Trade Liberalisation and its Impact on the Rice Sector of Sri Lanka

This paper examines the impact of trade intervention policies. The trade protection for the rice sector was estimated using both nominal and effective protection rates. These show positive protection to producers at the expense of consumers. Current analysis indicates that one rupee of resources is used to produce 56 cents worth of rice valued in foreign exchange. As trade is increasingly liberalised, protection will be eventually eliminated and rice farmers will be forced to produce rice at competitive prices. Consequently, the extent under rice is expected to decrease by 12 per cent and total production decreases by 16 per cent. Meanwhile demand for rice will increase as a result of the reduction in retail price. Overall welfare impacts reveal that it is a gain to the nation. However, the producers face welfare losses. Therefore concerted and simultaneous efforts are imperative to improve productivity growth and reduce the unit cost of production in order to improve the competitiveness of the rice sector so that it can compete with the rest of the world.