Bonus without a reason: The minimum level of price premium required to shift wheat producers' behaviour

The publicly funded quality bonus scheme in Japanese wheat market provides the government with a unique opportunity for mechanism design to attract high-quality grains, although the present level of bonus is said to be too low to induce changes in producers' behaviour. Based on the production functions formulated and estimated to explain both the yield and the protein content of hard wheat, this study derives the minimum level of quality bonus required to induce domestic producers to target quality rather than quantity, a shift required so that the quality of domestic grains becomes comparable to that of imported commodities. The result suggests that a bonus of ¥70,000 per tonne is required to change producers' behaviour, casting a doubt on the effectiveness of the current scheme set at ¥31,167 per tonne.