Is there a market power in the Philippine rice industry?

Maria Hazel I. Bellezas1*, Jose M. Yorobe Jr.2, lsabelita M. Paduayon2, Prudenciano U. Gordoncillo2 and Antonio J. Alcantara Jr.3


Rice, as a staple food for the Filipinos, is widely studied from production to consumption. However, observations of the National Food Authority domestic procurement and price stabilization policy, as well as results of the marketing and market-related studies, still reveal some gaps which call forth for an in-depth investigation and analysis. One ofthese is the possible presence ofmarket power, a market inefficiency in rice. Hence, this study aimed to ascertain the presence of market power in the Philippine rice industry. Secondary data published by the Philippine Statistics Authority from 1990 to 2015 were utilized. A structural econometric model using a time series approach was used in estimating the presence of market power. Results revealed the presence of market power in non-major rice-producing regions for well-milled and regular-milled rice in major rice-producing areas. The more the demand curve becomes inelastic the more the market power becomes apparent. The price elasticity of demand in the non-major rice-producing regions is -0.63 for both well-milled and regular-milled rice and -0.83 and -0.59, respectively, in the major rice producing areas. To minimize, if not solve market power, a substitute staple for rice may be introduced, programs/policies that will encourage more palay traders may be implemented, and farmers may be trained to operate like industry clusters.

Keywords: Bresnahan-Lau model, Market inefficiency, Price elasticity of demand, Philippine rice industry

Annals of Tropical Research 42(2):97-112(2020)
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