Exercise 1: Supply and Demand Estimation

KUAN, NASTASHA BRIGITTE | SALVA, ANN MARGARETTE |TANDANG, ANGELO

AECO 122 U-2L
I. Introduction
GARLIC
Garlic (Allium sativum L.), otherwise known, as bawang is one of the most popular cultivated
Alliums. Garlic, common name for several strongly scented herbs of the lily family, and for the bulbs of
these plants, which are used as flavoring for meat, fish and salads, in fresh and dehydrated forms. It is also
known to lower blood sugar and cholesterol levels. Its many other health-promoting attributes have
resulted in medicinal pills, drinks and powders based on garlic extracts (Agribusiness & Marketing
Assistance Division [AMAD], n.d.).

Several varieties present in the Philippines are the (1) Batangas White; (2) Ilocos White; and (3)
Batanes White. Some of its uses are (1) for garnishing, spice and flavoring for human consumption and
food products manufacturing industry; (2) cure for ailments ranging from athlete’s foot to hypertension;
(3) used in preparation of drugs, insecticides and explosives; (4) used to treat wounds, epilepsy and fungal
skin diseases; and (5) used as a digestive stimulant, diuretic and anti-spasmodic (AMAD, n.d.).

Production

Garlic production in the some regions of the country has greatly expanded to meet increasing
demand for garnishing, spice and flavoring for human consumption and food products industry. The
introduction of high yielding hybrid varieties boost the production of garlic. There are also technologies
introduced in some parts of the country by different research institutions. This commodity is usually a
monocrop. It can grow in different types of soil. Farmers tend to plant garlic after harvesting palay so that
they could prepare the land without tillage (Agrifarming, 2015). Thus, palay could be considered as a
production complement of garlic. On the other hand, onion and tomato could be considered as production
substitutes because these crops could grow in the same condition as that of garlic. Own farm gate price
of garlic, real wage rate and fertilizer prices are other variables that could affect production of garlic. Garlic
requires heavy fertilization; for commercial production, 125 pounds of nitrogen, 150 pounds of
phosphorus, and 150 pounds of potassium per acre are required (Ford, 1994).

Consumption

Garlic has been a primary ingredient to the Filipino cuisine. Almost every household in the
Philippines consumes this commodity. The country’s average annual production of 14,695.29 t is not
enough to meet domestic consumption compelling the country to import an average of 164,881.35 t of
fresh or chilled garlic annually (PCARRD, 2003). It is a common step in cooking to sauté the garlic together
with onion. When purchasing garlic, onion always comes together with it. Thus, onion is a complement
for garlic. Moreover, consumers are being hounded by high prices of this commodity based on a report
by Locsin (2014). Thus, it is important to take into consideration the own retail price of garlic.
Variables Affecting Demand

Total Annual Consumption (Dependent Variable)

Total Annual Consumption of Garlic in the

Philippines (MT), 1990-2014
70000
y = 1083.1x + 14706
60000
R² = 0.2908
50000
Metric tons

40000
30000
20000
10000
0
1990
1991
1992
1993
1994
1995
1996
1997
1998
1999
2000
2001
2002
2003
2004
2005
2006
2007
2008
2009
2010
2011
2012
2013
2014
Year

Source: Bureau of Agricultural Statistics [BAS], 2016

Figure 1. Total Annual Consumption of Garlic in the Philippines, 1990-2014

Total annual consumption is equivalent to total production plus imports minus exports. 2008 is
evidently the year with the highest total annual consumption of garlic in the Philippines based on the
graph shown in Figure 1. This was a result of the highest amount of imports for the said year due to the
increasing demand of the Filipinos and different industries for the commodity. Meanwhile, 2013 shows
the lowest consumption of garlic as a result of the plunging amount of imports for the said year. The
drastic decline was also suspected to be caused by the occurrence of smuggled garlic from China, the main
exporter of garlic as reported by an article in Philippines Daily Inquirer (Dy, 2013).

Retail Price of Garlic

Retail Price of Garlic in the Philippines (P/kg),

1990-2014
300
y = 1.9683x + 134.35
Peso per Kilogram

250 R² = 0.1499
200
150
100
50
0
1996

2011
1990
1991
1992
1993
1994
1995

1997
1998
1999
2000
2001
2002
2003
2004
2005
2006
2007
2008
2009
2010

2012
2013
2014

Year
Source: Bureau of Agricultural Statistics [BAS], 2016

Figure 2. Retail Price of Garlic, 1990-2014

As can be seen in the graph, the retail price of garlic is fluctuating. It can be observed in the years
1996 and 1999 that the prices suddenly increased to over P200/kg. This was a result of reduced output of
garlic caused by lower yields followed by a surge in consumption of the population (Lucier, 1998). The
years where the prices were declining were result of the stabilizing supply brought by imports from
neighboring countries and efforts of the government to increase garlic production (The Economic Times,
2010). However, it is important to note the reason for the recent sky-rocketing price of garlic in 2014. An
interview with Sen. Cynthia Villar revealed that traders may have manipulated the prices of garlic in the
market that resulted in the sudden increase of garlic at P280 per kilo (Mendez, 2014). The slope shows
that for every 1% increase in x, there will be 1.9683% increase in y. And 14.99% of the dependent variable
is being explained by the independent variable.

