PHILIPP AGRIC SCIENTIST
Vol. 94 No. 1, 54-65
March 2011
ISSN 0031-7454
Brown Rice Market Chain and Marketing Practices, Luzon,
Philippines
Isabelita M. Pabuayon* and Antonio Jesus A. Quilloy
Department of Agricultural Economics, College of Economics and Management, University of the Philippines Los
Baños, College, Laguna, Philippines
*
Author for correspondence; e-mail address: [email protected]; Tel./Fax: 63-049-536-3292
The study involved an analysis of the brown rice market in selected provinces of Luzon,
Philippines. Brown rice comprised a small portion of the rice market with 10 producers
included in the study, having an annual output of approximately 397 metric tons only.
The market chain consisted of producers, market intermediaries and consumers. Scale
of production varied considerably, from small individual farmers to large cooperatives.
The market chains were relatively simple involving at most two market intermediaries,
i.e., the wholesaler/distributors and the retailers. Big producers were linked to markets
via established and extensive marketing networks of NGOs while the small ones sold to
households within their respective localities. Value-addition in the form of grading/
quality control, re-packaging, labeling or delivery to higher-level markets was done
mainly by those who carried a brand name or sold in established wholesale and retail
markets. Such value-addition provided financial incentives as reflected in the price
increase through the chain. Except for one, the market participants earned positive net
returns, given the current scale of operation and market capacity. Estimated monthly
consumption of brown rice was low at 6.75 kg per household. Non-use or discontinued
use of brown rice was due to its high price, not being readily available, poor eating
quality and the limited information about it among consumers. Constraints in the supply
chain were related to the lack of drying facility for palay (paddy rice) during
unpredictable weather conditions, lack of rice mills specifically designed for brown rice
and the limited local market for small producers.
Key Words: brown rice, constraints, market chain, price
INTRODUCTION
As defined by the Asia Rice Foundation (ARF), “brown
rice is unpolished whole grain rice that is produced by
removing only the hull or husk using a mortar and pestle
or rubber rolls” (www.asiarice.org/sections/whatsnew/
brbulletin.html). The brownish coating of the dehulled
rice grain is rich in nutrients. Based on the various ARF
reports, brown rice has several advantages over white or
polished rice (www.asiarice.org/sections/chapters/.../
ARF-Phil-Prog.html). Its milling recovery is 10% higher
than that of white rice, thus aggregate rice supply could
potentially increase with more production of brown rice.
Milling involves lower energy cost due to shorter milling
process which could increase financial returns to
producers. Finally, higher consumption of brown rice
could contribute to improved nutrition due to its health
benefits.
54
Despite these benefits, brown rice currently
comprises a very small share of the household rice
basket. One reason is the apparent lack of information
about brown rice. Cuyno (2003) noted several drawbacks
in the brown rice business. Brown rice is more expensive
than white rice, is not readily or conveniently available,
has a shorter shelf life and gets rancid if stored beyond 4–
6 wk due to the high fat content in the bran, has a coarse
texture and a “dirty” look, is susceptible to storage weevil
and entails longer cooking time. In her study of
consumers in Los Baños, Laguna, Reforma (2007)
reported that there is limited knowledge on the exact
nutritional benefits from brown rice and where the
product could be sourced. On the whole, the market chain
of brown rice is not well understood. Pabuayon et al.
(2009) indicated that analysis of the market chain could
identify the key production and marketing constraints and
provide recommendations for improving the distribution
The Philippine Agricultural Scientist Vol. 94 No.1 (March 2011)
Brown Rice Market Chain and Marketing Practices
Isabelita M. Pabuayon and Antonio Jesus A. Quilloy
system for the benefit of producers, marketing agents and
consumers.
This study aimed to: 1) characterize the market chain
for brown rice; 2) analyze the marketing practices, price
structure and net returns of the different market
participants; 3) identify the key constraints in the supply
chain; and 4) propose measures for addressing constraints
toward promoting the production and consumption of
brown rice.
Analytical Framework
Analysis of the market chain (here alternatively referred
to as supply chain or production-to-consumption system)
involves identifying the key market players and their
roles, determining the financial returns obtained by these
players from production and marketing activities, and
pointing out the constraints vis-à-vis the logistical
requirements in the chain. Figure 1 shows the system
starting from procurement or production of raw material
(palay) and related activities such as drying, grading and
storage; followed by processing or milling (i.e.,
conversion of palay into brown rice) including quality
control, packaging and labeling of the final product; and
then product distribution and related activities such as
transport, pricing, re-packaging and branding; until it gets
into the hands of consumers.
Key questions relate to the economic costs and
benefits of performing the above activities; the
distribution of the final product value according to the
economic contribution of the market players involved in
making the product available to the consumers in the
right form, time and place; and the availability of
logistical requirements at the various stages in the supply
chain. Efficient operations, coupled with adequate market
demand, translate to profitable operations which, in turn,
provide incentives for continuous and even expanded
production and marketing investments. The various
activities are undertaken by the market players consisting
of producers and market intermediaries who link the
former to the end-users. Under competitive conditions,
the market players receive returns from their operations
corresponding to their functions and services equal to the
opportunity cost of capital, over and above payments for
all expenses incurred. Throughout the chain, there could
be some constraints which affect the flow of brown rice
from the producer through the market intermediaries to
the consumer.
