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The real rate of protection: the income and insurance effects of agricultural policy

Author

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  • Stanley Thompson
  • P. Michael Schmitz
  • Nobuyuki Iwai
  • Barry Goodwin

Abstract

Agricultural price policies in developed countries aim at protecting farmers against both low and volatile world market prices. However, traditional indicators of protection only refer to the income (level) effect of policy. Following other research, it is argued that public policy can also yield an insurance (stabilizing) effect. In this paper a way to measure these dual effects is proposed. The method is illustrated with wheat market data for the USA and the European Union. Strong evidence is found that the insurance effect is an important component of protection, albeit a small one relative to the income effect. Policy support provided higher income and lower insurance effects in the EU than in the USA. For both markets, policy reforms in the 1990s led to significantly reduced income effects and smaller insurance effects. Without accounting for the influence of policy on income variability, traditional measures of protection will understate the real rate of protection.

Suggested Citation

  • Stanley Thompson & P. Michael Schmitz & Nobuyuki Iwai & Barry Goodwin, 2004. "The real rate of protection: the income and insurance effects of agricultural policy," Applied Economics, Taylor & Francis Journals, vol. 36(16), pages 1851-1858.
    • Handle: RePEc:taf:applec:v:36:y:2004:i:16:p:1851-1858
    DOI: 10.1080/0003684042000279744
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    References listed on IDEAS

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    Cited by:

    1. S. Thompson & Y. Bae & M. Kniepert, 2010. "Agricultural policy regime change assessment: Austrian accession to the European union," Empirical Economics, Springer, vol. 39(1), pages 291-302, August.
    2. Ashok Mishra & Barry Goodwin, 2006. "Revenue insurance purchase decisions of farmers," Applied Economics, Taylor & Francis Journals, vol. 38(2), pages 149-159.
    3. Abel Tiemtore, 2021. "Examining the effects of agricultural income insurance on farmers in Burkina Faso," The Geneva Papers on Risk and Insurance - Issues and Practice, Palgrave Macmillan;The Geneva Association, vol. 46(3), pages 422-439, July.
    4. Key, Nigel & Prager, Daniel & Burns, Christopher, "undated". "Farm Household Income Volatility: An Analysis Using Panel Data From a National Survey," Economic Research Report 256710, United States Department of Agriculture, Economic Research Service.
    5. Anderson, Kym & Croser, Johanna L. & Nelgen, Signe & Valenzuela, Ernesto, 2009. "Global Distortions to Key Agricultural Commodity Markets," Agricultural Distortions Working Paper Series 48576, World Bank.
    6. El Benni, Nadja & Finger, Robert & Mann, Stefan, "undated". "The effect of agricultural policy change on income risk in Swiss agriculture," 123rd Seminar, February 23-24, 2012, Dublin, Ireland 122532, European Association of Agricultural Economists.
    7. Anderson, Kym & Nelgen, Signe, 2012. "Trade Barrier Volatility and Agricultural Price Stabilization," World Development, Elsevier, vol. 40(1), pages 36-48.

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