Sunday, April 12, 2015

Rice Supply Response in the Philippines

The Philippines is basically an agricultural economy and its principal source of income comes from agriculture. An improvement in agriculture greatly affects the welfare of the people and the national economy (Fajardo et al., 1992).  Therefore, the use of economic principles in agriculture is very vital. Proper agricultural development leads to industrialization, and this is the dream of every poor nation.

Rice (Oryza Sativa Linn.) is in the heart of Philippine agriculture. It is considered the single most important commodity because rice is the major staple food of approximately two-thirds of Filipinos. As the country’s staple food, rice accounts for 35 percent of the population (now about 77 million) to as high as 60 – 65 percent for households in the lowest income percentile (GMA, 2002).

Rice is a very important commodity in our country and the government should maintain its stable production with respect to the increasing population. Twenty-three percent (23%) of the total Philippine population directly and indirectly derives their income from the industry (Philippine Peasant Institute, 1992).

Not only is rice an important staple, it also significantly contributes to the economy of the country. Rice is cultivated in 2.7 million hectares or 30 percent of the country’s total arable land. It contributes an average of 15.5% percent of the country’s gross value added (GVA), 13 percent to the consumer price index (CPI), 3.5 percent to the gross domestic product (GDP) and 3.3 % percent to the gross national product (GNP) (Ginintuang Masaganang Ani, 2002). In the light of this contribution, the country still has difficulty to attain self-sufficiency and price stability in rice production. The government has initiated different rice programs (e.g. Ginituang Manasaganang ani), and researches in order to formulate relevant policies in the rice industry.

For the past several years, different models and approaches in studying supply response were used. Some supply response models use only few of past values in forming expectations. Some other models use the entire past history, with the past values receiving declining weights as we go further into the distant past. These models were called distributed lag models of expectations (Maddala, et al., 1992).

Distributed lag models are potential models to be used in estimating supply response. There were few attempts to use these models in estimation. The specific distributed lag model that is well-known is the Polynomial Distributed Almon Lag Model, which was developed by Shirley Almon in 1965.

Distributed lag analysis is a specialized technique for examining relationship between variables that involve some delays or lags. In particular, the Almon Polynomial Distributed Lag Model, are used in order to reduce the effects of collinearity in distributed lag setting (Greene, 1993). 

Reference: Erazo, J. and E. Cruz. 2007.  Rice Supply Response in the Philippines: An Almon Lag Approach. Unpublished Undergraduate Thesis. School of Applied Economics, University of Southeastern Philippines. Obrero, Davao City.

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