1 Introduction

Economic transformation is widely observed to have been accompanied by rapid household income growth and poverty reduction. Economic transformation is the shift of the focus of economic activities away from agriculture to industry and services. This essay presents a picture of the economic transformation of four rice-growing villages in the Philippines (Kei’s villages). Professor Keijiro Otsuka practiced what Professor Yujiro Hayami fondly called ‘pedestrian economics,’ which is the art of studying the fabric of the rural economy by walking around the villages and interviewing households. Kei did several rounds of surveys in the villages for nearly two decades since Cristina C. David initiated the first one in 1985.

Kei’s villages that look dormant under the shadow of mango trees have undergone a major transformation in their economies. Such transformation is accompanied by household income growth and poverty reduction. The first objective of this essay is to describe the drivers of economic transformation in Kei’s villages from a simple rice-dependent economy to a more complex one characterized by diverse sources of livelihood. These drivers are population pressure, new rice technology, land reform, urbanization and commercialization, and infrastructure. The second objective is to explore the strategic processes that accompany such transformation, such as rising productivity of rice farming; production of high-value crops; rising incidence of nonfarm work among the younger generation within the local economy; and migration to local towns, big cities, and overseas. An important finding is that in the course of transformation, participation in the nonfarm labor market and migration are the main pathways in moving out of poverty for poor landless children of farmers.

Section 18.2 of this essay describes the villages and Sect. 18.3 identifies the drivers of transformation. Section 18.4 describes the strategic processes accompanying the transformation, and Sect. 18.5 documents income growth and poverty reduction. Finally, Sect. 18.6 is the concluding remarks.

2 Description of the Study Villages

Two of Kei’s study villages are located in Central Luzon (CL) (CL1 represents irrigated ecosystem, CL2 represents the lowland rainfed ecosystem), and two are located on Panay island (P) (P1 represents irrigated ecosystem, and P2 represents the upland).Footnote 1 Surveys were done in 1985 consisting of a randomly selected subsample of households in four villages. In 1993, 1997, and 2001, censuses of all households in the three villages (CL2, P1, and P2) were done. Mahabub Hossain, with funding from the International Rice Research Institute (IRRI), conducted the 1993, 1997, and 2001 surveys. Kei undertook surveys in the four villages in 2004 and 2008. Our descriptive tables show data from 1985 (the first survey) and 2008 (the last survey) when data are available for the four villages. In 1985, we had a total of 323 households and 1,330 in 2008. Households were grouped into two categories: (1) farmer households consisting of owner cultivators, leaseholders, and share tenants, and (2) landless households consisting of casual agricultural workers and non-agricultural households. Household grouping was based on the occupation of the household head.

3 Drivers of Transformation

3.1 Population Pressure

Population pressure means a high growth rate of the labor force on a closed land frontier. One indication of population pressure is the increase in the proportion of landless households. The proportion of landless households rose more rapidly in the irrigated villages of CL1 and P1 because of the presence of greater employment opportunities in rice farming in irrigated ecosystems that attract migrant poor households. Average farm holding declined in all villages and more visibly in CL1. The increasing scarcity of farmland is expected to lead to impoverishment because farming is an important source of income.

3.2 New Rice Technology

Kei’s villages are characterized by a high rate of adoption of modern rice varieties as early as 1985 in CL1, CL2, and P1 because of their favorable production environments. CL1 and P1 are fully irrigated, while CL2 is favorable lowland, which became fully irrigated by the Casecnan irrigation system in 2008. Adoption in P2 was low in 1985 because it is in the upland, but then adoption rose to 100% in 2008 because of the release of new modern varieties (MVs) that can thrive in upland conditions.

