Badongs Rice Farm

A Case Analysis in Farm Management

:::::::::::::::::::::::::::::::::::::::::::::::::::::::: Submitted by: Maricon M. Amparo 2008-01082 BSABM ::::::::::::::::::::::::::::::::::::::::::::: Submitted to: Prof. Salvador P. Catelo AECO111 T-1L March 06, 2012 ::::::::::::::::::::::::::::::::: Badongs Rice Farm

Badongs Rice Farm

A case analysis on Farm Management

I. INTRODUCTION

The owner of the farm is Salvador Miranda, a 70 y/o resident of Barangay Bucal in Calamba City. Though, he is only an elementary undergraduate, he is still able to gain knowledge in farming and was able to manage his rice farm for years. The farm is 4 hectares and is 500m away from the national road. It is being rented with a fixed amount. Other sources of income are his sari-sari store and another farm in Sta. Cruz, Laguna.

II. ANALYSIS OF THE CASE SITUATION

A. MACRO-ENVIRONMENT ANALYSIS

Calamba City used to have a vast agricultural area. However, due to industrialization, potentials of agriculture met its limit. Crops being grown in the city are usually grouped into 4 categories namely: rice, vegetables, root crops, and fruits. Among the 4 crops being planted all year round, vegetables brought the highest yield. Average area (2002-2006) planted with crops accounts for 3312.8 hectares. About 1250.4 hectares of it is devoted for vegetable production, 143.3 hectares for fruits, 1820.9 hectares for rice, and 98.1 hectares for root crops. Figure 1 shows the trend of production for each kind of crop.

11867 12000 10000 Pro duct io n ( in met ric t o ns) 8000 6000 4000 2000 0 Rice Vegetables Cro ps Root Crops Fruits 2005 2006 698 2346 105 8323 7063 8845

8102

Figure 1. Trend of Production for each Kind of Crop, 2005-2006 Source: City of Calamba: Socio-Economic and Physical Profile, 2007

B. INDUSTRY ENVIRONMENT ANALYSIS

1. COMPETITORS

As of 2006, there are about 638 irrigated low land rice farmers and 57 upland rice farmers in the City of Calamba. They are the competitors of Badongs Rice Farm. However, though this number is high. There is no intensive competition since it is a commodity and is highly demanded.

2. CUSTOMERS

The buyers of the produce are usually those who dehull the rice seeds and resells it to either a distributor or an end consumer.

3. SUPPLIERS

Seeds are produced by the farm whereas fertilozer and pesticides are bought in Victoria, Laguna. The owner reasoned out that it is more cheaper there than in Calamba City. A transportation cost of Php500.00 is paid.

4. SUPPORT

The government provides training to the farmers. This is usually done during Thursdays. Also, there are times when they distribute fertilizer and other inputs to farmers. 5. MICHAEL PORTERS 5 FORCES MODEL

Bargaining Power of Suppliers The bargaining power of suppliers is high since the farm is just a small entity and buys only a small amount of supplies. This means that there would be no big deal for the supplier if ever the farmer has decided to buy supplies from other store.

Bargaining Power of Buyers The bargaining power of buyers is also high since they are the ones who dictate prices for the goods. This is also given by the fact that buyers are few but large while the farm is small.

Threat of Substitution The product which is a staple food, has a low threat of substitution. However, those who do not have enough budget to buy rice prefers to buy corn and other root crops.

Threat of New Entrants The threat of new entrants is low. This is because the area of agricultural lands, which is the main asset needed for production, is decreasing. Moreover, it is hard to find lands that are compatible with the crops that will be cultivated.

Competition Though there are a lot of farms in the area, most of them are also small. Moreover, since it is the buyers who dictate the price, competition among existing firms is low.

