Philippines

Rice remains to be the most important commodity in the Philippines. It is grown on nearly two-thirds of the country's arable land and is a major source of livelihood of around 2.5 million farm households - small-owner and tenants - and around 3.6 million farm workers. But the Philippines has several occasions of severe rice crises in the 20-year period. Rice supply was short in 1984-1985, on precarious level in 1990, short again in 1995, then it started to drop sharply to negative levels up to the crisis in 1998-1999.

The main reason for the vulnerability and perennially low productivity of the rice economy is that generally Philippine agriculture remains in crisis. Rice production has remained on subsistence level, landlord dominated, and lacking in government support. Because of these basic crisis features, rice farmers are one of the poorest sectors of the rural economy.

The rice marketing system in the Philippines has been traditionally divided into two sectors - the government sector and the private sector.

The role of the government sector in the rice marketing structure is primarily expressed through the operations of the National Food Authority (NFA). The NFA undertakes grains procurement and distribution in order to have an impact on supply. It also maintains a buffer stock to enable government to intervene in times of supply and price fluctuations. The government purchases paddy at a high price while selling milled rice at a low price. It has paddy support and trigger prices to influence pricing in the private sector-dominated market. The NFA also has the mandate to import rice presumably to be able to make injections during lean months or low production. All these functions, however, are inutile in dictating prices and controlling supply since the NFA controls on the average only about 5% of the rice market.

The private sector, composed of merchants, has always dominated and controlled the rice marketing system. It is estimated that private merchants handle around 95% of domestic production. In 2000, there were 77,193 retailers; 15,071 wholesalers and 10,469 millers. Although rice merchants are important contributors to the viability of rural and urban economies, many in the past were engaged in rice cartel that was responsible for controlling the flow and distribution of rice and subsequently fixing its price.

A survey conducted in Central Luzon, the country's number one producer of rice, revealed that many suppliers of inputs are also insurers, to whom poor farmers are heavily indebted. These usurers often act as middlemen between suppliers and farmers, or the input suppliers themselves. Under such circumstance, the indebted farmer is obliged to sell his harvests to the supplier, usually at a lower price, to repay his debts. Thus, the suppliers also become the buyers.

A close scrutiny of price statistics shows that the farm gate and market prices react violently in times of severe crises. Since the liberalisation of the Philippine agriculture in 1995 (under the WTO-AOA), the consumer price tends to register higher growth rates than that of farm gate prices. To illustrate, in 1998, the farm gate price and wholesale price increased by 15% and 12%, respectively. But the retail price of rice grew at a much faster rate of 22%. In the last 3 years, the farm gate price continued to fall, while the consumer price still registered an annual average increase of two percent.

In the US, one of the identified reasons behind the increasing retail price is the surge in the marketing bill which covers the costs of various inputs like packing, energy and labour among others. As the American consumers demand for convenience food and "ready-to-use" food products grow, it results in higher costs of inputs due to increased processing and increased need for labour.

Meanwhile, in the Philippines, where feudal and semi-feudal production relations predominate, the operation of private merchants sometimes dictate the movement of price both in the farm level and in the retail level such as in the case of rice. But this tendency arises only to the extent that inadequate public spending to help farmers gain access to the markets through roads and credit is inadequate. Also, the costs of marketing are increased with the length and complexity of the marketing chain.

Conclusion

The difference between the farm gate and consumer prices in the Philippine rice economy is significant. While farm gate prices have remained stagnant in the last decade, consumer prices have increased considerably during the same period. While the government maintains a paddy support price, studies show that such support has barely made an impact as farm prices remain below the paddy support price in many years due to the program's structural defects. Overall, the rice marketing structure defines the price structure and subsequently dictates the profit margins.

Source:

1.Report of the 'Food Price Structure Study - Philippines, commissioned by Consumers International Asia Pacific Office

2.Charmaine G. Ramos (2000) State Intervention and Private Sector Participation in Philippines Rice Marketing. MODE, Quezon City, Philippines.