Australian Agribusiness Perspectives:
There is an increasing emphasis in Australian beef industry R&D on finding ways to improve retail beef yield. Currently, there is no way to commercially measure retail yield but there is evidence of a strong link between muscle score of the live animal and subsequent meat yield measurements.A relevant question is whether there is a credible value for muscle score in live cattle and carcase markets, and does it reflect the implied value of increased retail yield?
In this paper, estimates are made of the premiums and discounts for muscle score class at the Sydney wholesale market level. The results suggest premiums of 21 to 80c/kg for improvements from muscle score C/D to B. This can be compared with premiums of 18 to 45c/kg for improvements in one muscle score available in the Wagga Wagga saleyard market, and a premium of 16 c/kg for improvement in the assumed equivalent of one muscle score at the retail level. While there may be some debate about which is the “best” estimate, and the fact that the wholesale data ranges over more than one muscle score, it seems evident that premiums and discounts for muscle score evident in cattle saleyard prices and wholesale carcase prices appear to be over-estimates of the eventual increase in retail value.
Euan Fleming, Renato Villano and Brendon Williamson
The potential economic benefits that options contracts bring to the Murray Valley water market in Australia are assessed. Exotic call option prices are estimated using Black-Scholes and skewness-and-kurtosis-amended Black-Scholes option closed-form pricing methods that are based on mean weekly water prices between 2004 and 2008. While options would result in significant economic benefits through more efficient trade of water on the open market for lower-value crops, there were mixed results from attempts to price them. Results show that use of the standard Black-Scholes formula is likely to undervalue option prices considerably at all but improbably low levels of volatility in water prices. Water option prices are high relative to the net present value of option benefits for recent levels of volatility, which is likely to discourage the development of a water options market. Alternatives to reduce the option prices are discussed. Other potential constraints to the implementation of a water options trading system are outlined.
Hui-Shung (Christie) Chang, Robert Lutulele, Rebecca None, Zenaida Maia, and Paul Hape*
The US$15 billion investment in the PNG LNG project has been making headlines since its inception in 2006. The Project was forecast to generate significant export revenues and to generate much positive impact on the PNG economy for the coming 30 years. The demand for fresh produce was forecast to increase significantly to feed the substantial labour force at the project sites as well as in other supporting sectors. The objectives of this study were to estimate the requirements of the LNG project for fresh produce and to determine the potential for PNG farmers and supply chain operators to supply the Project. In this study, we estimated that demand for fresh produce from the PNG LNG market to be in the order of 130 tonnes a week (or 20 tonnes a day) at the peak of the construction period from 2012-2013, valued at 500,000 kina (or A$250,000) per week to local communities if the LNG market for fresh produce could be captured completely by local supplies. However, during the construction phase, nearly 80% of this demand would most likely to be met by imports because of concerns over quality, variety and consistency in supply of local produce. In addition, after the initial construction phase and by 2014, demand for fresh produce from the PNG LNG market would be reduced to around 2 tonnes a week during the operational phase due to a significant reduction in labour force. This means the impact of the PNG LNG project on the local fresh produce industry is not only short-term but uncertain, depending on the ability of local suppliers to meet buyers’ requirements for quality, variety and consistency in supply, which, in turn, will depend on whether long-standing supply chain issues can be addressed adequately and quickly by government and industry. Failing to do that, local suppliers will miss the opportunity to supply to the huge LNG market in the same way they have missed supplying to higher value formal markets.
In recent years we have been involved in designing, implementing, monitoring and assessing a number of agricultural RD&E projects that have had a specific outcome focus on increasing the profitability of the participating businesses. These projects are based on ongoing research and development of the Sustainable Improvement and Innovation (SI&I) model which has Continuous Improvement and Innovation (CI&I) as its key process. A number of issues and dilemmas have arisen in managing these projects. One solution has been to write down in a formal way, at frequent intervals, what we have designed, what we have done, what we have achieved, and consequently what we need to do better. In this paper we describe several of these recent writing tasks, spread over several years. Apart from attempting to resolve the broad range of issues and dilemmas noted above, we have had two additional objectives: first, to expand interest in the concept of CI&I in the broader RD&E community and to stimulate its adoption in RD&E projects; and second, to use the writing task itself as a CI&I process to stimulate new thinking and action and to improve and innovate in our project management. We conclude by offering some lessons we have learnt from this process.
The Market Development Project (MDP) was
initiated by the Fresh Produce Development Company (FPDA) of Papua New Guinea
(PNG) in 2006. The study showed that some of the
objectives have been achieved, for example, gaining practical experience in
marketing, building capacities of famers and staff, establishing bank accounts
and encouraging savings for some farmers. However, these achievements were not significant
relative to the time and substantial resources that had been invested in it. More
importantly, it failed to make significant inroads into addressing known supply
chain issues of poor transport, poor post-harvest handling, and inconsistent
supply. Our findings suggest that more effort should have been given to staff
and farmers’ training, gathering information on costs of production and
marketing and identifying and addressing supply chain issues. In addition, a workable
monitoring and evaluation framework should have been put in place so that problems
and deficiencies in the design and operation of MDP, most notably its pricing
structure and quality control measures, could be identified and rectified as
soon as they occurred. The case of MDP demonstrates clearly that administered
pricing (as is MDP pricing) is no substitute for the free play of market forces
and farmers’ interests can be better served by government acting as a
facilitator, rather than as an interventionist.