High
Bargaining Power of Suppliers

Low
Threat of New Entrants

Low
Competition Among Existing Firms

Low
Substitutability

High
Bargaining Power of Buyers
Figure 2. Michael Porters Five Forces Model

C. FIRM ANALYSIS

1. MARKETING Product The farm produces rice of varities Angelica and 128. NSIC Rc122 or Angelica was named after the governor of Agusan del Norte who helped in establishing a PhilRice branch station in her province. This variety was recommended for seed increase in 1997. Though it was plunged due to its its highly chalky grains, PhilRice Agusan still proceeded to produce more of its seeds due to its good performance in the field trials. The said station included it in its Technology Adaptation Project in the 1998 dry season and has showed outstanding performance. As a result, Angelica spread rapidly from 1999 to 2000. The adaptation project proved that Angelica is high-yielding, comparable with PSB Re 18, and better than IR64. It is proven to tolerate low solar radiation, to slightly tolerate zinc and potassium deficiencies, and to resist lodging. Moreover, its eating quality is comparable with that of JR64. Thus, Angelica was finally released as commercial variety. NSIC Rc128 on the other hand, is the first variety in the Philippines released in the aromatic category. It has an average yield of 5.5 t/ha and a maximum yield of 6.2 t/ha. It matures in 118 days with a height of 99 cm. It is resistant to stem borers, moderately resistant to brown planthoppers, but susceptible to blast and tungro. The farmer chose this variety because of its resistance to pests. Price Both varieties are sold at a price of Php12/kg. Place The buyers of rice go directly to the farm. Therfore it is not hard for the farmer to deliver his produce. Moreover, since the farm is just about 500m away from the National Highway, it is not hard for the buyer to transport the produce out.

 Promotion Since the farm is already established and the produce is a commodity, no promotion activities are being done.

2. PRODUCTION

After the land has been rested for about two months, another cropping begins. Seedbed preparation and seed sowing are simultaneously done with land preparation. Land preparation is consist of plowing, harrowing (1st, 2nd, 3rd), and furrowing. Hauling and planting of seeds is done afterwards. Manual weeding is also being done. Also, pesticide (Karate) and moluscicide (Biocide) are applied. Fertilizer application is done twice and utilizes 4 sacks of complete fertilizer and 4 sacks of urea per application per hectare. Irrigation is freeflow. Water comes from the private pools located around the farm. Harveting is done after about 115 days of planting.

3. ORGANIZATION The farm is a family business and is therefore a sole proprietorship. Laborers work on a contractual basis depending upon the needed amount of labor in a particular activity. The workers can either work on a daily-basis where they can have a salary of 250/day or on a pakyawan (grouped) basis where they are paid with an amount (say Php2000) and distribute it among themselves.

4. FINANCE

Since the farm has been operating for more than a decade, its initial investment is already recovered. Though no figures were given, investments done were in the form of pre-operating expense such as securization of permits and

licenses; fixed asset investments like land and equipments; and working capital investments which is needed for the day-to-day operation of the farm. Working capital is composed mainly of short-term assets such as cash, fertilizer, seeds, pesticides, utilities and labor. Cash conversion cycle or the time when the working capital would be recovered is expected to six (6) months. This is based from the maturity of rice which takes about four (4) months and the resting of soil which is about two (2) months. Basically, the fixed asset investment of the farm is composed of land and equipments. Land is being leased while equipments are onwed. In order to value the land, normal market value in a form of rental expense would be used. On the other hand, to value the equipments, the acquisition cost minus depreciation would be used except for the sprayer where normal market value was used. Table 1. Farm equipments of Badongs Rice Farm Items Hand tractor Hand Tractor (2nd hand) Tresher Tresher (2nd hand) Sprayer Year Used 2 10 1 10 15 Purchase Amount 44,000.00 22,000.00 60,000.00 25,000.00 1,000.00

Table 2. Valuation of equipments

Items Hand tractor Hand Tractor (2ndhand) Tresher Tresher (2nd hand) TOTAL Sprayer TOTAL Php Useful life (in years) 20 15 20 15 Depreciation 2,200.00 1467.00 3,000.00 1,667.00 Used Years 2 10 1 10 Accumulated Depreciation 4,400.00 14,670.00 3,000.00 16,670.00 Book Value 39,600.00 7,330.00 57,000.00 8330.00 112,260.00 300.00 112,560.00

