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II.The procurement sub-system: fry gathering and distribution and fingerling rearing

1. Introduction
2. Fry-Gathering techniques
3. The concession arrangement
4. Distribution of fry
5. Efficiency of the procurement sub-system
6. Some implications of a milkfish hatchery


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
Net return to gatherers 19.0 32.7
Depreciation on gathering gear 2.1 3.8
Miscellaneous gathering expenses 0.8 1.3
Net return to runners (dealers) 1.2 2.0
Net return to runners (commissionmen) 1.0 1.7
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
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
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.


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