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Australian Agribusiness Review

Volume 7 - 1999

ISSN 1442-6951

Information? or the Editors Network

Paper 1

Competition and Exit in Meat Processing: A Queensland Case Study.

John Rolfe - Central Queensland University and Russ Reynolds - Queensland Department of Primary Industries.

Queensland is the largest meat producing state in Australia, has the largest processing capacity and is the major meat exporting state. The processing sector is under substantial pressure for change, with 1998 utilisation rates of 70% or below being sub-economic. There are a number of possible reasons for the decline in the profitability of this sector, including the loss of supplies through the live cattle trade, increased physical capacity and throughput, changed industrial relations and a move to enterprise bargaining agreements, and the impost and structure of government regulation.
Of particular interest is the extent to which low utilisation rates, in spite of the current high slaughter, are the result of competitive forces within the processing industry. The development of excess capacity is predictable behaviour in a declining industry where survivor firms position themselves for increased market share. Firms may also be increasing capacity in a search for scale efficiencies. Low profitability may also be the result of price levelling activities in declining market conditions.
In October 1998, the Queensland Government committed $20 million to the restructuring of the processing sector to achieve viability and sustainability goals. Determining the effective focus of restructuring will require a clear understanding of competitive forces within the processing sector, and the extent to which over-capacity is exogenous to the sector.

Paper 2

International Developments and Sustainable Agriculture in Australia

Randy Stringer and Kym Anderson - School of Economics and Centre for International Economic Studies, University of Adelaide

Until recently, Australia’s agricultural development policies were guided by socio-economic objectives that seldom included care for the environment, much less the concept of ecologically sustainable agriculture. During the past decade or so, however, not only changing attitudes at home but also increasing international economic integration and heightened environmental concerns abroad are forcing Australian policymakers to rethink agriculture’s role in the economy and society. This increasing emphasis on sustainability presents today’s farmers and agricultural policymakers with both a set of new opportunities and some new policy and research challenges. The purpose of this paper is to contribute to the analysis and debate on sustainable agriculture in Australia by seeking answers to the following questions. First, what are the implications for the sustainability of Australian agriculture of international trade agreements? And second, what impact will recent or prospective international agreements with environmental and health provisions, and unilateral changes to environmental policies, have on Australian agriculture?

Paper 3

Consumer and Import Taxes in the World Wine Market: Australia in International Perspective

Nicholas Berger and Kym Anderson, School of Economics and Centre for International Economic Studies University of Adelaide

Virtually all countries tax the consumption of wine (and other alcoholic beverages). However, the rates of taxation, and the tax instruments used, vary enormously between countries. This paper details for all the OECD members plus some other countries the consumer tax equivalents (CTEs) of wine taxes as of 1996. It shows wholesale sales taxes, excise taxes, import tariffs, and value-added or goods-and-services taxes, expressed both in dollars per litre and as a percentage of what the retail price would be without those taxes. These are shown in aggregate and also separately for non-premium and premium wines (since many wine taxes are volumetric and so their percentage CTE rates vary with the price of wine). The CTE tends to be lower the larger a country’s per capita production of wine. Australia and New Zealand are shown to have relatively very high wine CTEs. In Australia’s case this is especially so for premium wine, because Australia uses a percentage tax rather than the commonly used volumetric tax measure. Moreover, the extent to which Australia is an outlier has increased considerably during the past 15 years. This has implications for the current debate over reforms to Australia’s tax system. The paper concludes by pointing also to the high wine import tariffs in some countries, arguing that there is scope for trade negotiators to expand wine market access in East Asia especially as the next WTO trade negotiations begin at the end of 1999.

Paper 4

Attitudes of Independent Rural Meat Retailers to a National Beef Quality Assurance Program

R.A. Idstein and G.R. Griffith

In the last two decades there has been a substantial reduction in the domestic consumption of beef and veal. While most of this decline can be attributed to a change in relative retail prices, some can also be attributed to changes in consumer preferences. Market research has clearly shown that consumers are increasing their demand for quality characteristics such as tenderness, flavour and leanness. Yet the industry is still marketing an inconsistent product to consumers who are demanding consistency.
This general problem of quality inconsistency has been recognised by industry and has been included in the Meat Industry Strategic Plan. One of the key goals was to describe palatability accurately and guarantee food safety. 
The meat industry hopes to succeed with this by the year 2001, through the development and implementation of value-based marketing systems that would lead to a 50 per cent reduction in the variability of quality and volume, and would to some degree ensure security of supply. National quality assurance procedures would have to be a necessary component of any such marketing systems. This has led to the development and trialing of Meat Standards Australia, a meat grading system based on eating quality which involves accredited pathways to achieve certain grades.