Retail Price of Onion

Retail Price of Onion in the Philippines (MT), 1990-2014

100 y = 2.3115x + 21.383
90 R² = 0.7112
80
70
60
P/kg

50
40 y = 2.3699x + 11.12
30 R² = 0.8487
20
10
0
1998

2012
1990
1991
1992
1993
1994
1995
1996
1997

1999
2000
2001
2002
2003
2004
2005
2006
2007
2008
2009
2010
2011

2013
2014
Year

Onion Red Creole (Bermuda red) Onion White (Yellow granex)

Linear (Onion Red Creole (Bermuda red)) Linear (Onion White (Yellow granex))

Source: Bureau of Agricultural Statistics [BAS], 2016

Figure 3. Retail Price of Onion, 1990-2014

The two types of onion which are usually consumed by the Filipinos are the Bermuda red and
Yellow granex (Onion white) (Bureau of Agricultural Statistics [BAS], 2016). Figure 3 shows the retail price
of onion from 1990-2014. As can be seen in the graph, the price is highly fluctuating with an average of
P51.43/kg for onion red and P41.93/kg for onion white. Highest prices for both varieties were obtained in
the year 2011. The slope of the red onion shows that for every 1% increase in x, there will be 2.3115%
increase in y. And 71.12% of the dependent variable is being explained by the independent variable.
Population

Population in the Philippines, 1990-2015

120000000
y = 2E+06x + 6E+07
100000000 R² = 0.9997

80000000
Population

60000000

40000000

20000000

0
1990 1992 1994 1996 1998 2000 2002 2004 2006 2008 2010 2012 2014
Year

Source: http://www.worldometers.info/world-population/philippines-population

Figure 4. Population in the Philippines, 1990-2014.

From 1990 to 2015, there is an increasing trend of the population in the Philippines. The
population had increased about 40 000 000, and about 60% increase of the population density (208/km.
sq. to 338/km. sq). However, there was a decreasing trend of growth rate, declining from 2.55 % to 1.90
%. Generally, the growth rate of the Philippines is decreasing overtime because of continues declining
fertility rate. As what was observed from 1990 to 2009, the major reason of the decreased in the growth
rate was the increase in the total number of poor Filipinos.

Gross Domestic Product in LCU or Real GDP

Source: worldbank.org
Figure 5. Gross Domestic Product of the Philippines in Constant LCU, 1994-2014.

The growth rate of Gross Domestic Product (GDP) of the Philippines at constant LCU is increasing
at a slow rate. There are small fluctuations especially in the years of 1998 and 2009.

There is an observable decline in the GDP in the year of 1998. The Asian financial crisis started in
the year 1997 and continued to 1998. Compared to other Asian countries, the Philippine was not affected
that much. However, the decline in the GDP during 1997-1998 can be accounted to the El Nino which
affected the agricultural sector dragging the GDP (Tan, 2000). The 1997-1998 El Nino was classified as
"strong" by the United States National Oceanic and Atmospheric Administration (“El Niño event, 2015”).

Year 2009 on the other hand, has the most number of destructive typhoons in the Philippine
history. It is the year wherein Ketsana or locally known as Ondoy hit the Philippines (Wikipilipinas). The
typhoons affected the agricultural and fisheries sectors that resulted to a plunge and drag the GDP by 2.7
percentage points (“Leesons learned”, 2010).

Variables Affecting Supply

Volume of Production (Dependent Variable)

Total Production of Garlic in the Philippines (MT),

1990-2014
25,000.00

20,000.00 y = -287.58x + 16871

Metric Tons

R² = 0.4079
15,000.00

10,000.00

5,000.00

0.00
1992

2008
1990
1991

1993
1994
1995
1996
1997
1998
1999
2000
2001
2002
2003
2004
2005
2006
2007

2009
2010
2011
2012
2013
2014

Year

Source: Bureau of Agricultural Statistics [BAS], 2016

Figure 6. Volume of Production, 1990-2014

The average volume of production per year is 13132.5012. There is an observable decreasing
trend in the graph. However, year 1997 was an outlier in the data. Compared from the prices of its
production substitutes, year 1997 has the highest volume of production while the substitutes are in a
lower price. The slope shows that for every 1% increase in x, there will be 287.58% decrease in y. And
40.79% of the dependent variable is being explained by the independent variable.
Farm Gate Price of Garlic

Farmgate Price of Garlic in the Philippines (P/kg),

1990-2015
180
160
y = 1.4361x + 53.119
140
R² = 0.1875
120
100
P/kg

80
60
40
20
0

2000
1990
1991
1992
1993
1994
1995
1996
1997
1998
1999

2001
2002
2003
2004
2005
2006
2007
2008
2009
2010
2011
2012
2013
2014
2015
Year

Source: Bureau of Agricultural Statistics [BAS], 2016

Figure 7. Farm Gate Price of Garlic, 1990-2014

The farmgate price of garlic from 1990-2014 ranges from P35.02-81.48 per kilogram. Great
fluctuations could be observed in the figure above where the highest price was observed on the year 2014
due to the so called hoarding caused by middlemen that occurred in the said year. Meanwhile, the average
price obtained from 1990-2014 was P72.51 per kilogram. The slope shows that for every 1% increase in x,
there will be 1.4361% increase in y. And 18.75% of the dependent variable is being explained by the
independent variable.

