2000, Volume 3, Paper 40
ISSN: 2209-6612
Grower Funding of Cotton Promotion Increased Market Share – Implications for Woolgrowers
Kym Butler – Senior Biometrician, Agriculture Victoria, The Joint Facility of Food Animal Research in Werribee, Victoria
Introduction
As noted by the Future Direction’s Wool Taskforce (McLachlan 1999), consumer marketing and promotion of wool products is important. It is essential for maintaining high consumer demand for a product.
As the Taskforce notes (chapter 6.11 of main report), “It is more a question of who should be responsible (for promotion) – retailers and brand owners, or woolgrowers via compulsory levies.” It is hard to disagree that this is a fundamental issue.
Several authors (Watson 1998, Piggott 1998, Beare 1998) have pointed out the following. Grower funding of wool marketing and promotion is only appropriate if the net benefit to woolgrowers of consumer marketing and promotion in the presence of grower funding is sufficiently greater than the net benefit of consumer marketing and promotion that would have occurred with no grower levy funding.
Apriori it is feasible that even if grower funded consumer promotion and marketing has a positive effect on demand for wool products, this could be at the expense of private firms promoting wool product on their own account. The net benefit of growers funding consumer marketing and promotion could then be diminished, due to the ‘crowding out’ effect (Watson 1998). On the other hand, the level of complementarity between private and grower funding might be increased by focussing grower funded marketing and promotion on fibre properties, performance and content, and by considering joint funding and implementation with brand owners and retailers.
Hill et al (1996) studied the net incremental benefit of woolgrower expenditure on consumer marketing and promotion of wool product, under various scenarios of fibre promotion and marketing. This is useful information since it gives a guide to whether the level of expenditure needs to be decreased or increased. However, it does not directly address the issue of whether woolgrowers should fund consumer marketing and promotion. Should it be woolgrowers, or should it be left to retailers and brand owners?
From the point of view of the wool growing industry, this should not be an ideological issue. Instead, it should be purely an economic issue for the industry. If grower funding of consumer marketing and promotion is likely to sufficiently increase demand, above the demand that would have occurred without grower funding, then this funding should occur. If sufficient increase is unlikely to occur, then grower funded consumer marketing and promotion should not occur.
However, in studying the net effect of consumer marketing and promotion on demand it is important to be aware of both the direct effect of consumer marketing and promotion on demand and the longer term effect of increasing consumer loyalty and bonding to wool products. In relation to the issue for the need of woolgrower funded consumer marketing and promotion the longer term effect on consumer loyalty and bonding might be more important, since this can potentially produce a large cumulative effect over time. Also, the effect of retailers and brand owners exploiting opportunities to reduce marketing and promotion, because of increased marketing and promotion on behalf of woolgrowers, might be different in the long term compared to the short term.
It seems that the majority of previous economic studies on the benefit of woolgrower funded consumer marketing and promotion focus on the direct benefit (Hill et al 1996, Bureau Agricultural Economics 1987, Conboy 1992, Griffith and Goddard 1993, Kinnucan et al 1996). These studies model, at most, a few quarters of lagged effect of consumer marketing and promotion on demand. This is understandable, since there are difficulties in studying improvement in longer term consumer demand through increased product loyalty and bonding.
Some of the previous studies do estimate long term demand elasticities to grower funded promotion, but these are all extrapolations from relatively short term modelling of time series errors eg using autoregressive errors lagged over a few quarters. They are unlikely to detect improvements in longer term consumer demand which are induced by increasing product loyalty and bonding, and which are not fully reflected in short term increases in product sales.
An AWRAP discussion paper (Australian Wool Research and Promotion Organisation 1999) discusses some of the difficulties of using econometric models for estimating returns on investment from grower funded consumer marketing and promotion. The paper defends the position of AWRAP in rejecting the use of econometric time series models for this purpose.
There is a need to compare the demand for wool products with or without the intervention of grower funded marketing and promotion, over an extended time period. Such a comparison would seem problematic for wool since Woolmark and its predecessors have promoted wool product, in the major markets, throughout the developed world. The level of wool demand in the absence of any previous grower funded consumer marketing and promotion seems to be almost unknowable. It is possible that there would be no difference, but it is also possible that the demand for wool would have collapsed. One referee pointed out that the International Wool Secretariat has previously attempted this ‘test and control’ approach for wool, but this attempt was unsuccessful.
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