Who Gains from Australian Generic Wine R&D and Promotion?

A multi-sectoral partial equilibrium model of the markets for two types of Australian grapes and wine (premium and non-premium) is developed to study the aggregate returns from different types of research and promotion investments by the industry and their distribution across actors in the market (grapegrowers, winemakers, wholesalers/retailers, domestic consumers, the tax office and foreign consumers). The distinction is made between premium and non-premium, since half the market is non-premium and yet virtually all the R&D and marketing efforts are focused on just premium products in an attempt to raise quality as consumers continue to move up-market. The results show that in the short run four-fifths (and in the longer run three-fifths) of the gains from cost-reducing R&D go to producers, with wineries faring better than grapegrowers; that producers get a far larger share of the benefit from promotion when it is targeted abroad than when it focuses on domestic consumers; and that foreign consumers of Australian wine enjoy one-tenth of the benefits of cost-reducing R&D and one-fifth of the benefits (in a willingness-to-pay sense) from promotion of ‘Brand Australia’ abroad in the short run, and even larger shares in the long run. Each producer is benefiting more per dollar of levy as the industry’s aggregate output and export orientation rise.