Price of Complete (14-14-14) Fertilizer

Farmgate Price of Complete Fertilizer (P/kg),

1990-2014
1800
y = 48.238x + 52.41
1600
R² = 0.7792
1400
1200
1000
P/kg

800
600
400
200
0
1990

2005
1991
1992
1993
1994
1995
1996
1997
1998
1999
2000
2001
2002
2003
2004

2006
2007
2008
2009
2010
2011
2012
2013
2014

Year

Source: Bureau of Agricultural Statistics [BAS], 2016

Figure 8. Price of Complete (14-14-14) Fertilizer, 1990-2014

Fertilizer could be of different grades. Ammophos (16-20-0), Ammosul (21-0-0), Complete (14-14-
14), and Urea (45-0-0) are among the most used fertilizer grades by our farmers. However, our garlic
farmers mostly use Complete fertilizer. The number stands for the amount of nitrogen, phosphorus, and
potassium, respectively. As can be seen in Figure 7, the price of complete had a sudden increase from
2007 to 2009, and eventually declined thereafter, but was not able to go back to its lower price before
the price hike. Fertilizer price increases can be attributed to the high price of natural gas in the world
market which increased by 53.6% in the second quarter of 2008. Natural gas when converted into
ammonia is used to produce ammonium nitrate, a key ingredient in fertilizers (Briones, 2014).

Farmgate Price of Palay (Complement)

Farmgate Price of Palay (P/kg), 1990-2015

25

20 y = 0.5504x + 2.964
R² = 0.9224
15
P/kg

10

0
1990
1991
1992
1993
1994
1995
1996
1997
1998
1999
2000
2001
2002
2003
2004
2005
2006
2007
2008
2009
2010
2011
2012
2013
2014
2015
Year

Source: Bureau of Agricultural Statistics [BAS], 2016

Figure 9. Farmgate Price of Palay, 1990-2014.

Based on the graph, year 2014 has the highest farmgate price of palay whereas the year 1990 has
the lowest. The average farmgate price of palay is Php 10.39461538 per kilo. There is not much
fluctuations observable in the graph. It can be said that there is a slow increasing trend in the farmgate
price of palay. The slope shows that for every 1% increase in x, there will be 0.5504% increase in y. And
92.24% of the dependent variable is being explained by the independent variable.

Palay is a production complement of garlic. However, palay also is a Giffen good that is why
although there is an increase in the farmgate price of palay, the total volume of production of garlic does
not comply with the increasing farmgate price of palay.
Farmgate Price of Tomato (Substitute)

Farmgate Price of Tomato (P/kg), 1990-2015

18
16
14
12
10 y = 0.4054x + 4.2701
P/kg

8 R² = 0.8784
6
4
2
0
1990
1991
1992
1993
1994
1995
1996
1997
1998
1999
2000
2001
2002
2003
2004
2005
2006
2007
2008
2009
2010
2011
2012
2013
2014
2015
Year

Source: Bureau of Agricultural Statistics [BAS], 2016

Figure 10. Farmgate Price of Tomato, 1990-2014

Based on the graph, there is an increasing trend in the farmgate price of tomato even though
there are observable fluctuations. Year 2015 has the highest farmgate price whereas year 1995 has the
lowest. The average farmgate price of tomato per kilo is Php 9.743077. The slope shows that for every 1%
increase in x, there will be 0.4054% increase in y. And 87.84% of the dependent variable is being explained
by the independent variable.

Tomato is a production substitute to garlic. With this, there is an observable opposite trend in the
graphs of the two commodities. The graph of the farmgate price of tomato has an increasing trend
whereas the graph of the total volume of production of garlic has a decreasing trend.

Real Wage Rate

Source: Philippine Statistics Authority

Figure 11. Real Wage Rate of Farmers, 1994-2014

There is an observable steady increase in the wage rate from 1994-1997. However after 1999, the
wage rate took a plunge and the increase of the wage rate became slower and fluctuating.

The wage rate in the agricultural sector of the Philippines is low. For the past years, the labor force
in the agricultural sector has been declining and aging. Most of old farmers encourage their children to
seek job in industries (Valencia, 2013). Also, the agricultural wage workers are the poorest of the rural
poor. Although there is an observable increase especially in the years of 1994-1997, the wage rate for
laborers engaged in agricultural sector is still low compared to the wage rate in industries (“Agricultural”,
1996).

Farmgate Price of Onion (Substitute)

Farmgate Price of Onion in the Philippines (P/kg), 1990-2015

60 y = 1.4451x + 4.6167
50 R² = 0.6022
40 y = 0.7937x + 10.221
P/kg

30 R² = 0.3903
20
10
y = 0.7999x + 3.6613
0 R² = 0.5173

Year

Onion native (red shallot), multiplier Onion Red Creole (Bermuda Red)
Onion White (Yellow Granex) Linear (Onion native (red shallot), multiplier)
Linear (Onion Red Creole (Bermuda Red)) Linear (Onion White (Yellow Granex))

Source: Bureau of Agricultural Statistics [BAS], 2016

Figure 12. Farmgate Price of Onion, 1990-2014

Based on the graph, Onion Red Creole has the highest price of the three varieties. It is also
observable that the three varieties do not have a stable price with their fluctuating prices from year 1990
to 2015. Onion white has the cheapest farmgate price. Although fluctuation, there is still an observable
increase on the trend of the three varieties which is opposite to the graph of the total volume of
production of garlic because onion is a substitute.

