The Benefits to the Australian Pig Meat Industry from an Increase in Demand for a Hypothetical Low Cholesterol Pork Product

Abstract

This is the third of a series of papers examining the potential economic effects from the introduction of a hypothetical low cholesterol pork product into the Australian market. Here, a newly updated pig meat model reported by Griffith et al. (2010) is used to model the industry wide impacts of the Bellhouse et al. (2010) survey results on consumer willingness to pay for this new pork product. Six different scenarios are examined that are combinations of a 10, 20 or 30 per cent increase in consumer demand, with and without a 10 per cent increase in the costs of producing the more valuable pork. The simulation results for the various scenarios indicate total annual industry benefits of some $450m for an increase in aggregate willingness to pay of 30 per cent and no cost increase, down to $88m for an increase in aggregate willingness to pay of 10 per cent and a 10 per cent cost increase. Australian consumers receive about 80 per cent of total benefits, pork producers receive about 7-8 per cent and all other market participants together receive about 12-13 per cent. If aggregate willingness to pay increased 10 per cent and cost of production increased 10 per cent, and if adoption was only 15 per cent of pork supply, then total annual industry benefits resulting from the development of low cholesterol pork would be around $13m. Pork producer surplus would be less than $1m p.a., and pork consumer surplus would be around $11m p.a. If actual willingness to pay was around 20 per cent, production costs increased by 10 per cent, and if adoption was still 15 per cent, total industry benefits would be around $35m p.a. and pork producer surplus would be around $2.25m p.a. These values provide a guide to the size of the annual investment that could be justified by pork producers to produce a pig that is low in cholesterol.