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

Abstract

This paper examines the welfare loss caused by import restrictions on bananas in Australia, which we argue to be a classic rentseeking 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 À0.5. 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.*We would like to thank School staff and conference and seminar participants for useful comments and suggestions. The usual disclaimer applies.

Outbreak of freckle disease (Phyllosticta cavendishii) on Cavendish bananas in Australia and the initial biosecurity response

“…In Australia, banana production is the country’s largest horticultural industry with 0.35 Mt production in 2016 (FAOSTAT, ) and about 600 commercial banana producers. In the period of 1997–2015, the Australian banana plantation area ranged between c. 10 000 and 16 000 ha and fruit production ranged between c. 0.2 and 0.36 Mt with an annual value of c. A$600 million (Ko et al , ). Australian banana exports were negligible during this period, ranging between nil and 90 t (Ko et al , ).…”

“…Since 1992 there has been no importation of fresh banana fruits into Australia due to an outright import ban from 1992 to 2008 (Ko et al , ) and later due to the requirements set in the import risk assessment for the importation of Cavendish bananas from the Philippines (Biosecurity Australia, ); these requirements were deemed as an appropriate level of phytosanitary protection for the Australian banana industry. Tissue‐culture banana plantlets can be imported into Australia but need to be indexed for several viruses and spend a relatively long period in a quarantine facility to be screened for diseases (Department of Agriculture and Water Resources, ).…”

Experiments and evaluation of public policies: Methods, implementation, and challenges

“…Because supply and demand are determined simultaneously, it is a non‐trivial problem in economics to determine whether observed changes in prices or quantities are due to demand‐side factors or supply‐side factors. So, economists use exogenous shocks like the cyclones in Queensland in 2006 and 2011 (which only affect the supply‐side) to examine important policy issues like the effect of import restrictions on prices (see Ko, Frijters, & Foster, ). The main problem with this method is that pure, natural experiments occur by chance and cannot be produced on demand.…”

Hybrid Public Policy Innovations: Contemporary Policy Beyond Ideology, by MarkFabian and RobertBreunig (eds.) (Taylor and Francis, New York, NY, 2018), pp. 289.

“…Specific improvements I would like to see in a revised edition are a more careful definition of opportunity cost (Chapter 1); a more thorough treatment of behavioural economics and how it is used in Australian policy design, including the burgeoning role of the Behavioural Economics Team of Australia (BETA), without the implication that broadly‐used experimental methods are in some way owned by this sub‐field (Chapter 2); a deeper engagement with the fundamental question of how institutions evolve (Chapter 3); a survey of which type of regulatory approach is most suited to which type of setting or problem, and a clearer distinction between strategic enforcement and smart regulation (Chapter 4); more technical details to underpin the defence of cost‐benefit analysis (Chapter 6); a clearer distinction between the isolation of mechanism and the quantification of impact, which are not achieved in equal measure via experimental approaches (Chapter 7); a treatment of leakage of HECS debt due to emigration (Chapter 8); consideration of how to involve the government in managing longevity risk across the whole population, following the advice of Chapman (Chapter 10); more explicit emphasis on the value of stability provision for the delivery of effective policy (Chapter 11 and elsewhere); a more explicit and plain‐spoken description of why Australia's tax and transfer policies presently encourage its women to work less than full‐time, and how these policies could be adjusted to reduce this distortion, along with more discussion of Newstart and the National Disability Insurance Scheme (Chapter 13); complete excision of the use of the now‐meaningless term ‘neoliberal’ (Chapter 14); and use of colonial‐era success stories like Goa and Hong Kong as examples of developing regions that borrowed and benefited from the institutions of developed ones (Chapter 15), coupled with creative thought about how such success stories might be mimicked in the post‐colonial world. It would also be nice to see some discussion somewhere in the book of the way subgroup interests are routinely disguised in political discourse using threads that derive from whole‐of‐group interests, since this pattern is a primary political enabler for bad policy (as exemplified, for example, in Australia's agricultural quarantine policies; see Ko et al ., ).…”