ECONOMIC EFFECTS OF RESEARCH INTO TRADED GOODS: THE CASE OF AUSTRALIAN WOOL

The final incidence of benefits and costs of wool industry research and development (R&D) undertaken in Australia depends greatly on the nature of the R&D and the way it is funded. Using preferred parameter values, the Australian share of benefits from farm-level R&D is 58 per cent (falling to 40 per cent if there is 50 per cent adoption of the new technology by producers overseas); the Australian shares of benefits from wool-processing R&D ere 24 per cent (topmaking) and 27 per cent (textile-processing). Under current funding arrangements, an Australian wool tax provides about one-eighth of total R&D funds, a matching government grant provides another one-eighth, and other public sector funds make up the remaining three-quarters. Under these arrangements, the final incidence of the costs is 95 per cent on Australians (mostly taxpayers at large), and the wool industry bears only 12.5 per cent of the costs of its R&D. One implication is that a wool tax alone is a more equitable and efficient means of financing wool-industry R&D than the current arrangements.     

SOME CIRCUMSTANCES IN WHICH PRICE STABILIZATION BY THE WOOL COMMISSION REDUCES INCOMES*

Stabilization of wool prices (which is partially achieved by the Wool Commission) may reduce the average annual net income (surplus) of growers and also of manufacturers of wool. The argument that the surplus of growers may be reduced is based upon Massell's extension of Oi's hypothesis. The possibility of falls in the surplus of manufacturers if wool prices are stabilized has a different basis. If wool prices are stabilized by buffer stocks, manufacturers find that their supplies are more variable than in the absence of controls. Consequently, they experience greater average annual cost if their marginal operating costs are increasing. Unless there are substantial revenue gains to processors, their surplus falls. The argument is also applicable to buffer stock schemes for other primary products.     

The economic benefits of rabbit control in Australian temperate pastures by the introduction of rabbit haemorrhagic disease

The European rabbit is present in most Australian environments and causes economic loss in agricultural systems by reducing production and imposing control costs on producers and governments. Research into rabbit control has recognised the need for reliable benefit‐cost analysis to justify inputs into rabbit management. This paper provides estimates of the costs of rabbits in Australian temperate pasture systems and of the long‐term benefits of reducing rabbits by the introduction of rabbit haemorrhagic disease (RHD). Rabbits impose annual costs on wool producers in the temperate pasture areas of between 7.1 and 38.7 million Australian dollars (mA$) depending on their density. Controlling rabbits by RHD has the potential to generate substantial long‐term economic benefits by reducing grazing competition with sheep. Reducing rabbit costs by 25% generated 15‐year net present values (NPVs) between 18.4 and 97.3 mA$ at various pre‐RHD rabbit densities. A 50% reduction in rabbit costs increased the total NPVs between 36.9 and 202.4 mA$, virtually all of which was captured by temperate area wool producers. The corresponding benefit‐cost ratios were between 2.9:1 and 16.2:1 for a 25% rabbit reduction and 5.9:1 and32.4:l for a 50% reduction, where the total costs of the RHD program in the temperate pasture areas were incurred by the wool industry. The analysis provides guidelines for the economic evaluation of other pest problems in agricultural production systems.     

The politics and economics of wool marketing, 1950–2000

The history of marketing, research, development policies and intervention in marketing of the wool clip is reviewed from the perspective of an insider. The overall theme is that politics took over comprehensively from clear economic policy advice on wool marketing in the past 50 years and woolgrowers paid a high price for this. The idea of 'integrated marketing' including an export monopoly, a buffer stock scheme and coordinated promotion and R&D, collectively a strong interventionist philosophy, has waxed and waned. Having borne most of the costs of these failed policies, remaining woolgrowers can now look forward to a market less distorted by political interference.     

Counting the cost: the reserve price scheme for wool 1970‐2001

This paper provides a policy commentary on the collapse in 1991 of the Australian Reserve Price Scheme for wool. A key cause of the collapse in the Scheme was a change in the RPS's governance arrangements, which led to increased political pressures to raise prices to unsustainable levels. In addition, in this paper an estimation has been made of the direct, upfront costs of the operation of the scheme, drawing on the financial accounts of the various agencies operating the RPS and subsequent wool stockpile. This was undertaken to determine the scale of the policy failure.     

A CGE analysis of trade costs in the Russian agrofood sector

Ten years after the end of central planning, enormous interregional price differences indicate that Russian food markets are not well integrated spatially. Trade potentials are thus not exploited, most probably because of high trade costs. Besides transport costs, transaction costs seem to play an important role as an impediment to interregional arbitrage. These transaction costs can be very high in transition countries due to underdeveloped market structures and weak public institutions. After subtracting transport costs from interregional price differences, large differences remain, particularly in the case of high‐value products. It is assumed that these residual price differences constitute the transaction cost component of total trade costs. The regional economic impact of different trade cost components is quantified using a bi‐regional computable general equilibrium (CGE) model. Simulations show that the results are quite different between the two stylized regions (East and West), depending on which trade cost component is reduced. While the welfare effects of varying customs tariffs and transport margins are rather limited, lower transaction costs of trade seem to be a promising way to achieve a better functioning food market in Russia.     

