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“Thoughts” on Winners and Losers

“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 . . .

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“Thoughts” on Winners and Losers

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  1. “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

  2. 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?

  3. 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.

  4. 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

  5. The subliminal message… Alternative mechanisms for product innovation • Invisible hand? • Invisible handshake? • Oligopoly • Invisible handout? • Government subsidy • Marketing order privilege • Other privileges

  6. 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

  7. 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

  8. Privately Profitable Tax-Funded Promotion Price S0 P2 P1 P2-t P0 D1 D0 0 Q2 Q0 Q1 Quantity

  9. 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)

  10. Price b c a S Pf f e d h k i j g Pm D1 D0 0 Q0 Q1 Q2 C0 C1 Quantity Consumer and Producer Welfare Effects of Promotion in a Small, Open Economy

  11. 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

  12. 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)

  13. 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

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