Who benefits from generic marketing?

DOES it make sense to generically promote a commodity such as lamb, wool or wheat? Do the returns justify the cost?

And if the answer to that is yes, who should pay for it? How can you ensure that those who pay are the same ones who benefit?

These are important questions at any time, but they are back in the news as more industry organisations either commence generic marketing or increase their involvement and expenditure.

Wool growers are being asked to vote in favour of a proposal from Australian Wool Innovation to spend 60 per cent of their levy funds on marketing, leaving 40pc for research and development. The aim is to increase wool consumption around the world.

The Australian Banana Growers Council has just commenced another marketing campaign designed to promote banana consumption.

The government recently allowed the Grains Research and Development Corporation (GRDC) to undertake generic marketing of grains provided it is funded by a separate levy. Whether growers will agree to pay is still to be seen.

Australian Pork is running a suggestive campaign telling us to "pork" those we want to impress.

And Meat and Livestock Australia spends millions every year promoting beef and lamb consumption, both in domestic and export markets. Recent examples have used personalities Sam Neill and Sam Kekovich.

A time-honoured rule of marketing is that 50pc of the expenditure will be wasted. The problem is figuring out which 50pc. Generic marketing is no different; indeed, MLA chief Scott Hansen recently acknowledged that the red meat campaign using Sam Neill had not worked.

But obviously 50pc can make a difference. Sales of lamb apparently rose more than 30pc during the Australia Day week in which Sam Kekovich’s Barbie Girl lamb advertisements were aired. Those ads were not only effective in themselves but their reach was extended by media comment and internet interest.

It is received wisdom that brand advertising benefits the brand owner, largely at the expense of competitors, while generic advertising benefits the whole category. But the border between the two can be quite blurred and the benefits of brand advertising often extend beyond the brand.

Angus beef, for example, is now well differentiated from other breeds with some of its success at their expense. It was not funded by levies, but is very likely to have convinced more consumers to eat beef.

Equally, Sam Kekovich’s presence in McDonald’s lamb burger advertisements is not only promoting McDonald’s brand, but leverages the generic lamb promotion for which he is well known. McDonald’s pays for the advertising, but lamb also benefits.

Another example is Sugar Australia’s advertisement for CSR Smart Sugar in which Olympic swimmer Eamon Sullivan posed naked. While the immediate beneficiary of increased sales was Sugar Australia, and it was funded by the company, any increase in overall consumption flows through to growers.

Which begs the question: is levy-funded generic advertising warranted if brand advertising can achieve a similar result?

Proponents of generic advertising argue that it can correct misconceptions about a commodity that hold back consumption. The assumption that red meat cannot be part of a healthy balanced diet, for example, is one that MLA aims to address. Many years ago the sugar industry changed perceptions that sugar was an artificial product produced in a giant factory.

It can also help to reposition a product. The pork industry’s “other white meat” campaign linked pork to chicken, which is perceived as healthy, rather than red meat, which is not.

But even when such advertising achieves its objectives, and obviously that is never assured, it can be difficult to know whether the benefits exceed the costs.

Overall, domestic lamb consumption has declined substantially in recent years, notwithstanding the best efforts of Kekovich, because of its escalating price. But with the huge growth in exports and high prices, lamb producers have not suffered. The obvious question is, did they get value from having their levies spent on the Kekovich advertisements?

If AWI commits to more wool marketing, which could only make sense in export markets, would it result in greater demand for Australia wool rather than wool from South Africa or New Zealand? If yes, will that lead to higher wool prices for all types of wool or just certain categories? Would higher prices attract more farmers back into wool, boosting supply and driving prices back down?

If the GRDC gets involved in wheat marketing, where export customers are often government-controlled entities, will it lead to increased demand for Australian wheat? What is different about our wheat that would enable marketing to have that effect? Would growers of durum wheat benefit along with other growers?

Levies can be compared to taxes – a form of legal theft in which the revenue is rarely used as the payers would like. Even when payers approve them, as with the wool industry’s Wool Poll, it brings to mind Benjamin Franklin’s famous description of democracy – two wolves and a lamb negotiating what to have for lunch.

Farmers ought to be highly sceptical about claims their levies should be spent on generic marketing. The objectives and their rationale should be properly defined, with measurable outcomes identified. A cost-benefit assessment is needed to ensure they will receive more in benefits than they pay.

And above all, they should not be persuaded by those who stand to gain from undertaking the generic marketing. The likes of Sam Kekovich get paid no matter how much lamb is sold.

David Leyonhjelm is an agribusiness consultant with Baron Strategic Services. He may be contacted at reclaimfreedom@gmail.com

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READER COMMENTS

dieselhead
30/08/2012 3:41:37 PM

If there is a more useless way of wasting a large percentage of potential farm gate returns than generic advertising,then I wouldn't like to suggest it for fear of the parasite levy recipients taking it up as a new way to exploit farmers. As well a percentage of the generic advertising is designed to impress the levy payers so that the funds keep flowing. Why else would you stick your name on a killing crush in Indonesia other than to impress a visiting levy paying cattle producer?
Nathan E
30/08/2012 5:07:48 PM

I think this bloke makes a lot of sense. Levies are another form of taxation. End of story.
annoyed
30/08/2012 8:16:38 PM

Generic promotion works in the USA for cotton. The cotton people still use generic promotion. The cotton people also have a stockpile of cotton. That way they can guarantee delivery. Apparently wool growers don't want higher prices and don't want to promote a rare natural fibre. Too bad for their families, as cotton and other heavily promoted synthetic fibres will make even more money.
treacle
31/08/2012 7:43:48 AM

Cotton Inc have a completely different model of supply and promotion. When wool is shorn and sold, we have no control over it at all, hence generic promotion has never worked in wools history, and never will. David L is clearly outlining the failure of wool levy body's in making a difference to wool demand. The flock has increasingly diminished over 40 years, with $ billons spent on what? Wool has simply been outcompeted and outclassed by manmade fibres. Currently, wool stocks have further decreased along with price. So what is the point in supporting levy's with such a record.
concerned
1/09/2012 2:59:03 PM

The amount of wheat sold to ME has gone from 40% to 14% as there has been no marketing in the last 15+ yrs and new mill operators have no idea what Aust wheat is or does. Same goes for China no idea about qualities of Aust wheat. So no generic marketing ( for long enough), no knowledge by customer (the old ones have retired), no market. David is unfortunately a cherry picker, free marketer in a world of regulation & protection, except for Aust. Good for him that he is a journalist and not a farmer so can afford his ideology, untainted by reality.
Long Xuyen
3/09/2012 8:49:29 AM

Bottom line for wool is that it's still too scratchy and uncomfortable when compared with it's opposition. Marketing will not change that, perhaps research and processing will but until it can compete with other fibres the marketing budget is a waste of money.
tenton
12/09/2012 2:45:14 PM

Total waste of money. Generic advertising is something that deserves a chapter in a marketing history book on waste and feel good rubbish.
Agribuzz with David LeyonhjelmCommentary, news and analysis with agribusiness consultant David Leyonhjelm. Email David at reclaimfreedom@gmail.com

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