The Philippine Agricultural Scientist Vol. 94 No.1 (March 2011)
Fig. 1. Conceptual framework for analyzing the market
chain of brown rice.
METHODOLOGY
Socio-economic surveys were conducted to obtain
primary data on brown rice production and marketing
operations covering the year 2009. Respondents included
10 producers from seven provinces in Luzon, three
traders with two of them based in Metro Manila and one
in Laguna, and 116 consumers, majority of them from
Laguna. One producer in Laguna did not provide
information, hence, was not included in the study. Being
few, producers were located through referrals and
consultations. The producers then identified their market
outlets. Consumers were selected purposively in
production areas as referred to by producers and key
informants.
Respondents were personally interviewed by the
research team. Data were organized and summarized
using descriptive statistics and then presented in tabular
and graphical forms. Analysis covered information for
the year 2009. The geographical flow of the product from
production areas to consumption and market centers and
its movement from the producer through the wholesaler/
distributor to the retailer, and finally to the consumer,
were traced through market chain analysis. Several
market chains were identified and for each chain and for
the market participants comprising each chain, the
following were estimated: volume and value of purchases
of the raw material or product, costs of production and
marketing/value-adding activities, prices at different
market points, volume and sales value, and net return. Per
unit net return of producers was determined using simple
cost and return analysis; for traders, by deducting the
marketing costs from the marketing margin. The margin
is the difference between the selling price and the buying
price. The distribution of the final product value or retail
price among the different market participants was
obtained from their respective value shares.
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Brown Rice Market Chain and Marketing Practices
RESULTS AND DISCUSSION
The Key Market Players
Several key market players were involved in the
production and marketing of brown rice and these
include: (1) the brown rice producers, (2) the market
intermediaries consisting of wholesalers/distributors and
retailers, and (3) the consumers. A fourth group consists
of providers of inputs and milling services to the
producers and market intermediaries.
The producers converted the raw material (paddy rice
or palay) into brown rice and comprised the original
source of brown rice. They were classified into three
types, namely; (a) the farmer who grows his own palay
and then has it milled by a milling service provider; (b)
the palay/brown rice wholesaler who buys palay from
various sources, processes it into brown rice through a
milling service provider, and then sells it primarily on a
wholesale basis; and (c) the rice miller who buys palay
and mills it into brown rice using his/her own milling
facilities. The market intermediaries served as the link
between the producers and consumers and handled the
distribution of brown rice to end-users. The consumers
were the final destination and users of brown rice.
All the palay farmer-respondents were private farm
owners and producers/growers of white rice, vegetables,
root crops, livestock and poultry. Five of them were
leaders of peoples’ organizations (POs) in their
respective areas and were members of the Magsasaka at
Siyentipiko Para sa Pag-unlad ng Agrikultura
(MASIPAG), a farmer-led network of POs, NGOs, and
scientists working towards the sustainable use and
management of biodiversity through farmers' control of
agricultural production and associated knowledge. Two
were from Solano, Nueva Vizcaya; one from Tumauini,
Isabela; one from Calabanga, Camarines Sur; and one
from Cabanatuan, Nueva Ecija. The other producer was
the Riceview-Agro Farm located in Los Baños, Laguna.
The palay/brown rice wholesalers included the SUSI
Foundation in Tiaong, Quezon; the St. Vincent Parish
Credit Cooperative (SVPCC) in Nueva Vizcaya, and the
Kooperatibang Likas ng Nueva Ecija (Kool-NE) in
Nueva Ecija. Established in 1989 with a grant of PhP33
million for postharvest operation and facilities, the SUSI
Foundation has now cut down its operations due to
unpaid input loans of farmers. Though still operational,
SUSI Foundation stopped its rice milling due to
uneconomical utilization of its machines. It has limited
funds for palay procurement and is now out-sourcing
milling service from a private miller. Kool-NE was
established in 2002 and is essentially owned by its
members but is professionally supervised by a corporate
management team of entrepreneurs. It maintains
partnership with the Land Bank of the Philippines (LBP)
for agri-financing, the National Livelihood Support Fund
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Isabelita M. Pabuayon and Antonio Jesus A. Quilloy
(NLSF) for microfinance, and the Upland Marketing
Foundation, Inc. (UMFI) and RR Trade for the marketing
of organically grown farmers’ products. Established in
the early 1950s, SVPCC is a member cooperative of
MASIPAG. Trading of organically grown products is
only a portion of its income because SVPCC is primarily
a credit cooperative.
