Rice price at home is $500, world price is $600. Negative NPC (-16.67%) means local rice is cheaper! Producers aren't protected though, without knowing tariffs on imports, we can't tell how much that affects price (NRP).
Calculating and Interpreting Protection Coefficients for Rice
Based on the given information, we can calculate two key protection coefficients for rice:
a) Nominal Protection Coefficient (NPC):
- Formula: NPC = (Domestic Price - Border Price) / Border Price * 100%
- Calculation: NPC = ($500/ton - $600/ton) / $600/ton * 100% = -16.67%
- Interpretation: The NPC is negative, indicating that the domestic price of rice is lower than the world price (represented by the C&F price at point of entry). This suggests that rice producers are disprotected compared to international competitors. The negative value of 16.67% implies that domestic rice prices are 16.67% below the world price.
b) Nominal Rate of Protection (NRP):
- Formula: NRP = (Tariff Equivalent / Border Price) * 100%
- Calculation: Since no tariff information is provided, the NRP cannot be directly calculated.
- Interpretation: Without data on the tariff applied to rice imports, we cannot assess the NRP. The NRP measures the percentage increase in the domestic price solely due to tariffs, whereas the NPC includes all factors affecting the price difference.
Additional Remarks:
- It's important to consider context when interpreting these coefficients. While a negative NPC might suggest government intervention impacting domestic price, other factors like transportation costs, quality differences, or domestic subsidies could also contribute.
- Analyzing both NRP and NPC together provides a more complete picture of the level and source of protection for domestic rice producers.
Please note: The provided information only allows for calculation and interpretation of the NPC. If you have data on the applied tariff, I can also calculate the NRP and offer further insights.
Q- Given the following information, domestic price of rice is $500/ton, the cost insurance and freight price at point of entry is $600/ton. a) Calculate and interpret the Nominal Protection Coefficient b) Calculate and interpret the Nominal Rate of Protection.