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close this bookEconomics of the Philippine Milkfish Resource System (UNU, 1982, 66 pages)
close this folderV. The delivery sub-system: marketing of milkfish
View the document1. Marketing practices and structure
View the document2. Marketing costs
View the document3. Prices and pricing efficiency

3. Prices and pricing efficiency

Analysis of the 12-month moving average of milkfish prices in the country confirms that prices at the wholesale and the retail level behave similarly (fig. 38). For the 11-year reference period (1969-1979), there is strong correlation between the wholesale price and the retail price.70 While the general direction of both wholesale and retail prices is upward, there were two periods when the upward trend stalled. The first, in mid-1972, was characterized by a levelling-off of prices (except in Central Visayas and Southern Tagalog) that continued for 12 months. By May 1973, an upswing of prices in all regions was observed. A similar situation occurred in 1973 and 1976. Data by region show that retail prices are usually highest in Cagayan Valley and lowest in Western Mindanao, reflecting their status as net importing and net exporting regions respectively.

Although the increase in milkfish retail prices since 1969 has been dramatic, the rate of increase is actually less than that observed for "all fish" and "all items" as reported by the Central Bank of the Philippines (table 25).

The country's monthly seasonal indices for wholesale and retail prices show the seasonal nature of both (fig. 39). Prices generally reach their peak during January and February, falling below the seasonal average from May to November. Not only are May to November the primary producing months for milkfish; they are also months of fair weather with consequent above-average landings from the capture fisheries. Western Mindanao wholesale and retail prices exhibit seasonal fluctuations that are the reverse of those in the rest of the country. But here, as well, these seasonal fluctuations are highly correlated with seasonal capture fishery landings. The observed seasonal fluctuations of prices are, thus, generally consistent with overall fish supply-and-demand conditions.

As with the analysis of the procurement sub-system (see chapter 11), it is possible to evaluate the pricing efficiency of the delivery sub-system. First, market co-ordination can be judged by computation of the degree of correlation among regional milkfish prices. Second, the observed price differential between average wholesale and retail prices can be compared with the marketing costs between wholesale markets and retail markets.

Regarding the first criterion, the extent of market coordination is high, and, as in the case of the procurement sub-system, a high degree of effective flow of market information is implied. The correlation coefficients (R) among regional prices are all significant at the 1 per cent level, ranging from 0.89 to 0.98 (table 26). This high correlation, based on average monthly prices for the 19691980 period, is found even among regions which are not active trading partners. In the case of Metro Manila, which serves both as a popular outlet for milkfish from the different regions and as a redistributing centre, the price relationship with the major sources, e.g., llocos region, Central Luzon, Southern Tagalog, and Western Visayas, is notably high, with correlation coefficients computed at 0.96 to 0.98.

Fig 38 National Trends in Milkfish Wholesale and Retail Prices, 1969-1979 (12-month moving averages).

Fig. 39. Seasonal Variations in the Wholesale and Retail Prices of Milkfish,the Philippines, 1969-1979.

TABLE 25. Comparisons of Price Indices for Milkfish, All Fish, and All Items, 1969-1979 (1972 = 100)

Year Milkfisha All fishb All itemsa
1969 61 54 64
1970 63 65 74
1971 88 87 89
1972 100 100 100
1973 107 106 114
1974 153 153 157
1975 164 170 167
1976 173 186 177
1977 191 202 190
1978 196 222 206
1979 233 280 245

a. source of data: Bureau of Agricultural Economics, based on national moving averages of retail prices.
b. Source of data: Central sank of the Philippines. indices are retail prices in Metro Manila.

These findings imply that prices are efficient in directing the flow distribution of milkfish among regions in the country. The existence of interregional trading is a result of arbitrage to adjust for differences in market supply and demand in the various regions. The delivery sub-system appears to be highly integrated on a national scale.

Given the diverse routes over which milkfish are marketed, the second criterion (wholesale-retail margins and costs) is more difficult to apply, because national aggregation of price differentials and marketing costs most likely cover up inefficiencies that may exist on any given routes or at certain times of the year. An evaluation of the monthly average price margins (per kilogram) of milkfish over an 11-year period (1969-1979) showed that there are no particular months when price differences from the wholesale to the retail markets are consistently wide or small. From 1969 to 1972, the price margin did not reach the P1.00 mark, but during the middle part of 1973 it began to increase. By 1979, average price margins range from P1.57 (July) to P4.61 (January). Contrary to expectations that margins would be higher when prices are higher, there appears to be no seasonal correlation between margins and prices. On the contrary, there are occasions in June, October, and November (with lower than average prices) when the margins, expressed in terms of a seasonal index, are 114, 112, and 108 per cent, respectively. Price margins tend to be more erratic than are either wholesale or retail prices.

