Philippines: Determinants of Wheat Import Demand
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USDA’s Economic Research Service has provided this report for historical research purposes. Current reports are available in AgEcon Search (http://ageconsearch.umn.edu) and on https://www.ers.usda.gov. United States Department of Agriculture Economic Research Service https://www.ers.usda.gov A 93.44 United States AGES Department of Agriculture 9308 Determinants of Economic Research Service Wheat Import Agriculture and Trade Analysis Demand Division Commodity Economics Division Carol E. Levin Chin-Zen Lin 10‘1117E MEMORIAL DEPT. OF AG. BOOK AND APPLIEDCOLLECTION 1994 BUFORD ECONOMICS AVE. - 232 Co UNIVERSITY OF ST. PAUL, MN MINNESURA 55108 U.S..* ,tNr The United States Department of Agriculture (USDA) prohibits discrimination in its programs on the basis of race, color, national origin, sex, religion, age, disability, political beliefs, and marital or familial status. (Not all prohibited bases apply to all programs.) Persons with disabilities who require alternative means for communication of program information (braille, large print, audiotape, etc.) should contact the USDA Office of Communications at (202) 720-5881 (voice) or (202) 720-7808 (TDD). To file a complaint, write the Secretary of Agriculture, U.S. Department of Agriculture, Washington, DC, 20250, or call (202) 720-7327 (voice) or (202) 720-1127 (TDD). USDA is an equal employment opportunity employer. ci 3, ,466S Philippines: Determinants of Wheat Import Demand. By Carol E.73.08 Levin and Chin-Zen Lin. Agriculture and Trade Analysis Division and Commodity Economics Divisions, Economic Research Service, U.S. Department of Agriculture. Staff Report No. AGES 9308. Abstract The Philippines relies entirely on imports to meet all of its wheat demand. Wheat marketing and distribution have been controlled by the private sector since 1986. The milling industry consists of 2 milling associations and 12 mills. The key factor in wheat importers' purchasing decisions is the price of wheat, with quality being the second most important factor. Between two high-quality sources, price is the more important factor; however, between an inferior and superior source, quality factors override price considerations. Protein and moisture are the most important quality characteristics. In general, dockage was not listed as one of the top five quality factors determining the country supplier. Selling cleaner U.S. wheat would result in possible premiums, although the amount of the premium is not known. In terms of the trade effects of cleaner U.S. wheat, all millers indicated that lower dockage levels, at the current price, would not result in an increase in demand for U.S. wheat imports in the short term. Keywords: Wheat, purchasing decisions, quality factors, dockage, policy, the Philippines. Acknowledgments The authors thank Lyle Moe, Lewis Stockard, Butch de la Cruz, and Joy Canono of USDA's Foreign Agricultural Service for their assistance in gathering information and making travel arrangements. We would also like to thank the mills that participated in the survey. Additional information was provided by Kim Hjort. Valuable comments were provided by Lewis Stockard, Chad Freckman, and Alan Webb. This report was reproduced for limited distribution to the research community outside the U.S. Department of Agriculture and does not reflect an official position of the Department. Washington, DC 20005-4788 October 1993 iii Preface This report is 1 of 17 reports covering 18 wheat-importing countries prepared by the Economic Research Service (ERS) in support of a comprehensive study of cleaning U.S. wheat destined for export. Similar reports are forthcoming for corn and soybeans. The Food, Agriculture, Conservation, and Trade Act of 1990 (FACTA) required the Federal Grain Inspection Service (FGIS) to establish or amend grain grades and standards to include, ...economically and commercially practical levels of cleanliness." The legislation required FGIS to determine if the benefits of cleaning exceeded the costs. FGIS subsequently asked ERS to conduct the study. The comprehensive study on wheat included two major components: 1) economic-engineering studies of the cost of wheat cleaning in the United States and estimates of domestic benefits from cleaning and 2) a series of in-country interviews of buyers in major wheat-importing countries to determine the effects of cleaner U.S. wheat on sales in these markets. The results of this work have been prepared in a three-volume set: "Economic Implications of Cleaning Wheat in the United States" (AER-669), by B.T. Hyberg, M. Ash, W. Lin, C. Lin, L. Aldrich, and D. Pace; "The Role of Quality in Wheat Import Decisionmaking" (AER-670), by Stephanie Mercier; and "The Costs and Benefits of Cleaning U.S. Wheat: Overview and Implications" (AER-675), William Lin and Mack Leath. The 18-country case studies form the foundation for the results of the international component of the wheat-cleaning study. The 18 countries studied accounted for 58 percent of world wheat imports and 63 percent of U.S. wheat