When Can a Generic Advertising Program Increase Farmer Returns?

Generic advertising has been a widely-used marketing tool of many agricultural industries. The strategy has come under increasing scrutiny lately, especially by levy-paying producers who fund the advertising. Also, for many food products, supermarket chains have developed and advertised their own “store” or “private label” brands in competition with both processor brands and generic advertising of those products. In such an environment, the issue is whether generic promotion will increase producer returns? Farmers gain from a generic advertising program only if the net farm price rises, where the net farm price is inclusive of the levy collected to fund the generic advertising program. A higher net price to farmers increases producer surplus, or the returns on farmer-owned land, management, labour and other resources which are in limited supply. The aim of this research is to examine the conditions under which such an increase in the net farm price is likely to occur. In undertaking this task, two main areas of research are reported. First, the literature is reviewed and theoretical models are developed to assess the conditions under which farmers would gain from a generic advertising program funded by a levy on production. Second, a general model is applied across the range of Australian agricultural products to assess the minimum increase in domestic sales from advertising required if the program is to increase farmer returns. In particular, the assessment distinguishes products by their exposure to international trade.