TABLE 26. Coefficients of Correlation of Average Monthly Prices between Regions, the Philippines, 1969-1980


Metro Manila (MM) 1.0  
Cocos Region (JR) 0.98 1.0  
Cagayan Valley (CV) 0.97 0.98 1.0  
Central Luzon (CL) 0.96 0.98 0.97 1.0  
Southern Tagalog (ST) 0.97 0.97 0.97 1.0  
Bicol Region IBR) 0.93 0.96 0.95 0.94 0.95 1.0  
Western Visayas (WV) 0.97 0.97 0.97 0.96 0.96 0.93 1.0  
Central Visayas (CEV) 0.90 0.91 0.91 0.90 0.92 0.90 0.89 1.0  
Eastern Visayas (EV) 0.90 0.94 0.93 0.93 0.94 0.95 0.93 0.88 1.0  
Western Mindanao (WM) - - - - - - - - -  
Central Mindanao (CMO 0.94 0.95 0.96 0.94 0.96 0.96 0.95 0.92 0.94 - 1.0  
Northern Mindanao (NM) 0.94 0.95 0.95 0.95 0.96 0.94 0.94 0.94 0.92 - 0.95 1.0  
Southern Mindanao (SM) 0.95 0.95 0.97 0.95 0.97 0.96 0.96 0.93 0.94 - 0.98 0.96 1.0

Source of regional price data: The Market Intelligence Section, Bureau of Agricultural Economics, Manila.

Geographical price margins should just account for the cost of transfer plus a reasonable amount of profit for the market intermediary. Observations in the local markets of fishpondproducing provinces indicate that price differences are occasionally far higher than the cost of marketing the fish. However, there are occasions when the price margins become negative, implying that retailers have sold milkfish at a price lower than the price paid to the wholesalers. On the other hand, it is interesting to note that there are cases (e.g., Pangasinan and Bulacan) where local retail prices are higher than those in Metro Manila, which is a popular outlet to both. To cite an instance, in the 1979 survey, Pangasinan retail prices averaged from P9.13 to P13.20 per kilogram of milkfish, while in Metro Manila, prices were from P7.29 to P 10.12. There are two possible reasons for this. First, a premium is often paid for Pangasinan milkfish because they have a national reputation for being"sweeter" than the milkfish produced in other provinces. In particular, they are preferred over milkfish from Laguna de Bay, which is the source of much of the Metro Manila supply. Secondly, suki obligations may lead to shipments to the Manila markets leaving local pockets of higher prices in producing provinces. As such, they reflect inefficiencies in the delivery sub-system. In general, retail prices are lower in the milkfish-producing provinces than in Metro Manila.

In terms of expenses incurred in marketing milkfish, our calculations show that an average of P0.53 per kilogram is spent from the point of first sale to the retail level. During the same period (1978) the average price margin between wholesale and retail was P1.38, although the range was P0.54 to P2.64 for the year. The return to labour, capital, management, and risk of intermediaries thus averaged P0.85 per kilogram in 1978, or 10 per cent of the average retail price. This rate of return does not appear unreasonable, implying a fair degree of pricing efficiency in the delivery sub system.

Nevertheless, there is room in the sub-system for reducing costs. There are complaints among fish producers about the lack of transport facilities, which are indispensable in the fast delivery of fish. The perishability of this product calls for not only adequate transport facilities but also storage to preserve its utility. Furthermore, there are milkfish farmers who claim that ice is sometimes insufficient in addition to being an expensive marketing input. However, the lack of fish-storage facilities apparently does not impede the availability of milkfish all year round. Notwithstanding the seasonal availability of fry, milkfish producers are able to supply the market continuously, as shown by data from the Bureau of Agricultural Economics (BAECON ) Commodity Intelligence Group.

In summary, it can be said that, while the marketing system exhibits a fair degree of price efficiency, certain technical inefficiencies, such as ice shortages, increase the cost of the product unnecessarily.