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V. The delivery sub-system: marketing of milkfish

1. Marketing practices and structure
2. Marketing costs
3. Prices and pricing efficiency

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

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

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

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

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)

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

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.

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