Paper 5

Prospects for the Japanese seafood market in the late 1990s: Implications for Australian exporters

Dr S. C. Williams and Professor K Taya

The domestic seafood industry in Japan in the late 1990s has been in crisis. Competition is now so intense that the seafood retailing sections of many department stores and supermarket chains are consistently losing money. As a result, the seafood sections are being markedly reduced in size and scope or the space is being leased to independent operators. These effects are rippling downwards, causing problems for wholesalers, importers, and Japanese producers. Radical changes to ‘traditional’ marketing practices have occurred, new marketing solutions are being tried, and others have been proposed. In this paper, the authors set out the current situation of the seafood market in Japan, and the changes that are taking place. The current strategic responses of the various sectors to these changes are described, as well as the implications of these responses and suggested strategies for the marketing of Australian seafood in Japan.

Paper 6

Trends in dairy farm sales and factors influencing dairy land prices in New Zealand (1990-1997)

G P Rauniyar Senior Lecturer, Institute of Natural Resources, Massey University, Palmerston North, New Zealand.
A E Dooley - College of Sciences, Massey University, Palmerston North, New Zealand,
W J Parker - Dairy and Beef Division, AgResearch (Ruakura), Hamilton, New Zealand

Dairy farm sale data (1990-1997) published by Valuation New Zealand are examined in this paper. Trends and interrelationships involving the number and size of dairy farm sales, land prices, milk solids prices and dairy farm productivity are explored on a national and regional basis. Buyer-seller relationships in dairy farm sales are also analysed. An econometric model, constructed to explain dairy farm land prices (expressed as the logarithm of the net sale price in 1990 dollars: r2=0.78) indicated each 10% increase in farm area would decrease the sale price by 1.5% and that a 10% increase in milk solids would improve the price by 8.7%. In real terms dairy land sale values are projected to increase.

Paper 7

Longitudinal analysis of dairy farm income and expenditure in New Zealand: A review of 25 years of adjustment.

G P Rauniyar - College of Sciences, Massey University, Palmerston North, New Zealand
and W J Parker - Dairy and Beef Division, AgResearch (Ruakura), Hamilton, New Zealand

The cost-price squeeze in dairy farming has forced farmers to become more competitive in the market place. This has primarily occurred through increased herd size and productivity gains associated with labour-saving technology. The cost and revenue structures and changes in the contribution of key dairy production inputs to total cash expenditure and farm income over the 1972/73-1996/97 period were analysed. Data were taken from the annual publications of the Livestock Improvement Corporation and the New Zealand Dairy Board. Implications for the future growth of dairy farms and the industry are drawn from the analysis.

Paper 8

The Returns from Some Replanting Strategies in the Orange Industry.

K.J. Elton and R. Hutton New South Wales Agriculture, Yanco and Dr. J.D. Mullen - New South Wales Agriculture, Orange. NSW.

Due to a downturn in concentrate juice markets, there has been a trend within the orange industry to reduce the reliance on Valencia oranges. Reworking (where much of the main branch system of existing healthy Valencia trees is removed and budsticks of selected Navel orange clones or other citrus varieties are inserted in cut ends of the main limbs) is an alternative to replanting as it reduces the pre-production yield losses which are associated with establishing a replant site. Using benefit/cost criteria applied to development budgets, a reworking strategy was found to be more profitable than strategies which involved either replanting to Navels or delaying replanting to Valencias.
An important source of risk is the difference in expected price between Valencia and Navel oranges and how this varies through time. Based on stochastic dominance testing, the reworking strategy was dominant for price conditions experienced by the industry over the last thirty years. However, in the future, this will depend on demand and supply conditions in fresh fruit and processing markets.

Paper 9

Intra-industry trade of processed food in APEC economies

Tina Yiping Chen and Ray Trewin - Australia-Japan Research Centre - Asia Pacific School of Economics and Management
The Australian National University - Canberra.

