Position Paper - Supply Chain of Rice in The Philippines
Position Paper - Supply Chain of Rice in The Philippines
Position Paper - Supply Chain of Rice 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.
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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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.
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.
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.
Angelo Santos
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Angelo Santos
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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
Angelo Santos
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