Position Paper - Rice Industry in the Philippines

Introduction
The price of rice is skyrocketing all over the world and it is causing panic in many Asian countries, including the Philippines. Why is rice getting more expensive? Rice exporting nations like Thailand and Vietnam have also reduced their exports to prioritize their local needs. The Philippines is one of the top importers of rice in the world as per Bloomberg dated February 19, 2010. If the global supply of rice is dwindling, what is being done to monitor local production and help farmers to improve efficency? In the first place, why is the Philippines, which is predominantly an agricultural nation, importing rice from other countries? What is wrong in the Supply Chain of Rice in the Philippines? We all know that IRRI, International Rice Research Institute, or the Silicon Valley of Rice Research was established in 1960 at Los Baos, Laguna located in Philippines. Rice provides the livelihood of 2.5 million farmers in the Philippines. According to the Bureau of Agricultural Statistics, rice trade injects P200 billion worth of products and services into the local economy that contributes 3.5 percent of the countrys domestic output. It also breeds a cycle of countryside poverty as it moves through a complicated supply chain where price doubles literally from the farm to the wholesaler. Too many farmers remain ill-equipped to improve yields. They are therefore vulnerable to price exploitation by cunning middlemen and financiers.

Problem Analysis in Rice Shortage at Philippines:

a. Why do we import rice, and why cant we produce enough of our staple food to feed ourselves? The most logical reason here is geography or facilities of plantation. The Philippines imports rice because it is a nation of islands without any major river deltas like those in Thailand and Vietnam which are the major exporter of rice. Philippines belong to an all island with narrow peninsula which is not a good geography as long as rice plantation is concern. Resource: Proceedings of the International Rice Research Conference,16-19 September 2002, b. Why the price of rice is getting more expensive? I. Because of Trade liberalization the price for a specific commodity like rice inside the country (the domestic price)becomes the same as the price for that same commodity outside the country (the world price), after taking account of the exchange rate and any necessary transportation costs (supply chain & logistic). Any commodity that is tradable Angelo Santos Page 1

Position Paper - Rice Industry in the Philippines

across international borders, the domestic price will naturally tend to equal the world price unless the government intervenes with trade restrictions.

II.

Inefficient Supply Chain Management - Rice supply chain margins is the difference between the farm price and the wholesale price. In the Philippines price is higher compare to Thailand, but there are similarities between the two supply chain channels that can be improve to lower the price in the Philippines. For example, both production areas (the Central Plain - Thailand and Central Luzon - Philippines) grow similar types of modern varieties and have relevant quality characteristics. Both are also major ricegrowing areas in their respective countries. Second, the destinations (Bangkok and Manila) are the capitals and largest cities of their countries. Third, both rice growing areas are connected by land to wholesale markets in the capital city with no sea transportation involved. Fourth, the driving distance over land between the ricegrowing area and the capital city is roughly similarabout 170 km in Thailand and 130 km in the Philippines.

III.

The Philippines higher price is due to a lower supply of palay and inefficient production costs. In fact, production per capita (168 kg) is less than half that of Thailand (431 kg) and Vietnam (405 kg). One reason for the large palay supply in these other countries is a larger amount of land (Facilities). In Thailand, the total agricultural land area is 19 million hectares,which is about 60% larger than the Philippines 12 million hectares. This shows that Filipinos have lower agricultural land per capita of only 0.15 hectare compared with 0.30 hectare for Thai people. Another factor of higher production cost is Insufficient mechanization and excessively high labor use given the relatively high level of wages. Rice imports will remain as long as production inefficiencies persist. For instance, inadequate farm-to-market roads (transportation) , drying, milling facilities and storage infrastructure (facilities) have caused post-harvest losses of up to 30%. These inefficiencies partly explain the numerous intermediaries that prey upon the supply and distribution chain. By this, the retail prices increases.

Angelo Santos

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Position Paper - Rice Industry in the Philippines

Recommendations
Managing Trade liberalization - The government should lift the predicament of local farmers by outbidding middlemen through direct buying, or by teaching farmer groups to handle wholesale-level marketing themselves. This will reduce the cost of longer supply chain.This value streaming strategy will remove additional cost added up buy having traders or middle man. Government should not limit trade restriction. If domestic prices are higher than world prices, private traders will try to profit by importing from abroad and benifit on the trade ristriction. They will outsource rice at a low price and sell it higher. For rice in the Philippines, the government is the only entity that has the legal authority to arrange imports. If government will not limit the quantity of rice imports, the law of supply and demand suggests that domestic prices will become lower due many supply are available.

