Demand Elasticities for Rice in the Philippines and Implications of the COVID-19 Pandemic

Date

6-2023

Degree

Bachelor of Science in Agricultural Economics

College

College of Economics and Management (CEM)

Adviser/Committee Chair

Zenaida M. Huelgas

Committee Member

Julieta A. Delos Reyes, Agham C. Cuevas

Abstract

Studies on demand elasticities and consumption patterns have been extensively discussed in the existing literature. However, more research needs to be done on the Philippines' specific context. There is also a pressing need for an updated study, considering that the Philippine Statistics Authority has already conducted multiple surveys regarding family income and expenditure. Incorporating these newer surveys would enable a more comprehensive estimation of the evolution of the food demand system and the changing food consumption patterns among Filipinos over time.

The study analyzed income changes, consumption patterns and estimated a system of household demand for nine commodities with an emphasis on rice in the Philippines using data from the 2018 and 2021 Family Income and Expenditure Survey (FIES). The two data sets represent households' pre- and post- COVID pandemic income and food spending. An Almost Ideal Demand System (AIDS) model and the resulting uncompensated and compensated demand elasticities were estimated using the AIDSILLS (AIDS iterated linear least squares) command in Stata (Lecocg and Robin, 2015). The model includes nine commodities (rice, bread, pork, chicken, galunggong, milkfish, tilapia, banana, and eggplant) and demographic variables (household size, 16 regional dummies, rural-urban dummy, family size, and income). Pre- and post- COVID comparisons are as follows. Per capita income has increased by 6 percent nationally, but regionally, there were decreases in the more affluent regions (NCR, CALABARZON, and Central Visayas) and increases in the rest of the regions. The real prices of all commodities considered increased by more than 10 percent during the 2018-2021 period, except for rice which declined by 11 percent. Previous studies attribute such decline in rice prices to the Rice Tariffication Law (Tobias, 2021; Ocampo & Pobre, 2022). Food consumption patterns became more diversified, allocating a lower share of food expenditure to rice, especially in higher income brackets and urban areas. The national estimate for the compensated demand for rice is more inelastic in 2021 (-0.071) than in 2018 (-0.894). In 2021, bread, pork, galunggong, milkfish, and tilapia are found to be rice substitutes, while banana and eggplant are considered rice complements using the uncompensated cross-price elasticities. Meanwhile, all the commodities were found to be rice substitutes using the compensated cross-price elasticities. Therefore, if consumers are not income-constrained, they could be more willing to substitute more types of commodities for rice.

It was recommended, among other, that: the government should encourage regional decentralization to decrease the reliance on certain regions for economic activity and income; promoting entrepreneurship and self-employment to increase income; policymakers and relevant stakeholders continue ton support and strengthen the initiatives that have contributed to the decrease in rice prices; and investment in research and development, technology adoption, and infrastructure improvements in the agricultural sector to enhance productivity and increase domestic rice production. Recommendations specific to selected commodities were also forwarded.

Language

English

LC Subject

Rice trade, Supply and demand, COVID-19 Pandemic, 2020-

Location

UPLB College of Economics and Management (CEM)

Call Number

LG 993.5 2023 A14 N65

Notes

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Document Type

Thesis

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