Staple Foods Sector
Diagnostic Country Report
Roehlano Briones
Ivory Myka Galang
Objectives
• Review trends in the rice sector, particularly policies
affecting the market and competition in various
components of the rice value chain
• Describe the state of competition in the rice industry
• Assess the impact of past and current competition
reforms (i.e. reforms enhancing competition in the
market) on consumers and producers, and based on this
assessment make recommendations
• Identify concerns (of consumers and producers) and
assess the potential impact of reform measures that can
help address such concern
Output, area, yield trends
Domestic rice production has been increasing, due to both
rising area and yield.
20,000
4.0
18,000
3.5
16,000
3.0
14,000
12,000
2.5
10,000
2.0
8,000
1.5
6,000
1.0
4,000
2,000
0.5
0
0.0
1994
1999
Yield
2004
Area harvested
2009
Output
Background – State of competition - Policies – Assessment of reform impact
Demand, Supply, Imports
The increase in consumption has outpaced the growth in
supply, leading to a growth in imports.
14,000
3,000
12,000
2,500
10,000
2,000
8,000
1,500
6,000
1,000
4,000
500
2,000
0
0
1994
1999
Imports
2004
Production
2009
Utilization
Background – State of competition - Policies – Assessment of reform impact
Domestic and world prices
The domestic price on average has been higher than the
world price.
45
40
35
30
25
20
15
10
5
0
Border Price of Thai White Rice 5% broken (peso/kg)
Wholesale Price of Well Milled Rice (peso/kg)
Background – State of competition - Policies – Assessment of reform impact
Rice Supply Chain
Production
Paddy
traders
Milling
(processing)
Marketing
(wholesale)
Wholesalers
Millers
Import
Farmers
Marketing
(farmgate)
Retail
Retailers
(traditional,
modern retail);
Consumers
Importers
Background – State of competition - Policies – Assessment of reform impact
Production input system
• The main variable inputs to rice production
(as share of production cost)
– Agro-chemicals, seed: < 3% each
– Fertilizer: 10%
• Seed:
– Only 29% certified or hybrid seeds; the rest is
"good seeds" (purchased but not certified) or
farmers' own seed.
– Privately-bred seeds (of large agribusiness
companies) account for just 10% of all rice seeds
– No subsidy programs for rice seeds since 2010.
Background – State of competition - Policies – Assessment of reform impact
Production input system
• Fertilizer:
– > 70% of domestic supply is sourced from
imports. Import permits are not required, although
importers need to be licensed and imported
products need to be registered.
– Tariffs on imports are minimal; 85% of imports are
from free trade partners for whom the preferential
rate is zero. There have been no major fertilizer
subsidy schemes since 1986.
– domestic and world prices of urea (the most
important form of fertilizer) are integrated.
Background – State of competition - Policies – Assessment of reform impact
Production input system
• Fertilizer:
– The fertilizer distribution system is
characterized by numerous players;
– as of 2009 there were 483 licensed handlers
in the fertilizer industry, spanning importation,
distribution, repacking, export, and
manufacturing.
– Fertilizer handlers report no major issues in
obtaining licenses and registering fertilizer
products
Background – State of competition - Policies – Assessment of reform impact
Marketing chain
• Past research on rice industry shows a
high degree of competition in the domestic
market, from paddy production to retail
marketing.
• Dawe et al (2009):
– marketing margin at wholesale-to-retail stage:
only P0.33 pesos per kg of palay higher in
Manila vs Bangkok
– If collusion exists, exerts only a small
influence on the market price
Background – State of competition - Policies – Assessment of reform impact
Policies
• The rice sector is regulated by the
National Food Authority under a highly
interventionist regime aimed at food
security and price stabilization.
