Rice marketing systems in the Philippines and Thailand: Do large numbers of competitive traders ensure good performance?

Abstract

Rice marketing margins are substantially greater in the Philippines than in Thailand despite many similarities between the two systems and despite the fact that Philippine rice marketing has a competitive structure. We found that rice marketing costs in the Philippines are higher than in Thailand mainly due to higher interest rates in the financial system. Other fundamental factors that also result in higher costs include endowments of water and land, rice price and trade policy, road quality and lack of non-farm job growth. However, the greater costs can only account for about a fourth of the difference in gross margins, implying much higher returns to management in the Philippines despite similar levels of risk and no evidence of collusion. The “excess profits” in the Philippine marketing system suggest there is much to learn about how developing country commodity markets with competitive structures function in actual practice.