Poverty in Agrarian Reform Communities in 2001 and 2003

This section provides a descriptive analysis of the agrarian households included in the 2001 and 2003 surveys. It describes the differences in household incomes, asset holdings, expenditures, and agricultural practices, among others, between the two periods.

ARC households are smallholder households with agriculture as their main source of income. The average household head in the ARCP area in 2001 was 49.1 years of age, owned 1.15ha of land, and had 5.2 people in his/her family. In terms of education, a total of 95% completed elementary-level education, and 48% attended high school or had higherlevel education. These characteristics did not change over the period of the project's intervention.

To review the household welfare characteristics that changed between the two periods, we first examined the household income. All income indicators in 2003 are expressed in real terms of constant market prices in 2001. Net annual household income was 66,029 pesos in 2001. After two years of the ARCP implementation, total household income increased by 12% to 73,904 pesos in 2003. The on-farm income increased by 39% during this timeframe, while the non-farm and the off-farm income decreased by 23% and 11%, respectively. Notable is the immediate increase in on-farm income, reflecting the importance of agriculture as the main income-generating activity for the ARCP households (Table 4 [ PDF 28.7KB | 1 page ]).

The increase in on-farm income is most likely a direct result of the ARCP's interventions. Along with improvement of infrastructure, the ARCP introduced high-value vegetable production for local markets. The new income-earning opportunities in agriculture allowed household members who used to work as wage laborers to refocus on on-farm activities (Figure 2 [ PDF 27.2KB | 1 page ] and Table 5 [ PDF 27.2KB | 1 page ].)

A. Change in Agriculture Practice Between Two Periods

In agrarian reform, change in agricultural practices has strong impact on income change (Evenson, 1986). In the households surveyed, most households in Luzon grew rice while households in Visayas grew sugar cane and maize. Of the on-farm income in 2001 and 2003, the share of income from rice decreased by 5% while the share of income from sugar cane, maize, and other crops increased. It is possible that the decrease in the share of income from rice was brought about by the slight decrease in the average price per kilogram of unprocessed rice. Additionally, the areas of maize, sugar cane, and cash-crop production expanded. Concurrently, average prices for maize and cash crops increased in 2003 (Figure 3 [ PDF 33.7KB | 1 page ]).

While the total area and number of croppings increased for all crops except for maize, production costs decreased for all crop types. Major production cost items that have been reduced are: rental land, seedlings, hired labor, and equipment rental, and also certain reductions in the shares of harvesters, threshers, and “other costs” (including transportation and hauling and other incidental expenses). Average reduction in “other costs,” for instance, ranged from 55% (for rice) to 100% (for bananas). The reduction in seedling costs ranged from 69% to 99% for unprocessed rice, maize, sugar cane, and bananas. Better road access not only reduced transportation costs of inputs but also allowed for increased competition among suppliers of inputs. In many cases, community organizations, e.g., cooperatives, utilized the improved roads to purchase inputs in bulk, further lowering input costs.

1. Rice

Rice is the basic staple in the Philippines—a total of 1,507 of the households sampled (58%) produce rice. The average area planted with rice increased by 25%, and the number of croppings increased by 8% between 2001 and 2003. Notably, the total rice yield per area (in multi-croppings) increased by 14%, which contributed partly to the 44% increase in net income from rice. The expansion of rice production area is due to improved irrigation systems, which allow for dry-season cropping. There was also a 19% decrease in the cost of production due to the lower cost of seedlings, hired labor, and “other costs,” particularly, transportation and hauling (Table 6 [ PDF 33.9KB | 1 page ]).

2. Maize

Maize is the second most important crop, particularly in the rain-fed areas of Visayas and Mindanao. Of the 667 households (26%) that farmed maize in the surveyed group, the average area used for planting maize increased by 5%. The number of croppings decreased, reflecting the change in land use. The yield per area (in multi-croppings) increased by 10%, leading to a 57% increase in net income. There was also a 10% decrease in the cost of production during the period due to reduction in the cost of seeds, “other costs,” and hired labor. The increased maize yield, net income, and reduction in cost of seeds may have benefited from the Department of Agriculture's hybrid corn production program, launched nationwide in 2002, which propagates the use of drought- and nitrogenstress- resistant corn varieties (Table 7 [ PDF 33.9KB | 1 page ]).

3. Sugar Cane

Of the surveyed households, 140 were engaged in sugar cane production. The area of sugar cane production increased by 0.7ha (46%), while the number of croppings increased 4%. The yield per area (in multi-croppings) increased by 12%, contributing to a net income increase of 134%. Due to lower seed cost, “other costs,” irrigation fees, reduced harvest costs, rental land, and equipment rental, the cost of production dropped 23% (Table 8 [ PDF 38KB | 1 page ]).

4. Bananas

Bananas are the main Mindanao export crop, accounting for 336 of the surveyed households. The average area increased by 53%, and the number of croppings increased by 6%. The banana yield per area (in multi-croppings) increased by 112%, while the net income from banana cultivation increased by 247%. A 46% decrease in production costs decreased due to reductions in “other costs,” seeds, and rental land (Table 9 [ PDF 38KB | 1 page ]).

