Impact of peso devaluation on the rice sector's incentive structure [Philippines]
2000
Alviola, P.A. IV (Philippine Rice Research Inst., Maligaya, Munoz, Nueva Ecija (Philippines). Socio-Economics Div.)
This study was undertaken to assess the impact of the peso devaluation on the profitability level and incentive structure of the Philippine rice industry. The study utilized the farm budget approach (cost and return analysis) to measure profitability and the Nominal and Effective Protection Rates (NPR and EPR) and the Implicit Tariff Analysis as a means to measure the impact of government intervention on the rice input and output prices. Results indicate that the peso devaluation episode had lowered the net profitability of rice production in the Philippines. The effect is reduced net profitability at the farm level due to the rapid increase of input expenditures vis-a-vis output price of rice. On the other hand, results show that rice has received positive protection (positive NPRs and EPRs) due to the numerous government policies (e.g. Tariffs and Price controls), which perpetuated a higher domestic price of rice relative to its world price (border price) in the market. However, when the pre and post devaluation incentive indicators were determined, nominal and effective protection coefficients had drastically declined after the peso devaluation. This means that when the exchange rate was devalued (P26.3/$1.00 to P40.5/$1.00) there was proportional increase of the tradable (economic) value added component and border price of rice vis-a-vis its counterpart domestic value added and domestic prices, thus reducing both the NPRs and EPRs of rice
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