Structural organization and performance of Virginia tobacco trading centers and redrying plants in the Philippines

Analysis of the buyer's concentration and distribution suggested that the market approaches an oligopsonistic type of competition. The Lorenz-gene approach showed that at the trading center level, the inequality of firms' share had increased from 0.49 in 1981 to 0.56 in 1984. At the redrying plant level, it had increased from 0.61 in 1981 to 0.73 in 1984. The market situation at the latter was more imperfect than that of the trading center level. The concentration table approach showed that there was an inverse relationship between the level of tobacco business concentration and the prices at the trading centers. At the redrying plants, there was a significant difference of P2.12/kg between the price offered by the largest firm and the average price given by smaller firms. High capital requirements and the prevailing government rules and regulations posed as substantial barriers to entry into Virginia tobacco industry. Among the tobacco policies set by the government which acted as legal trade barriers were excessive fees, license and business permit, purchase commitment, and surety bond. An examination of marketing costs of the tobacco firms revealed an inverse relationship between firm size and average cost. The same holds true at the redrying plant level. The trading centers and redrying plants were found to be productively efficient. The average cost function for the tobacco trading centers indicated that the economies of scale existed as expressed by the inverse relationship between the average cost and the volume of tobacco purchases. The real marketing cost of tobacco trading centers and redrying plants had decreased from P0.42 to P0.31 and from P2.48 to P1.88 in 1981 and 1984, respectively. The adjusted differential gap was 17.64 percent and 30.24 percent for 1983 and 1984, respectively. This means that the price received by the farmers was lower by 23.94 percent than what they should have received in the absence of the structural defect in the domestic tobacco market. However, comparison between the floor prices and the buying prices of the trading centers showed that the latter was 13.85 percent higher than the former