Australasian Agribusiness Review - Vol. 13 - 2005

ISSN 1442-6951

Paper 1
February 21st, 2005

Types of B2B E-Business Model Commonly Used: An Empirical Study On Australian Agribusines Firms

PDF Version 239 KB

Dr Eric Ng

Abstract

This paper explores the various B2B e-business models commonly used using in-depth interviews and case studies conducted with Australian agribusiness firms. There is an apparent need to rethink the types of e-business models to be adopted as businesses make their transition toward the electronic environment. This is particularly evident in the B2B market where e-business has seen a significant growth. From the analysis, 10 B2B e-business models were identified with seven of them regarded as commonly used by agribusiness firms. Furthermore, rationales on the adoption of these models were also discussed and comparisons were made based on organisational size, industry sector and the current state of e-business model adoption.

Animal Product Consumption Trends in China

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Ji-Min Wang, Zhang-Yue Zhou and Rodney J. Cox

Abstract

How much animal product do the Chinese consume at present? How much animal product will the Chinese consume in the near future? Plausible estimates that can answer these questions seem to be extremely scarce. On the other hand, there has been strong demand for such estimates by many in trade and government departments who are concerned about China’s livestock industry development and animal product market potential but are puzzled by the fact that China’s consumption of animal products only accounts for about 40% of their availability. We believe that the present level of animal product consumption in China is underestimated, which subsequently causes enormous difficulty in projecting China’s future animal product consumption. This paper contributes to the literature by estimating a set of animal product consumption levels for China at present and in the near future. It first derives the present level of animal product consumption in China by establishing a production-consumption balance sheet. Based on this adjusted consumption level, the paper then projects likely scenarios of China’s animal product consumption in 2010 by considering the key factors that may affect China’s future animal product consumption.

Paper 3
February 22nd, 2005

Extending the Grapevine: Innovation and Knowledge Transmission within the Australian Wine Industry

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David Aylward

Abstract

Innovation and its uptake are two key ingredients in the Australian wine industry’s rapid rise from cottage industry to international success. The industry has a well-deserved reputation of leadership in the funding, coordination and adoption of both product and process innovation. This leadership continues to underpin its competitive advantage in oenological and viticultural practices, training, branding, and export.

Empirical research, however, upon which this paper is based, suggests that this success may be disguising systemic flaws. One of the most threatening of these flaws is the relative lack of access to the industry’s dominant knowledge cluster by the myriad regional firms. The intensity of this cluster and inadequate transmission of knowledge beyond its parameters is undermining the vast majority of Australian wine firms’ ability to participate in the industry’s leading edge research and development. This, in turn, could well threaten the industry’s future leadership.

Paper 4
February 22nd, 2005

The Payoff from Generic Advertising by the Australian Pig Industry in the Presence of Trade

PDF Version 163 KB

S.W. Mounter, G.R. Griffith and R.R. Piggott

Abstract

The Australian pig meat industry today competes in a global market environment, with significant quantities of both pork exports and pork imports for further processing. In March 2003 Australian Pork Limited (APL) launched a advertising campaign to raise domestic per capita consumption of pork, and increase consumer awareness and preference for identified Australian pig meat. This is funded from producer levies. Over the period 2003 to 2005, APL advertising expenditure is forecast to be at least 15 per cent above 2001-02 domestic advertising expenditure levels. Domestic advertising expenditure by APL for the 2002-03 financial year was actually 30 per cent above the previous year’s level. The question is whether these pig producer funds are being well spent. Evaluation of pig meat advertising expenditure has been undertaken in the past, but not in the context of a trading industry.

An equilibrium displacement model of the Australian pig meat industry accounting for imports and exports was specified to study the returns to producers from different advertising scenarios. Total returns in terms of producer surplus gains were estimated for each scenario. The results indicated that producers receive the largest returns from domestic bacon/ham advertising and the least from export pork advertising. Producer surplus changes associated with a 30 per cent increase in domestic pork advertising expenditure were calculated for three different trade scenarios, including a hypothetical no-trade scenario. Returns to producers were shown to be very sensitive to the value chosen for the elasticity of demand response to advertising, but were unlikely to be positive based on past estimates of the relevant parameter values. Returns to producers were also dependent on assumptions made about the trade status of the industry and the way in which the advertising was funded.

