EVALUATING THE LEVEL AND DISTRIBUTION OF BENEFITS FROM DAIRY INDUSTRY RESEARCH

A model and associated formulae are developed to estimate the size and distribution of benefits generated by different types of research for the Australian dairy industry. Particular attention is given to the influence of policy interventions on the estimates. The estimates of aggregate research benefits differ for free market assumptions versus current policy assumptions, but quantitatively the differences are small. By contrast, estimates of the distribution of benefits between different groups of consumers and farmers are significantly altered by the policy interventions.     

Technology choice and efficiency on Australian dairy farms*

Deregulation of the Australian dairy industry, specifically the removal of price subsidies to ‘market milk’, as well as ongoing drought in many dairy regions, has placed considerable pressure on farm cash income and a search for ways in which dairy farms can be made to operate more efficiently. Using traditional farm survey data and a unique biannual data set on farm technology use, this paper estimates a stochastic production frontier and technical efficiency model for dairy farms in New South Wales and Victoria, determining the relative importance of each input in dairy production, the effects of key technology variables on farm efficiency, and overall farm profiles based on the efficiency rankings of dairy producers. Results show that production exhibits constant returns to scale and although feed concentration and the number of cows milked at peak season matter, the key determinants of differences in dairy farm efficiency are the type of dairy shed used and the proportion of irrigated farm area. Overall farm profiles indicate that those in the ‘high efficiency group’ largely employ either rotary or swing‐over dairy shed technology and have almost three times the proportional amount of land under irrigation.     

Canadian dairy policy and the returns to federal dairy cattle research

The economic surplus approach is used to estimate the returns to federal investments in dairy cattle research in Canada. A national supply function is estimated using time series data. Lagged research expenditures are included as explanatory variables in the model, facilitating the calculation of ***marginal as well as average benefits from research. Simulation analysis is used to study the effects of product market distortions associated with Canadian dairy policy as well as of the marginal excess burden on the rates of return to research and on the distribution of research benefits. Returns were found to be high at the margin. Distortions in the product market had a small effect on the overall returns to dairy cattle research but had a large impact on the distribution of research benefits. Rate of return estimates were found to be indicative of underinvestment even when the marginal excess burden was taken into account.     

Small U.S. dairy farms: can they compete?

The U.S. dairy industry is undergoing rapid structural change, evolving from a structure including many small farmers in the Upper Midwest and Northeast to one that includes very large farms in new production regions. Small farms are struggling to retain competitiveness via improved management and low‐input systems. Using data from USDA's Agricultural Resource Management Survey, we determine the extent of U.S. conventional and pasture‐based milk production during 2003–2007, and estimate net returns, scale efficiency, and technical efficiency associated with the systems across different operation sizes. We compare the financial performance of small conventional and pasture‐based producers with one another and with large‐scale producers. A stochastic production frontier is used to analyze performance over the period for conventional and pasture technologies identified using a binomial logit model. Large conventional farms generally outperformed smaller farms using most economic measures—technical efficiency, various profitability measures, and returns to scale.     

Elasticity of demand for Australian cotton in Japan

Although a relatively small producer, Australia exports more than 90 per cent of its cotton production, making it the world's third largest cotton exporter in recent years. This means that export performance plays a major role in determining the profitability of the Australian cotton industry. The primary aim of this study was to determine the competitive position of Australian cotton in the Japanese market, based on the original non-linear Almost Ideal Demand System model using data from 1972 to 1998. The main findings are that the USA had a relatively strong market position and that Australia needs to improve its cost competitiveness and quality image to advance its market standing.     

Multinationals vs. Cooperatives: The Income and Efficiency Effects of Supply Chain Governance in India

The impact of multinational firms on the domestic agricultural sector in developing countries is controversial, in particular in India. Relying on a unique set of household‐level data from the state of Punjab, we study the biggest dairy company in the world (Nestlé) in India and compare its vertical spillover effects on upstream suppliers to other market channels (informal sector and cooperatives). We find that farmers that supply informal channels are less efficient and earn lower profits per dairy animal than farmers supplying the cooperative and the multinational sector. Furthermore, we find that farmers using the multinational channel are more efficient than farmers in the cooperative channel, but equally profitable. Hence, we do not find that supplying the cooperative channel is more beneficial for local dairy farmers than supplying the multinational channel. Overall, however, dairy productivity and profitability levels are still dramatically low, with substantial scope for dairy development.     