– Procurement – support price; procurement
subsidy
– Licensing, regulation
– Import monopoly
Background – State of competition - Policies – Assessment of reform impact
Procurement
Background – State of competition - Policies – Assessment of reform impact
NFA SELLING PRICE OF RICE
YEAR
NFA
SUPPORT
PRICE
WHOLESALE PRICE
OF WMR
WHOLESALE
PRICE OF RMR
RETAIL PRICE
OF WMR
RETAIL PRICE
OF RMR
1990
1991
1992
1993
1994
1995
1996
1997
1998
1999
2000
2001
2002
2003
2004
2005
2006
2007
2008
2009
2010
2011
2012
2013
6.00
6.00
6.00
6.00
6.00
6.00
8.00
8.00
8.00
9.00
10.00
10.00
10.00
10.00
10.00
10.00
10.00
11.00
17.00
17.00
17.00
17.00
17.00
17.00
6.50
8.00
8.50
9.50
9.50
9.50
14.00
14.00
14.00
14.00
14.00
16.00
16.00
16.00
16.00
17.00
17.00
17.00
28.00
28.00
26.00
26.00
26.00
30.00
6.50
7.00
7.75
13.00
13.00
13.00
13.00
13.00
15.00
15.00
15.00
15.00
15.00
15.00
15.00
23.50
23.50
23.00
25.00
25.00
25.00
7.00
8.65
9.15
10.25
10.25
10.25
15.00
15.00
15.00
15.00
15.00
18.00
18.00
18.00
18.00
18.50
18.00
18.00
30.00
30.00
28.00
28.00
28.00
32.00
7.00
8.40
8.40
14.00
14.00
14.00
14.00
14.00
16.00
16.00
16.00
16.00
16.00
16.00
16.00
25.00
25.00
25.00
27.00
27.00
27.00
25.00
32.00
27.00
2014
17.00
30.00
(-) No RMR in CY 1993, 1994, and 1995
Background – State of competition - Policies – Assessment of reform impact
Retail distribution
Background – State of competition - Policies – Assessment of reform impact
Trade policy
• NFA manages to stabilize retail prices, but
keeps domestic prices high by means of
an import monopoly.
• Since 1995 the most significant reform in
rice policy was its compliance with WTO
rules and decisions.
• Self-sufficiency policy: in 2013, quota set
at 350K tons. Raised to 1.2 million tons by
2014
Background – State of competition - Policies – Assessment of reform impact
Potential impact of reforms: Rapid
appraisal findings
• Case of Metro Manila rice marketing chain
• Bulacan hosts small millers/wholesalers,
many in Intercity, an industrial estate where
about 125 small rice mills do brisk 24-hour
business buying and milling paddy and
essentially acting as rice staging area for
wholesalers and retailers in Manila
• The interviews reveal very strong competition
among the current players in practically all
levels of the supply chain
Background – State of competition - Policies – Assessment of reform impact
Rapid appraisal findings
• Farmers have a choice of buyers right in
their communities
• Even with tied credit, traders are forced to
give farmers the highest price rather
than lose out to another buyer and risk not
being able to collect the loan.
• “what is giving up a few centavos per kilo
paddy compared to losing the loan amount
due to non-payment?”
Background – State of competition - Policies – Assessment of reform impact
Rapid appraisal findings
• Rice wholesalers who cater to retailers in
Manila also rely on volume for profits and
maintain low margins of P20 - P30 per sack
to compete. They offer payment terms of 15
to 30 days to maintain regular clients.
• The retailers compete by offering variety and
convenience. Many make available different
types of rice in terms of quality and price so
that there is something suitable for every
shopping budget.
