Trade Policy Reforms and Agribusiness Outcomes: Evidence from Pakistan’s Basmati Rice Markets

Abstract

Rice is the second most important crop for Pakistan in terms of area under cultivation and production. Basmati is one of the major export varieties of rice produced in Pakistan.  This is important for both domestic consumption and export earnings. Rice remained a heavily protected commodity in many countries including Pakistan. Hence trade liberalization was expected to have important implications for rice producing and exporting countries. This paper analysed the major shift from protection policies to more liberalised policies in Pakistan from year 1981 to 2015. These policies were divided into two periods for analysis purpose i.e. from 1981 to 1995, categorised as pre-trade liberalization period where Government of Pakistan intervened in basmati rice policies while 1996 to 2015, categorized as trade liberalizing period characterised by reducing interventions by the Government. A Simultaneous-Equations Recursive Model was used for the estimation of demand and supply functions and free trade price was estimated to simulate the effects of unilateral liberalization by Pakistan assuming a large country on world basmati rice market. These models revealed that, without protection polices, Pakistan could get net social welfare gain of around USD 113.350 million/annum during pre-trade liberalization while USD 19.659 million/annum in trade liberalizing period.