Transcript Distributional Issues in Mandated Commodity Promotion Programs

“Thoughts” on
Winners and Losers
Julian M. Alston
University of California, Davis
Workshop on New Products and New Domestic and
International Marketing Channels
Sonoma Valley Inn
June 18-20, 2005
Australian Angles
•
Personal history; Julian’s negative vibe . . .
–
–
Australian agricultural policy, 1975-2005
Victorian rural policy, 1980s and 1990s
(DARA, Marketing Branch, DITR; Gippsland Blue)
•
Policies to revitalize rural communities and enhance
rural incomes
–
–
–
•
Decentralization – Small Towns Study
Diversification (agricultural/environmental tourism etc.)
New high value (or value added) products
What about comparative advantage? (Paul Cashin)
–
Value adding possibilities
•
–
Coal and iron ore; Wool scouring
Value adding where? Why?
•
Bendigo (Ames)? Melbourne (Chicago)? or Tokyo?
Australian Angles (continued)
•
Economic policy for Rural and Regional Australia
–
John Freebairn, AJARE, 2003
•
The efficiency and equity aspects of policies affecting the quarter of
Australians who live in rural and regional Australia (RARA) are reviewed.
•
For the most part it is argued that economy-wide policies rather than
region or industry specific policies are appropriate.
•
Progressive income taxation, means-tested social security payments, and
government funded education, health and other services directly and
efficiently redistribute to support equity.
•
Subsidies for particular industries in RARA, such as dairy, and input
subsidies targeted at RARA, such as community service obligations,
misallocate resources and are ineffective in meeting equity goals.
•
Better property rights and procedures for allocating most natural
resources, especially water, are necessary.
Jurisdictions, Targets, Instruments
• What is the problem?
– Rural poverty
– Decline of small towns and loss of infrastructure
– National security
• Wasted Opportunities?
–
–
–
–
National public goods
State or local public goods
Industry collective goods
Private goods with synergies?
• Appropriate Action?
– Federal, state, or local government action
– Institutional change to facilitate private individual or collective action
The subliminal message…
Alternative mechanisms for product innovation
• Invisible hand?
• Invisible handshake?
– Oligopoly
• Invisible handout?
– Government subsidy
– Marketing order privilege
– Other privileges
Types of Innovation
Has implications for total benefits and their
distribution
• “Brand” creation and promotion
– Canadian lamb; Many California examples
• Grading
– Napa Valley Cabernet (vs California Table Wine)
– I-80 Beef ?
• New product innovation
– Kiwi fruit? Shiraz?
• Process innovation
– Bag lettuce
Marketing innovations may involve more than one
type, and may require institutional innovation as well
Winners and Losers from
“Value-Added”
For producers to benefit from demand
enhancement
• Must increase average revenue . . . .which means either
increase price for every unit of a homogeneous product or
differentiate product
• Must increase average revenue by more than the increase in
average costs associated with the program
Privately Profitable Tax-Funded
Promotion
Price
S0
P2
P1
P2-t
P0
D1
0
D0
Q0 Q1 Q2
Quantity
Winners and Losers from
“Value-Added”
• “The Returns to Generic Promotion by a Producer
Cooperative in a Small Open Economy”
(Alston 1994; Hayes 1993)
• Most countries, let alone states or counties, are “small”
in most agricultural commodities
• Profitable promotion (or other demand enhancement) is
enabled by government intervention (e.g., dairy policy)
Consumer and Producer Welfare Effects
of Promotion in a Small, Open Economy
Price
b
Pf
c
a
S
f
e
d
h
g
Pm
j k
i
D1
D0
0
C0
C1
Q0 Q1 Q2
Quantity
Rent Sharing and Rent Dissipation
• General problem with collective action
programs
– How to create rents?
• probably need help from the government
– How to distribute rents without dissipating them?
• probably need help from the government
– Mechanisms?
• Individual rights
• Pooling arrangements
Who Benefits
•
Land Owners
– If access based on Geographic Indicators (e.g., Napa)
•
•
Rights to use Brand
– If “access” based on membership of club
Other Specialized Factor
– Skill
– Trade Secrets (or other IPR)
Models of who benefits from
marketing innovation
New Uses – Alston and Beach
•
–
•
Ethanol from corn
New Products –
–
Alston and Mullen
•
–
Large-Lean Lamb
Lence and Hayes
•
•
GM crops
“Natural” meat