Dummy for Garlic Technology Commercialization

Ilocos Region is the largest garlic producer in the Philippines. The supply of garlic produced by
local farmers cannot meet the demand. In order to solve this problem, DA Reg. 1-ILIARC conducted a
research on implementing technology dissemination in garlic production to increase the yield. The farmers
involved in the research were all from Region I. The farmers were taught better ways to produce, process,
develop enterprise for and market garlic. The technological dissemination and commercialization helped
the farmers increase their yield and market garlic in more efficient way. The production included better
techniques in planting such as recommendation for soil type, land preparation, GA3 application, etc. This
technological adaptation increased the yield of garlic and improved also farmers in marketing the garlic
they produced (“Garlic”, n.d.).

II. Objectives of the Study

1. Describe the nature of production and demand for garlic.

2. Identify the important variables that affect the supply and demand of garlic.

3. Estimate the supply response and demand equations for garlic.

4. Interpret the coefficients of the estimated supply response and demand equations; and

5. Determine the likely implications of the findings of the study.

III. Model Specification

Demand
General Specification: Y= f (PRG, PRO, RGDP)

Where:

Y – Total Annual Consumption in Metric Tons (MT)

PRG – Retail Price of Garlic in Peso per Kilogram (Php/Kg)

PRO – Retail Price of Red Onion in Peso per Kilogram (Php/Kg)

RGDP- Real Gross Domestic Product in Peso (Php)

B0- Constant

B1-B3 – Coefficients of Independent Variables

µ - Error term

Specific Model Specification:

LINEAR: Y= Bo + B1 PRG + B2 PRO + B3 RGDP+ µ

DOUBLE LOG: lnY= Bo + B1 ln PRG + B2 ln PRO + B3 ln RGDP+ µ
LIN-LOG: Y= Bo + B1 ln PRG + B2 ln PRO + B3 ln RGDP+ µ
LOG-LIN: lnY= Bo + B1 PRG + B2 PRO + B3 RGDP+ µ
Supply

General Specification: Y= f (PFG, PFP, PFT, PFO, WR, PCF, T)

Where:

Y – Volume of Production in Metric Tons (MT)

PFG – Farmgate Price of Garlic in Peso per Kilogram (Php/Kg)

PFP – Farmgate Price of Palay in Peso per Kilogram (Php/Kg)

PFT- Farmgate Price of Tomato in Peso per Kilogram (Php/Kg)

PFO- Farmgate Price of Red Onion in Peso per Kilogram (Php/Kg)

WR- Real Wage Rate (Peso per Man-day)

PCF- Price of Complete Fertilizer in Peso per Kilogram (Php/Kg)

T- Dummy Variable for Garlic Technological Commercialization (1-adoption; 0-non-adoption)

B0- Constant

B1-B7 – Coefficients of Independent Variables

µ - Error term

Specific Model Specification:

LINEAR: Y= B0 + B1PFG + B2PFP + B3PFT + B4PFO + B5WR + B6PCF + B7T + µ

DOUBLE LOG: lnY= B0 + B1 lnPFG + B2 lnPFP + B3 lnPFT + B4 lnPFO + B5 lnWR + B6 lnPCF + B7 lnT + µ
LIN-LOG: Y= B0 + B1 lnPFG + B2 lnPFP + B3 lnPFT + B4 lnPFO + B5 lnWR + B6 lnPCF + B7 lnT + µ
LOG-LIN: lnY= B0 + B1PFG + B2PFP + B3PFT + B4PFO + B5WR + B6PCF + B7T + µ

IV. Hypotheses
Demand

(1) Ho: Retail Price of Garlic does not influence Total Demand of Garlic

Ha: Retail Price of Garlic influences Total Demand of Garlic

(2) Ho: Retail Price of Red Onion does not influence Total Demand of Garlic

Ha: Retail Price of Red Onion influences Total Demand of Garlic

(3) Ho: Real GDP does not influence Total Demand of Garlic
 Ha: Real GDP influences Total Demand of Garlic

(4) Ho: The intercept does not have a significant difference from 0. Assuming that all independent
variables are 0, the total demand for garlic is equal to 0.

Ha: The intercept has a significant difference from 0. Assuming that all independent
variables are 0, the total demand for garlic is equal to the intercept.

Decision Rule: Reject Ho if p-value is less than 0.10, otherwise, fail to reject Ho.

Supply:

(1) Ho: Farmgate Price of Garlic does not influence Total Supply of Garlic

Ha: Farmgate Price of Garlic influences Total Supply of Garlic

(2) Ho: Farmgate Price of Palay does not influence Total Supply of Garlic

Ha: Farmgate Price of Palay influences Total Supply of Garlic

(3) Ho: Farmgate Price of Tomato does not influence Total Supply of Garlic

Ha: Farmgate Price of Tomato influences Total Supply of Garlic

(4) Ho: Farmgate Price of Red Onion does not influence Total Supply of Garlic

Ha: Farmgate Price of Red Onion influences Total Supply of Garlic

(5) Ho: Real Wage Rate of Farmers does not influence Total Supply of Garlic

Ha: Real Wage Rate of Farmers influences Total Supply of Garlic

(6) Ho: Real Wage Rate of Farmers does not influence Total Supply of Garlic

Ha: Real Wage Rate of Farmers influences Total Supply of Garlic

(7) Ho: Price of Complete Fertilizer does not influence Total Supply of Garlic

Ha: Price of Complete Fertilizer influences Total Supply of Garlic

(8) Ho: Garlic Technology Commercialization does not influence Total Supply of Garlic

Ha: Garlic Technology Commercialization influences Total Supply of Garlic

(9) Ho: The intercept does not have a significant difference from 0. Assuming that all independent
variables are 0, the total production of garlic is equal to 0.

