Profitability of incremental generic promotion of Australian dairy products

Abstract

The motivation for this study rests on two factors. First, Australian dairy farmers spend around $20 million annually on generic promotion and estimates of the returns from this expenditure are required to facilitate efficient investment decisions. Second, while the Australian dairy industry has been highly regulated, there has been a substantial reduction in assistance over the past decade and farm-gate milk prices were deregulated on 1 July 2000. The profit potential of promotion may vary with the degree of regulation, so past estimates of the returns from promotion may not hold in the competitive environment of the future. Hence, the aim of this study is to examine the effects of government intervention on the profitability for dairy farmers of incremental changes in generic dairy promotion expenditure using a perfectly competitive market as a reference point. Competitive market price and quantity outcomes for the Australian dairy industry are estimated. The impacts of increments in dairy product and competing product generic promotion expenditures on dairy farmers' profits are assessed using equilibrium displacement modelling. Finally, graphical procedures are used to examine the effects of dairy industry regulation on the profitability of dairy promotion. 0 2001 Elsevier Science B.V. All rights reserved.

Food demand elasticities for Australia

“…How much rise will be observed in the production and the sales of fresh vegetables and fruit if their retail prices are subsidised? Availability of sound food demand elasticity estimates can thus strongly add to policy debates and assist in informed decision-making (see Edwards and Freebairn 1981;Dixon et al 1982;Hill et al 2001). Policy research without knowing the values of the relevant elasticities is analogous to calculating the expansion due to heating of a substance without knowing whether the substance is steel, concrete or paper.…”