The Pecuaria Development Cooperative, Inc. (PDCI)
was the lone rice miller respondent. At the time of the
study, it had a total of 426 members and was engaged in
agri-related multi-enterprise activities. Its major activity
revolved around the production, trading and marketing of
organic rice. PDCI produced and traded different types of
rice such as organic healthy rice, white, brown, pink,
polish red, unpolished red, violet rice, black rice,
aromatic and blended rice. Their products are certified by
the Organic Certification Center of the Philippines
(OCCP) and bear the seal of excellence and integrity. The
cooperative is assisted by UMFI, its marketing arm.
The three trader-respondents were the two Manilabased wholesalers/distributors (UMFI and RR Trade) and
one small retailer in Los Baños (TLC Center for Health
and Beauty). UMFI has been serving as the marketing
arm of community-based enterprises (CBE) such as
farmers’ cooperatives, POs and tribal communities since
1994. Over the years, UMFI has developed an extensive
network of partners and gained experience in the
development and marketing of CBE products in the main
markets all over the Philippines. Currently, UMFI is
assisting 75 communities in enterprise development and
selling organic products and other healthy food items to
more than 250 supermarkets and groceries nationwide.
RR Trade was established in late 2008 as part of the
marketing arm of the Philippine Rural Reconstruction
Movement (PRRM), the oldest NGO in the Philippines.
Kool-NE is one of the recipients of the marketing
assistance provided by RR Trade to the brown rice
industry. RR Trade is a regular source of brown rice of
PRRM’s employees, the Earthworm Philippines
Foundation, the PGX Trimona Restaurant and the
LALIGA Foundation. Products marketed by RR Trade
include other organic products and fruit preserves. The
small retailer in Los Baños started operating only in July
2009. Brown rice is only one of its traded products;
others include organic-based beauty products, fruit
preserves, pigmented rice and other organic products.
Consumers include current users, lapsed users and
non-users, the latter being considered as potential users.
Current users are those who eat brown rice on a regular
basis, but not necessarily everyday or three times a day.
Lapsed users are those who have consumed or tried
consuming brown rice but stopped for various reasons.
Non-users are those who have never tried brown rice but
have been asked if they have any immediate plans of
consuming it.
The Philippine Agricultural Scientist Vol. 94 No.1 (March 2011)
Brown Rice Market Chain and Marketing Practices
Aside from producers, traders and consumers, other
market participants include the farmer-members of
cooperatives who are the main sources of raw material,
milling service providers, and sellers of packaging and
labeling materials used in brown rice.
Brown Rice Market Chains and Marketing Practices
Geographical flow of brown rice from production to
consumption areas. The geographical flow of brown rice
largely depends on the volume of production. Small
volumes are primarily for household consumption within
the production areas; large volumes are traded through
market channels and reach consumers in different market
areas. Table 1 shows that Nueva Ecija was the main
producer with a 67.31% share of the total production,
followed by Camarines Sur with 22.44%. The biggest
producers, namely, Kool-NE and PDCI, were located in
the two provinces. Isabela, Nueva Vizcaya and Quezon
had much smaller shares.
All provinces, except Quezon, were engaged in intraprovincial trading. However, larger volumes were traded
outside the province, mainly due to the trade of Nueva
Ecija and Camarines Sur with 252 metric tons (mt) and
81.1 mt, respectively. Trading in Nueva Vizcaya, Nueva
Ecija, Quezon and Camarines Sur was largely with the
National Capital Region (NCR) through networking with
NGOs such as the UMFI and RR Trade. Table 2 shows
that 75% of the volume traded outside the production
areas was pre-arranged for marketing to the NCR from
Nueva Ecija. The rest was distributed to Batangas
consumers and other walk-in buyers all over Bicol
through leading groceries and supermarkets. SUSI
Foundation sold part of its produce to Batangas
consumers while PDCI distributed a considerable volume
to other Bicol provinces. Since UMFI and RR Trade are
wholesalers and distributors, brown rice eventually goes
to many different provinces outside the NCR.
Market chains of brown rice from palay farmers. The
product flow of the five MASIPAG farmers can be
characterized as simple because they sold directly to
consumers within their respective localities. The
Riceview-Agro farm, however, is composed of two subchains involving a) a retailer as intermediary and b)
direct sale to local consumers. With an average volume
of 6.008 mt of palay intended for brown rice, milling loss
of 32.50%, and handling loss of 0.66%, 4.016 mt of
brown rice were sold annually by a MASIPAG farmer
(Fig. 2). The bulk (90.24%) was sold on-site to local
consumers while the rest (9.76%) was traded to direct
consumers in the NCR, both at an average price of
PhP39.00 per kg.
With a total cost of PhP17.10 for every kilogram of
brown rice sold, MASIPAG farmers realized a net return
of PhP21.90 per kg. The total cost included expenses
The Philippine Agricultural Scientist Vol. 94 No.1 (March 2011)
Isabelita M. Pabuayon and Antonio Jesus A. Quilloy
incurred in post-harvest and marketing activities such as
hauling, drying and sorting of harvested palay; milling;
and sacking, storage and transport of brown rice; as well
as the production cost for palay. MASIPAG farmers had
an average production cost of PhP7.73 per kg of palay
produced. The major post-production cost items were
milling and transport to buyers.
