The Impact of Trade Liberalisation on the Rice Sector in SAARC Countries: the case of Bangladesh

Abstract

In this era of globalisation, along with other countries, South Asian Association for Regional Cooperation (SAARC) countries have been continuing to open up their economies, due to commitments to WTO and some donor agencies such as International Monetary Fund (IMF) and World Bank. Recently, these countries have signed the framework agreement on South Asian Free Trade Area (SAFTA), under which, they are committed to dismantle all tariff and non-tariff barriers to trade in the region within a short period starting from 2006. The main objective of this study is to evaluate the likely effects of trade policies of the governments of SAARC countries, with particular emphasis on the rice sector. By taking Bangladesh as a special case, a partial equilibrium rice model is formulated, where the consumer side is represented by a demand system for cereals and the producer side by a paddy supply function. Econometrically estimated models were simulated by changing tariff levels that affect the retail price of rice. Two scenarios were examined: a baseline that simulates continuation of present tariff policy and one that assumes trade liberalisation. The model shows that demand for rice increases because of the reduced retail price, and the calorie intake also increases. However, rice production decreases, which, in turn, increases the import of rice.