Effects of Price Insurance Programs on Supply Response: A Case Study of Corn Farmers in Quebec
Bahareh Mosadegh Sedghy *
Dhillon School of Business, University of Lethbridge, University Dr W, Lethbridge, AB T1K 3M4, Canada
Lota D. Tamini
Department of Agricultural Economics and Consumer Science, Center for Research on the Economics of the Environment, Agri-Food, Transports and Energy (CREATE), Universite Laval, 2425, Rue de l’Agriculture, Local 4412, Québec City, QC G1V 0A6, Canada
Rémy Lambert
Department of Agricultural Economics and Consumer Science, Center for Research on the Economics of the Environment, Agri-Food, Transports and Energy (CREATE), Universite Laval, 2425, Rue de l’Agriculture, Local 4412, Québec City, QC G1V 0A6, Canada
*Author to whom correspondence should be addressed.
Abstract
Aims: This study examines the supply response of corn in the province of Quebec.
Study Design: A time series design is implemented.
Place and Duration of Study: Our analysis covers the period from 1985 to 2013 and uses the data of corn production in the province of Quebec.
Methodology: A generalised autoregressive conditional heteroskedasticity (GARCH) process is used to model output price expectations and its volatility.
Results: We found that application of the Farm Income Stabilisation Insurance in Quebec neutralises the adverse effects of price volatilities on corn production and generates a market power for corn producers. The change in the producers' attitude towards risk is other implication of the insurance program.
Conclusion: These results imply that implementation of the insurance program in the province of Quebec leads to an increase of corn production and consequently this increase in production can impose more compensation cost (paid by the insurance program) to governments.
Keywords: Price volatility, GARCH, corn supply response, effective price, market price