More than 60 percent of consumption of poor Filipino households is on food. This high food consumption share is largely caused by high food prices in the Philippines owing to the substantial protection on major food items. While the country has undergone a series of trade reform programs since the mid 1980s, with the effect of reducing protection on non-agriculture goods, prohibitive protection on key food items remain. However, there are increasing pressures to maintain the existing high food protection in the country owing to the special product arguments in the World Trade Organization (WTO). Special products treatment provides developing countries with the flexibility to implement tariff reduction program over a longer and extended period for certain self-designated products. These special products discussions are based on food security, livelihood, and rural development arguments. This research report assesses the poverty and income distribution implications of trade reform that is focused on agriculture and major food items (rice, corn, sugar, beef, chicken, pork, processed meat products, fruits and vegetables, and processed fruits) in the Philippines. A dynamic-recursive computable general equilibrium (CGE) model calibrated to the year 2000 social accounting matrix (SAM) of the Philippine economy and a micro-simulation model that utilizes the 2000 Family Income and Expenditure Survey (FIES) is used to analyze possible policy shifts. The simulation results indicate that trade reform in agriculture and in major food items will have favorable effects on factor prices and bring about a significant reduction in consumer prices. With this, real household income increases while poverty and income inequality declines. This therefore implies that maintaining existing trade protection on agriculture and major food items—that drives food prices up—will not solve the poverty and income inequality problem in the Philippines. In the year 2000, the poverty incidence in the Philippines was 34 percent. In 2003, it declined to 30.4 percent. The poverty incidence in rural areas is higher compared to urban areas, 48.8 percent and 18.6 percent in 2000, respectively. Over the past two to three decades, significant structural changes have taken place in the Philippine economy. The share of ii agriculture in the total gross domestic product (GDP) has declined. The country has switched from being a net agricultural and food exporter to net importer. This is because over these years, domestic demand surpassed domestic production. There are a number of factors behind this trend: Demand for food increased because of high population growth; and increased demand for food with higher income elasticities. However, domestic production lags behind demand because of declining productivity. The widening trade gap in agriculture and food has made the Philippines vulnerable to fluctuations in the world market. For example, the international rice crisis in 2008 has adversely affected the domestic market for rice in the Philippines. To address this growing trade gap in agriculture and food, the government adopted a strategy to improve rice productivity. This strategy proves significant as based on our rice productivity simulation results, higher rice productivity will increase domestic production and reduce imports of rice. Most importantly, it will reduce consumer prices. Most of the benefit of improved rice productivity will go to the first decile since rice has the largest share in their consumption basket relative to the rest of the household groups. There is a reduction in poverty incidence and income inequality. However, the implementation of the current rice productivity program of the government is very costly, inefficient and ineffective. In 2001, the Philippine government launched a rice productivity program through the introduction of new rice technology called the hybrid rice. The adoption of hybrid rice was aggressively pursued by the government through the Hybrid Rice Commercialization Program (HRCP). In the HRCP, the production of hybrid rice seeds is supported by the government through: (a) procurement of seeds at a guaranteed price; (b) distribution of the procured seeds to the participating farmers at half the procured price; (c) extra money to participating farmers for their fertilizer input requirements. Thus, the government has infused huge amount resources through a system of subsidies to support HRCP. However, the results are not encouraging. The adoption rate of hybrid rice is very low. There is very high drop-out rate among farmers who participated in the HRCP. This is because hybrid rice seeds are so expensive and farmers would have to purchase hybrid rice seeds every planting season because hybrid rice cannot be reused. The yield will drastically drop if hybrid rice is reused. The massive government subsidies distorted the choice of farmers between hybrid and inbred rice varieties. Thus, instead of supporting the HRCP the government should spend its iii limited resources on research and development that focuses on improving the yield of inbred rice. To address rice productivity problems, a more responsive approach involves enhancing an inbred-based system adapted to farmers‘ practice of saving, reusing and exchanging of seeds— instead of promoting costly technologies such as hybrid rice which has not yet achieved commercially viable level.