Decomposition of rice production costs and marketing margins: the case of Nueva Ecija [Philippines]

This study decomposes the costs and margins from rice production to consumption. It identifies at which stage or specific activities in the production and marketing process can innovations be done to improve competitiveness in the rice industry. On a per unit basis, a rice farmer gets 60-65% of the gross margin, the paddy trader and rice miller get 20 to 25% and the rice wholesalers and retailers get 15%. During the DS [dry season], farmers get a net profit per unit similar to traders, which is around P4/kg milled rice equivalent. In the WS [wet season], traders can maintain their net profit while farmers get less than half at only more than P1/kg. On the production side, the major cost items are labor, land rental, fertilizer, and seed cost. Labor cost for harvesting and threshing, which is normally imputed based on prevailing rice prices, has the highest cost share around 20%. Seed cost is still high at 0.50/kg paddy. On the marketing side, bulk of the cost incurred is for drying and transportation. No sufficient evidence was found to show that the marketing margins of the market players are excessive on a per unit basis. In general, the high profits of rice traders are largely due to the large volume handled and swift turnover of transactions. Simulations showed that when production cost is reduced to as low as P4/kg through technological advancement, and assuming reasonable markups for farmers and traders, the price of rice is still be higher than the current world price. At the production level, a strong policy to advocate reduced labor cost through farm mechanization, improved varieties and technologies for direct seeding, and technology promotion are still the best options for farmers to be competitive. At the postproduction level, the reduction of transportation and drying cost would greatly reduce the marketing margin