Stage 2 enhancements of 'Payoffs from R&D along the Australian food value chain' relating to the CIE and other models

Summary

​Background - General
Although MLA undertakes work along the complete livestock / meat value chain, MLA's primary purpose is to benefit Australian cattle, sheep and goat producers. It is important, therefore, to ensure that wherever along the value chain work is conducted by MLA that producer and other sector benefits from the work can be clearly articulated and measured.
MLA recognizes that significant differences may exist between those that may initially benefit from the work it undertakes ('first round' beneficiaries) and final beneficiaries. For example, MLA promotions designed to increase demand for Australian beef may initially benefit retailers selling the beef and the Australian processors from whom the beef is purchased. Over time, however, through increasing the demand for Australian cattle, Australian cattle producers should also benefit.
Economic models can be used to analyse the long term distribution of benefits across the value chain arising from initiatives of a particular type at any point in the value chain.
Background - GMI/IF partial equilibrium models
A suite of models, namely the Global Meat Industry (GMI) model and Integrated Framework (IF), have been purpose built for the Australian meat industry. The models provide a comprehensive capacity to analyse the economic impacts of various industry developments or interventions that might be under consideration by the industry or Government. The GMI/IF model was originally developed for the Meat Research Corporation in 1991, but since 1991 has undergone annual updates or, from time to time, more complete overhauls. For example, the model was updated in response to the emergence of the live trade to Indonesia. From the time of its creation the model has been used for many critical industry functions. Their latest uses have included providing the economic underpinning for the Meat Industry Strategic Plan 2020 and Impact Assessment of MLA Expenditure 2010-11 to 2014-15.
Background - CIE Food Processing general equilibrium model
The model was originally developed by the Centre for International Economics based on the publicly available MMRF-NRA model developed by the Australian government's Productivity Commission (2006). With further funding from CSIRO, the model was enhanced to build a highly detailed representation of the Australian food value chain into a 53 sector, eight region model of the Australian economy. Tis provides a highly detailed general equilibrium model of the food processing (but not meat industry specific) sector for the specific purpose of evaluating the impacts of successful R&D and technological change on the industry.  The model includes all important linkages to the wider economy and economy wide constraints such as the supply of labour and household and government incomes.The model assumes perfect competition, constant returns to capital and is run to assess long-term adjustments to change.
MLA Research
MLA has completed project (P.MDC 0031 that had the following objectives.
A more detailed coverage of payoffs along the meat value chain from changes caused by research and development (represented as seven scenarios) using the CIE Food model.A better understanding of the robustness of the results to changes in key parameters relating to supply and demand.
A follow on project (P.MDC.0034) expanded on the above work and focussed on reporting on the following:Demonstrate using the GMI/IF framework how different levels of industry benefits arise from MLA projects with different economic impacts and how the distribution of benefits along the value chain will change depending on the economic impact.Demonstration by way of examples (the seven scenarios from the CIE Food Model) with overall industry benefits and sector benefits (in $ and percentage changes) calculated using these examples.Compare results from the GMI/IF framework with results previously generated using the CIE Food Model, providing a rationale for major differences.Demonstrate the overall level of benefits and distributional impact of benefits that might accrue from increasing demand for Australian sheepmeat in China as an example supply chain.
Outcomes
Differences in assumptions and design between these models can lead to differing results, and these were reconciled and explained in the final reports from these two projects as well as a summary PowerPoint. In summary, the GMI/IF model provides a more relevant, red meat industry specific, analysis of benefits along the value chain.