Measuring the Returns to Investment in RD&E in the WA Grains Industry Using Equilibrium Displacement Modelling

Abstract

<p>Equilibrium Displacement Models (EDMs) are useful for estimating the net benefits of investments in agricultural research, development and extension (RD&E) and the distribution of these benefits between producers and other participants in the value chain. Information from these models can inform investment decisions by funders of RD&E. In this paper the design and construction of an EDM for the Western Australian grains industry, a major component of the national grains industry, is reported. Using the EDM, two RD&E investment scenarios are examined. The first scenario is for a 1 per cent reduction in the cost of farm production inputs as a result of an investment in RD&E, while the second scenario involved a 1 per cent increase in the willingness of overseas consumers to pay for wheat as a result of an investment in RD&E.</p> <p>The results show that the farm sector and overseas consumers are the major beneficiaries under each scenario. The WA grains industry is characterised by a short supply chain, where most grain production is exported. The large volume of grain exported means that, if there is an increase in demand or supply, some of the total benefits go to consumers overseas. Still, a high price elasticity of demand for export grains ensures that the farm production sector receives the majority of total benefits, and that these benefits outweigh the share of benefits received by overseas consumers.</p>