3.3 Land Reform and Investments in Human Capital

The 1972 Philippine land reform program converted share tenants into leaseholders or amortizing owners, who received the Certificate of Land Transfer (CLT) title. Upon completion of the amortization fees, the CLT titleholders were conferred the Emancipation Patent (EP), a certificate of full ownership. The EP title is acceptable in outright land sales or as collateral for loans. Leasehold rent and amortization fees were set at a fixed rate during the program implementation. Rice yields since then rose because of the Green Revolution, so there was a divergence between the market rental value and actual land rent, or amortization fees (were created) (Otsuka 1991).

Pawning emerged for land under leasehold, CLT title, and EP. This is particularly observed in the irrigated villages of CL1 and P1, where rice yields rose considerably due to the diffusion of high-yielding varieties. Under the pawning arrangement, the farmer surrenders his land in exchange for money from a moneylender. The farmer usually becomes a share tenant of the moneylender on his own land until the farmer can pay off his loan.

Indeed, the pawning of land began in 1975, soon after the implementation of the land reform in the study villages in 1974. The proportion of area acquired by the respondents under pawning arrangements has since risen over time in Central Luzon. This can be traced to the rise in the pawning of land under the newly-acquired EP titles. Land reform was transformative because pawning revenues were used to finance children’s schooling, particularly tertiary schooling, and to finance the fixed cost of overseas migration (Estudillo et al. 2009). According to our village informants, farmers who pawned out their lands to finance schooling and overseas migration could repay their loans in less than five years to resume self-cultivation. The more educated children are then engaged in nonfarm work within the Philippines or migrate overseas, thereby diversifying household sources of income. Nonfarm work and migration then serve as important household risk coping mechanisms to buffer the uncertainty of agricultural income. As shown in Table 19.1, the younger generation who obtained higher levels of schooling are those who are engaged in nonfarm work and overseas migration.

3.4 Urbanization and Commercialization

Kei’s villages experienced the wave of urbanization through the expansion of local towns, small cities, and big cities. CL1 and CL2 saw the creation of new villages nearby and within the jurisdiction of the city of Muñoz because of population growth. There was also the expansion of Cabanatuan City and San Jose, which are nearby cities, in terms of labor-intensive industries, including garments and food manufacturing. The expansion and rehabilitation of the North Luzon Expressways made it easy for workers in CL1 and CL2 to get employed in Manila. P1 benefited from the booming local economy of Pototan City and Iloilo City, which are fairly accessible to P1 via jeepney. In P2, villagers could find work in downtown Igbaras and Iloilo City primarily because of the newly-rehabilitated bridge that connects P2 to Igbaras town proper. Cable TV and internet connections expanded, bringing new ideas and values that transformed the traditional beliefs and norms in the villages.

In terms of commercialization, I witnessed the emergence of contract farming in okra production before the construction of the Casecnan irrigation system in CL2. Under this contract farming, the contractor provides all the inputs, such as seeds, fertilizer, and technology, while the farmer provides land and labor. Landless workers were employed in okra production, which decreased unemployment during slack periods in rice production.

3.5 Infrastructure

Kei’s villages experienced improvements in economic infrastructure, such as electricity, roads, bridges, and irrigation. The proportion of households with access to electricity in 2008 was 90% in CL1, 83% in CL2, 86% in P1, and 92% in P2.

There have been improvements in road length and quality since the first survey in 1985. Village roads were extended in remote areas within the village, while existing roads were upgraded from soil to asphalt in CL1, CL2, and P2. Being close to Iloilo City, P1 has had good quality roads since the 1980s. CL2 and P2 used to be isolated from the town proper by a river. A bridge was constructed in CL2 in 1992 and in P2 in 1995, making it convenient for the farmers to market their products and for others to work downtown and in nearby towns and cities. More importantly, children in CL2 and P2 were able to continue their schooling beyond the fourth grade. Before the bridge, primary schools in CL2 and P2 offered curriculum up to the fourth grade only. With the construction of the bridges in the two villages, school enrollment in high school rose remarkably in CL2 and P2.

