Demand Elasticities of Rice in the Philippines: An Application of LA-AIDS

The continuously increasing rice demand in the Philippines amid the declining importance of rice in the consumers’ food baskets in most Asian countries today has attracted interest to validate the demand estimates in the country and analyze the factors affecting it. This paper analyses rice demand of Filipinos using the Linear Approximate Almost Ideal Demand System (LA/AIDS). Results show that rice remains to be a necessity good for most Filipinos, wherein the primary consumers are the poorer sector of the economy. Rice demand appears to be inelastic to total food expenditure, income, and its own price, especially for the rural poor. Corn, camote, cassava, and banana are found to be rice substitutes while potato, gabi, milkfish, tilapia, pork, chicken, mango, pineapple, eggplant, and ampalaya are considered rice complements. The results from this study point to the following policy implications: 1) The lower income and price elasticities associated with the richer sector of the society imply that if economic status of the poor Filipinos improve, less increase in rice demand will be expected; 2) Urbanization can alleviate rural poverty and offer wider range of food choices for the rural consumers, enabling them to substitute more types of commodities to rice; 3) As poor consumers are more inelastic to income than price changes, incomeoriented policies can be more effective in promoting less rice consumption than pricerelated policies; 4) Differential food policies aimed to address nutritional deficiencies in rural and urban areas may also be more feasible than an integrated approach since rice demand varies significantly between locations; and 5) Encouraging more production and consumption of the major rice substitutes, by disseminating information on its market potential and health benefits and increasing its market availability will contribute to the country’s strategy of managing rice consumption and rice self-sufficiency goal.