Paper 5
February 25th, 2005

Institutional Change and Plant Variety Provisions in Australia

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Ross Kingwell

Abstract

The science, funding and organisation of plant breeding in Australia has changed greatly since the 1980s.  This paper explores the institutional change in plant variety provision in Australia.  The roles of key economic and political agents are emphasized, along with the impact of changes in biotechnology and intellectual property rights.  Their joint interaction has produced a set of complex agribusiness arrangements that underpin the current funding and supply of plant varieties.  The pace of institutional change has been rapid and is uncovering a further set of agribusiness issues such as access to enabling biotechnologies, funder capture, contestability in pricing of varieties and access to royalty collection facilities. 

Paper 6
February 28th, 2005

Consumer Acceptance Of New Sheep Milk Cheeses

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Michael Burton and Roberta Bencini

Abstract

This paper provides estimates of consumers willingness to pay for two new sheep milk cheeses, developed as part of a RIRDC research project.  In 1998, following an in-store tasting, a sample of 215 consumers were asked to reveal what price they would be willing to pay for portions of the cheese.  Analysis of the data reveals the probability that a consumer will purchase the product, as prices change.  There are higher levels of acceptance of the soft cheese product as compared with the hard cheese, and higher prices paid (per kilo) for smaller portions.  It is shown that the structure of the price revelation process in the survey has also influenced the results.

Paper 7
March 1st, 2005

Efficiency Measurement of Australian Dairy Farms: National and Regional Performance

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Iain Fraser and Mary Graham

Abstract

In this paper we use Data Envelopment Analysis (DEA) to estimate technical efficiency for a sample of 1742 Australian dairy farms. Bearing in mind data limitations we find that average technical efficiency is 59 per cent, but there are significant regional differences. These results reflect differences in State level milk marketing arrangements in place before dairy deregulation in July 2000 providing an ex post explanation for the changing composition of dairy farms in Australia. We also examine two important technical aspects of DEA implementation. First, how changes in model input specification alter the relative performance of farms. Second, we employ a simple bootstrap procedure to show how changes in sample size affects estimates of technical efficiency. These results have simple but important implications for the use of DEA as an industry-benchmarking tool.

Paper 8
March 1st, 2005

Growers' Perspectives on the Viability of Sugarcane Farming Systems in Central Queensland

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Jill Windle and John Rolfe

Abstract

Growers in the sugar cane industry have been struggling under financial pressure for several years.  Sugar prices have been low while costs of production continue to rise. In addition, adverse weather conditions and pest damage have exacerbated the situation.  The future viability of the sugar industry has been questioned in several major reports and it is generally agreed that the industry will have to undergo some changes.  This paper reports the findings of a recent survey of growers in three regions of central Queensland designed to assess how growers view profitability and restructuring prospects, and to identify the extent to which growers are attempting to achieve productivity gains.

Paper 9
March 8th, 2005

Marketing Fresh Fruits And Vegetables: Exploration Of Individual Product Characteristics And Their Relationship To Buyer's Attention To Price

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David Pearson

Abstract

The unique and somewhat problematic challenges of marketing fresh fruits and vegetables have received attention from a variety of perspectives in recent years.  The role that price plays for consumer purchases of them is complex, and will depend on the buyer, product and situation. 

This article discusses the dimensions of individual product differences in terms of amount spent, whether purchased as a treat and whether the products are seasonal.  These differences and their implications for buyer’s attention to price are investigated. 

The major implication arising from this research is that increased sales of fresh fruits and vegetables are likely to be achieved by keeping the price as low as possible for products for which buyer attention to price is high, that is, products that are treats and seasonal.  Further, retailer profitability will be optimised if, in conjunction with the previous suggestion, higher gross margins are included for products where buyer attention to price is low, that is, staples and non-seasonal products.

