Effect of Change in Price of Rice and Increase Income in the Philippine Economy

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Effect of Change in Price of Rice and Increase Income in the Philippine Economy

In the Philippines, crop production is the largest component of agriculture. Rice dominated the food crop category and continues to be the most important commodity in the country. Some food crops, such as corn, coconut, sugarcane, banana, pineapple, mango, cocoa and coffee have also been exported.

Foreign trade and domestic policies have significantly influenced the growth of Philippine agriculture in the past. Producers of rice have been found to be generally receptive to changes in the price of rice relative to corn, sugarcane, coconut, and other agricultural commodities. The level of income also affected the quantities demanded of commodities. The movement of the price of rice in the Philippines was also influenced by changes in domestic demand. The demand for food can likely increase as the population grows. At any given price, the total quantity demanded will be higher. People do not put into effect effective demand by virtue of their mere existence in a market economy. They exercise it by virtue of their purchasing power. For this reason, it is not population growth that shifts the demand curve for rice, but rather the growth of income. Growth in national income translates into greater demand for rice significantly depends on how the extra income is distributed across the population.

Years back, 16% of family income in the Philippines was spent on cereals, largely rice and corn. The share spent on cereals varied greatly across family income classes. The most deprived households devoted more than 40% of their income to cereals, in which their incomes are less than 6,000 pesos per year. While among the well-off households, with incomes above 100,000 pesos per year was less than 5%.

When comparing the two lowest incomes in classes, for instance, we found that a 10% raise in income per family is associated with a 6.0% increase in cereals expenditure; that is, the...
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