Stocks and shocks: Assessing the relative roles of public and private inventories in buffering rice price volatility in the Philippines

Public stockholding of food is politically contentious and economically challenging. Although private stocks are generally understood to be more efficient than public stocks at providing a reliable buffer against production shortfalls, private stocks often fail to stabilize prices during extreme food market shocks. Moreover, maintaining large public stock programs in which the government acts as the buyer or seller of last resort, can be very costly. This paper analyzes the recent historical success of public and private rice stocks in stabilizing domestic rice prices in the Philippines, the world’s largest net importer of rice. Relying on competitive storage theory and disaggregated rice stock data, we identify statistically independent global demand, global supply, domestic production and domestic demand shocks using Independent Component Analysis (ICA) in a Structural Vector Autoregression (SVAR) framework. We use monthly retail price data for 2000 to 2024 which allows us to leverage an exogeneous policy shift in stock policy. Using impulse response functions, counterfactual paths and historical decompositions we find that inventories have successfully buffered shocks, yet their relative efficacy has depended upon holder and size. Commercial stocks smooth routine volatility, while modest, rule-based public reserves are indispensable during large food market crises and when domestic production shortfalls coincide with international price hikes. We suggest that a hybrid strategy which combines private working stocks with a modest public reserve program, and which is flexible in terms of budget and procurement regulation, can be a cost-effective tool to dampen food-price volatility. • This paper investigates how public and private rice stocks affect price stability. • We exploit the Philippines’ Rice Tariffication Law as a major policy shift. • ICA-identified SVAR separates supply, demand, and trade shocks in rice markets. • Public stocks matter most in rare crisis years in smoothing extreme price spikes. • Consumer welfare losses from thin reserves exceed fiscal savings under frequent shocks.