Paper 10
March 8th, 2005

Estimating The Cost Of Food Safety Regulations To The New Zealand Seafood Industry

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Kay Cao, Oswin Maurer, Frank Scrimgeour and Chris Dake

Abstract

In New Zealand, the Animal Products Act (1999) required all animal product processing businesses to have a Hazard Analysis and Critical Control Points (HACCP) based Risk Management Program (RMP) by the end of 2002. The purpose of the Act is to manage food safety risks and to facilitate overseas market access. However the new regulation will potentially bring costs to businesses. This paper attempts to measure the effects of RMP requirements on the variable cost of production of the New Zealand seafood industry. Using the framework developed by Antle (2000), a cost function is estimated using census of production data from 1929 to 1998. Results show that variable costs could increase from 2 percent to 22 percent or from 2 cents to 19 cents per kilogram.

Paper 11
March 14th, 2005

The 'Paradox of Thrips': Identifying a Critical Level of Investment in Pest Exclusion Activities in Western Australia

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David Cook

Abstract

With increasing efficiency in human and freight transport fuelled by the creation of the global market place, pressure is mounting on quarantine administrators to target their resources strategically.  A managed approach to decision-making is therefore becoming an integral part of quarantine management since target species and/or entry pathways must be identified and policed effectively.  Using the example of Melon Thrips in Western Australia, this paper presents an economic framework that allows decision-makers to prioritise exotic pests based on the damage and production cost increases they are capable of imposing on affected industries.  In doing so it identifies a critical level of expected damage associated with the pest that can then be used as a ceiling for incursion response expenditure.

Paper 12
April 4th, 2005

Unit Value Biases in Price Elasticities of Demand for Meat in Indonesia

PDF Version 487 KB

Susan Olivia and John Gibson

Abstract

Indonesia is the largest market for Australian live cattle exports so estimates of income and price elasticities of meat demand in Indonesia may help exporters to set appropriate pricing strategies and to model future demands. In contrast to developed countries, where meat demand studies often use aggregate data, Indonesian studies rely on household surveys, with unit values (ratios of expenditures to quantities) used instead of market prices. When price elasticities of demand are estimated from unit values, various quality and measurement error biases can result. These biases may cause inappropriate pricing and marketing strategies to be adopted by Australian beef and cattle producers and exporters.

In this paper, data from 29,000 households on Java are used to estimate a demand system for beef, chicken and other meat groups. Java contains almost two-thirds of the Indonesian population and meat consumption is similarly concentrated there. When estimation procedures are used that correct for the biases caused by unit values, the own-price elasticities of both beef (-0.46) and chicken (-0.42) are smaller than in previous studies. This difference is consistent with the theoretical literature, which suggests that using unit values instead of prices makes own-price elasticities too large in absolute terms. The own-price elasticities for beef are much more sensitive to the choice of procedure for dealing with unit values than are the estimates for chicken. Hence, pricing strategies for beef producers that are based on estimated demand elasticities from Indonesia, may prove to be inappropriate if the wrong method for dealing with unit value biases is used.

Paper 13
May 2nd, 2005

Economic Analysis of Breeding for Improved Cold Tolerance in Rice in Australia

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Rajinder P. Singh, John P. Brennan, Tim Farrell, Robert Williams,  Russell Reinke, Laurie Lewin and John Mullen

Abstract

The occurrence of low night temperatures during reproductive development is one of the factors most limiting rice yields in southern Australia. Yield losses due to cold temperature are the result of incomplete pollen formation and subsequent floret sterility. Researchers have found that in 75% of years, rice farmers suffer losses between 0.5 and 2.5 t/ha. Research is being undertaken to identify genetic materials that are cold tolerant under the local weather conditions and by using those genotypes as parent material, develop cold tolerance varieties of rice. A yield simulation model was used to measure reduction in losses due to cold at different minimum threshold temperatures, while the SAMBOY-Rice economic model was used to measure the costs and returns of a breeding program for cold tolerance. The results of the economic analysis reveal that incorporating selection for cold tolerance into the breeding program would lead to significant increase in financial benefits through a reduction in losses due to cold and an increase in yield from the better use of nitrogen by the cold tolerant varieties. The returns to investment in the change to the Australian rice breeding program are estimated to be high.