THE IMPACT OF FARM AND PROCESSING RESEARCH ON THE AUSTRALIAN WOOL INDUSTRY*

An equilibrium displacement model of the world wool top industry is used to estimate the returns to the Australian wool industry from productivity improvements in farm production, in top making and in textile manufacturing. The returns to the industry from these different types of research and development are sensitive to the extent of substitution possibilities between Australian wool and other inputs used by the wool processing and textile industries but it appears that research resources have to be much more efficient in off-farm activities for the Australian wool industry to receive benefits similar to those from farm research activities.     

The impact of transport-and transaction-cost reductions on food markets in developing countries: evidence for tempered expectations for Burkina Faso

Reductions in transport and transaction costs are expected to have a major effect on the functioning of food markets in developing countries. For Burkina Faso, this is a relevant issue as it may have important consequences for the food markets in urban and rural deficit areas. A partial equilibrium model is presented to analyze the short-term effects of reduced costs on price formation, inter-regional cereal trade, and farmers' and traders' storage strategies. Our results show that the high expectations with regard to the direct effects of cost reductions on food prices and food availability require some nuance. The effects of a reduction of transport costs will be small. Moreover, also the unintended negative consequences on the competitive position of farmers and traders in other regions that do not profit from road construction should be taken into account. Finally, it is concluded that only if transport and transaction costs are reduced simultaneously, will both the consumers and farmers benefit significantly.     

The costs of global tariff barriers on wool products: 1997–2005

The Doha round of multilateral trade negotiations commits World Trade Organization (WTO) members to improving market access for both agricultural and nonagricultural goods. Tariff barriers on wool products represent a small but important subset of these negotiations. To inform the debate on the round, we analyze the distortionary effects of recent (1997–2005) tariff barriers on wool products using a model that applies a comprehensive analytical approach with regard to the production, trade, and consumption of wool products. We also account for any indirect effects of wool tariff barriers on the nonwool economy by incorporating the production, trade, and consumption of nonwool products, that is, the framework is a comparative‐static global general equilibrium model with a detailed representation of the world wool market. Changes in wool tariffs over 1997–2005 lead to positive welfare effects for most regions; Italy, China, and the UK are estimated to have gained the most from the changes. The results indicate that the nature of recent wool tariffs severely distort the size of wool industries in different regions. The changes in the output of wool commodities are extreme reflecting the discriminatory nature of the tariffs.     

ECONOMIES OF THROUGHPUT AND TRANSPORT BOTTLENECKS IN GRAIN DISTRIBUTION SYSTEMS

In this paper, a model is presented which shows the relationship between country grain storage costs and transport bottlenecks that exist in the harvest period. It is shown that transport bottlenecks limit the amount of grain that can be transported from receival points in the peak receival period. This constraint means that the cost of operating country receival points is high because the turnover of storage capacity is limited. However, system costs can be reduced by focusing the peak transport task at sites that are less intensive users of scare transport capacity. This allows more grain to be transported out of the system in the peak period, decreasing the need for costly long term storage at country sites. In the longer term, differences in the intensity of transport use means that optimal levels of investment in storage capacity (relative to grain receivals) will differ between sites. Relatively more storage should be constructed at sites that are intensive users of transport capacity (eg. those sites that are furthest from the port). Less storage capacity is needed at sites that are less intensive users of transport because a large depot-to-port transport task will be concentrated at these sites in the peak period.     

ON THE HIDDEN REVENUE EFFECTS OF WOOL PRICE STABILISATION IN AUSTRALIA: INITIAL RESULTS

A preliminary analysis of demand in eight major OECD wool-consuming countries is used to provide up-to-date estimates of price elasticities of demand for wool. Those elasticities are employed to calculate ex ante market prices, assuming no wool price stabilisation in Australia. The computed ex ante prices are used in a dynamic simulation to estimate demand and, hence, revenue from wool sales to the eight countries in the absence of reserve price operations in Australia. Based on the preferred semi-log demand curve, the variability of wool prices is estimated to have been reduced by 44 per cent, due to Australian intervention in the market up to 1977/78. However, price stabilisation is estimated to have lowered the revenue from Australian wool sales to the eight countries by S139m, or by 2 per cent, in the period up to 1977/78.     

WOOL PRICE STABILISATION AND PROFIT RISK FOR WOOL USERS

It has often been suggested that more stable wool prices would lead to an outward shift in the long-run demand for wool. To assess this claim it is necessary to examine different sources of risk and instability in wool prices and their impact on the risk borne by wool users. A model is presented in which the input and output decisions of a wool processor are related to interactions between the wool and yarn markets. It is concluded that, if fluctuations in final demand or exchange rates are the major sources of instability, the long-run effect of stabilising prices is to increase the risk faced by wool users and reduce that faced by wool growers.     

