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

Chia Chiun Ko, Paul Frijters and Gigi Foster

The Economic Record, 2018, vol. 94, issue 306, 276-300

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.

Date: 2018
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