A modelling framework for evaluating new technology and promotion investments in the Australian sheep and wool industry

Abstract

Challenging issues confronting the Australian sheep and wool industries in recent years include a weakened demand for wool, widespread drought, animal welfare concerns and a steady decline in Australian sheep producers' terms of trade. Less secure market environments, increased competition and lower levels of profitability highlight the importance of the efficient investment of Australian sheep and wool industry R&D and promotion funds. This thesis develops an equilibrium displacement model (EDM) to estimate and compare 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. Ten hypothetical R&D and promotion investment scenarios were modelled as 1 per cent exogenous parallel shifts in the relevant market demand or supply curves. 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 the largest total benefit shares from research in the domestic lamb retail sector and promotion of lamb in the domestic market.