo. "Inputs as Related to Output in Milkfish Production in the Philippines: a Production Function Analysis." ICLARM Technical Rep 3 (1982). ICLARM BAECON-FI DC, Manila.

29. Data from T.P. Chen. Aquaculture Practices in Taiwan. Fishing News [Books], Ltd., Surrey, England, 1976, 161 pp.,was interpreted in this manner in Smith (1981): See ref. 12b.

30, A.R. Librero, A.G. Tidon, D.G. Ramos, and R.C. Alzona. "Patterns of Fry Purchase and Sale in the Philippines: a Study of Fry Concessionaires and Dealers." SEAFDEC-PCARR Res. Pap. Ser. No, 3. (1976b): 124 pp.SEAFDEC-PCARR Research Program, Los Banos, Laguna, Philippines.

31. Smith (1981) See ref.12b, Thirty-three per cent of mortality in transport using oxygenated water can be explained by the equation:

M jj = 0.017 + 0.00024 (Tij)^5/2 R²= .33
( .00004) F= 40.36
t= 6.00
where M jj = % mortality from point i to point j.

T jj = time (hrs) in transport from point i to point j. Both the t-value and the F-value are significant at the 1- percent level. Complete fry mortality can be predicted to occur after 28 hours in transit with no renewal of oxygen.

32. Since early 1979, monthly fry prices in Metro Manila have been more unstable than during the 1976-1977 period. The Von Nueman Ratio, which indicates the degree of price instability, for the 20 month period January 1976-August 1977 is 0.34. For the 20-month period February 1979 October 1980, the ratio is 0.49. The Von Neuman Ratio (R) is calculated as follows:

where P_t = price in time t
n = number of observations

33. The perfectly competitive model would predict that arbitrage by middlemen would result, on the average, in price differentials between exporting and importing markets being equal to the transfer costs between the two markets. For a complete discussion, see R.G. Bressler and R.A. King. Markets, Prices, and Inter regional Trade. John Wiley and Sons, New York, 1970, 426 pp.

34. V.W. Ruttan. "Agricultural Product and Factor Markets in Southeast Asia," pp. 79-106 in K.R. Anshel, ed. Agricultural Cooperatives and Markets in Developing Countries. Praeger, New York, 1969.

35. This section is based primarily on Chong and Lizarondo (1982): See ref. 28. Using data collected from seven provinces in the country with 1978 as the reference period, this survey, hereafter referred to as "our survey," was conducted by the International Center for Living Aquatic Resources Management, Bureau of Agricultural Economics, and Fishery Industry Development Council. A total of 324 milkfish producers were interviewed. They represent farms which are intensively operated .

36. Y.A. Tang and T.L. Huang, "Evaluation of the Relative Suitability of Milkfish in Brackishwater Ponds." FAO World Symposium on Warmwater Pond Fish Culture. FR: III/E4 (1966): 7 PP.

37. BFAR. 1976 Fisheries Statistics of the Philippines. Bureau of Fisheries and Aquatic Resources, Manila, Philippines, 1978. 115pp.

38. K-C. Chong. "In Search of Higher Productivity in Milkfish Production: a Case Study." Paper presented for the UPLB/SEARCADSE/EDl/World Bank Livestock Development Projects Course for Asian Countries, Los Banos Laguna Philippines ;Anand, India, 1980. 16 pp.

39. H.R. Rabanal. "Inorganic Fertilizers for Pond Fish Culture." Philipp. J. Fish. 8 (1): (1961).

40. Y.A. Tang. "Improvement of Milkfish Culture in the Phillippines." IPFC Current Affairs Bull. 49 (1967): 14-22.

41. Y.C. Shang. "Economic Comparison of Milkfish Farming in Taiwan and the Philippines." Aquaculture 9 (1976): 229236.

42. BAC. Annual report, Brackishwater Aquaculture Center (BAC), Leganes, lloilo, Philippines, (1978), 28 pp.

43. P. Korringa. Farming Marine Fishes and Shrimps. Developments in Aquaculture and Fisheries Science, 4. Elsevier Scientific Publ. Co., Amsterdam, 1976, 208 pp.

44. J.K. Liang and C.Y. Huang. "Milkfish Production in a Newly Reclaimed Tidal Land in Taiwan," pp. 417-428 in T.V.R. Pillay, ed. Coastal Aquaculture in the Indo-Pacific Region. Fishing News (Books) Ltd., Surrey, England, 1972.

45, A majority of the 324 respondents are very interested in the BAECON/FIDCI/CLARM Farm Record Keeping Project es demonstrated by their support, and willingness to pay for the blank farm-record forms. Requests for additional record books are still received.

46. O.K. Villaluz. fish Farming in the Philippines. Bookman, Inc., Manila, Philippines, 1953, 336 pp.

47. In addition, slightly more than 1 per cent would like to polyculture milkfish with penaeid shrimps.

48. Production intensification refers to the use of larger quantities of inputs other than land to boost production from a given area of pond.

49. This classification of size is based on the size distribution of milkfish farms in the sample. The Bureau of Census was consulted for a size definition but no size definition is available for milkfish farms. Farm size definition is, however, available for agriculture.

50, Y.A. Tang. "Stock Manipulation of Coastal Fish Farms," pp.438-453, in T.V.R. Pillay, ad. Coastal Aquaculture in the Indo-Pocific Region. Fishing News (Books) Ltd., Surrey, England, 1972.

