Despite a long and rich history of agricultural risk research, agricultural economists still face substantial challenges in modelling agricultural decisions under risk that limit the prescriptive value of risk-adjusted decision analysis. Considering risk rigorously in agricultural decision making and risk research adds complexity and inevitable trade-offs which engender weaknesses, constraints and subjectivities, accompanied by much discord as to which theories and methods work best. In this paper, the focus is on significant constraints to analysing risky research decisions and their consequences for researchers. Four significant constraints are the focus: (i) subjective probability estimates, (ii) uncertainty, (iii) time and strategic decisions, and (iv) the challenge of representing real-world decisions in analyses. Subjective probability and uncertainty are near insurmountable obstacles for strategic risk research, likely to always limit progress for researchers and constrain the usefulness of their efforts for practical decision-makers, despite continued advances in theory, econometric nimbleness, software capabilities, artificial intelligence or supply of data. However, risk research is not a lost cause. There remain genuine gains to be made to the value of prescriptive risk research analysing tactical and strategic decisions using sound, comprehensive and 'proper' representation of the realities decision-makers face. For a start, research into agricultural risk can be improved by including in the modelling all of the three well-documented risks in agricultural economics-production, price and financial risk-which opens up the potential to include dependencies and correlations between different probability distributions. A case is also made in this paper for knowing when complex modelling is appropriate and, also important, when to use sophisticated thinking and simple (but not simplistic) budgeting techniques exploring a few rigorously-imagined discrete scenarios accompanied by reasoned narrative. This latter approach has long been the staple fare of the farm management profession. The narrative component of this approach takes a more 'passive' stance in contemplating decisions and choices, sidestepping the myriad assumptions, complexities, and some near-insurmountable problems associated with modelling major time-dependent strategic decisions.
Australia is recognised globally as a leader in the beef cattle industry. One of the key reasons for its global recognition has been the design, implementation and ongoing improvement of the Meat Standards Australia (MSA) quality assurance scheme which was first trialled in 1998 and celebrated 25 years since commencement in 2023. In this paper the history of the development and implementation of MSA is reviewed, including its alignment with the theoretical principles of the economics of grading and the way in which the initial model has been modified over time. Then, publicly available data is used to estimate the aggregate economic benefits to the industry from its implementation, and these benefits are compared with estimates of the costs incurred in researching, developing and operating the MSA beef grading model. The analysis shows that cattle producers, beef processors and beef consumers have all been beneficiaries of the program through the price premiums available for MSA-graded beef and cattle. Measured at the retail level, annual gross nominal benefits have risen substantially to over $400 million in the four years to 2023-24. The cumulative value to 2023-24 is estimated to be $4,300 million when expressed in real 2023-24 values. In recent years, nominal annual aggregate farm level returns have averaged around $200 million, before increasing markedly in 2022-23 and again in 2023-24. The cumulative value to 2023-24 is estimated to be around $3,030 million when expressed in real 2023-24 values. Over the whole period since implementation, producers have received about 70 per cent of the total available consumer willingness-to-pay when measured on an annual basis. However, theory and empirical evidence suggests that these annual gross benefits are eventually re-distributed to producers, processors, wholesalers, retailers and consumers as the market adjusts over time to the new level of domestic consumer willingness-to-pay for guaranteed tenderness. In the medium to longer term, most of these benefits would end up in the pockets of beef consumers. Impact assessment studies have shown that all past R&D expenditure in MSA has been covered, all industry adoption costs have been covered, all annual operating expenses have been covered and, on top of that, a substantial additional benefit has been generated for the Australian beef cattle industry.
The rapid and substantial increases then decreases in prices for cattle and lamb in Australia during 2021-2023 raised concerns in the livestock industries about price transmission processes in domestic meat markets: whether and to what extent changes in farm prices for livestock are reflected in changes in retail prices of meat. These concerns relate to the economic concepts of price levelling and price averaging. In this paper price levelling and price averaging practices are examined using a recent set of quarterly Australian farm and retail prices for beef and lamb. In the estimated regression models, cost, throughput and trend variables are not significant for either meat, but a lagged dependent variable is positive and significant for beef, suggesting a conscious policy to keep the beef price differential stable. Further, on top of this general preference for stability, there is clear evidence of price levelling in both meats, where changes in the current price differential are negatively and significantly related to changes in the current farm price. However, this is only a short-term response, as in the next quarter the levelling ceases, and the price differential moves in the same direction as the farm price. This result matches previous research. There is no evidence of price averaging across beef and lamb price differentials in this data set which is different from the findings of most previous research.