The factors influencing the profitability of leased land on dairy farms in Ireland

The Republic of Ireland possesses a land market that is constrained by minimal sales each year, less than 1%. In an effort to capitalise on milk quota abolition and to increase dairy production, a suite of tax incentives has recently been introduced in the Republic of Ireland to encourage land mobility and long-term leasing among Irish dairy farmers. Using Irish Farm Accountancy Database Network (FADN) data from 2011–2017 to examine this, a Heckman sample selection model explores two aspects; (i) the factors that influence a farmer’s decision to rent, or continue renting, land and (ii) the profitability of dairy farmers renting in land. We find self-selection into the rental market is driven by farm traits that include a high level of hired labour, the presence of a successor, intensive farming practices and dairy discussion group membership. The results show that rental agreements assist farms in achieving economies of scale. The findings provide evidence to support government intervention such as tax incentives for renting out land and knowledge sharing discussion groups.     

Farmers in a deregulated dairy regime: Insights from Ireland's New Entrants Scheme

While the impending review of the European Union (EU) Common Agricultural Policy (CAP) is set to have an impact on all farming sectors across Europe, particularly transformative change is sought by policies relating to dairy farmers. EU milk quota abolition in 2015 will fundamentally revise the terms of dairy production, transitioning from policies of subsidy and protection to a scenario where farmers will produce milk on the open market. Dairy quota abolition essentially represents an economic but also socio-cultural disruption for a sizeable cohort of farmers, requiring adaptation to more market-driven production strategies. Agricultural policy-makers in EU member states are demonstrably preparing for this imminent change and dairy farmers are considering and strategising their responses at farm-level. Our focus in this paper is the interplay between quota abolition and farm-level decision-making in the pre-abolition period. Drawing from a broader mixed-methodological and multi-disciplinary research project, this paper uses qualitative narrative analysis to identify the key determinants arising in dairy farmers’ decision-making processes. How are farmers currently strategising their responses to dairy quota deregulation? Using the qualitative Biographic Narrative Interpretive Method (BNIM), we examine the range of factors determining how a particular group of dairy farmers are strategising their positions on the impending open dairy market. Our analysis highlights how, in the advent of a deregulated dairy production regime, dairy farmers are carefully deliberating their responses at farm level, drawing from policy and market related information, their own personal speculations, and conventional wisdom shared with other members of the farming community. We find that the dairy farmers are influenced not only by motivations to increase productivity and scale but by a tenacious approach to farm sustainability and resilience that is informed by past experiences of farming and seeks to preserve and promote socio-cultural farming values. The paper is of particular interest to policy makers and academics interested in the interchange between policy and farmer behaviour, particularly in the context of current CAP reform.     

Who gains from Australian generic wine promotion and R&D?

The present paper estimates the distributions of aggregate returns from different types of research and promotion investments by the Australian grape and wine industry among grapegrowers, winemakers, domestic and foreign consumers, and the tax office. The results show that most of the gains from cost-reducing R&D in grape and wine production go to producers and that producers get a far larger share of the benefit from export promotion than that from domestic promotion. Foreign consumers of Australian wine also enjoy a significant share of the benefits from Australian R&D. Sensitivity analysis shows that the key results hold for a wide range of parameter values.     

Measuring the Effects of Generic Dairy Advertising in a Multi-Market Equilibrium

We develop a multi-market equilibrium displacement model that allows demand linkages across downstream product markets, and supply linkages through the common use of a raw commodity as the key input. Applying the model to the dairy sector, we find that the effectiveness of producer-funded advertising depends on the demand relationships across dairy product markets (cross-price and cross-advertising elasticities) as well as the reallocation of milk toward the advertised market. We show that the previous literature, which ignores the horizontal linkages highlighted here, tends to overstate the effectiveness of generic commodity promotion for dairy, and thus results in too much advertising.     

