QR on rice will be phased out by the end of 2004. While this policy reform may be
justified for efficiency purposes12, the displacement effects of the expected surge in rice
imports will translate into larger negative income effects for household groups where the
problem of poverty is severe. This is because these groups rely heavily on agriculture,
particularly palay rice production, which is expected to contract when QR is removed and
tariff is reduced As a result, factor demand and factor prices in agriculture drop. Factor
incomes derived from agricultural production decline as well. While all household groups
enjoy reduced prices of rice as QR is removed and tariff reduced, the drop in consumer
prices is not significant enough to mitigate the decline in income for those groups that are
adversely affected. Thus, all poverty indicators for these groups show higher values, which
means a worsening of their poverty situation. Furthermore, the overall Gini coefficient
increases, which indicates worsening of income inequality.
The policy lesson that may be drawn from the exercise is that while market reform is
generally necessary, it has to be carried out carefully, especially if implemented in a critical
commodity such as rice. Although market reforms in rice can potentially have favorable
effects on consumer prices in general, some household groups may be adversely affected by
the expected surge in rice imports. Policy measures may have to be designed to counter
these effects. Among the various poverty-offsetting measures experimented in the paper, the
results indicate that an increase in direct government transfers to these adversely affected
household groups can provide a better safety net. However, this is more of a short-run policy
measure. Other policy measures that may have favorable longer-term implications would
include productivity improvement through a vigorous program of intensified use of highyielding
rice varieties, irrigation, better farm-to-market roads, as well as measures to
encourage the growth of other non-rice crops.
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