sales in 1991. Each report has two components: background on the wheat-marketing policies, institutions, and distribution system in the wheat-importing country and results of interviews of wheat traders, processors, and government officials. All the interviews were completed during April-September 1992, and all followed a similar format. Each interview team consisted of both a commodity specialist and a country specialist. They attended a series of seminars on grain quality issues, data collection,' and interview procedures before doing their interviews. All the interviews followed a specific set of guidelines. An advisory panel of government officials, private traders and trade association members helped develop the questions, which consisted of five topic areas: The most important factors in the choice of a supplier country; iv I Quality factors most important to the importer's purchase decisions and the importer's perception of wheat purchased from their suppliers; Contract specifications the importer uses to communicate preferences; I The level of dockage in the shipments the importer receives and the costs of removing it; and • If U.S. wheat were cleaner, would the importer purchase more and/or be willing to pay more? The background information on the wheat-importing country and the responses from the interviews provide a unique insight into the role of quality factors in the wheat purchase decisions of the major importers of U.S. wheat. Alan J. Webb Coordinator, Country Case Studies Reports in the Series, "Determinants of Wheat Import Demand" Country study Authors Brazil Emily McClain and Erin Dusch China Frederick Crook, William Lin and Hunter Colby Egypt John Parker and Shahla Shapouri Ghana and Togo Margaret Missiaen and Mark Smith Indonesia Stephen Magiera Italy Daniel Plunkett Japan Lois Caplan and Alan Webb Morocco Karen Ackerman Pakistan Rip Landes and Mark Ash Philippines Carol Levin and Chin-Zen Lin Russia Sharon Sheffield Sri Lanka Rip Landes and Mark Ash South Korea Terri Raney and Nancy Morgan Taiwan Sophia Huang and William Lin Tunisia Rebecca Lent Venezuela Parveen Setia and Erin Dusch Yemen John Parker and Demcey Johnson Contents Summary vii Introduction 1 Wheat Supply and Demand Trends 3 Production 3 Consumption 5 Imports 8 U.S. and Competitor Programs 11 Wheat Sector Policies 17 Consumer Policy 17 Trade Policy 20 Marketing and Distribution 20 Organization of Wheat Imports 21 Domestic Wheat Marketing System 23 Domestic Milling and Baking Industries 24 Wheat Development Opportunities 25 Review of the Survey Results 25 Factors Affecting Choice of Supplier 25 Supplier Performance 28 Importance of Specific Quality Factors 29 Contract Specifications 31 Importance of Dockage 33 Costs and Returns of Cleaning 34 Value of Screening and Millfeed 34 Trade Impacts of Quality Factors 35 Conclusions 35 References 37 Glossary 38 Appendix table 42 vi Summary Wheat-based foods have been playing a more important role in the Philippines' diet in recent years. Although most Filipinos continue to consume rice as their major staple food, more households are purchasing bread, noodles, and other bakery items, which has led to a substantial increase in wheat consumption. At-home consumption of wheat-based products has been augmented by the recent growth in, and popularity of, fast food restaurants in urban areas. The Philippines relies entirely on imports to meet its growing demand. Wheat is the Philippines' second largest agricultural import. Since 1981, the United States has been the main supplier of wheat to the Philippines. Until 1986, the United States maintained virtually 100 percent of the market. However, since 1987 the United States has been losing market share. The U.S. share of the market during marketing year 1990/91 (June-May) was 85 percent and fell to 78 percent during 1991/92, the lowest percentage share since 1989. U.S. market share has averaged 82 percent per year since 1986. Canada began supplying the Philippines with Canadian western red spring wheat beginning in 1987 and has since become the chief U.S. competitor. The Philippines has also recently received shipments of Indian and Saudi Arabian wheat. Wheat marketing and distribution have been controlled by the private sector since 1986. The Philippines provides the first example in South and Southeast Asia of a completely liberalized wheat market that has successfully made the transition from a state-run monopoly to a competitive private sector industry. The milling and baking industries have always been part of the private sector. The key factor in the purchasing decisions is the price of wheat, with quality being the second most important factor. The most important factor affecting the net price is government subsidies, in particular the Export Enhancement Program (EEP). Of the quality characteristics, protein and moisture are the most important. There has been an upward trend in protein quantity in western white wheat. Presently, there is no maximum protein limit in the western white wheat contracts. With the upward trend in protein, however, mills are considering the inclusion of a maximum limit.