Chapter 1: The Problem and It’s Background

Introduction

Bulb onion ( allium cepa l. ) or locally called as “sibuyas” is probably among the

most vital components in the favorite seasoning, allegedly it is the second most

important vegetable crop in the country next to tomato, are part of the Allium family

which also includes garlic, shallots, leeks and chives. The three types grown here in the

country are green onions, red onions and shallots.

In Bayambang, Pangasinan Ilocos Region’s biggest producer of onion that not only

benefiting the community’s economy but also the nation’s supply chain. Onion farming is

one of the most important agriculture activities the Bayambang, Pangasinan regions

with regard to onion production due to its favorable soil and climate. On a different note,

onion farming like all the other types of farming is surrounded by various challenges that

expose the farmers to various financial risks despite its high yield and profitability. Such

hurdles include fluctuating market prices which is dependent on the local and

international supply and demand forces.

There are two farming seasons of this crop, namely: dry and wet season. The wet

season covers the months of June to August while the dry season covers the months

from September to May. Onions during the season in Bayambang, Pangasinan benefits

to the regions appropriate climate and soil conditions. The planting period is from

November to March which is in the dry season The soil is well drained, nutrient-rich soil

enables strong onion growth. Farmers cultivate different varieties including red and

white onions that are known for the size, flavor and the ease in harvesting, usually
ranging from March to May, the onions produced in Bayambang are the finest, helping

to enhances the region’s reputation in the production of quality onions.

The existing area for onion production is 3,913 hectares with a production level of

50,984,051 kgs. Philippine Council for Agriculture, Aquatic Resources Research and

Development identified onion as one of the priority commodities in the country.

Bayambang, Pangasinan is the no. 1 producer of red onions and no. 2 in white onions

in the country.

Bayambang, Pangasinan, Philippines, has seen a price spike in red onions, which

are sold at a farmgate price of P120 per kilo, leading to farmers becoming "millionaires."

The increase in prices is expected to continue for another month. Bayambang produces

about 23 metric tons of red onions yearly, while white onions are sold at a farmgate

price of P60 per kilo. The town has about 1,000 onion farmers. The government is

planning to import about 35,000 metric tons of red onions due to the price hike. Onion

farmers store their extra produce in cold storage to avoid affecting their profits. The local

government provides onion seeds and training to farmers. Mayor Cezar Quiambao has

called for product innovation, such as converting onions into powder or chips. A

processing center will be set up by a private entity upon the local government's

invitation, in coordination with the PSU.

According to the Philippine Statistics Authority (2016 to 2021), farm-gate prices for

red onions range from ₱10.00 to ₱100.00 per kilogram and white onions range from

₱16.00 to ₱100.00 per kilogram, which is higher compared to other vegetables. Hence,

more and more vegetable growers are venturing into onion production.
 Onion production involves, however, risks due to problems such as oversupply, lack

of farm laborers, and pest infestations. When the market price of onions undergoes a

sudden change, it presents a huge financial loss to the growers. Therefore, there is a

need to conduct an assessment of the financial risk for farmers engaged in onion

growing. The general objective of the study is to determine the financial risk being faced

by onion growers in Bayambang, Pangasinan. The objectives of this study include the

following: assessing the socio-economic characteristics of onion growers; identifying the

sources of financial risk in onion production; assessing the financial risk in onion

production; and identifying the risk coping mechanism for onion production. Coefficient

of variation, Standard Deviation, and Mean are used in the assessment of financial risk.

Frequency count and percentage are also used in the study to establish the socio-

economic profile of onion producers. Coping mechanisms for risk are tabulated and

presented in narrative.

According to a 37 years old farmer from Manambong Parte, Bayambang, Ronnie

Ringos (2020) said, the saying is more of a joke rather than a reality Ringo’s view

highlighted the discrepancy between the conventional wisdom of onion farming and the

financial hardship of the modern farmer.

Background of the Study

Onions are widely grown in various regions in the country. It is a vegetable crop that

is in demand in the Philippines, and for this reason, many farmers have been

encouraged to grow them. Bayambang has the largest area in Pangasinan planted with

mang onions, and with this come the issues on production constraints, particularly
financial risk. Thus, an analysis for such a situation merited this study in the evaluation

of financial risk among onion growers in Bayambang, Pangasinan.