Changes in grain handling catchments in Australia: an historical perspective

This paper explores some of the important issues that influence the magnitude of receival site grain catchments in Australia. Changes in grain harvests, transport and grain handling technologies and costs; changes in farming systems, crop yields and harvesting capacity; investments in roads and on‐farm storage and economies of size in grain receival infrastructure are shown in combination to affect the size of grain catchments in major grain‐growing regions of Australia over the last 30 years. The size of grain catchments that minimise growers’ costs of road transport of their harvested grain and their receival point charges in various time periods are determined. Differently shaped grain catchments are considered. The main finding is that the size of grain catchments that minimise farmers’ grain transport, off‐farm storage and handling costs since the mid‐1980s has consistently increased, principally due to lessening real costs of road transport, more on‐farm storage and economies of size in grain receival, despite higher grain yields and a greater intensity of cropping. These findings are consistent with the observed reduction in the number of receival sites in many grain‐growing regions of Australia. Site rationalisation is less evident in states where the receival network is owned and operated by a grower cooperative.     

THE RETURNS TO INVESTMENT IN RESEARCH ON AUSTRALIAN WOOL PRODUCTION*

A production function approach is used to estimate growth in farm productivity in the Australian wool industry from an estimated level of expenditure on wool production R & D. A market equilibrium model of the wool industry is then used to measure the share of total benefits from this productivity growth accruing to Australia and its wool growers. A net return is estimated after allowing for lags in the development and adoption of technology.     

WOOL POLICY IN THE UNITED STATES: ITS DIRECT IMPACT ON AUSTRALIAN EXPORTS

Australian apparel wool exports to the United States are less than they might be because of two protective policies of the U.S. government: a fixed tariff and a system of direct price.support payments to U.S. wool producers. Dismantling these policies, though difficult, could mean $10 million to $21 million worth of additional Australian wool sales to the United States, over 1966 levels. Most of the increase would come from tariff cuts. Such amounts are worth negotiating for but would not solve the industry's problems.     

PRODUCT CHARACTERISTICS AND ARBITRAGE IN THE AUSTRALIAN AND NEW ZEALAND WOOL MARKETS*

The physical characteristics of wool are important determinants of its spinning properties, yarn quality and end use. The degree to which wools from different countries of origin may be substituted has important implications for the domestic marketing policies of Australia and New Zealand. The hypothesis examined in this paper is that the differences in wool prices can be explained by differences in the physical characteristics of the wool and that objective measures of these characteristics allow for effective arbitrage between these markets. The alternative hypothesis is that premiums or discounts exist owing to country of origin. A hedonic price analysis was conducted on wool prices in Australia and New Zealand using a balanced sample of sale lot data from the 1986-87 selling season. In the year examined, there was no evidence of any price premiums associated with country of origin.     

THE MERINO EXPORT EMBARGO — A COMPARATIVE STATIC ANALYSIS

The genetic changes which would occur in overseas flocks as a result of the export of merino rams from Australia are unknown. Even so, Australia recently relaxed the merino export embargo and may go further. A comparative static model is presented to assess changes in annual wool income resulting from increases in the supply of apparel wool emanating from possible levels of the genetic effect.     

PRICE EFFECTS OF WOOL MARKETING INNOVATIONS: SOME EMPIRICAL EVIDENCE

Conflicting claims are often made about the price effects of specific wool marketing innovations. In this paper, a regression model is used to estimate the price effects of two innovations, namely, computerised selling by separation and pre-sale, dense packaging of wool. The results are indicative of aggregate price differentials between wool sold via the 'normal' system and via an innovative system for the particular wool types and sale dates analysed. The extent to which price effects may be offset by differences in selling charges is also considered. In addition, some underlying reasons for price differences, where they exist, are proposed.     

WOOL IN 1980*

Since the introduction of a reserve price scheme in 1970, the interest in wool marketing previously shown by agricultural economists has not been maintained outside the public service and the wool industry itself. Nor is the subject as divisive amongst wool growers with, in general, 'orderly marketing' now acceptable to all factions of wool growers. The history of wool marketing discussion in Australia is reviewed and some reasons for this changing climate of opinion are discussed. An attempt is made to assess the actual performance of the buffer stock scheme in the light of the academic literature of the 1960s.     

STANDARDS VERSUS PRICES REVISITED: THE CASE OF AGRICULTURAL NON-POINT SOURCE POLLUTION

This paper demonstrates that the conventional neoclassical arguments for recommending a uniform discharge tax in preference to a uniform discharge standard are founded on highly restrictive and unrealistic abstractions of the pollution process. Relaxation of the assumptions reveals that the uniform standard outperforms the uniform tax in controlling ambient pollution levels over a potentially wide range of parameter values. The results of a study on agricultural sediment control are reported. It is argued that this pollution process is predisposed to the conditions that favour the ‘cross-over’ in efficiency ranking between the two policies. These conditions are a high correlation between discharge abatement costs and pollution transport coefficients, and high variability in pollution transport coefficients relative to the interfirm abatement costs.