Riceview-Agro Farm, on the other hand, had an
average annual production of 3.24 mt sold to direct
consumers (92.74%) with small amounts going through a
small retailer (4.45%) in the locality at an average price
of PhP38.00 per kg (Fig. 3). With a marketing cost of
PhP21.92 per kg of brown rice sold and a farm
production cost of PhP9.23 per kg of palay, the farmer
obtained a net return of PhP3.60 per kg of brown rice
sold. More than half of the marketing cost was for
grading/quality control, re-packing and labeling, and
delivery to buyers. Riceview-Agro Farm hired an
additional worker to separate unmilled palay from the
brown rice to ensure good quality and it also sold its
product in 1-kg labeled packages.
Brown rice sold through the retailer (TLC) was only
a small portion of Riceview-Agro Farm’s produce.
Buying at PhP38.00 per kg and selling at PhP48.00 per
kg with a total cost of PhP41.15 per kg, the net return of
the retailer was PhP6.85 per kg. Since sale of brown rice
was but a small portion of its operation, the bulk of
TLC’s cost was brown rice purchase. Value-added was
roughly PhP10.00 per kg, which aggregately consisted of
returns to the entrepreneur (profit), labor (wages of
workers), taxes (government) and financial cost (credit),
if any. Disaggregation of value-added into these
components was not done due to the difficulty of
disjointing the costs among the different products
handled by the retailer. Net return of MASIPAG farmers
was four times that of Riceview-Agro farmers mainly
because of lower palay production and marketing costs.
The bulk of the total cost of Riceview-Agro farm was
contributed by hired labor for production of raw material,
grading of brown rice, packaging materials and other
fixed costs. Grading or quality control was considered the
most labor-intensive activity because it was manually
performed by hired laborers in order to improve product
appearance and quality. Re-packaging using plastic bags
labeled with the name of the farm, product description
and cooking instruction was also a main activity to
introduce Los Baños Pinawa as a local brand of high
quality. Among MASIPAG farmers, the bulk of the cost
was for labor and material inputs for producing palay,
milling and transport.
Market chains of brown rice from palay/brown rice
wholesalers. SUSI Foundation and SVPCC illustrate a
simple product flow involving the producer and
consumer while Kool-NE shows three sub-chains,
57
Brown Rice Market Chain and Marketing Practices
Isabelita M. Pabuayon and Antonio Jesus A. Quilloy
Table 1. Annual volume and percentage of brown rice produced and sold, by production area, 10 producers, Luzon,
Philippines 2009.
Volume Sold
Volume Produced
Production Area
Volume
(mt)
Isabela
Nueva Vizcaya
Nueva Ecija
Laguna
Quezon
Camarines Sur
Total
4.95
20.45
267.00
3.24
12.00
88.99
396.63
Percent
(%)
1.25
5.16
67.31
0.81
3.03
22.44
100.00
Percent Sold
Within
Province
Outside
Province
Total
Volume
(mt)
Volume
(mt)
Volume
(mt)
4.95
16.00
15.00
3.24
0.00
7.89
47.08
0.00
4.45
252
0.00
12.00
81.10
349.55
4.95
20.45
267.00
3.24
12.00
88.99
396.63
Within
Province
(%)
Outside
Province
(%)
100.00
78.24
5.62
100.00
8.87
-
21.76
94.38
100.00
91.13
-
Table 2. Annual volume and percentage of brown rice produced and sold, by market area, 10 producers, Luzon,
Philippines 2009.
Market Area
Source
Nueva Vizcaya
Nueva Ecija
Metro Manila
Batangas
Volume
(mt)
Percent
(%)
Volume
(mt)
Percent
(%)
Volume
(mt)
Percent
(%)
4.45
1.70
0
-
0
252.00
96.02
0
Quezon
6.00
2.28
6
Camarines Sur
0.00
-
0
Total
Rest of Bicol
262.45
100.00
6
100.00
100.00
All Areas
Volume
(mt)
Percent
(%)
-
4.45
1.27
72.09
0
-
252.00
0
-
12.00
3.43
81.10
100.00
81.10
23.21
81.10
100.00
349.55
100.00
Fig. 2. Product flow, sales, costs, prices, net return and market outlets of MASIPAG farmers, Luzon, Philippines 2009.
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The Philippine Agricultural Scientist Vol. 94 No.1 (March 2011)
Brown Rice Market Chain and Marketing Practices
Isabelita M. Pabuayon and Antonio Jesus A. Quilloy
Fig. 3. Product flow, sales, costs, prices, profit and market outlets of Riceview-Agro Farm, Luzon, Philippines 2009.
namely, (a) from producer to wholesaler-distributor to
retailer to consumer, (b) from producer to distributorretailer to consumer, and (c) from producer to consumer
(Fig. 4–6).
