The objective of this study was to analyse the impact of agricultural trade liberalisation on the welfare of rural households in Bangladesh. The study used both primary and secondary data and employed multiple models and estimation techniques including the Data Envelopment Analysis (DEA)-based Malmquist productivity index, Ordinary Least Square (OLS) regression methods, Two-stage Least Square regression technique, and index number approaches. It estimated changes in productivity and prices of rice, income distribution, inequality, and poverty as a result of agricultural trade liberalisation.

The study found that agricultural trade liberalisation positively influenced total factor productivity (TFP)-growth of rice, benefiting farm households directly. However, increased productivity led to a decrease in both producer and consumer prices of rice. The magnitude of the decrease in producer price was higher than that in consumer price, implying that farm households experienced loss from this price decrease. Non-farm households experienced greater growth in consumption and real income than farm households. Amongst farm households, large and medium farmers experienced higher growth in real income than small farmers.

Rural households experienced an increase in inequality – the rich captured a progressively larger share of income but the poor subsequently received a lower share. Although all rural households experienced a moderate to high growth rate in real income and consumption, rich households gained more than poor households, suggesting that the growth was not pro-poor, thereby resulting in insignificant poverty reduction during 1985-86 to 2005. Non-farm households experienced greater reduction in poverty than farm households. Amongst all groups of rural households, small farmers experienced the lowest reduction in poverty over the same period. The main reason for the low rate of poverty reduction was attributed to an increase in inequality along with economic growth. If the inequality was held constant at the 1985-86 level, the poverty could have been reduced to zero in 2005 with the level of growth experienced by Bangladesh in the post-liberalisation era.

Agricultural trade liberalisation adversely affected the environment in the form of loss of soil fertility, destruction of bio-diversity, and environmental pollution. The study argues that agricultural trade reform policies were not adequate to confer benefits derived from agricultural trade liberalisation to the poor. The government should formulate and implement complementary policies to reduce inequality and translate the growth into poverty reduction as well as to protect the environment.