Evaluating the Potential Returns to Investment in RD&E in the Southern Australian Grains Industry

Abstract

<p>Over recent decades, the Australian grains industry has faced various challenges arising from changing climate, increases in extreme weather events and declining public research, development and extension (RD&E). At the same time, there has been growing competition in Australia's main grain export markets. To increase the annual rate of productivity growth and maintain international competitiveness, more and better-aimed investments in agricultural RD&E are required. Equilibrium Displacement Models (EDMs) provide a framework for assessing the potential economic returns to investments in agricultural RD&E and the distribution of these returns along the industry supply chain.</p> <p>In this paper, an EDM for the southern Australian grains industry, encompassing South Australia, Victoria and Tasmania, is developed as a companion to the previously developed EDM of the WA grains industry. Using the EDM, three hypothetical RD&E investment scenarios are examined: a reduction in the cost of farm production variable inputs resulting from new farm technologies or improvements in cropping processes and practices; a cost reduction in stockfeed manufacturing resulting from new technologies and improved industrial techniques; and an increase in the willingness of overseas consumers to pay for wheat due to quality improvements or promotion. The results show that, directing RD&E towards a market segment of the supply chain with high gross revenue generates greater returns to the industry as a whole. As such, RD&E investment aimed at either farm production or bulk wheat export-segments of the supply chain which account for substantial gross value at farm gate and port-can yield high returns. Additionally, producers gain a greater share of benefits when productivity-enhancing research is directed towards on-farm rather than off-farm processes. Furthermore, producers can accrue large shares of the total benefits arising from research that enhances the quality of bulk grain exports because of the high price elasticity of demand for export grains.</p>