The production and sales of brown rice were based
on the raw material purchases. The volume of palay
purchase was 17.2 mt and 17 mt for SUSI and SVPCC,
respectively, and 400 mt for Kool-NE. With a milling
loss of 30–34%, about 12 mt (SUSI and SVPCC) to 264
mt (Kool-NE) of brown rice were produced annually.
The entire produce of SVPCC and SUSI Foundation was
sold to direct consumers from Batangas, NCR and Nueva
Vizcaya. About 95% of Kool-NE’s produce was directed
to wholesaler/distributor/retailers with the remaining 5%
to consumers in the locality.
Kool-NE’s produce went to three market outlets
distributed as follows: UMFI (240 mt), RR Trade (12 mt)
and walk-in consumers (12 mt). UMFI sold to markets
within and outside Metro Manila. UMFI’s market outlets
included SM hypermarkets, Robinson’s, Shopwise,
Rustan’s, Puregold, Landmark, and other supermarkets
and groceries selling to consumers in the NCR, Laguna
and Cavite. RR Trade, SUSI and SVPCC sold directly to
consumers, with some brown rice passing through certain
NGOs.
Aside from pre-milling and milling activities, brown
rice wholesalers performed value-adding activities such
as sacking/re-packaging, storing and transporting brown
rice to market outlets. Kool-NE sold its brown rice in 50kg sacks which were then re-packed by UMFI into 2-kg
and 5-kg packages labeled as Healthy Rice, and by RR
Trade into 2-kg and 5-kg packages labeled as RR Trade.
Thus, the distributors performed value-adding (repacking and labeling) which comprised a considerable
proportion of their marketing costs. SUSI re-packed and
labeled its brown rice into 5-kg plastic bags containing its
brand name which it sold directly to its buyers. Milling
The Philippine Agricultural Scientist Vol. 94 No.1 (March 2011)
services were out-sourced from the private millers near
the area. Milling cost included service fee and other
additional cost such as food for the mill operator during
overtime work when buyers placed additional orders in
the case of Kool-NE.
Since these producers bought their raw materials, the
cost of palay purchase comprised the bulk of their total
cost: 81% for Kool-NE, 76% for SUSI and 71% for
SVPCC. They bought palay from their cooperative
farmer-members at PhP16.00 to 17.00 per kg. On the
other hand, the distributors and retailers bought brown
rice from the producers and sold the same to their market
outlets. The difference in their selling and buying prices
comprised their marketing margins.
Value-addition occurred in the case of Kool-NE as
brown rice went through the market chain. The producer
sold the product to the wholesaler-distributor at PhP35.00
per kg who then sold it to the retailer at PhP53.60 per kg
who, in turn, finally sold it to the consumer at PhP59.00
per kg. The other sub-chain showed the buying price of
the distributor-retailer at PhP35.00 per kg and its selling
price at PhP50.00 per kg.
Net returns of producers ranged from negative
PhP0.51 per kg for SVPCC to PhP1.67 per kg for SUSI
and PhP3.40 per kg for Kool-NE. The loss incurred by
SVPCC was due to its relatively high cost of raw material
and the fixed costs for depreciation of its capital items
and building rental. SVPCC bought at PhP17.00 per kg
of palay from its members but its selling price was
relatively low at PhP33.40 per kg. Although SUSI sold at
the lowest price among the three producers, it was able to
keep its cost relatively low, hence, it was still able to
obtain a positive return. Kool-NE’s net return was
highest among the three palay/brown rice wholesalers as
it was able to sell at a relatively higher price of PhP35.00
per kg.
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Brown Rice Market Chain and Marketing Practices
Isabelita M. Pabuayon and Antonio Jesus A. Quilloy
Fig. 4. Product flow, sales, costs, prices, profit and market outlets of Kool-NE, Nueva Ecija, Luzon, Philippines 2009.
Fig. 5. Product flow, sales, costs, prices, profit and market outlets of SUSI Foundation, Quezon, Luzon, Philippines
2009.
Fig. 6. Product flow, sales, costs, prices, profit and market outlets of SVPCC, Nueva Vizcaya, Luzon, Philippines 2009.
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The Philippine Agricultural Scientist Vol. 94 No.1 (March 2011)
Brown Rice Market Chain and Marketing Practices
Profit margins for UMFI and RR Trade were
PhP12.38 per kg and PhP15.03 per kg, respectively.
Buying and selling at almost the same prices, RR Trade
did not incur delivery cost, hence, it had a relatively
higher net return. Marketing margin of supermarkets was
estimated at PhP5.50 per kg based on the store checks of
their selling prices.
Market chains of rice miller. Two sub-chains were
observed in the product flow of brown rice from PDCI
(Fig. 7). First was from the rice miller to the local
consumers who were mostly walk-in buyers. This subchain comprised only 5% of the total brown rice
produced by the miller. The second was from the rice
miller to the retailers then to consumers in various areas
of Bicol. Retailers were mainly leading malls in Bicol
that sold brown rice to Bicol consumers. This sub-chain
comprised the bulk (95%) of the produce. The total
annual produce of PDCI was 85.00 mt of brown rice,
considering total palay purchase of 125.93 mt and
milling recovery of 67.5%.
