Economics of production and pricing of rice in the Philippines

Abstract

The response to price of an underdeveloped country's agricultural sector is a factor relevant to its economic growth. Knowledge of the extent of response to price change may lead to formulation of a sound and effective price legislation policy. This study attempts to contribute towards this end. First, an attempt is made to estimate a supply function for rice. How do farmers respond to changes in the price of rice and to prices of alternative crops? An attempt is also made to measure the extent to which changes in the production of rice have arisen from the changes in acreage planted and changes in yields. Second, to a lesser extent, we examine the farm prices of palay, the secular and the seasonal trends. While prices of rice in the Philippines have apparently been fairly efficient in their resource allocation function, there is little evidence to indicate that price changes represent an effective device for influencing aggregate rice output. In spite of the economic evidence that prices represent an important incentive in some developing countries, the analysis obtained from the study showed that rice farmers in the Philippines did not show a significant response of hectarage relative to price change. However, there were indications of positive responsiveness. This implies that the role of price as a development tool is much less promising if the price change does not produce changes in hectarage as well as total production. The analysis on yield response infers that the relative importance of the input factor to yield varies among regions of the country. Rainfall, for instance, may increase yield for Southern Tagalog, Eastern Visayas and Northern and Eastern Mindanao but the effect was the opposite for Central Luzon, Western Visayas and Southern and Western Mindanao regions. Similarly, a greater proportion of tenancy cultivated area was found relatively important to yield in Cagayan Valley, Bicol, Southern Tagalog and Northern and Eastern Mindanao- Meanwhile, the adoption of the new rice variety proved a crucial factor in increasing yield for all regions, except Cagayan Valley where the majority of non-irrigable areas exist. The yield response estimate for the Philippines revealed that rice yield responded to increases in rainfall and adoption of the new rice variety. The presence of an irrigated area also contributed positively to yield. A greater proportion of unirrigated and upland ricelands will reduce the yield per hectare indicated by the negative coefficients.