A Tale of Cyclones, Exports and Surplus Forgone in Australia's Protected Banana Industry1. Issue 306 (16th July 2018)

• Record Type: Journal Article
• Authors: Ko, Chia Chiun; Frijters, Paul; Foster, Gigi
• Is Part Of: Economic record. Volume 94:Issue 306(2018)
• Page Start: 276
• Page End: 300
• Publication Date: 2018-07-16
• Subjects: Australia -- Economic conditions -- Periodicals; 330.99
• DOI: 10.1111/1475-4932.12414
• Languages: English
• ISSNs: 0013-0249

Abstract

Abstract : 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.