Ha: The intercept has a significant difference from 0. Assuming that all independent
variables are 0, the total production of garlic is equal to the intercept.

Decision Rule: Reject Ho if p-value is less than 0.10, otherwise, fail to reject Ho.
 V. Results and Discussion
DEMAND

SUMMARY OF REGRESSION RESULTS:

Arithmetic Double Log Lin-Log Log-Lin

Variables Coefficient T-Ratio Significance Elasticity Coefficient T-Ratio Signigicance Elasticity Coefficient T-Ratio Significance Elasticity Coefficient T-Ratio Significance Elasticity
Dependent(Total Annual Consumption) Y lnY Y lnY
Independent
Retail Price of Garlic -0.4590 0.1610 NS -0.0029 -0.4940 0.1350 NS -97.58571537
Retail Price of Onion 0.1980 0.3990 NS 0.0004 0.1840 0.4360 NS 11.33018262
Real GDP 0.0140 0.9650 NS 2005360.9281 -0.0610 0.8480 NS -2.76303E+11

Ln
LNRetail Price of Garlic -0.371 0.321 Ns -0.371 -0.351 0.34 NS -1.11E-05
LNRetail Price of Onion 0.164 0.489 NS 0.164 0.187 0.425 NS 5.9136E-06
LNReal GDP 0.064 0.859 NS 0.064 0.125 0.726 NS 2.7596E-14

Constant 35151.674 0.241 NS 8.3070 0.6590 NS -135228.1590 0.8230 NS 10.56 0 ***

Fvalue 1.428 .269a NS 1.1170 .370a NS 1.3430 .294a NS 1.32 .300a NS
Adj. R2 0.06 0.0170 0.049 0.046
Durbin Watson 2.059
k=7
n=21

*** Significant at alpha 1%

** Significant at alpha 5%
* Significant at alpha 10%
NS Non-significant
The best functional form for the garlic demand function is the LINEAR functional form because:

(a) Even though all of the R2 is relatively very low, the linear functional form obtained the highest R2 among
the four with the value of 6%.

(b) Even though the regression coefficients are all insignificant, the signs of the regression coefficients in
linear functional form conform to the theoretical basis.

(c) Even though all the F values are insignificant, the F value obtained in linear functional form is the
highest among the four, and the p value of the F value is the lowest, making it the best among the four.

(d) The value of the VIF of the independent variables are all less than 10%.

* The population was not included in the regression because the resulting VIF is very large. Some possible
reasons for this is that the total demand for garlic and the population have the same growth trend.

Interpretation:

(1) Retail Price of Garlic: Since the p value obtained which is 16.10% is greater than 10%, then we fail to
reject Ho. Therefore, changes in the retail price of garlic does not influence the quantity demanded for
garlic. However, assuming that the p value obtained was significant, then for every 1 peso increase in the
retail price per kilogram of garlic, the demand of garlic decreases by 0.459 Metric Ton. The sign of the
coefficient conforms to the theory that as the price of the commodity concerned increases, the demand
for that commodity decreases. The elasticity which is .0029 indicates that it is inelastic.

(2) Retail Price of Onion: Since the p value obtained which is 39.9% is greater than 10%, then we fail to
reject Ho. Therefore, changes in the retail price of onion does not influence the quantity demanded for
garlic. However, assuming that the p value obtained was significant, then for every 1 peso increase in the
retail price per kilogram of onion, the demand for onion increases by .198 Metric Tons. Since the
coefficient is positive, it could be concluded that onion is a substitute good to garlic. The sign of the
coefficient conforms to the theory that as the price of the consumption substitute increases, the demand
for the commodity concerned increases. The elasticity which is .0004 indicates that it is inelastic.

(3) Real GDP: Since the p value obtained, which is 96.5%, is greater than 10%, then we fail to reject Ho.
Therefore, changes in the real GDP does not influence the quantity demanded for garlic. However,
assuming that the p value obtained was significant, then for every 1 peso increase in real GDP, the demand
for garlic increases by 0.014 Metric Tons. The sign of the coefficient conforms to the theory that as the
real GDP (a sub for income) increases, the demand for the commodity concerned increases. The elasticity
which is 2005360.9281 indicates that it is highly elastic.

(4) Adjusted R2: Only 6% of the total demand for garlic is being explained by the independent variables.
Since the value is very far from 100%, the linear relationship between the variables is very weak.

(5) F-value: The level of significance of the F-value is 0.269 which is not significant. Therefore, the model
is not statistically significant and could not be used for statistical inference.
SUPPLY

SUMMARY OF REGRESSION RESULTS:

