Price and Market Relationships for Rice and Corn in the Philippines

Area, yield, and output response functions for rice and corn were estimated for the Philippines as a whole and for nine major regions by means of both simple regressions and distributed lag models. The short-run supply elasticities calculated from the area response functions typically fall in the 0.10–0.30 range, although estimates as high as 0.60 were obtained. Market-surplus elasticities ranged from 0.20 to above 1.00. In general (a) the supply and market-surplus elasticities for rice were higher than for corn and (b) the elasticities for both rice and corn were highest in the commercial areas characterized by proximity to urban centers and/or relatively high levels of irrigation development. The price-elasticity estimates for the Philippines are comparable with estimates obtained for the same crops, and for other subsistence crops, in other Asian countries. Significant price parameters were not, except in one case, obtained for the yield response functions. Thus, although prices of rice and corn in the Philippines have apparently been fairly effective in allocating resources, there is little evidence to indicate that price changes are an effective device for influencing aggregate agricultural output. This implies a much less optimistic outlook for the role of price as a development tool, at present levels of technology, than if price changes induced yield as well as area change. Price changes at one level of the marketing system are typically reflected, with little change in the marketing margin, at other levels. Any market power exercised by wholesalers and retailers is typically of only local significance and/or of short duration.