51. These computations have taken into consideration reported losses due to weather disturbances.

52. B.H. Nielsen, A.E. Santiago, and F. Petersen, "The Hydraulic Control Structure-a Threat to the Fishpen Industry in Laguna de Bay." Paper presented at the Natural Resources Management Center, Ministry of Natural Resources Forum, AIT, 19 March 1981. Diliman, Quezon City, Philippines, Using carbon 14 techniques, these authors estimate annual production of phytoplankton to be 780 g C/m² considerably less than the 1980 g C/m² reported for Lake George by L.C. Beadle. The Inland Waters of Tropical Africa, Longman, London, 1974.

53. M.N. Delmendo and R.H. Gedney, "Fishfarming in Pens: a New Fishery Business in Leguna de Bay." LLDA Technical Paper No. 2.35 pp. in various pagings. Laguna Lake Development Authority, Pasig, Rizal, Philippines, 1974.

54. I.R. Smith, M.Y. Puzon, and C.N. Vidal-Libunao. "Philippine Municipal Fisheries: a Review of Resources, Technology and Socioeconomics. "ICLAFM Studies and Reviews 4. 87 pp. International Center for Living Aquatic Resources Management and Fishery Industry Development Council, Manila, Philippines, 1980.

55. M.N. Delmendo. "An Evaluation of the Fishery Resources of Laguna de Bay." Philipp. J. Fish. 14 (2) (1976): 213-231.

56. Laguna Lake Development Authority. "Survey of 1973 Fishery Catch in Laguna da Bay." LLDA Technical Paper No.1. 13 pp. LLDA, Pasig, Rizal, Philippines, 1974.

57. This assumes that the "in-between years" for which no data is available are consistent with this declining trend.

58. Delmendo and Gedney (See ref. 53) raised their concern for the socioeconomic well being of the small scale fishermen. This concern for declining real incomes of fishermen remains seven years later and little progress seems to have been made to resolve the conflict.

59. Laguna Lake Development Authority. 1980. Laguna de Bay Fish Pen Development Project, First quarter report, March 1980. LLDA, Pasig, Metro Manila, Philippines. 47 pp. in various pagings.

60. C.V. Guerrero. "Bangus Production in Fishpens." NFAC Marketing Research Unit. Report No. 75-23. 19 pp. Special Studies Division, Department of Agriculture, Quezon City, Phliiwines, 1975.

61. J.L. Ramirez. "Productivity and Returns to Inputs of Fishpen Aquaculture in the Philippines." Univ. of the Philippines at Los Baffos, 89 pp. Unpublished M.S. thesis, 1978.

62. E.S. Nicolas, A.R. Librero, R.A. Cello, and E.R. Pamulaklakin. "A Socioeconomic Study of Fishpen Aquaculture in the Philippines." SEAFDEC-PCARR Res. Pap. Ser. No. 5.165 [15] pp. SEAFDEC-PCARR Research Program, Los Baffos, Laguna, Philippines, 1976.

63. This is a short-run condition only.In the long run, assuming conditions of perfect competition (including factor [input] mobility), the value of the marginal product from the marginal input in the respective sectors will tend to equality.

64. Smith (See ref. 12b) estimated 45 per cent for 1976, Guerrero (See ref. 60) estimated 49 per cent for 1974.

65. See ref. 28 for fishpond estimate; see ref. 61 for fishpen estimate.

66. Comprehensive Water Quality Management Programme, Laguna de Bay. Final report, 1978. Vol. 4, Annex 1. Limnology of Laguna de Bay. Laguna Lake Development Authority, Pasig, Metro Manila, Philippines. The recommendations of consultants regarding the role of nitrogen in the lake's ecology are found in SOGREAH, 1974. Laguna de Bay Water Resources Development Study. Report to LLDA, UNDP and ADB. Vol. I-III. Société Grenoblaise d'Etude d'Application Hydrolique, Manila.

67. This section draws upon data collected by the 1979 survey of 324 producers in sewn selected provinces of the Philippines, as conducted by the Bureau of Agricultural Economics (BAECON), the Fishery Industry Development Council (FIDC), and the International Center for Living Aquatic Resources Management (ICLARM). Concurrent with this survey of producers, BAECON also conducted a survey of marketing practices in the same seven provinces. Secondary data used to analyze the pricing efficiency of the delivery sub-system is collected from major market centres by BAECON.

68. Realabut-Navera, E. "Fish Marketing at the Navotas Fish Landing and Market Authority in Navotas, Rizal, 1973-1974. Univ. of the Philippines at Los Baffos, 198 pp. Unpublished M.S. thesis, 1976.

69. The best description of the suki system can be found in N.A. Cuyos and A. Spoehr. 1976. "The Fish Supply of Cebu City: a Study of Two Wholesale Market'." Philippine Quarterly of Culture and Society. Univ. of Sen Carlos, Cebu City, Philippines 4 (3): 160-198, which describes the fresh and dried fish wholesale markets of Cebu City in the Central Philippines.

70. The relationship between monthly wholesale and retail prices over the 1969-1979 period can be expressed as Pr=0.027 + 1.23 Pw where Pr = retail price and Pw = wholesale price, R2 value of this specification is 0.95. The value of the coefficient of Pw is not significantly different from 1.0, indicating a constant, rather than a percentage mark-up between wholesale and retail price. However, the margin is widening with time.

71. See for example, D.A. Rondinelli, Spatial Analysis for Regional Development: a Case Study in the Bicol River Basin of the Philippines. Resource Systems Theory and Methodology Series, no. 2. The United Nations, University, Japan, 1980.

72. The price of milkfish has been increasing at a slightly lower rate than "all items" in the Metro Manila consumer price index.

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