The Effects of Domestic Rice Market Interventions Outside Business-As-Usual Conditions For Imported Rice Prices

The Philippine government intervenes in the domestic rice market through the imposition of import tariffs and the provision of producer and consumer subsidies. While policy makers are aware that these programs come with allocative efficiency costs, they justify the programs on the grounds that they insulate the domestic economy from unexpected price spikes in the international rice market. An interesting matter for policy evaluation is to quantify the insulation benefit that the programs provide in circumstances of sudden severe import price spikes. To examine this question, we undertake a dynamic CGE simulation in which the Philippines is subject to an external rice price shock. We find that the insulation benefit of the support programs under a 2008-like event is worth approximately 0.10 per cent of real consumption. However the cost of insuring against these price spikes is significant. We estimate the annual cost of the rice market interventions at approximately 0.40 per cent of real consumption.