Price distortions in the abaca fiber market

English. This paper was primarily undertaken to describe the market structure of the abaca trading. A total of 107 farmers, 21 assembler wholesalers, 18 wholesalers, 13 GBEs [grading and baling establishments] and pulp manufacturers come close to a monopsonistic market where the three largest traders capture 100% of abaca fiber supply in the market. Southern Mindanao [Philippines] has the highest level of concentration with the eight largest producers controlling 93.3% of the market. In fact, the largest producers is the region controls 60% of the market. On the other hand, there is moderate concentration in Bicol and Eastern Visayas with the eight largest producers gaining control of 43% and 45% of the abaca fiber market. At present, there are 8 normal grades and 2 residual grades adopted for both the hand-cleaned and machine-cleaned abaca fiber. In addition to these official grades, grade variations in JK, S-L2, Y and IG are used. The large number of grades creatyes cofusion in the market. Because of farmers less familiarity with all the different grades there are traders who reclassify the fiber into higher grades. There are however, barriers, to entry and exist from the industry. The traders 'and processors' high financial requirement (initial capital investment and maintenace and operating expenses) serves to screen potential entrants into the industry. GBEs from Bicol and Eastern Visayas have more than P4M average capital investment while the wholesalers from Easter Visayas and Southern Mindanao reported average capital investment of 1.93 M and 1.35 M, repectively. The cordage company was established with an average initial capital investment of P5M, pulp processor with P37.5 M and the fibercraft manufacturers with P0.063 M. Secondly, the traders' huge amount of capital loaned out to farmers and lower traders hinder them from leaving the industry. Furthermore, FIDA's rules and regulation on accreditation of abaca t raders, inspection and certification is another barrier to entry. On the other hand, the high sunk costs, production knowhow, patented processes, and forward and backward integration of the abaca fiber processors provide them the absolute cost advantage over potential entrants in the industry. Generally, there is lack of coeeficient is 0.86 at the wholesalers' level and almost equal at 0.75 st the $W's and GBEs levels. This means that the price they got covered their marketing costs incurred. It is highest for grades G and I and lowest OT and S3 grades. This is further confirmed with the marketing margins increasing as one goes higher through the marketing chain. This proves the earlier analysis regarding assemler-wholesalers controlling the market in villages and GBEs approaching almost a monopsonistic market in the industry. These efforts to increase the farmers' bargaining power through establishment of market information, review of grades used, and greater support to coo peratives are recommended.

English. CF: Metro Manila Commission Professorial Chair Lecture 30 Jun 2005 College, Laguna (Philippines)