Paper 14
May 18th, 2005

Rainfall and Farm Efficiency Measurement for Broadacre Agriculture in South-Western Australia

PDF Version 136 KB

Ben Henderson and Ross Kingwell

Abstract

Few studies of farm technical efficiency consider differences in the physical environments of the farms.  This study examines rain-fed broadacre agriculture and shows how neglect of rainfall differences between farms affects measures of farm technical efficiency (TE).  Applying data envelopment analysis (DEA) to a sample of broadacre farms, TE measures unconfounded by rainfall variation are generated by specifying rainfall as a non-discretionary production input in an input-orientated DEA model.  These unconfounded TE measures are compared to other TE measures generated by a conventional DEA model that does not explicitly include rainfall.  The conventional DEA model reports lower levels of technical efficiency suggesting that measurement of TE should, where possible, include environmental effects, such as rainfall.  Care is needed in using TE findings for farm management purposes.

Paper 15
May 18th, 2005

The Australian Organic Food Products Market: Overview, Issues and Research Needs

PDF Version 209 KB

Hui-Shung Chang, Lydia Zepeda and Garry Griffith

Abstract

The demand for organic food products has expanded rapidly in the past decade on a global basis, stimulated by consumer perceptions that organic products are safer, cleaner and more ethical than conventional products. The demand for organic products was estimated to grow at a rate of 15-20 per cent per annum in key organic markets, such as the United States and Europe, which are major importers of organic foods. Australia, as a major exporter of agricultural products, stands to benefit from this expansion in demand. However, not much is known about the Australian organic industry, especially by other agribusiness sectors, because little market research and policy analysis on organics has been conducted and published. The objective of this paper is to provide a contemporary overview of the Australian organic food products industry, including production, marketing and certification of organic foods. Major supply issues, such as the small production base and the low rate of conversion to organic farming, and major demand issues, such as availability, prices and product integrity, are discussed. Areas identified for further research include collection and reporting of data on production, consumption and trade of organic products, consumer and producer attitudes towards, and expectations of, organic farming, product integrity and labelling regulation, competition from other sustainable farming systems, and future industry structure of the Australian organic sector. Outputs from the suggested areas for further research will provide additional market information to the organic industry and help identify marketing opportunities and develop strategies for meeting market requirements and sustaining industry growth.   

Paper 16
July 15th, 2005

Valuing a Test for Nitrogen Status in Rice

PDF Version 479 KB

Rajinder P. Singh, Robert Williams, John Mullen, Khaled Faour and Laurie Lewin

Abstract

Nitrogen is a crucial input for the efficient production of rice and is generally applied in two split treatments, before flooding the rice paddocks at sowing time and within a week after the beginning of the panicle initiation stage. There is no pre-sowing test to estimate nitrogen requirements and farmers use cropping history to make this decision.

The aim of this study was to first value the information to growers provided by a nitrogen test for soils of rice paddocks and then estimate the returns to the industry from investments in R&D to develop this test. In our approach the information provided by the test allowed growers to revise their expectations about soil nitrogen status according to Bayesian decision theory and consequently to use nitrogen more profitably. We found that the test is likely to provide information potentially valuable to growers at around $2/ha and that research in developing the test has been a profitable investment for the Rice CRC with a benefit cost ratio just above one. As the accuracy of the test is improved to current industry standards, its use will become more profitable.

Paper 17
July 15th, 2005

Catalyzing common property farming for rural sustainability: lessons from the Furracabad Valley

PDF Version 244 KB

Graham R Marshall, Simon J Fritsch and Robert V Dulhunty

Abstract

Lessons learnt and progress achieved in a project seeking to catalyse establishment of a group, or common property, farming enterprise are reported in this article. The project concept grew from successful experiences of the farmers initiating the project in working together to address shared environmental issues. It was concerned with appraising the potential of a group farming arrangement to consolidate their environmental achievements as well as deliver them economic and social benefits. Preliminary budgeting indicated that such an arrangement would benefit the participating farmers economically. A range of social advantages were also identified by the farmers involved. Nevertheless, it was not possible during the nine month life of the project to obtain the critical mass of farmer commitment needed to implement such an arrangement. Even so, the project succeeded in strengthening awareness and understanding of the concept of common property farming and firming up a structure through which it could be implemented.

