Analyzing Market Price Transmission, Government Intervention and Weather Shocks for Rice Market in the Philippines

In the Philippines, where rice is considered the most important food crop, attempts to influence rice prices have been prevalent. The government, through National Food Authority (NFA) has sought to establish stocks and control imports to stabilize prices since its establishment in 1972 to support farm gate prices and reduce retail price of rice. But data shows divergence in retail prices and farm prices since mid 1960s. In this paper, we use vector autoregression (VAR) to analyze the movement of Philippine rice margins with government stocks and weather supply shocks to able to determine government effectiveness in actual times of market stress. Comparing VARs across regions, we are able to identify the regions in which price margins are significantly affected by government intervention measures.