Size and Distribution of Research Benefits in the Australian Dairy Industry

An equilibrium displacement model of the Australian dairy industry is being developed for estimating the net benefits from dairy research undertaken by DPI Victoria. In this initial version, the dairy industry is represented by a system of aggregate demand and supply relationships for two input sectors, raw milk and milk processing inputs, and three output sectors, export and domestic manufactured milk and domestic fluid milk. Quantities and prices are calibrated in terms of milk equivalents. The vertical and horizontal disaggregation of the industry in the model enables the distribution of benefits from farmers to consumers to be assessed. The results for a 1% hypothetical shift in the supply curve in the farm and processing sectors are presented. Sensitivity analysis is also conducted for the uncertain elasticity values specified in the model