Arithmetic Double Log Lin-Log Log-Lin

Variables Coefficient T-Ratio Significance Elasticity Coefficient T-Ratio Signigicance Elasticity Coefficient T-Ratio Significance Elasticity Coefficient T-Ratio Significance Elasticity
Dependent(Volume of Production) Y lnY Y lnY
Independent
Farmgate Price of Garlic -0.5230 0.0760 * -0.0035 -0.4210 0.1180 NS -36.2526
Farmgate Price of Palay 0.7910 0.0210 ** 0.0007 0.6600 0.0340 ** 7.829218
Farmgate Price of Tomato -0.0640 0.6720 NS -0.0001 -0.0280 0.8380 NS -0.30877
Farmgate Price of Red Onion 0.0540 0.8140 NS 0.0001 -0.0360 0.8670 NS -0.9936
Real Wage Rate -0.2720 0.0810 * -0.0035 -0.2800 0.0560 * -47.6032
Price of Complete Fertilizer -0.8650 0.0100 *** -0.0501 -0.7380 0.0170 *** -557.555
Garlic Technology Commercialization Dummy -0.7810 0.0000 *** -0.7840 0.0000 ***
Ln
LN Farmgate Price of Garlic 0.4220 0.0630 * 0.4220 -0.5020 0.0430 ** -0.0000385
LN Farmgate Price of Palay 0.6710 0.0100 *** 0.6710 0.7720 0.0070 *** 0.0000592
LN Farmgate Price of Tomato -0.0260 0.8490 NS -0.0260 -0.0680 0.6440 NS -0.0000052
LN Farmgate Price of Red Onion -0.0310 0.8730 NS -0.0310 0.0470 0.8250 NS 0.0000036
LN Real Wage Rate -0.3390 0.0150 ** -0.3390 -0.3260 0.0270 ** -0.0000250
LN Price of Complete Fertilizer -0.8190 0.0060 *** -0.8190 -0.9350 0.0040 *** -0.0000717
LN Garlic Technology Commercialization Dummy -0.6850 0.0000 *** -0.6600 0.0000 ***

Constant 29374.507 0.041 ** 24.838 0.000 *** 211917.679 0.009 *** 10.912 0.000 ***
F-value 9.322 0.000 *** 13.353 0.000 *** 11.191 0.000 *** 11.097 0.000 ***
Adj. R2 0.744 0.812 0.781 0.779
Durbin Watson 2.263 1.832 1.801 2.297
Durbin Watson(Basis) 2.059
k=7
n=21
*** Significant at 1%
** Significant at 5%
* Significant at 10%
NS Non-significant
The best functional form for the garlic production function is the DOUBLE LOG functional form because:

(a) It obtained the highest adjusted R2 among the four with the value of 81.2%.

(b) Out of the seven independent variables, five obtained a significant regression coefficient. The farmgate
price of palay, farmgate price of garlic, real wage rate, and price of complete fertilizer have signs that
conform with the theory, while the Garlic Technological Commercialization have a sign that is in conflict
with the theory, but all the functional forms have this problem. The other two independent variables
which are not significant have signs of coefficients that conform to the theory as well.

(c) All the F-values are significant, but double log functional form obtained the highest F-value.

(d) All the values of the VIF are less than 10%, which means that multicollinearity is not present in the four
functional forms.

Interpretation:

(1) Farmgate Price of Garlic: Since the p value obtained which is 6.30% (significant at alpha 10%) is less
than 10%, then we will reject Ho. Therefore, changes in the farmgate price of garlic influences the quantity
produced of garlic. For every 1% increase in the farmgate price per kilogram of garlic, the volume of
production for garlic increases by 0.422%. The elasticity which is .422 indicates that it is inelastic.

(2) Farmgate Price of Palay: Since the p value obtained which is 1.0% (significant at alpha 1%) is less than
10%, then we will reject Ho. Therefore, changes in the farmgate price of palay influences the quantity
produced of garlic. For every 1% increase in the farmgate price per kilogram of palay, the volume of
production for garlic increases by 0.671%. Since the sign of the coefficient is positive, then palay is
confirmed to be a production complement of garlic. The elasticity which is .671 indicates that it is inelastic.

(3) Farmgate Price of Tomato: Since the p value obtained which is 84.9% is greater than 10%, then we fail
to reject Ho. Therefore, changes in the farmgate price of tomato does not influence the quantity produced
of garlic. However, assuming that the p value obtained was significant, then for every 1% increase in the
farmgate price per kilogram of tomato, the volume of production for garlic decreases by 0.026%. Since
the sign of the coefficient is negative, then tomato is confirmed to be a production substitute of garlic.
The sign of the coefficient conforms to the theory that as the price of the production substitute increases,
the quantity produced of the commodity concerned decreases. The elasticity which is .026 indicates that
it is inelastic.

(4) Farmgate Price of Red Onion: Since the p value obtained which is 87.3% is greater than 10%, then we
fail to reject Ho. Therefore, changes in the farmgate price of red onion does not influence the quantity
produced of garlic. However, assuming that the p value obtained was significant, then for every 1%
increase in the farmgate price per kilogram of red onion, the volume of production for garlic decreases by
0.031%. Since the sign of the coefficient is negative, then red onion is confirmed to be a production
substitute of garlic. The sign of the coefficient conforms to the theory that as the price of the production
substitute increases, the quantity produced of the commodity concerned decreases. The elasticity which
is .031 indicates that it is inelastic.

(5) Real Wage Rate: Since the p value obtained which is 1.5% (significant at alpha 1%) is less than 10%,
then we will reject Ho. Therefore, changes in the real wage rate of farmers influences the quantity
produced of garlic. For every 1% increase in the real wage rate (peso per man-day) of farmers, the volume
of production for garlic decreases by 0.339%. The sign of the coefficient conforms to the theory that as
the price of the production input increases, the quantity produced of the commodity concerned
decreases. The elasticity which is .339 indicates that it is inelastic.

(6) Price of Complete Fertilizer: Since the p value obtained which is .6% (significant at alpha 1%) is less
than 10%, then we will reject Ho. Therefore, changes in the price of complete fertilizer influences the
quantity produced of garlic. For every 1% increase in the price per kilogram of complete fertilizer, the
volume of production for garlic decreases by 0.819%. The sign of the coefficient conforms to the theory
that as the price of the production input increases, the quantity produced of the commodity concerned
decreases. The elasticity which is .819 indicates that it is inelastic.