CL2 used to be rainfed, while some farmers invested in portable water pumps to produce high-value crops, such as watermelon, onions, and other vegetables during the dry season. CL2 became fully irrigated in 2008 with the opening of the Casecnan irrigation system. Farmers can now plant rice in the dry season, increasing the cropping intensity and total rice production per year.

4 Strategic Processes that Accompany the Transformation

4.1 Increasing Productivity of Rice Farming, High-Value Crops, and Livestock

Rice yield rose because of the adoption of MVs and higher fertilizer application in all villages. There was an increase in total rice production in the four villages, partly because of yield increase and partly because of the adoption of shorter-duration MVs that enable farmers to have 2–3 crops per year. There was also an increase in the revenue from rice production because of the increase in rice prices due to the 2007–08 food crises. The spread of new rice technology is transformative because it enables farmers to secure food and allocate resources to children’s health and schooling. Otsuka et al. (2009) found that the increase in income from rice production was spent on children’s education, who, upon completing schoolwork, decided to work in the nonfarm sector in the locality or move to local towns, big cities, and overseas, and send remittances. The increase in nonfarm income was the major source of household income increase and poverty reduction.

The importance of rice income has declined due to the rice sector’s stagnant rice yield and declining employment opportunities because of the diffusion of labor-saving technologies. Production of high-value crops and livestock has become more common: the share of nonrice income among children living in the study villages was 19%, which is higher than the 15% share of rice income. So, it seems the economic importance of rice farming vis-à-vis other crops has declined in the traditional rice-growing villages.

4.2 Nonfarm Work and Migration

Here I discuss how poverty has declined over generations in Kei’s villages, as noted in the main findings of Estudillo et al. (2014). The most important strategy to halt the transmission of poverty from parents to children is for the younger generation to take advantage of new economic opportunities within the villages’ rural nonfarm economy or move out to explore job markets beyond the villages in local towns, big cities, and even overseas. Parents’ income has come mainly from agricultural sources, while children’s income has come largely from nonfarm sources. Initially, poverty was higher among landless households. Children from poor landless households could find their way out of poverty by acquiring more education, participating in the rural nonfarm labor market, and migrating to local towns, big cities, and overseas. Migrant children have higher total income coming mainly from nonfarm income.

To explore whether poverty has been transmitted from parents to children, it is necessary to have socioeconomic information on pairs of parents and children spanning at least two generations. Kei and I compiled information on three generations of members belonging to the same household in the four villages. Information from the first generation (G1), consisting of respondents’ parents, was taken from the 1985 survey conducted by IRRI. Data for the second-generation (G2) members, consisting of the respondents and their siblings, were taken from the 1989 survey conducted by Quisumbing (1994).

Kei and I constructed a specially designed questionnaire intended for personal in-house interviews of the third generation (G3), consisting of the daughters and sons of the respondents (G2). There were 3,218 respondents’ children that were reported in the original 1985 survey. We were able to trace the whereabouts of nearly half of them (1,516 children). We gave in-house interviews to 870 out of the 1,516 children (an interview rate of 57%) in their respective current places of residence in 2008. Migrant children tend to cluster in the northern and central parts of the country, where infrastructure is more developed and peace and order are not a problem.

We had a total of 535 individuals in G1; 1,485 individuals in G2; and 1,516 individuals in G3 (1,197 children of farmer households and 319 children of landless households). The tracking rate on the landless households was lower because landless households are geographically more mobile: many of them were not available at the time of the resurvey or were no longer residing in the study villages in 2008 with hardly any information on their whereabouts.

We categorized children into four groups based on their residential addresses at the time of the 2008 resurvey: (1) study villages, (2) local towns, (3) big cities, and (4) overseas.Footnote 2 Local towns refer to the poblacion (town center) of the study villages, adjacent villages, towns located in the same province, small cities nearby, and cities and towns in other provinces. Big cities include Metro Manila, Metro Cebu, and Baguio.

