An Economic Analysis of FRDC Investment in Market Development and Trade Access (Cluster 21)

Background

The prices received by the fishing industry and paid by seafood consumers are determined by supply and demand as in any open market. Price-quantity and price-quality relationships exist in fish markets, although comprehensive analyses of the Australian market in this regard are scarce. In addition, the demand for Australian fish and hence its price will depend on the relative value perceived by consumers of other protein foods as well as of competing imported fish products. About 65% of Australian seafood consumption is therefore imported, with about 35% produced locally.

The consumer’s willingness to pay for fish quality can be exploited through improving seafood quality standards and two projects in this cluster pursued this activity.

Four of the 20 projects in this cluster were associated with the promotion of seafood as a healthy food. Another project was also associated with enhancing demand for seafood via improving the image of seafood to consumers by presenting factual information regarding its environmental stewardship.

Another set of four projects was associated with understanding consumer markets, their purchasing patterns and what consumers require in their purchases of seafood. Associated with these projects was a project aimed at improving generic promotional processes.

Other investment by six projects was made in the area of market research and marketing for specific individual seafood types and two projects provided general information on markets and marketing. For example, assistance was given to specific industries with their positioning, domestic and export market research and promotion. The assistance was generally aligned to situations where the activity was market research or strategy formation regarding marketing – always at the industry level, not at an individual firm level. This was justifiable for FRDC on the grounds that no industry marketing levy was in place. In fact one project addressed the development of a marketing levy, which required the agreement by government to establish processes for collecting the levy.

Lessons Learnt for Future Investment

Lessons learnt from this analysis include:

• The introduction of a marketing levy could be reconsidered by the Australian Government and industry due to the apparent need for market and marketing investment by the seafood industries. This need has been met to a large extent by FRDC but this diverts resources away from R&D investment where marginal returns appear high.
• Authoritative information on the costs along the value chains for wild catch destined for domestic and/or export markets are not readily available; this hinders effective evaluation. It is understood some work that might contribute to this is currently being undertaken as part of the Seafood CRC.

Conclusions

Investment was made in a total of twenty projects within the cluster with the FRDC contribution approximating 45% of the total costs involved with a disproportionate amount of the total investment occurring early in the period.

Seven benefits associated with this investment were identified. On the basis of the seven benefits, and equal weighting for each benefit, it could be concluded that public benefits to Australia could make up 43% of the total benefits. If the subjective weightings provided are taken into account, then 38% of the total benefits could constitute public benefits to Australia.

The principal benefit from the investment was its influence on the demand of Australian produced seafood in both domestic and export markets. Other principal benefits were associated with maintaining access to fishing resources and efficiencies along the supply chain.

Overall, the investment criteria estimated for the investment of $18.9 million (present value of costs) in the twenty projects in the cluster were positive with a net present value estimated at $38 million and a benefit-cost ratio of 3 to 1, all estimated using a discount rate of 5% (benefits estimated over 30 years from the final year of investment).