Returns to smallholder dairying in the Kilimanjaro region,Tanzania

Tanzania is a net importer of dairy products despite its large cattle herd and successive government efforts to promote dairying. This paper draws on survey data to examine the financial attractiveness of dairying to smallholders in an area of high dairy potential on the slopes of Mount Kilimanjaro. On mixed farms in which coffee and bananas are the other main enterprises, producers keep small herds of mainly crossbred and grade cattle, mostly fed in stalls on cut forage and crop residues. Using a herd model, a benefit-cost analysis of dairying was carried out. This showed that at prevailing prices, returns to dairying were around 20%. There was, however, no difference in the returns gained by the larger scale farmers who had more of the grade cows and managed them intensively, compared to those using a less intensive system with lower potential stock. Moreover, the profitability of dairying for the former was underwritten by subsidies on inputs and fuel which are difficult to justify. Policy has apparently over-emphasised improving yields and the development of intensive dairying, and has not been sufficiently concerned with keeping down the costs of dairying.     

Generic Advertising and Product Differentiation

This article considers whether generic advertising lowers the differentiation among competing brands of the same good. Analytical results show that if the benefits from generic advertising from increased demand are outweighed by the costs from lower product differentiation then high–quality producers will not benefit from generic promotion. Hypotheses are tested empirically under a conditional–logit approach using retail–market sales and advertising data for the U.S. prune industry. Results from this study provide evidence that generic advertising has a slight differential effect on the perceived qualities of different brands.     

Markups,organic agriculture and downstream concentration at the example of European dairy farmers

A competitive environment, highly concentrated processing and retailing sectors as well as increasing decoupling of direct payments from production volumes and the area under cultivation incentivizes farmers to find alternative ways to improve their bargaining position towards downstream companies. This article explores the possibilities of organic agriculture to enhance the bargaining power of farmers along with the role of concentration in downstream industries. Using a dataset with more than 200,000 observations from approximately 40,000 dairy farms, I estimate markups of price over marginal cost in dairy farming as a measure of market power in the EU. The results show that organic farmers achieve a significant markup premium over conventional farmers. With increasing market shares of organic milk in total milk production markups of conventional farmers diminish whereas those of organic farmers are unaffected. Farm-level markups decrease with increasing market shares of medium-sized dairy processors and increase with increasing market shares of large processors. The presence of large multinational retail chains shows an adverse impact on farmers’ markups.     

Do subsidies cause a less competitive milk market in China?

After 2008, China dairy industry has experienced a consolidation supported by the government mainly for the reason of food safety. Subsidies are one of the tools to shape a concentrated market with goals of reducing regulation cost and accomplishing quality control. This gives a serious concern that subsidies would generate a less competitive dairy industry. We construct a parametric model and use the firm‐level panel data, specifically the top eight dairy firms, to test if government subsidies strengthen the market power in the dairy industry. Our empirical results indicate government subsidies have a negative impact on the Lerner index for the top privately owned firms, but no significant effect on state‐controlled ones after controlling for advertising, time trend, and proprietorship. It is possible that the subsidies give more room for private firms to increase the scale or suppress the price, which eventually reduces the market power and benefits dairy customers in the downstream.     

我国奶业市场结构的量化评估、机制分析及规制理路

目的 21世纪以来我国奶业快速发展,市场结构不断呈现新状态和新特征。通过综合研判我国奶业市场的结构类型,进而分析我国现阶段市场结构类型形成的动因及影响,并对奶业寡头垄断市场的政府规制理路提出建议。方法 文章基于2001—2020年《中国奶业年鉴》及企业年报整理所得数据,利用行业集中度指数、洛伦兹曲线与基尼系数、赫芬达尔-赫希曼指数、熵指数综合研判了我国奶业市场的结构类型,进而分析形成动因及影响,并结合国内外经验对奶业寡头垄断市场的政府规制理路提出建议。结果 （1）近20年我国奶业市场结构呈现3阶段变化,2004年及以前处于垄断竞争阶段;2005—2016年处于垄断竞争向寡头垄断过渡阶段;2017年及以后进入初级双寡头垄断阶段。（2）我国奶业初级双寡头垄断市场结构是来自市场竞争的自然形成,规模效应、行业壁垒和全球化趋势是寡头垄断市场形成的主因。结论 现阶段我国奶业市场已进入初级的寡头垄断阶段,寡头垄断市场有利有弊,我国应从制度上进行顶层设计,发挥寡头垄断模式的积极作用,减少其负面效应的影响,保障奶业持续健康发展。     