Table 18.1 shows the grouping of G1, G2, and G3 based on the type of job. For G1, we had the following classifications: (1) with a job in agriculture, (2) with a nonfarm job, (3) with an overseas job, and (4) unemployed and others. Almost all male G1 were engaged in agriculture, and almost all female parents were unemployed, mainly housekeepers. G1 were born around 1910, had very little schooling, and owned, on average, less than 1 hectare (ha) of farmland per person. Fathers completed more years of schooling than mothers (3.8 years vs. 3.1 years) and inherited larger areas of farmland (1.1 ha vs. 0.56 ha), indicating a gender bias in the transfer of wealth in favor of males.

Table 18.1 Description of the three generations in the sample (Estudillo et al. 2014, Table 3)
Full size table

For G2, we had the following groupings: (1) with a job in agriculture, (2) with a nonfarm job, (3) with a job in the big cities, (4) with an overseas job, and (5) unemployed and others. G2 were born around 1940, accomplished more than twice their parents’ education (6.9 vs. 3.4 years), and inherited about half the size of their parents’ farmland (0.39 ha vs. 0.83 ha). Brothers and sisters had about the same level of schooling, in contrast to their parents’ generation when females were less favored. Both female G2 and female G3 had become engaged in more diversified occupations, including overseas work.

We categorized G3 based on the parental endowment of farmland: (1) children originating from farmer households and (2) children from landless households. These two groups were further categorized into seven groups based on current residence and occupation: (1) with a job in agriculture in the study villages, (2) with a nonfarm job in the study villages, (3) with a job in agriculture in local towns, (4) with a nonfarm job in local towns, (5) with a job in the big cities, (6) with an overseas job, and (7) unemployed and others.

G3 were born in 1973 (1971–1975), had more than 10 years of schooling (3.3 years more than their parents), and had inherited farmland of less than 0.10 ha. Farmer children completed 0.4 more years of schooling than the landless children—a statistically significant difference (p < 0.05). A larger proportion of children from farmer households opted to stay in the study villages. Landless children were geographically more mobile, residing in the big cities, local towns, and overseas.

Children working overseas had the highest income, followed by those in the big cities; children who reside in the study villages had the lowest. Accordingly, poverty incidence and depth of poverty were highest among children living in the villages. That poverty did not exist among overseas children, while less than 10% of migrants in the big cities were poor. Migrant children were deeply engaged in nonfarm work; the largest proportion of their incomes had come from nonfarm income. Surprisingly, even those children who remain in the study villages derived 65% of their income from nonfarm sources, including nonfarm wage income (44%) and remittances and other sources (21%). Rice income has become a much less important source of income for G3, whereas, in contrast, it was the most important source, particularly for farmer households in the G2.

The correlation coefficient of parents’ and children’s schooling had declined from 0.30 between G1 and G2 to 0.20 between G2 and G3. Children of lowly educated parents tended to catch up with children of highly educated parents in terms of schooling, with male children benefiting more. The correlation coefficient between parental income and children’s income was close to zero. The coefficient of parental income in a regression function of children’s income was statistically insignificant with a value of −0.1187. Clearly, parental wealth has become weak in explaining children’s economic destiny.

Now we explore whether parental wealth affects children’s residential and occupational choices, which, in turn, affect children’s income. Education and inherited farmland are the major forms of wealth transfers that could potentially affect children’s residential and occupational preferences. For G2, we considered five alternative choices, and for G3, seven choices. Estudillo et al. (2014) performed a multinomial probit function and found that in G2 and G3, education positively and significantly affects the choice of nonfarm work and migration to the cities. For G2, education positively and significantly affects the choice of nonfarm work and migration to the cities. Children with larger inherited farmland are significantly more likely to work in agriculture and significantly less likely to engage in nonfarm work and migrate to the cities.

For G3, the more educated children are more likely to engage in nonfarm work in the village and local towns and migrate to the big cities and overseas: they are less likely to engage in agricultural work in the village and local towns. Like G2, children with larger inherited farmland are more likely to choose farming in villages and local towns.

