The Staple Food Sector

1. The Staple Food Sector Roehlano M. Briones PIDS Competition Reforms in Key Markets for Enhancing Social & Economic Welfare in Developing Countries (CREW Project) FIRST MEETING OF NATIONAL REFERENCE GROUP (NRG) 30 July 2013

2. Proposed outline of the DCR • Introduction • Background of the rice sector • Trends • Policies • Review: Competition in the rice sector • Method for assessing impact of policies • Results • Conclusion and recommendations

3. Introduction: Aims and scope • Competition: refers to the nature and extent of actual (and potential) rivalry, between firms in the marketplace • Competition policy: • Government policies towards level playing field • Regulatory framework towards fair competition • Competition legislation, effective enforcement mechanisms • Aim: assess impact of competition policy on producers and consumers

4. Background of the rice sector • Trends • Production time series • Paddy production, by system, national • Paddy production, by region • Supply and utilization time series, national • Export and import trends • Domestic and world price trends

5. Background of the Rice Sector Three sets of policies relevant to competition: • P.D. 4 Charter of the National Grains Authority (and subsequent amendments) • Agriculture Tarrification Act (supportive of NFA import monopoly and quantitative restrictions) • Price Act (1991)

6. Background of the rice sector Mandates of the National Food Authority: • FOOD SECURITY in staple cereals in times and places of natural or man-made calamity/emergency • STABILIZATION of staple cereal supply and prices • Grains sector regulation • Paddy procurement • Distribution of NFA rice • Importation (a government monopoly)

7. What activities are regulated: • Warehousing Form • Retailing/ Wholesaling Form • Milling Form • Transporting Form • Manufacturing Form • Importing/Exporting/Indenting Form • Grains Packaging Form • Mechanical Drying Form • Threshing Form • Post Production Equipment Form

8. Policies • Recent reforms (NFA) • WTO minimum market access (350,000 t) • Tariffs: 40% in-quota, 50% out-quota • Private sector and farmer association participate in imports • Still discretionary to NFA: annual import quota, share to be imported by private actors

9. Policies • Price Act • Aims at protection of consumers by stabilizing the prices of basic necessities and prime commodities, measures against undue price increases during emergency situations • Basic necessities: include rice, corn, etc. • Price manipulation acts/combinations deemed illegal: hoarding; profiteering; formation of cartels

10. State of competition in the rice sector • Competition along the supply chain • Stakeholders: Farmers, Private Sector (millers, wholesalers, retailers), Government (NFA) Production Marketing (farmgate) Milling (packing) Marketing (wholesale) Retail Wholesalers Retailers (traditional, modern retail); Consumers Farmers Paddy traders Millers Importers Import

11. Insights from the literature • For the domestic supply chain: • Numerous actors: farmers, traders (paddy and milled), processors, retailers • No significant entry barriers in domestic chain • No evidence of significant economies of scale • No evidence of market power or collusion • NFA: able to maintain stable consumer prices, but well above world market level; much less successful in supporting paddy prices

12. Insights from the literature • Sources: price behavior analysis, regulatory impact assessment, numerous case studies, most recent of which is World Bank (2012) • Detailed supply chain studies: • Hayami et al (1999): province of Laguna; • Dawe et al (2008): Central Luzon paddy to wholesale • Comparison with similar chain in Thailand • Evidence that there are players are too numerous, failure to realize economies of scale • Finds high profit margin, but no evidence of collusion: requires further research

13. Method • Ex post analysis: characterization of supply chain and policy impacts • Analysis of secondary data: Survey of Rice Mills • Information on: Input capacity, Capital investment, Operating cost, Milling fee (as applicable) • Other data from NFA (e.g. Licenses, etc.)

14. Method: ex post analysis • Analysis of primary data from rapid appraisal: document segments of the supply chain • New type of chain: major urban center retail (Metro Manila), trace back through wholesale segment to the paddy production area (Nueva Ecija) • Covers the major stakeholders along each segment of the chain

15. Method: ex post analysis Information to be gathered includes: • Marketing margins • Impressions about market concentration, barriers to entry, horizontal and vertical arbitrage, • Ex post analysis: impressions about government policy and impacts • KIIs and FGDs; mix of quanti and quali interviews

16. Method: Ex ante analysis • Focus on “low-hanging fruit”: repeal of NFA import monopoly. • Competition policy involves: Tariffication (as under WTO rules) • Analyze using scenario analysis based on economic surplus (sum of producer and consumer surplus)

17. Method Analysis to be used to identify: • Remaining problem areas for competition policy to address • Priority interventions • Knowledge gaps to guide future research