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.