The main finding is that schooling has enabled G2 and G3 to explore job opportunities in the nonfarm sector in the village and local towns and has prepared them to migrate to big cities and overseas. Inherited farmland remains a decisive factor in choosing farming vis-à-vis other occupations in the village and local towns. Since landless children in G3 obtained schooling levels less than but comparable with that of farmer children, it is reasonable to expect that they are equally likely to explore job opportunities in the nonfarm labor market in the village, local towns, and the big cities. In fact, landless children have a higher propensity to migrate in search of economic opportunities elsewhere outside the village.

For G3, education significantly increases nonfarm household income, whereas the size of inherited farmland significantly increases farm income. Interestingly, inherited farmland does not affect the total household income of G3, which indicates that landless children are not necessarily worse off even if they did not inherit farmland. Education has facilitated the participation of landless children in nonfarm employment and migration to big cities and local towns. These strategies led to increased income, notably earned from nonfarm labor activities. As a result, poverty has declined among landless children, and the income gap between farmers’ children and landless children has declined.

5 Income Growth and Poverty Reduction

Table 18.2 shows the sources of household income of G2 in 1985 and those of their children (G3) in 2008, classified as coming from farmer or landless households. Sources of household income were the following: (1) rice income, consisting of income from rice production and from off-farm wage activities; (2) nonrice farm income, coming from the production of nonrice crops, livestock, and poultry; (3) nonfarm income, consisting of wage income from nonfarm activities, such as formal and informal salary work and from self-employed activities in trade, transport, and communication; and (4) domestic and foreign remittances. Income data are in purchasing power parity (PPP) at 2005 USD prices.

Table 18.2 Household income composition of respondents and children in the study villages in the Philippines (annual income at USD PPP 2005)
Full size table

In 1985, a substantial portion of household income of G2 (76% for farmer households, 49% for landless households) came from agricultural sources, such as the production of rice, nonrice crops, and livestock (Table 18.2). The income of farmer households was about twice the income of landless households. The major sources of disparity were rice and nonrice crop production. Nonfarm income was higher for the landless. And because the landless are land-poor, poverty was higher among the landless (65%) than among the farmer households (42%).Footnote 3

Interestingly, nonfarm income has become the major income source of farmer children (G3)—67% of their income—while it was only 12% of their parents’ (G2). The income disparity between the farmer and landless households appears to have disappeared in G3, with nonfarm income as the major driver of income growth. Meanwhile, income from rice and nonrice farming remained significantly higher for the farmer children.

The children’s and parents’ income ratio in the landless category was 7.4 times. In contrast, the corresponding ratio for the farmer was only 4.1, an indication of substantial income growth for the landless children. While children’s incomes have largely equalized, poverty incidence among the landless children remained higher, but at a mere 8% points, compared with their parents, in which poverty stood at 23% points higher among the landless class. Landless children who migrated to local towns and big cities increased their income vis-à-vis that of farmer children.

6 Concluding Remarks

This chapter identified the drivers of transformation and explored the accompanying strategic processes in Kei’s four villages in the Philippines. There was income growth and poverty reduction, and there was no transmission of poverty from parents to children. There was also a decline in income inequality between the rich (farming households) and the poor (landless households). Participation in the nonfarm labor market and migration to local towns and big cities are the main pathways to moving out of poverty for the landless poor. Poverty among the landless poor declined substantially because they have a higher degree of geographical and occupational mobility.

The experience of Kei’s villages attests to the power of economic transformation to penetrate the lives and livelihood of rural people. There are no losers in Kei’s villages—‘the rising tide lifted all boats’—the landless poor benefiting more. It is obvious that to improve the lot of the landless poor, they need more than just the virtue of frugality, initiative, and enterprise. The poor needed education, farmland, infrastructure, and local towns and cities, strategies that increased income, notably income earned from nonfarm labor services, that allowed them to move out of poverty.