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A Tale of Cyclones, Exports and Surplus Forgone in Australia's Protected Banana Industry

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  • Chia Chiun Ko
  • Paul Frijters
  • Gigi Foster

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.

Suggested Citation

  • Chia Chiun Ko & Paul Frijters & Gigi Foster, 2018. "A Tale of Cyclones, Exports and Surplus Forgone in Australia's Protected Banana Industry," The Economic Record, The Economic Society of Australia, vol. 94(306), pages 276-300, September.
    • Handle: RePEc:bla:ecorec:v:94:y:2018:i:306:p:276-300
    DOI: 10.1111/1475-4932.12414
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