THE REAL RATE OF PROTECTION: THE STABILIZING EFFECT OF PRICE POLICIES AND DIRECT PAYMENTS

Abstract

Traditional indicators of protection refer to the level effect of price policies on income and ignore the stabilizing effect. We derive a measure of the real rate of protection which incorporates these dual dimensions. The income stabilizing effects of price policy protection lead to a greater level of real protection than would be measured conventionally. Computed real protection rates for the European Union wheat market over the pre- and post-MacSharry reform periods were found to be some 3-5 percent greater than traditional indicators. Moreover, the compensatory payments to farmers following the 1992 reforms had a major risk reducing impact.International Relations/Trade,