(7) Dummy for Garlic Technology Commercialization: Since the p value obtained which is .0% is less than
10%, then we will reject Ho. Therefore, changes in the adoption of Garlic Technology Commercialization
(GTC) influences the quantity produced of garlic. Since the sign of its coefficient is negative, it does not
conform to the theory that technology helps increase the quantity of production. Adoption of GTC brings
a 0.685% decrease in the volume of production for garlic. Possible explanation could be the inconsistency
or inefficiencies in the implementation of the technology.

(8) Intercept: Since the p value obtained which is .0% (significant at alpha 1%) is less than 10%, then we
will reject Ho. Assuming that all independent variables are 0, the quantity supplied of garlic will be equal
to 24.838 MT.

(9) Adjusted R2: 81.2% of the total production of garlic is being explained by the independent variables.
Since the value is near from 100%, the linear relationship between the variables is strong.

(10) F value: The level of significance of the F-value is 0.000 which is significant. Therefore, the model is
statistically significant and could be used for statistical inference.

VI. Conclusion, Recommendation, and Policy Implications

The study measured the demand and supply of garlic to various explanatory variables in the
Philippines. Based from the data available and the results of the regression for demand, retail price of
garlic, retail price of onion and real GDP as a substitute for income do not influence the quantity
demanded for garlic. Among the four functional forms, the linear showed the best results considering the
sign of the coefficients, R2, and F-value. The variables which obtained an elasticity which is inelastic are
retail price of garlic and onion, while real GDP obtained elastic elasticity.

Meanwhile, the results of the regression for supply showed that the farmgate price of garlic,
fargmate price of palay, real wage rate, price of fertilizer and dummy variable for GTC are significant and
influences the production of garlic. All the variables, including the non-significant, obtained signs of
regression coefficient which conform to the theory, except for the dummy of GTC. Among the four
functional forms, the double log showed the best results considering the sign of the coefficients, number
of significant explanatory variables, R2, and F-value. All of the variables obtained an inelastic elasticity.
Based on the problems identified to the production of garlic in the Philippines, the following are the
suggested policy recommendations and implications:

1. Public awareness to horticultural crops. The annual consumption of garlic is increasing overtime. Given
this, the government, together with the agricultural sector, should educate consumers on the necessary
information about horticultural crops, specifically on activities affecting its prices. This would also provide
awareness on possibilities of overvalued horticultural crops.

2. Development of high yielding varieties of Garlic. Climate condition is one of factor that decreases the
volume of production, and leads to high price increase in garlic. Due these inevitable conditions,
introduction high yielding varieties of garlic to farmers would increase the volume of production per
hectare. Consequently, would lower cost of production per unit of garlic in the long run.

3. Subsidization of fertilizers to farmers. The results from the regression showed that fertilizer is a
significant variable that greatly influenced the quantity produced of garlic. Providing farmers subsidies in
fertilizers would help them increase their garlic production.

4. Enhance the technological facilities and management practices of farmers in the top producing regions.
Ilocos Region, one of the top producers of garlic in the Philippines, adopted the research program of DA
regulatory 1-ILIARC, which is Garlic Technology Commercialization, to increase the yield of garlic in the
region. However, based from the results in the study, the implementation of the program decreased the
volume of production of garlic. This suggests that implementing an alternative program that would
increase the volume of production of garlic in the region is necessary.

VII. References
Agribusiness & Marketing Assistance Division. (n.d.). Garlic: An investment opportunity.

Agricultural Wage Workers: The Poorest of the Rural Poor. (1996). Retrieved February 25, 2016, from
http://www.ilo.org/global/about-the-ilo/media-centre/press-releases/WCMS_008067/lang--
en/index.htm.

Agrifarming. (2015). Garlic farming detailed information guide. Retrieved from

http://agrifarming.in/garlic-farming

Briones, R. M. 2014. The Role of Mineral Fertilizers in Transforming Philippine Agriculture. Retrieved
February 3, 2016

Bureau of Agricultural Statistics

Dy, R. T. (May 13, 2013). Philippine agri-food trade: Smuggling or under-reporting? Retrieved from
http://business.inquirer.net/121501/philippine-agri-food-trade-smuggling-or-under-reporting

El Niño event seen worst since 1998. (2015, August 25). Retrieved February 25, 2016, from
http://www.bworldonline.com/content.php?section=TopStory

Ford, T. (1994). Growing great garlic. Retrieved from http://extension.psu.edu/business/ag-

alternatives/horticulture/vegetables/garlic-production
Garlic technology commercialization. (n.d.). Retrieved February 25, 2016, from
http://www.pcaarrd.dost.gov.ph/home/joomla/index.php?option=com_content

Lessons learned in 2009, imperatives for 2010. (2010, March). Retrieved February 08, 2016, from
https://www.senate.gov.ph/publications/ER 2010-03 - Lessons learned in 2009.pdf

Locsin, J. (2014). High prices, low supply hit garlic buyers in NCR; DA asks consumers to patronize local
garlic - See more at: http://www.gmanetwork.com/news/story/365996/money/high-prices-low-
supply-hit-garlic-buyers-in-ncr-da-asks-consumers-to-patronize-local-
garlic#sthash.Vn3Mr1ju.dpuf

