The Philippines is one of the three countries granted exemption in 1995 from the removal of quantitative restriction (QR) on rice under Annex 5 of the World Trade Organization (WTO) agreement. Japan and South Korea are the other two countries. The exemption will expire on December 31, 2004. The primary objective of the paper is to look at the possible poverty and distributional effects of the removal of the QR and the reduction in tariffs on rice imports. In particular, the paper attempts to analyze the following issues: (a) Do the poor share in the potential gains from a freer market for rice? (b) What alternative or accompanying policy measures may be needed to ensure a more equitable distribution of the potential gains from a more liberalized market for rice? (c) What is the transmission mechanism in which the removal of the control may affect the poor? These are some critical issues that the government may have to address as it implements market reform and opens the economy for imported rice. Rice is the staple food of about 80 percent of Filipinos, and therefore a major item in the consumption basket of consumers. It is the single most important agricultural crop in the Philippines, and therefore a major source of income of millions of Filipino farmers. Because of its political significance, the government is heavily involved both in the supply and distribution of rice to assure consumers sufficient and stable supply of rice at low prices and to maintain a reasonable return to rice farmers with adequate price incentives. One major policy instrument of the government at present is the control on imported rice through QR. A market reform in general and a removal of QR on rice in particular could have economy-wide effects. In this regard, it is appropriate to analyze these types of issues using a computable general equilibrium (CGE) model calibrated to national accounting data. On the other hand, it is appropriate to study the effects of reforms on poverty and income distribution using individual household data to capture the heterogeneity of households. The paper integrates these two approaches. In particular, it specifies and calibrates an agriculture-focused CGE model to a set of actual data and simulates the effects of the removal of the QR on consumer prices and household income, and applies these results to a set of individual household data in the Family Income and Expenditure Survey (FIES) to compute the poverty and income distribution effects. A number of studies in the Philippines have looked at policy issues concerning rice, but the methodology applied is mostly partial equilibrium analysis. Partial equilibrium analysis however underestimates the possible effects of the reforms because rice, being a major agricultural crop, has many direct and indirect linkages with the rest of the economy. Furthermore, most of the empirical work done does not extend the analysis to look at the impact on poverty. While existing literature provides estimates of changes in consumer and producer surpluses, as well as the Gini coefficient, it does not provide insights on the effects on poverty and on the depth of poverty. This paper addresses this methodological gap in the literature. In the CGE literature there are two broad approaches to integrating a CGE model with a national household survey to analyze poverty and distributional issues. One approach is through microsimulation wherein the household categories in the model are the same as the household categories in the national household survey. As such, this approach allows for the heterogeneity of individual households during the numerical computation of the equilibrium of the model. The papers of Cogneau and Robillard (2000), Cockburn (2001), and Cororaton and Cockburn (2004) employed this approach. The other approach is more of a recursive type. For a given policy shock, a CGE model with representative households is used to estimate the change in the average...
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