DEPARTMENT OF ECONOMETRICS AND BUSINESS STATISTICS Who Bears the Burden and Who Receives the Gain? – The Case of GWRDC R&D Investments in the Australian Grape and Wine Industry

In 2001, $13 million were invested in various grape and wine R&D programs via the Australian Grape and Wine Research and Development Corporation. Half of the funds come from compulsory levies from grape-growers and winemakers, and the other half from Commonwealth government matching grants. These funds are then allocated to research projects across broad areas such as grape production R&D, wine production R&D and grape and wine quality R&D. The benefit of R&D in one sector of an industry will be distributed across the production and consumption chain. On the other hand, when a levy is charged nominally to one producer group, the real burden of the cost will also be shared among all involved producer and consumer groups. In the case of the Australian grape and wine R&D investments, the net impact will be determined by the distributions of both the benefits and the costs across grape-growers, winemakers, marketers and retailers, and domestic and overseas consumers. In an ideal situation, if every dollar is invested at exactly the point where it is collected, the percentage distributions of costs and returns coincide. Under this system, presuming R&D projects are successful, all groups will gain in dollar terms, and they will receive benefits in exactly the same proportions as how the burdens of the R&D costs are shared. However, the distributions of costs and benefits will diverge if a levy collected at one point of the production is used to fund research at a different point of the chain. Indeed, in practice, producers often pool levies together to fund R&D programs at places that are not necessarily where the funds are raised. A significant amount of the public funds are also invested in the Australian agricultural industries that substantially involve foreign processors and consumers. In these situations it is important to note the real incidence of both costs and benefits.