Mendez, C. (2014). Soaring garlic price result of traders' manipulation. Philippine Star. Retrieved from
http://www.philstar.com/business/2014/07/03/1342044/soaring-garlic-price-result-traders-
manipulation

PCARRD-DOST. (2013). Garlic technology commercialization. Retrieved from

http://www.pcaarrd.dost.gov.ph/home/joomla/index.php?option=com_content&task=view&id
=1699&Itemid=386

http://www.worldometers.info/world-population/philippines-population

Tan, E. A. (2000). (DP 2000-02) 1997-1999 Philippine Economic Downturn: A Preventable One | Tan | UPSE
Discussion Papers. Retrieved February 08, 2016, from
http://www.econ.upd.edu.ph/dp/index.php/dp/article/view/51/43

Valencia, C. (2013, November 10). Ratio of agri sector to labor force declining. Retrieved February 25,
2016, from http://www.philstar.com/business/2013/11/10/1254894/ratio-agri-sector-labor-
force-declining.

http://en.wikipilipinas.org/index.php/Top_10_Most_Destructive_Philippine_Typhoons_of_2009

www.worldbank.org

www. agstat.psa.gov.ph
 APPENDIX

Appendix A. Data for Demand and CPI

Total Consumption Real Real

Year Population Real GDP CPI
of Garlic (MT) (RPGarlic) (RPOnion)

1994 15727 68050807 254.595661 72.7810651 2.87E+12 50.7

1995 17225 69606539 348.96488 48.4473198 3.01E+12 54.1
1996 19989 71184718 371.706485 65.7508532 3.18E+12 58.6
1997 25603 72780928 255.66129 52.9193548 3.35E+12 62
1998 31577 74393147 281.238938 88.5103245 3.33E+12 67.8
1999 28706 76018006 301.877608 91.6968011 3.43E+12 71.9
2000 18801 77651848 237.509778 56.2451108 3.58E+12 76.7
2001 22962 79297756 191.386139 75.6188119 3.68E+12 80.8
2002 29024 80953652 180.891566 45.6746988 3.82E+12 83
2003 29908 82604681 143.863369 50.9069494 4.01E+12 84.9
2004 31573 84231329 125.033708 44.9325843 4.28E+12 89
2005 33462 85821214 135.052743 63.0168776 4.48E+12 94.8
2006 49223 87366573 172.16 67.94 4.72E+12 100
2007 61897 88875548 158.98931 50.6511176 5.03E+12 102.9
2008 66314 90371287 135.152603 76.8940754 5.24E+12 111.4
2009 47289 91886400 131.033592 59.0353144 5.3E+12 116.1
2010 33839 93444322 145.510373 47.526971 5.7E+12 120.5
2011 31514 95053437 145.091197 68.3187946 5.91E+12 126.1
2012 18287 96706764 129.177556 63.1283628 6.31E+12 130.1
2013 12495 98547094 127.089552 54.1268657 6.75E+12 134
2014 38651 100422445 176.394265 48.9964158 7.16E+12 139.5

*CPI is based on 2006 series

 Appendix B. Data for Supply

Volume of Real Real Real Real Real Wage Real Price

Year Production FPGarlic FPPalay FPTomato FPRedOnion Rate Complete DummyforGTC
1994 15728.44 114.7732 11.63708 13.17554 31.5581854 158.8757396 636.17357 0
1995 17227 157.1534 13.38262 9.260628 16.87615527 170.5545287 612.2920518 0
1996 18590.82 149.3686 13.87372 8.703072 21.75767918 172.6279863 583.2081911 0
1997 20179.54 69.90323 12.77419 9.225806 14.98387097 181.8709677 568.9193548 0
1998 12757.2 135.059 12.24189 14.0413 28.74631268 180.1917404 580.0147493 0
1999 9335.46 149.4019 10.94576 12.47566 54.0472879 182.5452017 568.0806676 0
2000 13688.42 78.5528 10.97784 9.856584 13.2464146 172.7509778 531.7340287 0
2001 15363.58 67.40099 10.11139 12.53713 27.31435644 164.0470297 527.9455446 0
2002 16256.66 61.95181 10.62651 8.650602 16.65060241 167.1325301 525.313253 0
2003 15529.4 51.49588 10.41225 13.78092 15.94817432 169.2932862 566.9257951 0
2004 14998.91 51.38202 10.61798 10.98876 17.39325843 168.4044944 733.7865169 0
2005 13234.38 71.7827 11.00211 12.29958 30.09493671 167.2995781 813.7552743 0
2006 12581.14 88.97 10.46 11.77 37.47 165.28 754.71 0
2007 11285.38 69.05734 10.90379 11.1759 22.86686103 166.9484937 778.8726919 0
2008 11348.09 51.75943 12.68402 11.36445 39.51526032 168.1777379 1447.836625 0
2009 10451.1 63.21275 12.60121 10.74935 31.18001723 166.6236003 1047.838071 0
2010 9563.2 68.04149 12.34025 10.14108 22.21576763 164.6224066 899.0954357 1
2011 9056.15 86.01903 12.03013 11.03093 41.68120539 164.4012688 938.334655 1
2012 8808.43 61.23751 12.46733 9.961568 42.43658724 169.8847041 976.1568025 1
2013 8986.35 52.53731 12.63433 11.20896 27.70895522 173.9179104 916.3134328 1
2014 8992.86 109.2616 14.3871 9.182796 25.90681004 174.7875 858.0716846 1