PDCI purchased palay from its farmer-members.
Buying at PhP15.00 per kg of palay, raw material
purchases comprised the largest cost item, about 80% of
its total cost. Its other costs included hauling, drying and
grading of palay; milling using its own facilities
including depreciation; and re-packaging, storage and
transport of brown rice to its buyers. PDCI carried the
brand name “Healthy Rice” of UMFI, being part of the
marketing network of various NGOs. Having an
integrated operation, from palay production of its farmermembers up to milling and then selling to its retailers,
PDCI incurred lower cost compared with the two other
cooperatives (Kool-NE and SVPCC) which were
dependent on private millers for the milling of their
palay. Selling its brown rice at PhP35.00 per kg, buying
palay from farmers at PhP15.00 per kg and having a total
cost of PhP27.81 per kg, PDCI had a net return of
PhP7.19 for every kilogram of brown rice produced and
sold. PDCI internalized all production and value-adding
activities and thus realized some value-added.
The retailers who bought at PhP35 per kg and sold at
PhP40 per kg had a marketing margin of PhP5.00 per kg.
The value-added at this point is attributed to the services
provided by the retailers, that is, storage and having the
product in good condition and on display until it is sold
to consumers.
Comparative net returns of producers. Table 3 shows
the comparison of the selling prices, per unit costs and
per unit net returns of brown rice producers. MASIPAG
farmers obtained the highest per unit net return since they
also had the highest selling price and the lowest per unit
cost. PDCI obtained the second highest since it had also
managed to lower its costs compared with the other
The Philippine Agricultural Scientist Vol. 94 No.1 (March 2011)
Isabelita M. Pabuayon and Antonio Jesus A. Quilloy
producers. Selling at a relatively lower price, SVPCC
incurred some loss due to its relatively high cost.
Product Value Shares of Key Market Players of
Brown Rice
The services provided by the various market participants
reflected their contributions in making the product
available to the consumers. Figure 8 shows the respective
peso value shares of the key players by type of producer
and market chain. These shares were based on the selling
price of the producer and the marketing margin of the
intermediary as a percent of the final retail or consumer
price. Kool-NE chain generated the smallest producer’s
share of the final product value. This is because the
brown rice passed through at most two intermediaries
before reaching the consumers unlike in the other chains
involving either direct sale to consumer or only one
intermediary, that is, the retailer. Nevertheless, the
producer had the biggest share among all market players
in the Kool-NE chains (from 59.32% to 100%),
indicative of the relatively large contribution of the
producers in the brown rice market.
For market chains involving direct sale by the
producer to the consumer, the producer’s share is the
entire product value (100%) since there are no
intermediaries, which was the case for the MASIPAG
farmers, SUSI and SVPCC. They performed all the
production and marketing services for which all expenses
were paid including return to the operator’s labor and
management, except for SVPCC, which incurred some
loss in its operation. MASIPAG farmers earned higher
net return both on per unit and aggregate bases compared
with SUSI since the former produced their own palay
while the latter had to buy it at the price advantageous to
its farmer-clients.
The chains with the next biggest shares for the
producer were those with only one intermediary, as in the
case of PDCI, Rice-view Agro and one sub-chain of
Kool-NE involving the distributor-retailer. The respective
shares of the three producers were 87.5%, 79.17% and
66.04%, respectively. The remaining shares of the
product value were for the retailers. Although Kool-NE
had the smallest share among the three producers, its
aggregate profit was still the highest due mainly to its
bigger scale of operation. Rice-view Agro had the
smallest aggregate profit due to its small-scale operation.
The producer’s share was smallest in the market chain
involving two intermediaries as in the case of Kool-NE
with wholesaler-distributor and retailer as part of the
chain. However, the producer’s share remained the
biggest among the three market participants at 59.32%,
followed by the distributor’s share at 31.53%, and then
by the retailer’s share at 9.15%.
61
Brown Rice Market Chain and Marketing Practices
Isabelita M. Pabuayon and Antonio Jesus A. Quilloy
Fig. 7. Product flow, sales, costs, prices, profit and market outlets of PDCI, Camarines Sur, Luzon, Philippines 2009.
Table 3. Selling price, production and marketing costs, and net return, brown rice producers, Luzon, Philippines 2009.
Producer
MASIPAG
Riceview Agro
KooL-NE
SUSI
SVCPP
PDCI
Selling Price
Cost
Pesos per kilogram
Net Return
39.00
38.00
35.00
32.00
33.80
35.00
17.10
34.40
31.60
30.33
34.31
27.81
21.90
3.60
3.40
1.67
(0.51)
7.19
Fig. 8. Product value shares of participants in the brown
rice market chains, Luzon, 2009.
Marketing Arrangements
The marketing arrangements were in terms of the basis of
pricing, the mode of product disposal, the mode of
payment, and the reasons for choice of market outlets.
Pricing at the producer level was mainly based on the
marketing and production cost of the producers, although
the prevailing market price was also considered.
