The Relative Payoffs From R&D and Generic Advertising Expenditure by the Australian Pig Industry

Australian Pork Limited collects producer levies and matching contributions from the Federal government (on some of the levy income), and uses these funds to invest in R&D, domestic and export marketing campaigns and strategic policy development. In 2003/04, more than $18 million in funds were available. Levy payers and other stakeholders want to know that these funds are being well spent to generate positive net returns to the industry. This issue is particularly important at present, with the Australian pig meat industry competing in a global market environment, producing significant quantities of pork exports but also facing significant quantities of pork imports for further processing. An equilibrium displacement model of the Australian pig meat industry accounting for imports and exports was specified to study the annual returns to producers and other industry sectors from different hypothetical R&D and advertising scenarios. Total industry returns and returns to pig producers were estimated for each scenario. The results indicated that pig producers receive the largest potential returns from effective bacon/ham advertising and from effective pork advertising that increases the domestic demand for these products by 1 per cent, and from effective R&D that reduces the cost of production of porkers by 1 per cent. Other investment scenarios generated substantially lower returns. However these results do not say anything about the cost of achieving the hypothetical 1 per cent shifts in demand or supply curves. We can say however that investing in porker production R&D always provides the greatest share of total benefits to pig producers. We can also say, based on past empirical evidence, that it is extremely difficult to demonstrate any positive demand response to domestic advertising of pig meat.