Implications of recent Australian wheat industry developments for overseas and domestic prices

Lobb, A. E. and Fraser, R. W. (2006) Implications of recent Australian wheat industry developments for overseas and domestic prices. Journal of International Agricultural Trade and Development, 1 (2). pp. 93-108. ISSN 1556-8520

Abstract/Summary

This study is motivated by the proposition that the objectives of the AWB Ltd have changed since semi-privatisation of the Australian Wheat Board under the Wheat Marketing Act, 1989. Conceptualising this change of objectives as a shift from revenue maximization to profit maximization, this study examines the impact of such a change on the pricing policies of a multi-market price-setting firm. More specifically, this paper investigates, using two hypothetical objective functions, a risk averse AWB�s price-setting behaviour in an �overseas� and a �domestic� market in response to recent wheat industry developments. In the analysis these developments manifest themselves as differing price elasticities, differing transport costs and uncertain demand functions, and their implications particularly for the prices paid by domestic consumers are explored.