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

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.