Julian M. Alston

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 Julians 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
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