Calibrating and Validating an Equilibrium Displacement Model of the Australian Sheep Meat Industry

Abstract

<p>A new equilibrium displacement model of the Australian sheep meat industry was specified, calibrated and validated to enable the distribution of the total benefits from the adoption of new technology or promotion investments to be estimated across sheep meat value chains. A number of hypothetical simulations were run to test the impact of various 1 per cent displacements from the initial equilibrium. The gross benefits to the various industry sectors from the displacements were found to be broadly consistent with a 1 per cent change in total value in the sector where the displacement occurred. In the base case, sheep meat producers receive between 29 and 52 per cent of the potential gross benefits from the hypothetical investments, overseas consumers receive between 10 and 28 per cent, while domestic consumers receive between 15 and 47 per cent, depending on the particular scenario. Sheep meat processors, exporters and domestic retailers all receive much smaller shares of gross benefits, generally less than 15 per cent but ranging up to 26 per cent in one instance. While the updated model provides a framework that reflects the current industry size and structure, as always the results are conditional on the specified price and quantity values, their underlying assumptions and calculations, and the parameter values used to represent industry responses to price changes.</p>