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An Equilibrium Displacement Model of the Australian Sheep and Wool Industries

  • Mounter, Stuart W.
  • Griffith, Garry R.
  • Piggott, Roley R.
  • Fleming, Euan M.
  • Zhao, Xueyan

This report documents the specification of an equilibrium displacement model (EDM) of the Australian sheep and wool industries. The model is capable of estimating and comparing the potential benefits from R&D and generic promotion investments, and other policy changes, in the different sectors and markets of the Australian sheep and wool industries. Inclusive in the model are the multiple components of the Australian sheep and wool industries to account for cross-product interactions not considered in most previous studies. A high degree of industry disaggregation within the model enables estimation of the distribution of the potential benefits among the various industry sectors and across different regional environments. A number of hypothetical R&D and promotion investment scenarios were modelled as 1 per cent exogenous parallel shifts in the relevant market demand or supply curves, although only two scenarios are reported here. Changes in economic surplus were calculated as measures of welfare changes in each of the various industry sectors. In summary, the results from the simulations suggest sheep and wool producers’ gain more from on-farm research than off-farm research; export promotion than domestic promotion; and export promotion than most other R&D scenarios. Domestic consumers gain more from lamb R&D than from promotion, while they gain very little from promotion of wool in the export market. Although needing numerous prices and quantities as inputs, the model is not overtaxing on data requirements, as are econometric models. It can be updated with relative ease, as most of the necessary price and quantity data are readily available from government departments and industry organisations. The model is useful in both ex ante evaluations, as a means of assisting decisions of priority setting and resource allocations, and in ex post evaluations of actual investments or policy impacts. The inclusion of the multiple sheep and wool industry components enhances the accuracy of economic analysis, making the model a valuable tool to assist in industry policy and decision-making.

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File URL: http://purl.umn.edu/37663
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Paper provided by New South Wales Department of Primary Industries Research Economists in its series Research Reports with number 37663.

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Date of creation: Apr 2008
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Handle: RePEc:ags:nswprr:37663
Contact details of provider: Fax: 02-6391 3650
Web page: http://www.agric.nsw.gov.au/reader/10550
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  1. Grant M. Scobie & John D. Mullen & Julian M. Alston, 1991. "The Returns To Investment In Research On Australian Wool Production," Australian Journal of Agricultural and Resource Economics, Australian Agricultural and Resource Economics Society, vol. 35(2), pages 179-195, 08.
  2. Xueyan Zhao & John D. Mullen & Gary R. Griffith, 1997. "Functional Forms, Exogenous Shifts, and Economic Surplus Changes," American Journal of Agricultural Economics, Agricultural and Applied Economics Association, vol. 79(4), pages 1243-1251.
  3. repec:cup:cbooks:9780521336017 is not listed on IDEAS
  4. Mingxia Zhang, 1997. "The Effects of Imperfect Competition on the Size and Distribution of Research Benefits," American Journal of Agricultural Economics, Agricultural and Applied Economics Association, vol. 79(4), pages 1252-1265.
  5. Zhao, Xueyan & Mullen, John D. & Griffith, Garry R., 2005. "Economic Surplus Measurement in Multi-Market Models," Working Papers 12910, University of New England, School of Economics.
  6. Xueyan Zhao & Kym Anderson & Glyn Wittwer, 2003. "Who gains from Australian generic wine promotion and R&D?," Australian Journal of Agricultural and Resource Economics, Australian Agricultural and Resource Economics Society, vol. 47(2), pages 181-209, 06.
  7. Shu-Yu Huang & Richard J. Sexton, 1996. "Measuring Returns to an Innovation in an Imperfectly Competitive Market: Application to Mechanical Harvesting of Processing Tomatoes in Taiwan," American Journal of Agricultural Economics, Agricultural and Applied Economics Association, vol. 78(3), pages 558-571.
  8. George Verikios, 2007. "Understanding The World Wool Market: Trade, Productivity And Growers' Incomes ," Australian Economic Papers, Wiley Blackwell, vol. 46(1), pages 88-107, 03.
  9. Cashin, Paul, 1991. "A Model Of The Disaggregated Demand For Meat In Australia," Australian Journal of Agricultural Economics, Australian Agricultural and Resource Economics Society, vol. 35(03), December.
  10. Templeton, Deborah J. & Griffith, Garry R. & Piggott, Roley R. & O'Donnell, Christopher J., 2004. "Measuring the Impact of Staple Strength-Enhancing Technologies on Australian Wool Producer Profits: A Duality-Based Approach," Working Papers 12922, University of New England, School of Economics.
  11. Zhao, Xueyan & Griffiths, William E. & Griffith, Garry R. & Mullen, John D., 2000. "Probability distributions for economic surplus changes: the case of technical change in the Australian wool industry," Australian Journal of Agricultural and Resource Economics, Australian Agricultural and Resource Economics Society, vol. 44(1), March.
  12. Jeffrey T. LaFrance, 1991. "Consumer's surplus versus compensating variation revisited," Monash Economics Working Papers archive-35, Monash University, Department of Economics.
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