B. Movements In and Out of Poverty

To assess the project's impact on poverty, we disaggregated the household data into “poor” and “non-poor” households. Poor households are those with a net income below the 2001 poverty line.² On average, non-poor households in 2001 possessed slightly more land holdings and had larger families than the poor. The non-poor also have 72% higher total household income, and the household heads have a higher level of education than the poor (Table 10 [ PDF 25KB | 1 page ]).

Table 11 [ PDF 25KB | 1 page ] shows that from 2001 to 2003 on-farm income of poor households increased by 46%, while the non-farm and the off-farm income of poor households decreased by 6% and 32%, respectively. For non-poor households, the on-farm income increased by 49%, while the non-farm and the off-farm income decreased by 9% and 11%, respectively. Both household categories experienced substantial increases in household incomes, while offfarm incomes decreased significantly in poor households and to a much lesser extent in nonpoor households.

Since expenditure data is known to be a better measure of welfare changes, changes in household expenditures merited examination (Figure 4 [ PDF 32.1KB | 1 page ]). In poor households, total expenditure increased by 4,772P (11%) while their food expenditure share declined by 9%. In non-poor households, total expenditure increased by 9,107 P (12%), while their food expenditure declined by 5%.

These changes are consistent with Engel's Law, which suggests that the share of expenditure for food products declines when a family's income increases. Between the two groups, the poor have spent a lesser proportion of their income increase on food and more on health, payment of loans, and others (items not classified as basic necessities and possibly including materials for production and consumer durables). Notable is the decline in the proportion of education expenses. For non-poor, the increase was primarily spent on others and payment of loans. The proportion of education and health expenses declined slightly by 0.5% in the non-poor group. For both groups, the increase in income produced overall increases in the proportion of expenditure for “others.” The expenditure by the poor on “others” increased significantly at 8%, while the increase for the non-poor for the same category increased by 4%.

C. Change in Asset Holdings

1. Household Assets

Change in wealth status can also be based on change in ownership of household assets. Figure 5 [ PDF 26.4KB | 1 page ] displays the change in ownership of selected household durables, e.g., TVs, radios, refrigerators, and electric fans.³ Both poor and non-poor households showed significant increases in the ownership of the selected household assets. The incremental change in the assets of non-poor households is larger than that of the poor households, except for radios.

2. Production Assets

Another indicator of welfare change is investment in agriculture systems. Figure 6 [ PDF 29.3KB | 1 page ] indicates the level of ownership of selected production assets, such as generators, hand tractors, rotary tillers, and threshers, and the corresponding changes in ownership after two years. Unlike the magnitude of change in household assets, the increase in the ownership of production assets among both poor and non-poor households is negligible. The change in the ownership of hand tractors among the non-poor was the highest at 1.4%, but even this increase is insignificant compared to the changes in household assets.

3. Transportation Assets

With rural infrastructure in place, one would expect households to invest more in transportation assets. Figure 7 [ PDF 29.3KB | 1 page ] displays the change in ownership of selected transportation modes, including cars, motorcycles, bicycles, jeeps, and carts. In general, non-poor households can afford more jeeps, motorcycles, and bicycles than poor households. The incremental change in car ownership is the greatest for both poor and non-poor, although the ownership rate was under 10%.

D. Change in Poverty Level

Particularly striking is the decrease in poverty levels in the ARCP areas while the national poverty level increased. Between 2001 and 2003, rural poverty at the national level increased by 9%, climbing from 46.9% to 55.9%. In contrast, the poverty incidence declined slightly from 60.5% to 59.7% in the ARCP areas. About 489 poor households moved above the poverty line, while 468 non-poor households moved below the poverty line.

Changes in the magnitude and the direction of poverty within poor households differ among regions (Table 12 [ PDF 30.5KB | 1 page ]). From 2001 to 2003, the number of households falling below the poverty line increased in Luzon and ARMM, while decreasing in Visayas and Mindanao. The incremental change of 7% in Mindanao was the largest, while more households in Luzon became poor during the period.

E. Change in Income Distribution

Although increases in average income levels have been observed, this does not necessarily indicate that income levels proportionately increased in all household categories. The Gini coefficient of total household incomes was calculated (Table 13 [ PDF 30.5KB | 1 page ]). The income distribution deteriorated for all of the samples, including poor and non-poor categories, for the period 2001–2003. This finding suggests that income distribution slightly worsened as a result of project interventions.

F. Change in Expenditures

Figure 8 [ PDF 30.6KB | 1 page ] displays the difference in household expenditures by the expenditure deciles for the period 2001–2003. Approximately 60% of poor households experienced a decrease in expenditures, while those at the top 20% had an increase in expenditure levels. Note that the poverty line roughly coincides with the threshold of 60% deciles. The households that fell within those deciles suffered a decline in household expenditures. This implies that only the non-poor households possessing incomes above the poverty line enjoy a higher or at least the same level of expenditures after two years of the ARCP intervention.

In summary, as a result of the ARCP implementation, there were increases in:

• Total household income
• On-farm income
• Share of income from products other than rice
• Proportion of expenditure for items not classified as basic necessities
• Ownership of the selected household assets

and decreases in:

• Production costs for all crop types
• Poverty incidence

Since this kind of univariate analysis does not cover underlying relationships between variables, the analysis is extended using a binomial logit model.

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