The proliferation of preferential trading agreements (PTAs) in different regions of the world has been a significant development over the last two decades. South Asian countries have been slowly moving towards a South Asia Free Trade Area (SAFTA) in recent years. The desirability of SAFTA has been questioned by some observers recently. Will SAFTA create gains for its members or not? Is it better for South Asian countries to promote non‐discriminatory trade liberalisation rather than SAFTA? The main objective of this paper is to address the above questions, especially the desirability of SAFTA, using a global computable general equilibrium (CGE) model. From the existing empirical and theoretical studies, we have identified three viewpoints on the desirability (or viability) of SAFTA: pessimistic, optimistic, and moderate. The results from two policy scenarios (unilateral liberalisation and SAFTA) confirm the pessimistic view by showing that unilateral liberalisation would benefit South Asian countries much more than preferential liberalisation (SAFTA). In fact, under preferential liberalisation, small countries in the region would gain little or even lose. The present political climate in South Asia also seems to support the pessimistic view.

This paper reviews recent development of China's agricultural domestic support policy, especially the transition from taxing farmers and agriculture to providing direct subsidies to grain production and purchased inputs. A model-based quantitative analysis on the effects of these policy changes has been conducted. Simulation results suggest that recent policy changes have likely achieved the declared policy goals of increasing grain production and boosting farm income. Much of the increase in grain production and farm income can be attributed to higher per unit return to arable land, land reallocation to grain production, and extra agricultural employment triggered by the policy changes.Based on the assumption that China's public assistance to agriculture and farmers will continue and rise, two hypothetical future scenarios are simulated. If China uses up all its support allowance permitted by the WTO using existing instruments, increased grain production, changing trade pattern seemingly contrary to China's comparative advantage, increased rural employment, and significantly higher farm income (16 percent) will be expected. If alternative, decoupled instruments are applied to raise China's agricultural domestic support to the same allowed level, China's agricultural production and trade will remain unchanged, rural employment stays stable, but farm income will experience a higher boost (17 percent).

Computable General Equilibrium (CGE) models are increasingly being used to project world food markets in order to support forward-looking policy analysis. Such projections hinge critically on the underlying functional form for representing consumer demand. Simple functional forms can lead to unrealistic projections by failing to capture changes in income elasticities of demand. We adopt as our benchmark the recently introduced AIDADS demand system and compare it with several alternative demand systems currently in widespread use in CGE models. This comparison is conducted in the context of projections for disaggregated global food demand using a global CGE model. We find that AIDADS represents a substantial improvement, particularly for the rapidly growing developing countries. For these economies, the most widely used demand systems tend to over-predict future food demands, and hence overestimate future production and import requirements for agricultural products.JEL Classification: D12, C68, F17, Q18

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Food insecurity is a much more serious concern in India than China. In addition to income and poverty differences, we argue in this paper that differences in food policies can further explain the different food security outcomes across the two countries. First, India mostly uses price-based input subsidies to support agricultural incentives whereas China has recently adopted direct transfers to support agricultural incentives, which are believed to be less distorting and more efficient. Second, the two countries apply quite different approaches to address poor consumers' access to food, with India adopting a widely criticized public distribution system and China mainly using direct income transfers and other social safety nets. Third, although both committed considerable fiscal resources to insulating their respective domestic markets, especially during recent food price spikes, India's heavy dependence on price-based measures causes relatively larger and more volatile fiscal burdens, thereby likely making it more vulnerable in dealing with similar events in the future. These findings have important implications for food policy and food security in the two countries in the future.