The informational efficiency and integration of Philippine agricultural markets

Meyra Sebello Mendoza, Purdue University

Abstract

The geographic separation of agricultural markets in the Philippine archipelago, infrastructure deficiencies and imperfect market information tend to impede market integration. Inadequate inter-island and intra-island transportation, lack of adequate storage and related postharvest marketing facilities and services are characteristic of the country. This study was undertaken to ascertain the extent of imperfect market integration by examining leads and lags in price relationships and effects of newly transmitted information on price discovery processes in selected Philippine agricultural markets. Commodity spot cash prices studied were for copra, coconut oil, desiccated coconut, milled white corn, ordinary rice, and special rice quoted in the Philippines and U.S. prices of corn oil, cottonseed oil, soybean oil and palm oil. Where the assumptions of normality and homoskedasticity did not prevail in the commodity price series, the autoregressive conditional heteroskedasticity (ARCH) model was the analytical technique employed. Generally, findings indicate significant leads and lags in price changes among markets, and delayed and incomplete market responses to exogenous shocks. For copra, which is a major commodity in the Philippines, Manila is the most important market, and Cebu is second. Manila prices have a large influence on prices in other markets. Except for Cebu, there is no effect of price changes in the other markets on Manila prices. It took a month for traders in the other markets to adjust fully to price changes in Manila. This sluggish price response also existed among markets for other commodities. Price adjustments tended to be slowest during the 1973-1985 period of increased government regulation compared with earlier and later periods when market regulation was less. Additionally, patterns of price adjustment during rising and declining prices differed. The Philippines appears unable to exploit its dominance of the world coconut oil market because coconut oil price changes follow price changes of competing oils in the United States but do not significantly influence U.S. vegetable oil prices. Improved access to world market news, however, enables Filipino exporters to respond rather quickly to price changes occurring in the international market. Results generally suggest there could be important social benefits from increased investment in physical infrastructure and public information services. Such investment could lead to more efficient integration of markets and improved performance of the agricultural sector of the Philippines.

Degree

Ph.D.

Advisors

Farris, Purdue University.

Subject Area

Agricultural economics

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