A Real Options Approach for the Investment Decisions of a Farm‐Based Anaerobic Digester

The profitability of anaerobic digesters (ADs) for Ontario dairy farmers are examined using real options under current and proposed government pricing policies and investment uncertainty. In the case of a renewable energy initiative such as an AD with large sunk costs and volatile returns, the value of deferring investment may be significant enough to offset the returns suggested by the net present value (NPV) approach. For a 150 cow herd, net revenues should be approximately $1.1 million before the AD is installed using the real options approach as compared to $0.5 million with the NPV approach. An AD is close to generating a positive NPV for a 600 cow herd if for either a 1% increase in the electrical price or decrease in the cost. However, farmers need not invest today and there is a value to delaying this decision from potential improvements in the technology that increase the efficiency and/or decrease operating costs of the AD. The real options analysis indicates that this option to delay investment has a value of approximately $300,000 for a typical Ontario dairy farm. Thus, either significant grant funding or higher feed‐in‐tariff rates are required to induce the increased adoption of AD technology in Ontario today even for the largest of dairy farms. Considering the probability of government support potentially ending, increases the value of investing today but a significant option value to defer still exists.     

The pass-through of exchange rate changes to the prices of Australian exports of dairy and livestock products

Agricultural exports are usually assumed to operate in perfectly competitive international markets, but many are subject to non-tariff barriers to trade that can affect the degree of pass-through of exchange rate changes to foreign currency prices. The present study uses multivariate cointegration techniques to examine the effects of exchange rate changes on the prices of Australian exports of milk products, cheese, beef, sheepmeat, and hides and skins. The results indicate that Australian dairy exports operate in competitive markets in which pass-through is complete, but there is no stable long-run relationship between exchange rates and prices for any of the other livestock products.     

Factors and scenarios affecting a farmer’s grain harvest logistics

This paper explores how changes in Australia’s grain industry supply chains are likely to impact on the nature and profitability of an Australian farmer’s grain harvest logistics. A simulation model is used to show how receival site rationalisation, cheaper on‐farm storage, larger trucks, higher‐yielding crops and new harvest technologies, separately and in combination, affect the nature and profitability of a farmer’s grain harvest logistics. Applying the model to a typical Australian grain farm shows that many of these changes unambiguously advantage the farm business, and often, the combination of these changes increases a farmer’s harvest profits by at least 10 per cent. For many farmers, the task of efficiently designing and managing harvest logistics will be an increasingly difficult yet important series of choices due to the range of storage options, grain pathways, crop portfolios and market opportunities that are arising. A farmer’s decisions about cost‐effective on‐farm storage and transport, and their judicious use, will be a key contributor to additional profit in future years.     

Comovement of dairy product futures and firm value: returns and volatility

This study investigates the exposure of dairy firm stock prices to the prices of dairy product futures, in terms of returns and volatility, from May 2013 to April 2018. Stock price returns are regressed against an index of the futures price returns to four dairy products – milk, cheese, butter and dry whey – to isolate the effects of the dairy futures price returns. Dairy product futures price returns are found to be significant in the regression in the first three years of the sample period, with a mean coefficient of ?0.024. Using the Diebold‐Yilmaz volatility spillover method of forecast error variance decomposition, we show that the volatility of the four dairy product futures accounted for an average of 5.49 per cent of the volatility of dairy stock prices. These results suggest that the prices of dairy firms have minimal exposure to dairy product futures prices. This has implications for dairy firms and investors, who seek to understand volatility and returns in the dairy products and the stocks they trade in, and for policymakers, who seek to control or mitigate undesirable dairy product price volatility.     

Quantifying the Economic Return to Participatory Extension Programmes in Ireland: an Endogenous Switching Regression Analysis

This article examines the effectiveness of a government funded extension programme. Farm‐level data are used to assess the economic impact of dairy discussion groups, a common participatory extension method. The evaluation focuses on whether discussion group participants have improved farm profits, which is estimated with an endogenous switching regression model. This method controls for self‐selection bias due to unobserved characteristics, such as the farmer’s ability, that may affect both participation and farm profitability. After controlling for this potential bias, we find that the economic returns to discussion group membership are positive, thus supporting government targets to enrol more farmers in discussion groups.