Background – State of competition - Policies – Assessment of reform impact
Rapid appraisal findings
Cost per bag ex- Manila
Low
Medium
High
Smaller Packs
1,586.25
1,786.25
1,986.25
2,186.25
Repacking per bag
100.00
Margins per bag
Trader's
20.00
20.00
20.00
20.00
Miller's
40.00
40.00
40.00
40.00
Wholesaler's
20.00
20.00
20.00
20.00
100.00
100.00
100.00
100.00
1,766.25
1,966.25
2,166.25
2,466.25
35.33
39.33
43.33
49.33
Retailer's
Total cost and margins
Price per kilo
Background – State of competition - Policies – Assessment of reform impact
NFA Licensing data
Line of Activity
1990
1995
2000
2005
2010
2013
Philippines
127,038
116,622
123,249
112,319
109,447
94,629
Retail
Wholesale
Retail-wholesale
Mill
Warehouse
Threshing
Shelling
Drying
Manufacture
Importing
Exporting
Indenting
Packaging
Transporting
Others
66,422
4,628
16,785
12,739
8,809
1,735
614
104
1,265
188
5
29
9
6,103
7,603
63,218
4,873
14,367
12,324
10,679
1,706
553
213
488
60
6
18
16
5,460
2.634
77,193
3,614
11,457
10,469
11,042
1,116
330
473
357
165
11
27
35
5,293
1,667
70,433
3,073
10,370
9,672
10,912
638
199
496
234
153
11
15
49
4,815
1,249
66,960
3,065
10,852
8,383
13,130
419
125
496
209
160
8
12
43
4,693
892
54,032
3,314
9,936
8,288
11,783
370
125
645
221
95
9
7
35
4,842
927
Background – State of competition - Policies – Assessment of reform impact
NFA Warehousing capacity
Capacity
Total
REGION
PHILIPPINES
ILOCOS REGION
CAGAYAN VALLEY
CENTRAL LUZON
SOUTHERN TAGALOG
BICOL REGION
WESTERN VISAYAS
CENTRAL VISAYAS
EASTERN VISAYAS
WESTRN MINDANAO
NORTHRN MINDANAO
SOUTHERN
MINDANAO
CENTRAL MINDANAO
NCR
ARMM
CARAGA
Utilization
(%)
450
NFAowned
25,132,630
Leased
5,090,828
Total
30,223,458
31
53
63
59
41
25
15
23
19
20
1,460,500
2,452,650
4,166,200
1,811,600
872,076
1,669,850
968,500
979,500
1,355,000
1,965,000
407,600
15,750
630,500
809,050
931,298
291,918
235,000
200,000
0
7,712
1,868,100
2,468,400
4,796,700
2,620,650
1,803,374
1,961,768
1,203,500
1,179,500
1,355,000
1,972,712
6.04
5.51
15.63
30.53
25.23
11.35
45.68
28.66
13.61
33.14
24
29
23
11
14
1,360,550
2,278,470
2,664,734
273,000
855,000
289,000
0
893,000
290,000
90,000
1,649,550
2,278,470
3,557,734
563,000
945,000
32.01
6.40
30.81
13.35
29.45
20.93
Background – State of competition - Policies – Assessment of reform impact
Summary
• To summarize: the rapid appraisal
confirms the findings of the literature
survey showing a competitive market
structure for domestic rice production and
marketing  little scope for reforms such
as lifting barriers to entry
• However bringing in foreign stocks of rice
is highly uncompetitive, being a statutory
monopoly of the NFA.
Background – State of competition - Policies – Assessment of reform impact
Trade policy impact
-0.25
Baseline
Imports
Retail price (P/kg)
Welfare measures (P millions)
Consumer surplus
Producer surplus
Importers revenue
Economic surplus
Changes from baseline
Free trade
Imports
Retail price (P/kg)
Welfare measures (P millions)
Consumer surplus
Producer surplus
Importers revenue
Economic surplus
700,000
32.08
733,605
45,143
7,457
786,205
2,014,989
-10.65
126,857
-26,340
0
93,060
Trade policy impact
-0.25
Baseline
Imports
Retail price (P/kg)
Welfare measures (P millions)
Consumer surplus
Producer surplus
Importers revenue
Economic surplus
Changes from baseline
Reduced quota
Imports
Retail price (P/kg)
Welfare measures (P millions)
Consumer surplus
Producer surplus
Importers revenue
Economic surplus
700,000
32.08
733,605
45,143
7,457
786,205
210,000
2.59
-29,320
8,121
-4,676
-25,875
Conclusion
• Rice importation policies need to be rational and
effective in protecting not only the interests of
producers but also consumers and other market
participants.
• Huge differences in the costs of bringing in imports
and moving domestic supplies to consumers makes
smuggling lucrative.
• A properly-set tariff level under a liberalized
importation policy -- allowing anyone to bring in rice
with the payment of tariffs -- can still give protection to
producers and will provide more stability in domestic
supplies and prices and deter any attempt to control
substantial supplies to manipulate market prices.