There is substantial global evidence of long-term, predictable price and production cycles in beef cattle industries that are driven by producers' expectations and biological processes. If future profitability is expected to be higher than the current level, cattle breeding herds are held back from slaughter, leading to an increased number of cattle over several years (herd rebuilding) followed eventually by slaughter of breeding animals and declining herd numbers (herd liquidation), until the rebuilding cycle recommences. The periods of rebuilding are accompanied by higher prices for cattle and reduced beef production, whereas the reverse is the case when herds are being liquidated. These opposite cycles in prices and output last 8-12 years and have been observed in the United States for more than 180 years. Conventional wisdom has been that these beef cycles also existed in Australia, and that the cycles in the two countries were closely connected. Current industry extension advice in Australia still mentions this cyclical influence. The research reported in this paper, using autocorrelation techniques and more than 50 years of data, confirmed the existence of the 8-12 year cycle in the United States beef industry. However, a similar analysis of Australian beef industry data did not show any evidence of significant regular patterns of the same order of magnitude as the long-term United States cycle. Further, there was no significant relationship between the prices of cattle in the United States and in Australia. The only significant regular patterns revealed in the Australian industry were in the numbers of cattle slaughtered and in cattle prices, and these are for a one-to-three year lag between changes in these series. These trends are indicative of much shorter-term beef industry variability in Australia that is more likely to be caused by the transmission of increasing volatility in world market conditions on the demand side and by increasingly volatile environmental conditions on the supply side. The results suggest the need for a primary focus on market risk management along the beef supply chain.
Parliamentarians, the rural media and the Australian Competition and Consumer Commission have, over many years, expressed their interest in competitiveness in the Australian domestic meat industry through numerous reviews. Using the New Empirical Industrial Organisation framework, in this study the question of whether there is any market power present in the domestic fresh beef, lamb, pork and chicken markets within Australia is re-assessed, using aggregate data covering the period 1970-2023. Overall, it is concluded that there is no evidence of market power in either the input or output markets of beef and lamb, that there is consistent evidence of market power in the fresh pork input market and that there is some weak evidence of market power in the chicken input market. However, there is no evidence of market power in the pork or chicken output markets.
The objective of this paper is to present a revised analysis of the expected net benefits to the Australian beef, sheep meat and pig meat industries of the R&D program Advanced Measurement Technologies for Globally Competitive Australian Meat (ALMTech), that was funded over the period 2016-2023. The current analysis updates a previous study completed in 2020 (Griffith et al., 2020, 2022) on Phase 1 of the program. It follows the same general approach and uses the same sources of input data and the same equilibrium displacement modelling tools to generate annual changes in producer and consumer surplus. Adoption profiles are then used to predict benefits out to 2040, R&D and user costs are estimated, all values are discounted to a common 2023 time period, and NPVs and benefit cost ratios are calculated. Major changes in this current analysis are: (a) MLA data for R&D costs for animal health that is directly related to objective measurement have been accessed, so the original omitted scenario on on-farm reductions in animal health costs has been added back in; (b) a new scenario based on savings from offal rejection has been developed, a new scenario has been added for eating quality developments in sheep meat, and the on-farm benefit calculations have been revised upwards; and (c) some of the adoption profiles have been changed to account for the recent rapid developments in accreditation and uptake by processors, and to better reflect the more optimistic longer-term trajectories developed in earlier MLA reports. The estimated NPV for net benefits was $858 million, while the discounted R&D cost was $128 million. The MLA Objective Measurement program resulted in a discounted net benefit of $730 million with an estimated BCR of 6.7:1; for the ALMTech component program only it was $123 million with the same BCR. The estimated NPV of net benefits of $730 million estimated in this report is somewhat higher than that estimated in the Phase 1 report ($510 million) (Griffith et al., 2020), with changes in adoption profiles being the main difference.
