Also widely referred to as "panagdedenet", the practice is also quite common in several other towns in Mt. Province like Besao, Bauko, and Sabangan. In Besao, folks would go to the cemetery 1 or 2 days before All Saints Day to cut the overgrown weeds and brush around the graves. This leaves enough time for the weeds/brush to dry out. When November 1 comes, the weeds/brush are dry enough to burn for a little bonfire.
It's not surprising that the practice is often attributed to Sagada given that Sagada is a popular tourist town. Several years ago, a little controversy erupted when tour organizers started calling "panag-aapoy" a festival. For the record, the practice is not a festival. At least according to the communities involved and the Anglican Church. And we agree.
The origin of the tradition is not crystal clear. However, it's most likely that it emerged from the conversion of the local populations into the Christian faith. The dominant Christian group in Mt. Province is the Anglican Church. They gained foothold in the hills and mountains of the north when they were able to dispatch Anglican missionaries after the arrival of the Americans.
Lighting candles in graves during All Saints Day was introduced to the newly-converted Igorots. One theory is that there wasn't enough candles to light during these occasions. Keep in mind that the Americans took over the Philippines in 1898 after a short-lived but brutal war with Spain. Resources are not exactly spilling over the pot.
Another factor in the development of the "panag-aapoy" practice is that community cemeteries in Mt. Province are usually situated in wooded hills or mountain slopes that has an abundance of wood and brush. Instead of using candles that were either scarce or expensive during the early decades of the 20th century, the locals used the wood, saleng, and brush that were readily available.
The practice of lighting little bonfires on All Saints Day was soon established and cemented into the local culture.