Distributors and retailers gave equal weight to the two
factors. Competition was tight at the retail level because
of the increasing number of brands with improved
appearances due to packaging and labeling. Brown rice
was sold either through delivery or pick-up. The pick-up
62
method was practiced by walk-in buyers at the producer,
distributor and retail levels. Delivery of produce was
done mainly by cooperatives in the case of PDCI and
Kool-NE with large volumes of produce traded outside
the production area and by palay farmers to their patrons.
Cash was the principal mode of payment to
producers. Credit terms were practiced solely by
cooperatives such as PDCI and Kool-NE which sold to
distributors and large-scale retailers. Credit terms
involved 50% cash upon delivery with the rest paid after
1–4 wk depending on the agreement between the buyer
and the seller. Retailers were paid in cash by walk-in
buyers. Reliability and existence of marketing networks
were the main reasons for choosing present market
outlets.
Consumers’ Purchasing Behavior and Willingness to
Pay
Consumers learned about brown rice primarily through
friends, relatives and colleagues who have tried and
enjoyed the benefits of eating brown rice. Consumers
bought on a weekly or monthly basis, every 2 mo, or
every harvest season. Majority of brown rice consumers
did not use brown rice exclusively and had used it for
less than a year to 2 yr. Among less than half of the
consumers, all family members ate brown rice; for the
other cosumers, only the couple or respondent ate brown
rice. In some households, children did not eat brown rice.
The Philippine Agricultural Scientist Vol. 94 No.1 (March 2011)
Brown Rice Market Chain and Marketing Practices
Average monthly consumption was 6.75 kg but most
households consumed between 1–5 and 6–10 kg per
month. One-third of the consumers ate brown rice on a
daily basis while the rest consumed once, twice, or thrice
a week. More than half of the consumers mixed brown
rice with white rice at a 50:50 ratio before cooking. Some
40% consumed it pure while the rest used brown rice for
other food items such as champorado, rice cakes and
other recipes.
On the average, consumers were willing to pay
PhP43.11 for a kilogram of brown rice (Fig. 9). In terms
of area, Los Baños consumers had the highest amount of
bid for brown rice at PhP46.07 per kg and Nueva Ecija
consumers the lowest at PhP35 per kg. However, at
certain levels, consumers were not willing to buy brown
rice because it was either too cheap (at PhP25.13 per kg)
or too expensive (at PhP60.76 per kg). When the price
was too cheap, consumers perceived that the quality was
most likely unfavorable; when the price was too
expensive, consumers would not eat brown rice on a
regular basis, thus making it a luxury good. When asked
whether or not they were willing to pay an additional
amount for organic certification, 71% of the consumers
answered in the affirmative. The rest gave a negative
answer, indicating that it was not important for them
whether the product was certified organic or not. Los
Baños consumers were willing to pay the highest
additional amount of PhP3.45 per kg for organic
certification whereas the Nueva Vizcaya consumers were
willing to pay the least at PhP2.00 per kg (Fig. 10). On
the average, the incremental amount for organic
certification was PhP2.63 per kg.
There were several reasons why consumers did not
use or had discontinued using brown rice (Table 4).
Brown rice was expensive, not readily available, not
interesting and unknown to consumers, less preferred
compared with white rice, and had poor eating quality.
Opportunities and Constraints in the Brown Rice
Market Chain
Various factors provided opportunities for enhancing the
brown rice market chain. One was the availability of
market information and networking among the producers,
particularly the big cooperatives such as Kool-NE and
PDCI, which as a result, had ready market outlets.
Another was the perception among the producers and
consumers who were interviewed that product quality
was generally good and price was reasonable. Since
prices at supermarkets are higher, consumers are better
off with the relatively ‘cheaper’ brown rice they get from
their present sources. The present niche market for brown
rice and the expressed willingness to pay of consumers
provide good prospects for market expansion.
Some constraints, however, need to be addressed.
These are: a) the lack of drying facilities for palay
The Philippine Agricultural Scientist Vol. 94 No.1 (March 2011)
Isabelita M. Pabuayon and Antonio Jesus A. Quilloy
especially during unpredictable weather conditions, b)
the lack of milling equipment specifically designed for
brown rice, and c) the limited market for small producers.
Six producers had problems with palay drying, five with
milling, and two with marketing. Although milling
recovery of unpolished rice was significantly higher
compared with that of well-milled rice, producers
believed that optimum milling recovery of about 75–80%
for unpolished rice is possible if available machines are
duly intended for unpolished rice. Dependence on the
service provider was also a problem for producers with a
small volume of produce since there is a need to wait for
other customers to deliver their palay to meet the
minimum capacity for the machine to operate. Marketing
of brown rice was considered a problem by small
producers who were dependent on the small local market.
The number of buyers was limited to referrals by
customers. Also, consumer awareness about the existence
and benefits of brown rice was low as in the case of SUSI
and MASIPAG farmers whose scale of operation was
rather small.
Fig. 9. Amount consumers are willing to pay for brown
rice, Luzon, 2009.