Previous research suggested that while there was some evidence of cyclical behaviour in pig numbers and prices in Australia, the extensive restructuring of the domestic pig industry to more large specialist units would likely dampen any cyclical activity in the future. Some 30 years after the last empirical study, another investigation was thought warranted to assess whether such cyclical activity is still evident in the Australian pig industry. Single equation time series models were applied to annual data covering the period 1970-2023. First differencing was required to achieve stationarity. Examination of autocorrelation functions in most of the series analysed indicated a significant negative correlation at a 2-year lag, suggesting a 4-year peak-to-peak cycle. This pattern was evident for numbers of sows and gilts, total numbers of pigs, total slaughterings of pigs, the real average unit value of all pigs slaughtered and the specific reported real price of baconer weight pigs. This 2-year lag was confirmed from the partial autocorrelation function where the significant association at lag 2 persisted even after accounting for any association at lag 1. There were no significant autocorrelations at any lag in the series measuring total production of pigmeat. These results all accord with previous work. The implication is that, despite the continued shift in the Australian pigmeat industry towards larger, more capital intensive and integrated production systems, there continue to be sufficient numbers of small, independent producers of lighter weight pigs who are more opportunistic and who choose to move in and out of the industry in response to price signals so as to maintain the cycle.
Vertical Farming may provide part of the solution to feeding a growing world population. However, evidence on what drives its adoption in particular countries is relatively sparse. Despite potential advantages in Australia, there are equally many obstacles and the concept has struggled to gain traction with investors. As a result there are still few Australian vertical farms. Qualitative research based on interviews with market participants indicates that the solution is to change policy settings that are not conducive to investment.
In Fiji per capita sheep and goat meat consumption is high by world standards, and nearly 95 per cent of that is sheep meat supplied by imports. There has been government support to develop the small ruminant industry and to increase local production, via research and farmer training and extension, as well as providing breeding stock and farm infrastructure (sheds and fences) to farmers. However, growth in local stock numbers is slow and varied, and imports continue to increase. Poor nutrition and worm infestations were said to be the main contributing factors to low on-farm productivity, and hence slow industry growth. The objectives of this paper were to assess profitability and cost competitiveness of local small ruminant production in Fiji, and to identify issues and areas for improvement. A cost of production and gross margin calculator was developed specifically for the goat and sheep enterprises in Fiji. It was used to develop enterprise budgets for representative goat and sheep farms, as well as to demonstrate the financial impact of changes in production practices and improvements in production parameters. The results show that gross margins were positive for live animals that were sold directly to households at the farmgate, even after accounting for the opportunity costs of family labour and capital. However, locally produced sheep or goat meat may not be able to compete with imports at the formal market in terms of price, quality and consistency in supply. The conclusions were: (1) given the dynamics of the market, continuing on-farm monitoring and market update are crucial for providing reliable estimates to aid policy makers and value chain players in developing the industry; (2) to compete at the formal market with imports, issues along the value chain need to be addressed from improving access to land and other farm inputs to improving marketing infrastructure and to building consumer confidence; and (3) continuing targeted government support on research and extension is key to developing a profitable and sustainable small ruminant industry in Fiji.
The increasing global population and consequent growing demand for food are causing more nitrogen (N) fertilizer to be used in agricultural industries. Although using N fertilizer significantly increases global food production, excessive application of N fertilizer pollutes the natural environment, contributes to the global stocks of greenhouse gases and global warming, and poses threats to human health. Governments worldwide have tried a range of policies to reduce these negative impacts of N fertilizers. There are few studies about the effectiveness of these policies. In this paper, a systematic review of the literature was done. Published findings about the effectiveness of policies that have been used or proposed to reduce pollution from N fertilizer have been summarized and synthesized. This information can help inform policymakers and enable them to assess better and measure the effectiveness of policies to reduce N fertilizer pollution. This would increase the chances of effective policies being adopted.
As global population, income and the demand for food rises, increasing quantities of nitrogen fertiliser are used in agricultural activities to enhance the supply of food. While using nitrogen fertiliser increases agricultural production, it also pollutes, which poses a threat to the state of the natural environment and, in some situations, to human health. Although there are many studies on the various types and extent of pollution caused by nitrogen, few studies account for the external costs caused by pollution from nitrogen fertiliser. In this paper a systematic review of the literature was done to collate and synthesise published studies into the external economic losses caused by nitrogen fertiliser pollution. This information should help inform policy makers and stakeholders, to enable improved understanding about the external economic losses caused by nitrogen fertilisers, and to lead to better decisions about reducing pollution from nitrogen used to produce agricultural products. However, none of the reviewed studies report a marginal external cost, so policy makers do not yet have the correct information on which to base efficient intervention decisions.
