An Equilibrium Displacement Model of the Australian Beef Industry

Around $100 million has been spent annually on R&D and promotion in the Australian red meat industries in recent years. The R&D investments are made throughout the production, processing and marketing chain in both the grass and grain finished sectors. Promotion investments are made in both export and domestic markets. Despite this large investment of industry and government funds there is great uncertainty about the returns from these investments. Not only is it unclear what the total industry returns are but it is even less clear how producers and the community benefit from the many alternative investment options. Hence, it is unclear how funds should be allocated between these alternatives. Zhao (1999) addressed these issues in research for her PhD degree from the University of New England. An important component of this research was the development of an equilibrium displacement model of the Australian beef industry. The objective of this Report is to thoroughly document the model and the procedures followed in defining the price, quantity and market parameters (supply, demand and substitution elasticities) used in the model. The results of the base run are also reported. Twelve investment scenarios were considered relating to 1% shifts in the relevant supply or demand curves due to new technologies in individual sectors and promotion in export or domestic markets. For each scenario, total returns in terms of economic surplus gains and the distribution of total returns among individual groups, namely, among cattle producers, feedlotters, processors, exporters, retailers and domestic and overseas consumers, were estimated. Producers and domestic consumers were shown to be the main beneficiaries in all scenarios. The results indicated that, in general, producers receive larger benefit shares from on-farm research than from off-farm research. They also receive significantly larger shares from export marketing research and promotion than from domestic marketing research and promotion. In general, while they should prefer research investments over domestic promotion, they gain as large or even larger shares from export promotion than from various research scenarios.