Domestic Resource Costs of Philippine Citronella Oil and Lemon Grass Oil

Abstract

Being new products, not much has been done yet to study the economic potential of two of the up-and-coming natural ingredients in the global market, namely, citronella oil and lemon grass oil. Hence, this study aims to determine the profitability of producing citronella and lemon grass at the farm level and the competitiveness of Philippine citronella oil and lemon grass oil with reference to imported citronella oil and lemon grass oil counterparts. Based on the economic analysis, both natural ingredients are profitable, with citronella posting net returns of PhP 108,362 (or USD 2,189) per hectare per year and lemon grass yielding PhP 47,224 (or USD 954) per hectare per year. Moreover, it is relatively more expensive to import citronella oil and lemon grass oil than to obtain them at the local wholesale market, ceteris paribus. The ratio of the import parity price to domestic wholesale price is 1.39 for citronella oil, and 1.10 for lemon grass oil, respectively. In terms of domestic resource cost ratio (DRCR), both citronella oil and lemon grass oil had less than unity values, implying comparative (economic) advantage in the production of these two natural ingredient essential oils.

Keywords: citronella oil, comparative advantage, domestic resource cost, import competitiveness, lemon grass oil

JEL Classification: F10, O13, Q17