Seasonal variability and a farmer's supply response to protein premiums and discounts

This article extends the analysis of the impact of a system of protein premiums and discounts to that on a farmer's planned production. Despite an unambiguously negative impact on expected pro¢ts of equally likely premiums and discounts, supply response to the introduction of such a system is shown to depend on the level of seasonal variability faced by the farmer. In particular, farmers in regions which are more seasonally unreliable are likely to feature a negative supply response, whereas those in regions which are more seasonally reliable are likely to feature a positive supply response. Consequently, it is suggested that, overall, protein payments for wheat may have encouraged a shift of wheat-growing activity away from more seasonally unreliable areas.