Payoffs from research and development along the Australian food value chain: a general equilibrium analysis

May 2012 publication

The payoffs and distribution of payoffs from research and development (R&D) along the food value chain depend on many interacting economic factors. To quantify these we have developed a general equilibrium model of the Australina economy with detailed farming, processing and marketing information. We use the model to assess potential payoffs and distributions from various R&D scenarios that lead to demand expansion and productivity improvement. We find that productivity improvement caused by R&D is unambiguously beneficial to the whole economy while the benefits of export or domestic market demand expansion mainly accrue to the primary producers and processing industry, when the economy is at full employment. Also, productivity improvement from R&D on-farm may benefit processors while improvements post-farm may benefit farmers. However, the distribution of payoffs along the value chain differ by the nature of change that R&D induces, the products produced and the markets supplied to. Benefits from productivity growth on-farm for products requiring considerable processing will require processors to invest in more capacity, so farmers will need to share some benefits with the upstream sector. The benefits of productivity growth in processing will increase the derived demand for farm products thus transferring benefits to farmers. To efficienctly allocate R&D funds requires an understanding of these interactions. For further information, contact David Pearce or Brent Borrell.

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