Financial risks are risks inherent in the financing activities of an enterprise, which

include crop production and farm-related business enterprises. These are risks that

affect either project feasibility or bankability and include but are not limited to

construction cost overruns, poor credit, and cash flow problems. The basic financial

risks include interest rate risk, liquidity risk, currency risk, and default risk. Financial

risks arise at the farm level due to imposition of fixed input costs such as rent, wages,

insurance, or debt servicing. Once a farm enters financial contracts, it is exposed to

changes in external fixed interest rates or exchange rates. Financial analysis is the

economic appraisal of the project that has been drawn up during the planning stage.

This is a systematic process identifying the economic and financial viability of the

project. By implication, any project that is not financially sound is economically unsound

since its costs outweigh the revenues derived from it and therefore become a burden to

the economy. Besides, many viable projects are not granted finance for exogenous

reasons such as lack of funds on the part of concerned financing agency, the arguing

agency is non-creditworthy or underfinanced, financial terms are not appropriate to the

nature of the project, etc. All these causes are either physical or political in nature.

Economic and financial analyses are two of the major components of the project

evaluation cycle.

Agriculture is the foundation of the Philippine economy, providing food for all

nations and fostering the growth of various industries. As years go by, the agricultural

industry is decaying and suffers from various problems such as poverty, natural
calamities, and other aspects that can lead to failure in planting and production. One of

the biggest problems experienced by the country is pest attacks in crops. It can destroy

the harvested crops, affecting the income and health of the market. As said by the World

Health Organization (WHO), the pesticide residues in food crops can be health-

threatening to humans. The onions, known for their pungent flavor and odor, are a

widely consumed crop in the Philippines. As the frequency of pest attacks rises, the

farmers rely on harmful pesticides leading to bankruptcy and accumulated debts.

Financial risk evaluation assesses the involving circumstances, activities, or

prospects of the individuals or organizations that may adversely affect their budget or

income. It can be classified into five components: financial condition risk, financial

market risk, operational risk, strategic risk, and risk regarding environmental and social

factors. In this study, the financial condition risk, which is the potential risk to the

existence of an enterprise due to indebtedness, which might arise due to possible

decline in revenue or absence of income-producing assets and liquidity problems, will

be assessed. The financial risk evaluation will be based on the survey and other

information gathering done in Bayambang, Pangasinan, farmers who plant onions.

The survey involves simple questions regarding the onions, production, operation,

income, loans, output cost, and market. It aims to gather information to assess the

financial risk evaluation score using a self-developed formula. The questionnaire will be

distributed to the selected respondents by the researcher for the evaluation score.

Statement of the Problem

Pangasinan. To obtain all the essential knowledge, data, and information, the research

specifically sought the following answer:

Significance of the Study

The results of this study will be benefited by the following:

Onion Growers. The result of this study is designed to directly benefit onion growers in

Bayambang, Pangasinan. This study evaluates the financial risks of onion farming to

inform the growers of challenges and opportunities. This can enable them to make

better decisions regarding their incomes as smallholders, contributing to their long-term

sustainability in agriculture.

Future Researchers. The findings of the study will serve as a basis for further

investigations related to risk management within the field of onion farming. They offer a

starting point for future work to build upon, thus ensuring evolutionary research in this

field remains as dynamic and responsive to new challenges or insights.

Bayambang Pangasinan. The result of this study will serve as a critical resource for

understanding the financial risks faced by onion growers in Bayambang. Local farmers

will be informed and guided about the specific economic challenges to their region,

helping them to make strategic decisions in their farming practices.

Local Government Units (LGU’s). The result of this study will help the LGUs formulate

appropriate support programs and policies for the onion farmers. Knowing the financial

vulnerability of these farmers, LGU’s can help them avoid the risks, offer financial
support, provide subsidies, or provide training in matters concerning finances as well as

in proper farming techniques.

Scope and Delimitations

This Comprehensive Study on Financial Risk Evaluation among Onion Growers in

Bayambang, Pangasinan, aims to understand the financial risks that farmers face. It

looks at various factors, such as production risks (like weather and pests) and market

risks (including supply chain disruptions, changes in demand, and access to credit and

loans). The study is focused exclusively on onion farming and does not cover other

vegetables or types of crop farming in Bayambang. It will gather data include from the

77 barangays in Bayambang, Pangasinan, and will not extend to other Municipalities or

Provinces. Bayambang was chosen for this research because of its favorable soil

quality, climate, and agricultural practices that contribute to successful onion production.

The planting period is from late September to November, and the harvesting season is

from January to March. The study will primarily look at seasonal patterns based on

onion types and prevailing weather conditions. While variations in planting and

harvesting times due to climate, water supply, and other local factors are recognized,

they will not be explored in depth. Data collection will involve surveys, in-depth

interviews, and analysis of financial records.