Australia's nitrogen fertiliser value chain accomplishes its core goal of supplying a wide range of fertiliser products to end users. There has been a shift over the last 40 years towards increasing reliance on imports over domestic production and, for most of that time, excepting the constraints of 2021-2022 coinciding with high demand, supply has not been an issue. The degree and range of competition by suppliers along the value chain varies. Since trade liberalisation, competition at the raw material end of the value chain has increased as the nitrogen fertiliser market has become increasingly contestable. The retail end of the value chain has a large number of participants in both national and local markets, but distribution and white labelling activities are concentrated within a few firms in the two regional domestic markets. Despite earlier recommendations from the Australian Parliament and the Australian Competition and Consumer Commission, price transparency continues to be an issue. Compared to other highly developed nations, Australian agriculture uses relatively little nitrogen fertiliser per hectare and total use is a tiny proportion of the global nitrogen market. Problems of pollution from nitrogen fertiliser used in agriculture are markedly less acute than elsewhere in the world, which also means that the adoption of enhanced efficiency fertilisers is correspondingly low.
Genetic information for beef cattle in Australia has been provided through BREEDPLAN since 1972. The BREEDPLAN model estimates the genetic potential of livestock using Estimated Breeding Values. There is substantial evidence proving the accuracy of the latter from programs such as the Angus Sire Benchmarking Program. While BREEDPLAN is well regarded worldwide and is being continually updated and improved, there are substantial differences in the breeding programs of seedstock producers and continuing industry-wide debate about the weight to place on phenotypic and genotypic information when assessing an animal's breeding value. Genetic information available to the industry is considered to be underutilised, leading to lower rates of genetic gain than is technically possible and causing market inefficiency with a reduced incentive to record data. This research is aimed at investigating the influence of genetic and phenotypic information in the selection of Angus bulls and the prices paid for them. In this component of the study, a statistical analysis of bull sale data, it was found that indexes of breeding values were significant variables in explaining some of the difference in prices paid for Angus bulls. However, most of the difference in prices paid for Angus bulls is the result of other factors and is not explained by either measured genetic variables or the phenotypic variables.
International agricultural research institutions are now expected to deliver on a range of Sustainable Development Goals (SDGs) in addition to their traditional goal of developing technologies that increase the incomes of farm families and alleviate poverty. There has been concern that pursuit of these other objectives may have a high opportunity cost in terms of a slower rate of poverty alleviation. Here we argue that many of the SDGs can be thought of as capital stocks which are jointly related in production and consumption. There are opportunities for research institutions to exploit this jointness. Well-designed projects to deliver new technology lead to the alleviation of poverty (if the technology is widely adopted) but also have the potential to enhance a range of capacities in scientists and farm families and in environmental health. The risk of projects that do not have a technology focus is that the incentives for farm families to change behaviour may be weak and hence gains in SDGs may be small. One implication is that assessing the economic impact of new technologies remains important. While changes in SDGs should be at least qualitatively described, a finding of robust economic impact based on evidence of adoption, gives confidence of gains in other jointly supplied SDGs.
The tea industry is an important contributor to the Sri Lankan economy, accounting for around 15 per cent of total exports and around 15 per cent of employment of the Sri Lankan people. However, the performance of the industry has slumped in recent years. The share of Ceylon tea in the world market is gradually decreasing, and its competitiveness is being challenged by emerging tea producing countries such as Kenya. Domestic consumption, while remaining stable, is primarily of low-quality tea as the best quality teas are expensive and are mostly exported to international markets. Production is declining and becoming more unstable because a number of government policies have been introduced which have disrupted the industry and led to unintended consequences. To provide a basis for examining these adverse trends, and some evidence-based data for future policy deliberations, the process of developing an Equilibrium Displacement Model of the tea industry in Sri Lanka is outlined in this paper. The relevant theory is described, input data such as market quantities and prices, and elasticity estimates, that are used in the model, are defined, and some hypothetical external shocks are imposed on different supply and demand functions. The results of those experiments verify that the model outcomes are consistent with the changes in inputs, and that the model would provide a sound basis for evaluating the expected outcomes of actual exogenous shocks or actual policy changes.