Fig. 10. Incremental amount brown rice consumers are
willing to pay for organic certification, Luzon,
2009.
63
Brown Rice Market Chain and Marketing Practices
Isabelita M. Pabuayon and Antonio Jesus A. Quilloy
Table 4. Reasons for not using or discontinuing use of brown rice, Luzon, 2009.
Reason for Not Using Brown Rice
Expensive
Preferred eating white rice
Not interested
No idea on brown rice
Not readily available
Total no. of respondents
No. Reporting
Percent (%)
11
4
5
4
6
30
37
13
17
13
20
100
13
17
11
41
41
32
27
100
Reason for Discontinuing Use of Brown Rice
Expensive
Poor eating quality
Not readily available
Total no. of respondents
CONCLUSION AND RECOMMENDATIONS
Brown rice constitutes a small portion of the rice market.
It is a niche market for consumers who are informed
about its nutritional value, appreciate it and have access
to the product. The annual output of 10 producers was
approximately 397 metric tons only. The market chain
consisted of producers, market intermediaries and
consumers. Producers varied considerably in their scale
of operation, from small individual farmers who had their
palay milled by a private miller to large cooperatives
which purchased palay from their members and
depended either on a private service provider or their
own facilities for milling. The market chains were
relatively simple. Brown rice was either sold directly to
consumers or passed through at most two market
intermediaries, i.e., the wholesaler/distributors and the
retailers. Big producers were linked to markets via
established and extensive marketing networks of NGOs
while the small ones sold to households within their
respective localities. Brown rice reached consumers
through retailers such as super/hypermarkets and
specialized/health shops. The product was sold either
through walk-in purchase or small deliveries.
While brown production involved several activities,
value-addition in the form of grading/quality control, repackaging/labeling or delivery to higher-level markets
was done mainly by those who carried a brand name or
sold in established wholesale and retail markets. Such
value-addition provided financial incentives as reflected
in the price increase through the chain. For the chain
involving two market intermediaries, the price was
PhP35.00, PhP53.60 and PhP59.00 per kg at the
producer, wholesaler and retailer levels, respectively.
Except for one, the market participants earned positive
net returns, given the current scale of operation and
market capacity. Aggregate net return was high for largescale operation. However, business was also profitable
even for small producers who grew their own palay and
64
were able to secure a favorable market. Among the key
market players, the producer made the most contribution
to the final market value of brown rice. Full product
value accrued to the producer when brown rice was sold
directly to consumers.
Among the producers, the main market outlet for
brown rice depended on the particular location and scale
of operation. For the big producers, major outlets were
the distributors/wholesalers but the product was
eventually sold through supermarkets. However, small
farmers sold directly to local consumers who were able to
absorb their relatively small volumes. Brown rice was not
sold in the public retail market or sari-sari stores.
Consumers were generally the relatively high-income and
health-conscious individuals and those willing to pay a
premium price associated with its health benefits and
relative scarcity. Emerging outlets were specialty shops
that sold healthy and natural/organic products but these
were only in locations or areas where such shops were
available.
Majority of the consumers did not use brown rice
exclusively and had used it for less than a year to 2 yr.
For less than half of the consumers, all family members
ate brown rice; for the other consumers, only the couple
or the respondent ate brown rice. Estimated monthly
consumption was low at 6.75 kg per household. Majority
were willing to pay an incremental amount for organic
certification, averaging PhP2.63 per kg. Non-users
considered brown rice expensive, not readily available
and had no idea of or interest in the product. Lapsed users
discontinued use of the product because it was expensive,
had poor eating quality and was not readily available.
Constraints in the supply chain were related to the
lack of drying facility during unpredictable weather
conditions, lack of rice mills designed for brown rice and
the limited local market among small producers. At the
consumers’ end, constraints were related to its high price,
non-availability at times, poor eating quality and lack of
information about the product. There is a need to address
the production constraints of producers, particularly for
The Philippine Agricultural Scientist Vol. 94 No.1 (March 2011)
Brown Rice Market Chain and Marketing Practices
optimum drying and milling, ensure the availability of
brown rice in the market, and undertake aggressive
information and promotional effort focusing on the
beneficial attributes of brown rice. The need to develop
mills specifically designed for brown rice is emphasized
in order to lower the labor cost of grading and for the
purpose of quality control using currently available rice
mills. In view of the small market at present, specific
policy interventions may be necessary to facilitate market
development and expansion.
ACKNOWLEDGMENTS
We wish to acknowledge the financial support provided
by the Philippine Rice Institute (PhilRice) for the project
“Economic Analysis of the Production and Marketing of
Brown Rice, Philippines”; and the research assistance of
Clarissa B. Andrade and Ava Elysa P. Guanlao.
The Philippine Agricultural Scientist Vol. 94 No.1 (March 2011)
Isabelita M. Pabuayon and Antonio Jesus A. Quilloy
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MENDOZA MD. 2009. Key actors, prices and value
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REFORMA ML. 2007. Market Potential of Brown Rice
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