International Research Journal of Finance and Economics ISSN 1450-2887 Issue 69 (2011) © EuroJournals Publishing, Inc. 2011 http://www.eurojournals.com/finance.htm Analyzing the Philippines Inter-Regional Market Integration for Rice Cesar C. Rufino School of Economics, De La Salle University – Manila E-mail: cesar.rufino@dlsu.edu.ph Abstract This study examines the existence of the spatial market integration of the different pairs of regional rice markets in the Philippines. By employing modern time series econometric techniques, it uncovered compelling pieces of evidence of strong steady state linkages of the various pair wise combinations of regional markets, with only an insignificant few segregated routes. The main conclusion that was drawn from various inference procedures undertaken in the study is that, despite the geographic segregation of the regional rice markets, and the presence of fragmented and often inefficient distribution system, price signals and other market information are being transmitted efficiently across the markets, thus negating the potential occurrences of unexploited arbitrage opportunities. Keywords: Spatial Integration, Rice Market JEL Classification Code: Q13 1. Introduction Being the major staple food of Filipinos, rice has perennially been occupying the center stage in every administration’s agricultural modernization, poverty alleviation and food self-sufficiency programs. Many government instrumentalities, spearheaded by the Department of Agriculture and the National Food Authority (NFA) are tasked to ensure continuous supply of this strategic commodity at stabilized prices all over the country. These agencies are also mandated to make farmers get the best possible price for their produce. However, rice production and consumption in the country are characterized by a great deal of seasonal and regional variability resulting in the occurrences of periodic surpluses and deficits in the different regions, thus making the task of stabilizing prices, both at the farm level for palay, and at the retail level for rice, truly difficult (Martinez, et. al. 1998). The problem is often exacerbated by the generally fragmented and inefficient distribution and transportation systems (Intal and Ranit 2001). The need to continually move the surpluses from production areas to deficit consumption areas in the most economical manner possible has been an ever-present challenge to the stakeholders of the rice economy since the beginning of rice trading in the country. Over the years, trading patterns for rice linking the different supply-demand areas have evolved, and distribution volumes consistent with market directed prices and transfer costs have traditionally been followed by rice traders. The question of how integrated the country’s regional rice markets are, to effectively reflect price margins and other market information that would signal rice movements along traditional and non-traditional trading routes has not been adequately addressed by analysts. Examining the extent of inter-regional market integration, both spatial and across marketing stages will provide insights on the speed of traders’