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: 1.P.D. 4 Charter of the National Grains Authority (and subsequent amendments) 2.Agriculture Tarrification Act (supportive of NFA import monopoly and quantitative restrictions) 3.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) Import Retail Farmers Paddy traders Millers Wholesalers Retailers (traditional, modern retail); Consumers Importers

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