Table 3. Income Statement Income Statement from February 01, 2011 to January 31, 2012 REVENUE Cash Revenue Sales (574.2cavans*600Php) Non-Cash Revenue Seeds (16cavans*600Php) Treshers Share (76.80cavans*600Php) Total Revenue EXPENSES Cash Expense Labor Insecticide Molusicide Fertilizer-14-14-14 (64bags*1420Php) Fertilizer-Urea (64bags*1320Php) Transportation Cost Land Lease (56cavans*600Php) Non-Cash Expense Seeds Treshers Share (76.80cavans*600Php) Depreciation Total Expenses NET INCOME 9,600.00 46,080.00 8,334.00 442,674.00 (Php58,674.00) 158,200.00 1,900.00 7,600.00 90,880.00 84,480.00 2,000.00 33,600.00 9,600.00 46,080.00 384,000.00 328,320.00

Table 4. Balance Sheet (end-of-cropping season) Balance Sheet as of January 31, 2012 ASSETS Current Assets Cash on Hand Seeds Inventory Total Current Assets Non-Current Assets Land Equipments Total Non-Current Assets TOTAL 33,600.00 112,560.00 146,160.00 Php 500,820.00 Php 500,820.00 345,060.00 9,600.00 354,660.00 Equity 500,820.00 LIABILITIES and EQUITY Liability ------

D. DISCUSSION OF THE CASE ISSUE

Based from the analysis of the external factors (macro-environment and industy-environment), it resulted that the farm is in stable environment. Its produce, being a commodity is not hard to market. Also the environment is favorable given that the farm does not have to worry about competition and it was able to receive support from the city government. However, based on its internal factors (marketing, production, personnel, and finance), it can be said that the first three (3) business functions are of good status. However, in its financial statement particularly the income statement has incurred a loss. This is due to the lower yield of rice during wet season.

III. PROBLEM STATEMENT

What strategy should be implemented in order to eliminate the losses incurred by the farm?

IV. SWOT ANALYSIS & MATRIX

Internal Strengths The owner has wide experience in rice farming Inputs are readily available The farm has enough number of new equipments Labor is adequate The farm is being financed at full equity Internal Weaknesses Financial Management Loss due to lower yield during wet season External Opportunities Low competition Government support Prices set by the buyers are reasonable External Threats Natural Calamities

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V. FORMULATION AND EVALUATION OF THE ALTERNATIVE SOLUTIONS TO THE PROBLEM

A. Alternative solution Apply the suggested amount of fertilizer A soil analyst who recently visited the farm evaluated its soil and found out that the soil can soon become acidic. The application given by the soil analyst is 1.5bags urea, 10 bags complete, and compost from hays in one hectare. This is expected to increase harvest by 10 cavans per hectare.

B. Evaluation of the alternatives Table 5. Partial Budgeting Added Return Harverst (10cavans*600Php) Reduced Cost Fertilizer-urea
(5bags*1320Php)

Reduced Return 6,000.00 --Added Cost 6,600.00 Labor Fertilizer-14-14 (6bags*1420Php) Harvester Share
(1.2cavans*600Php)

---

2,000.00 8,520.00 720.00 11,240.00

TOTAL

12,600.00 Net Increase/ha: Php 1,360.00

VI. DECISION/RECOMMENDATION

Based from the result of partial budgeting, it is recommended to use the new fertilizer ratio. If favourable scenario happens, this will surely result to a positive and therefore higher income for the farm.

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VII. REFERENCES

Agriculture Business Week. 2008. In 23 Years, PhilRice Bred 28 Rice Varieties. Retrieved March 03, 2012 from: http://www.agribusinessweek.com/in-23years-philrice-bred-28-rice-varieties/ City Planning and development Office. 2007. City of Calamba: Socio-economic and Physical Profile Personal Interview with Mr. Salvador Miranda, owner

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