Small rural farm-support agribusinesses (SRFSAs) support farmers by completing on-farm tasks. These tasks have been outsourced to SRFSAs as they are more efficient at completing the task than the farmer. This efficiency is a key leverage factor that the SRFSA owner-manager can use to ensure their business's survival. The land use in the area surrounding the SRFSA is also a major contributor to business efficiency, structure, service offering and success. SRFSAs face a range of challenges that originate from limitations in labour, markets, infrastructure and business support. Rivalry from within the industry coupled with the need to manage relationships across the community creates further challenges. To survive and thrive SRFSAs need to manage these challenges and develop resilience. Resilience strategies include the management of labour through training and novel approaches to staff acquisition, relationship building with both farmers and the community, marketing initiatives, pricing strategies, technology adoption, and diversification. The most important factor in the survival and success of SRFSAs is the owner-manager and their skillset. The exploration of the literature via a systematic review has allowed the development of a theoretical framework to model the external (the community) and internal (the business) forces that shape the structure and performance of SRFSAs. The external forces are further grouped into the characteristics of the community, and the characteristics of the market. The internal forces are grouped into the characteristics of the business, and the characteristics of the owner.
This paper describes the approach that has been used by the Australian Bureau of Agricultural and Resource Economics and Sciences (ABARES) to produce quarterly forecasts since 1948 for Australia's most important agricultural commodity markets. The Australian Agricultural Forecasting System (AAFS) is comprised of a database, a group of loosely-coupled commodity-specific balance sheets and a system for publishing forecasts. AAFS has evolved from decades of design choices that have revolved around the competing methodological merits of balance sheets and structural models. Balance sheets have emerged as the preferred method because they provide an efficient means of forecasting in their own right, as well as a means of incorporating insights from other forecasting methods and expert judgement. An issue for ABARES has been that the systems attributes of AAFS have at times gone unrecognised and proven to be incompatible with conventional approaches to management. Recognising the systems characteristics of AAFS has allowed the transfer of management principles from a range of literatures that study complex systems.
This paper describes the development of an online database which allows users to assess the accuracy of ABARES agricultural market forecasts for around 100 variables over nearly two decades. Accuracy underpins the broader quality dimensions of ABARES forecasts such as institutional alignment and value-in-use to end users. The accuracy of ABARES forecasts generally improves as the lead time between forecast and outcome reduces, and production forecasts are slightly more accurate than corresponding price or export forecasts. Overall results show that ABARES forecasts are generally unbiased, but that bias can be a transient issue in markets undergoing structural change. The ability to analyse accuracy at low cost is a foundational step towards future research into the value of ABARES forecasts for supporting decision making.
Since previous tests for market power in the Australian domestic fresh meat market more than a decade ago, a number of major changes have occurred which warrant another assessment. Firstly, there has been considerable structural change with concerns of market power arising from consolidation in the processing sector. Secondly, competition has increased in the primary sales channel for fresh meat with the addition of new retail entrants. Thirdly, the Australian Competition and Consumer Commission and other government bodies have continued to express their interest in agricultural competitiveness in the form of numerous reviews and legal proceedings. Using the New Empirical Industrial Organisation framework, this study re-assesses the question of whether there is any market power present in the domestic fresh beef, lamb and pork markets within Australia, using data covering the period 1970-2017. Overall, the study concludes that there is consistent evidence of market power in the fresh pork input market. However, there is no evidence of market power in either the input or output markets of beef and lamb, or the pork output market. Some areas for further research are suggested.
The Australian apple industry is one of the nation's largest fruit industries with apples consumed in almost every household. To assist in industry development, levies are paid by producers on processing and fresh apples with funds directed towards research, development and marketing. While specific chain actors contribute to these developments, it is important to identify the beneficiaries to ensure the costs associated with the levies are allocated to those who will benefit. Within a framework depicting the Australian apple value chain, an equilibrium displacement model illustrates the distribution of surplus changes resulting from specified research, development and marketing actions. The distribution of surplus change shares indicates where the costs would be appropriately directed and the total impact to the value chain. It is evident that relatively small changes within the chain have the potential to induce significant increases to the values received by chain participants.
