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Abstract

This paper analyzes the income and poverty implications of price and trade policy distortions in rice using policy simulations. The results suggest that in general, the welfare of paddy farmers will get decline if both fertilizer subsidy and border protection are removed. However, among the paddy producers, poor households with smaller farm size (less than one acre) gain the benefits when both interventions are removed. Therefore, current protectionist policies in rice give fewer benefits to the small poor farmers. Meantime, the negative impacts get softened in the long run when supply and demand elasticities are incorporated. Especially the current fertilizer subsidy has a greater impact on paddy farmers’ welfare. In contrast, the larger populations of consumers are favorably affected when interventions are removed. The larger proportion of benefits are received by the low income consumers, hence removal of such intervention in terms of tariffs and other taxes as well as fertilizer subsidy would be beneficial to the larger portion of consumers. In addition, simulations with transfer payments given to all households below the poverty line or paddy households only will reduce the negative implications on income and poverty of the households. The largest poverty reduction is reported for the estate sector consumers with poverty level reduce from 23 percent to 20 percent when both interventions are removed accompanying transfer given to all households below the poverty line. In addition, the overall poverty gap reduces from 5.38 to 4.12 by giving transfer payments only to all paddy households even though both interventions are removed. Finally, this study suggests that removal of distortions especially the elimination of trade protection will affect favorably for both consumers and poor small scale rice producers. Conversely, this will lead to some negative consequences on the national rice production in the country.

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