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A Tale of Cyclones, Exports and Surplus Forgone in Australia's Protected Banana Industry
Author(s) -
Ko Chia Chiun,
Frijters Paul,
Foster Gigi
Publication year - 2018
Publication title -
economic record
Language(s) - English
Resource type - Journals
SCImago Journal Rank - 0.365
H-Index - 42
eISSN - 1475-4932
pISSN - 0013-0249
DOI - 10.1111/1475-4932.12414
Subject(s) - economics , subsidy , welfare , agricultural economics , deadweight loss , production (economics) , agriculture , economic surplus , macroeconomics , market economy , geography , archaeology
This paper examines the welfare loss caused by import restrictions on bananas in Australia, which we argue to be a classic rent‐seeking policy. We propose a new micro‐model of agricultural production under uncertainty and production delays and ask whether, due to cyclones and the timing of planting decisions, Australian banana import restrictions have turned into a form of export promotion. We exploit two cyclones as exogenous supply shocks, and use new data to estimate the price elasticity of demand for bananas in Australia to be around −0.5. We estimate the total welfare loss of Australia's banana import restrictions to be over A$150 million per year, implying a yearly subsidy of more than a quarter of a million dollars per banana grower.