Supply response of corn in the Philippines

The general objective of this study was to assess the performance and prospects of the Philippine yellow corn industry and estimate the supply response parameters to price and selected supply shifters. Major trade reforms were initiated in 1981 but were suspended during the recession in 1983-19. This was restored in 1986 upon the assumption of then Pres. Cory Aquino Administration. Response parameters were estimated from the time series data covering the 1988-2002 period using the Adaptive Expectations (ADEX) and Rational Expectations (RATEX) price formation models. This period covered the times when the unilateral trade reforms were revived. Due to problems on multicollinearity, only the output response based on RATEX models was included. Results showed that yellow corn producers were not responsive to price incentives except for two regions, i.e. Central Mindanao and Sounthern Mindanao [Philippines]. In the case where the own-price of feed corn was significant, producers made use of the available information in forming price expectations. In this instance, the own-price of yellow corn exerted the greatest effect on output. The supply shifters, particularly the prices of the substitute crop (-2.09 to -2.27) and fertilizer (-1.59 to -1.72), exerted the greatest effects on corn output, especially when the price of yellow corn was insignificant. At the regional level, the greatest influence on the quantity of corn output was not confined to a single significant variable. However, in regions with relatively better infrastructure or where feed mills abound, particularly in Northern Mindanao and Cagayan Valley [Philippines], the price of fertilizer had the greatest effect. The importance of a substitute crop differed among regions. Sugarcane as the substitute crop gave better parameter estimates for Northern and Central Mindanao. This coincided with the observation that yellow corn producers were shifting more areas to sugarcane production. During the period covered by the study, the price (real terms) of sugar was higher than the price of yellow corn. Elsewhere, white corn performed better as a substitute crop. In the formulation of price expectations, the absolute prices of yellow corn and the substitute crop gave more significant parameter estimates than the relative price.