Implications of Liberalization of Trade on Economic Welfare of Producers and Consumers of Basmati Rice

This paper examines the welfare effects of trade liberalization on Basmati rice within Pakistan’s economy. Welfare gains (or losses) in terms of consumer and producer were estimated for the pre- and post-WTO periods. Welfare gains associated with the then existing protection policies were compared with those when these policies were removed, if trade were fully liberalized for both periods. The analysis reveals that there has been a significant difference between domestic and foreign prices, suggesting tax on producers of Basmati rice in both pre- and post-WTO periods. However, the quantum of difference was comparatively less during the post-WTO period. Welfare analysis estimated higher losses for producers compared to gains to the consumers during both pre- and post-WTO periods. However, losses in the producers’ surplus were comparatively less during the post-WTO period, suggesting that certain measures were adopted by government in line with the WTO regime. Similarly simulation results demonstrate greater gains to producers than losses to consumers in the case of world market being liberalized. It is recommended that government needs to curtail tariff related interventions and, besides improving the pace of trade liberalization at domestic level, it should pursue WTO’s negotiations for early implementation of WTO’s trade liberalization on the international level.