Paper 18
September 16th, 2005

Productivity and the Dairy Industry

PDF Version 119 KB

Alistair Watson, Freelance Economist, Melbourne, aswatson@bigpond.net.au

(Paper prepared for the Victorian Department of Primary Industries, Dairy Program, June 2004)

Abstract

Productivity measurement is useful in some circumstances but not others. Measured productivity is poor for the Australian dairy industry as a whole. This finding is consistent across a range of studies and is confirmed by other information and analysis.It is useful to explore reasons for this poor performance because some public policy questions are related to overall industry performance. In particular, productivity measurement concentrates attention on industry-based research and extension programs.Production (and exports) have increased rapidly in the dairy industry but input use has increased faster. The major change has been increased grain feeding. Both increased purchases of grain and a higher proportion of exports exacerbate the financial risks of dairy farming. Recent drought and associated water shortages in irrigated dairying areas have compounded these systematic changes. By definition, estimates of average productivity in the whole dairy industry have little to say about what is happening on individual farms. Moreover, productivity is measured using annual data on inputs and outputs. While day-to-day technical and management skills are important, many of the crucial economic decisions by farmers are long-term. Aggregate productivity analysis is a useful first step in analysing industry performance. A next step is disaggregating the data to identify inputs, regions or time periods of particular interest. The time path of prices, policy changes and the weather continue to have most effect on the dairy industry. A conclusion that follows from recent experience is that the change to increased grain feeding has not been well understood in its scientific dimension, nor well executed at the farm level. Furthermore, expected gains from specialisation in manufacturing milk production following deregulation have not been realised for technical reasons, presumably related to poor reproductive performance. In particular, it appears that farmers have been given poor information on the difference between the marginal costs and marginal benefits of concentrate feeding in different time periods and circumstances. Nor have the financial consequences been properly considered in advice that has been given to farmers. Production is not the same as productivity. Increased production and exports should not be promoted as such by dairy companie

Paper 19
September 23rd, 2005

The Payoff from Generic Advertising by the Australian Pig Industry: Further Results Relative to the Payoff from R&D

PDF Version 370 KB

S.W Mounter, G.R. Griffith, R.R Piggott and J.D. Mullen

Abstract

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, described in an earlier paper in this Review (Mounter et al. 2005), was used to estimate the potential annual returns to producers and other industry sectors from different hypothetical R&D and advertising scenarios. 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, so we cannot say which investments have the highest net returns. We can say though 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 very difficult to demonstrate any positive demand response to domestic pig meat advertising.

Paper 20
October 5th, 2005

When Can a Generic Advertising Program Increase Farmer Returns?

PDF Version 419 KB

John Freebairn, Ellen Goddard and Garry Griffith

Abstract

Generic advertising has been a widely-used marketing tool of many agricultural industries. The strategy has come under increasing scrutiny lately, especially by levy-paying producers who fund the advertising. Also, for many food products, supermarket chains have developed and advertised their own “store” or “private label” brands in competition with both processor brands and generic advertising of those products. In such an environment, the issue is whether generic promotion will increase producer returns? Farmers gain from a generic advertising program only if the net farm price rises, where the net farm price is inclusive of the levy collected to fund the generic advertising program. A higher net price to farmers increases producer surplus, or the returns on farmer-owned land, management, labour and other resources which are in limited supply. The aim of this research is to examine the conditions under which such an increase in the net farm price is likely to occur. In undertaking this task, two main areas of research are reported. First, the literature is reviewed and theoretical models are developed to assess the conditions under which farmers would gain from a generic advertising program funded by a levy on production. Second, a general model is applied across the range of Australian agricultural products to assess the minimum increase in domestic sales from advertising required if the program is to increase farmer returns. In particular, the assessment distinguishes products by their exposure to international trade.

Paper 21
November 29th, 2005

Projecting the world wine market from 2003 to 2010

PDF Version 209 KB

Glyn Wittwer and Jeremy Rothfield

Abstract

Rapid New World supply increases are imposing downward pressures on prices for grape and wine producers. A per capita decrease in wine consumption in the world’s largest wine producers is being offset by consumption increases elsewhere, and growing consumer preferences for higher quality wines. We use a global wine model to project the world’s wine markets from 2003 to 2010. Our decomposition of results allows us to examine the contribution of different market forces to changes in prices and outputs relative to 2003.