Wright Robertson of Glencoe is a vineyard, winery, cellar door and contract winemaking business located 18km south of Glen Innes on the New England Highway. It was established by Scott Wright in 1999 as a family business producing and marketing niche wines based primarily on their classification as certified organic products. It has provided Scott with interesting opportunities and challenges. In November 2010 he made the decision to desist with the businesses’ organic-producer classification, informing his wholesale customers of this decision in an email sent 12 November 2010. As he stated in that correspondence: ‘This is a decision that I have not come to lightly and I guess is really several years in the making’. In this paper he discusses his experience as an organic producer and niche marketer. While he will continue to use farming practices which are organically derived, rather than being organically certifiable, he nevertheless presents a justification for stewardship as the basis of the business into the future. Thought of as incorporating both financial and environmental sustainability, stewardship is now the core value of the business after his experience as a certified organic producer.
Shaun Cassidy is Managing Director of
Merilba Estate wines and the Chair of the New England Australia Branding
Strategy Committee. Mr Cassidy participated in a Wine Business Research
Symposium convened by the School of Business, Economics and Public Policy,
University of New England on 13 August 2010. We asked Shaun to provide his
perspective on the wine industry in New England, in particular his experience in
developing his business from grape growing and winemaking to investing in a
cellar door facility, the development of the New England Australia wine region
as a wine tourism destination and the branding and marketing strategy which was
launched 26 October 2010. We also asked Shaun to discuss what he viewed to be the
opportunities and challenges to the wine industry in New England, including the
integration of wine and food branding, transportation issues and the potential
for developing suitable tertiary education for young employees in the industry.
The New England-North West region of NSW boasts a cluster of features which point to the opportunity of the development of a successful premium wine industry in the region. This has been recognised by State Government, which has assisted the facilitation of industry value-adding and expansion in the region throughout the past decade. The industry has developed to a point where it is now pursuing a regional-branding and marketing strategy for that portion of the region, “New England Australia”, which recently gained Geographical Indicator (GI) status in 2008. The State Government will continue to provide catalytic and supportive industry development assistance to the industry. It welcomes the examination by the University of New England and associated research organisations into ways in which they can interact with the industry through research, with the goal of providing further impetus to regional wine industry development activity.
The Australian grape-growing and wine
producing industry enjoyed meteoric growth from the early 1990s onwards, with
wine sales forming an increasingly important element of both national export
earnings and farm-sector income. Despite this success, a recent downward slump
in industry profitability and a dampening of demand for wine has resulted in a
call for government-assisted intervention, which would include a national
‘vine-pull’. This paper examines the ‘Wine Restructuring Action Agenda’ (WRAA)
proposed by a suite of industry bodies, and in particular the vine-pull policy
option, in light of its predecessor, the vine-pull scheme of 1985-87. We argue
that past experience suggests that both state and federal governments, and the
industry itself, ought to explore the other options contained in the WRAA more
fully, and indeed other emerging proposals for industry innovation and ‘light
touch’ regulation, when addressing the long-term sustainability of the
Australian wine industry.
Clearly the Australian wine industry is facing challenging times, burdened with an aggregate problem of oversupply. However, at the regional and individual business levels there are obvious disparities in the difficulties at hand and in the development and restructuring strategies to address them. For example, the New England Australia region, in undertaking a regional branding strategy, is still in its infancy in establishing its image. Other regions (e.g. Mudgee) have been quite successful in achieving this whereas others (such as the Riverina) have, up to this point, maintained regional anonymity. The intention of publishing these papers is to highlight some of the issues confronting grass roots producers and how they adapt their businesses in an environment of early regional development and economic uncertainty. It is hoped the papers provide useful insights for other regions and industry participants faced with similar circumstances.
lot of farmers that I talk to suspect that the grass is greener on the other side of the fence, and that perhaps they’d have been better off selling the farm and putting all their money into
what I’ve endeavoured to do in
this analysis is look at whether this is true or a false perception. In working through my analysis I hope that it helps you to consider, on a more informed basis, whether you
should start diversifying your
investments by allocating more of your capital off farm or perhaps retiring
from farming altogether and allocating all of your capital to non-farm investments. At the very least it
will help you appreciate
the opportunity cost of the equity you
have invested in the farm.
To run a successful business in modern economies, entrepreneurs need to be very good at what they do: the race goes to the fittest, with the greatest will to win – and, at the same time, entrepreneurs need to be very good at co-operating with those they rely on for inputs or to buy their outputs – I win, you win, we win.