A considerable part of the growth in world trade, particularly amongst developed countries, is of an intra-industry trade (IIT) nature - the simultaneous export and import of products that are very close substitute for each other in terms of factor inputs and consumption. Since such trade is very difficult to explain in a neoclassical model, a substantial amount of literature has developed to explain such trade. But there is still room for studies of such trade both theoretically in general and empirically in particular. In light of this gap, this paper examines the trends and patterns of IIT in the processed food sector for APEC economies.
The focus of this paper on processed food IIT in APEC economies is important for three broad reasons. First, most empirical work on IIT has focussed almost entirely on manufactured products in general. Processed food products are more or less regarded as one component of broad agricultural products whose trade is dominated by comparative advantage (inter-industry trade in nature). But being a component of manufactured industry, processed food industries tend to have imperfectly competitive market structures characterized by high seller concentration, some degree of plant level economies of scale, and product differentiation. 

Paper 10

An Econometric Analysis of the Demand for Eggs in Australia

Edward Oczkowski  - School of Management, Charles Sturt University –Riverina, Wagga Wagga and Tom Murphy - Western Research Institute, Charles Sturt University, Bathurst

This paper provides the first comprehensive econometric analysis of Australian State egg demand behaviour. Explicit diagnostic testing of models is employed to help gain robust demand elasticities. Demand is found to be own price and income inelastic, with price elasticity being effectively zero for the majority of states. Prices of related products tend to have only a minor overall influence. The proportion of paid working females is statistically important for the majority of states. A worldwide cholesterol information index appears to capture the health concerns held about egg consumption. Interestingly, results for advertising expenditure are mixed with both significant and insignificant effects identified.

Paper 11

Testing Rice Market Integration in China: The Case of Guangdong and Jiangxi

 Zhang-Yue Zhou - Asian Agribusiness Research Centre, Orange Agricultural College, The University of Sydney, Orange
Wei-Ming Tian - College of Economics and Management, China Agricultural University Beijing China 
Guang-Hua Wan - Department of Agricultural Economics, The University of Sydney,

Recent studies that examine the integration of grain markets in China reveal that, for inter-provincial markets, there is generally a lack of integration. A logical question to ask is: are markets that are close to each other in two neighbouring provinces with one being grain deficit and the other being grain surplus more integrated? 
This study examines the integration of rice markets between two neighbouring provinces: Guangdong (grain deficit) and Jiangxi (grain surplus). It is found that there exist inter-market price relationships exist between markets in these two provinces. Policy implications are discussed.

Paper 12

Wool in Western Australia - Research, Development and Extension

Ross Kingwell - visiting Senior Lecturer at the University of Western Australia and Senior Adviser at Agriculture Western Australia (AGWEST), Andrew Bathgate - Project Manager, AGWEST and Michael O’Connell - Research Officer, AGWEST

The wool industry in Western Australia, as in other parts of Australia, has experienced a prolonged downturn. Wool specialists have experienced negative farm business profit in most years of the 1990s. Sheep numbers have declined and the enterprise mix on many farms has shifted away from wool.
In this paper the wool industry R,D&E response in Western Australia is discussed. In particular, the relative merits of investing in on-farm productivity and off-farm processing and promotion are reviewed. Conclusions are drawn about future research directions.
The wool industry in Western Australia has increased its reliance on taxpayers funds. Hence, R,D&E cannot focus solely on the degree to which farmers or others in the marketing chain mainly will benefit. Instead R,D&E needs to be directed to areas in which farmers or others in the supply chain will under-invest regarding the level of public benefits, and where the level of public benefit represents an attractive social return.

Paper 13

Multiple Objectives on NSW Dairy Farms: Assigned importance and related satisfaction

Jennifer L. Harrison and Dennis T. O’Brien - School of Business, Southern Cross University - Coffs Harbour, Australia.

Dairying is a major rural industry in New South Wales (NSW). It contributes significantly to local economies through farm level activities, by generating substantial downstream employment and value adding through processing. In recent years dairy farm management has become increasingly complex with a need to balance numerous, perhaps conflicting, objectives. Farmers must reconcile their own private goals with those of society. They face intense pressures to increase production, reduce production costs and increase product quality while simultaneously conserving natural resources, maintaining lifestyle and achieving other personal objectives. The extent to which these objectives are mutually achievable may have implications for both the importance attached to them and related farmer satisfaction. Using survey data from two hundred NSW dairy farms, this study examines the importance farmers assign to a selection of objectives and the satisfaction farmers feel in terms of achieving these objectives. Results of analysis indicate both conflicts and concurrence in the weights assigned. The findings have implications for farm management, industry policy, the assessment of farm performance and for putting into operation actions to achieve sustainability objectives.