Inefficient Supply Chain Management

Supply chain margin might be reduced if the government took the initiative to organize wholesale markets for palay. This system will minimized private traders buying and selling palay on their own account. Second, a more open policy regarding rice imports would lower working capital requirements. This will also reduce storage time and will reduce the land values that result to a lower supply chain costs.

How to lower production costs of Rice in Philippines .

a. Prevent Seasonality of production. In the Central Plain of Thailand, there is less seasonality of harvesting because of more abundant water supplies in the Chao Phraya River delta. Many farms in the Central Plain harvest three crops of rice in a year. Different farms in nearby areas often have quite different harvesting dates. The result is a cropping system that resembles continuous factory production. Rice production in Central Luzon is should adopt the same type of continous production by improving the water supply like in the Central Plain.They should also explore planting other crops to have a continuous production system. This continous production system will maximize the rice facilities location thus, all expenses to maintain the location of rice plantation will not be carry over to the price of rice production.

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Position Paper - Rice Industry in the Philippines

b. Become open to international trade - Philippine Rice trade should be more open to international trade. This will allow some of the seasonality in supply chain to be absorbed by world markets through either imports or exports. The reduced seasonality of production and greater openness to trade will result to reduced storage requirements. Confirming the reduced storage requirements exhibit less seasonality in Thailand. This simulations can indicate that the reduced length of storage accounts for P0.14 per kilogram of the difference in marketing. Lack of openness to rice trade in the Philippines may raises storage cost. c. Improve in Logistic Cost a) Trucks in the Philippines typically transport only about 70% of a full load of grain, whereas trucks in Thailand travel full most of the time. This under use of logistic transportation appears to be the result in excessive number of marketing agents in the Philippines. This add to the difficulty of coordinating the transportation. Philippines should maximize each load of the truck to save on fuel and othe cost related to transportation like toll gate and man-hours. Then have a central coordinating center among marketing agents to have a full coordination in transportation system. b) Thai trucks that shuttle between rice-growing areas and the capital typically have a capacity of 30 tons, double the capacity of the trucks used in the Philippines. Larger trucks are impractical in the Philippines because the quality of roads is considerably worse than in Thailand. To be able to increase the efficency of transportation, local government should focus on improving the roads, specially those province that are major sources of agricultural products. By this driving times to the capital from the ricegrowing area will be lessen thus lowering the logistic cost. c) Improving the the transportation labor cost. In Thailand transportation labor cost is P0.11 per kilogram lower than the Philippines. The logical reason here is the manual loading and unloading of grain. This process has been mechanized in Thailand because of higher wage and incosistent output of manually loading and unloading of grain sacks.

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Position Paper - Rice Industry in the Philippines

Reader Observation: The current supply chain strategy of rice in the Philippines is not centralized and no certain department in the governmet is accountable in managing the supply chain to improve the price. Thus some business sector is abusing this system and making money out of it. The governemt should realize that the rice is a functional product and functional products have stable demand and very commodity nature. Thus a strong stragetic planning of rice outsourcing can help to lower the cost,but we must follow the recommendation above about Trade liberalization. Another good recommendation is to automate the supply chain systems. This can reduce the costs of production and handling price (over all supply chian). A government sector must be assigned to monitor rice inventory in the country and prevent rice shoratage fraud. Shortage fraud often result to the increase in price of rice due to law of supply and demand.

References: IRRI (International Rice Research Institute). 2005. World rice statistics IBON Philippines Databank and Research Center DA-FOS (Department of AgricultureField Operations Service) Dawe D. 1993. Essays on price stabilization and the macroeconomy in low income countries BAS (Bureau of Agricultural Statistics) ACPC (Agricultural Credit Policy Council) Meeting the challenge of trade liberalization

Edited by David C. Dawe, Piedad F. Moya, and Cheryll B. Casiwan

Angelo Santos

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