Comparative advantage in Philippines rice production

Abstract

This study is an examination of the existence of comparative advantage in rice production in the Philippines and related policy issues. The analysis and evaluation focused on the assessment of the net effect of government rice policies and on whether the country enjoyed a natural comparative advantage in rice production during the period 1978 to 1981. This analysis was extended to include competing crops, i.e., corn and sugar, in order to compare their relative merits. To measure the degree of comparative advantage, the study made use of measures of private profitability, net social profitability (NSP), and domestic resource cost (DRC). Effective rates of protection (ERP's) were also calculated for these crops. The results indicate that, in general, government policies have been biased against agriculture. Within the agricultural sector, in relative terms the net effect of these policies have favoured rice and corn production while they discriminated against sugar production. The results show that the Philippines had a comparative advantage in rice production between 1978 and 1981. The degree of comparative advantage in rice was found to be very sensitive to world rice prices. Expanding the area under irrigation appears to be only marginally socially profitable and increasing irrigation investment needs careful reappraisal. If farmers have to bear the full cost of irrigation they may be reluctant to shift from rainfed to irrigated production conditions because their private profits could be reduced. At current yields, expanding corn production at the expense of rice production does not appear to be profitable. Sugar may be more competitive at world prices, but rice is still the most desirable crop to produce at domestic prices. In the context of technology choice, the recommended rice technology, while socially more profitable, is less privately profitable than the farmers' "average" technology. This probably explains why farmers are reluctant to adopt the full recommended rice technology package. Finally, technical change has been an important factor which enabled the Philippines to retain a comparative advantage in rice production. Thus, continuing technical change would be crucial to sustain this advantage. Investment in research which increases yields have been shown to have a high pay off, and this may be an area for more government investment. Show more