Generic Advertising Optimum Budget for Iran's Milk Industry

Introduction One of the main targets of planners, decision makers and governments is increasing society health with promotion and production of suitable and healthy food. One of the basic commodities that have important role in satisfaction of required human food is milk. So, some part of government and producer healthy budget allocate to milk consumption promotion by using generic advertising. If effectiveness of advertising budget on profitability is more, producer will have more willing to spend for advertising. Determination of optimal generic advertising budget is one of important problem in managerial decision making in producing firm as well as increase in consumption and profit and decrease in wasting and non-optimality of budget.
In this study, optimal generic advertising budget intensity index (advertising budget share of production cost) was estimated under two different scenarios by using equilibrium replacement model. In equilibrium replacement model, producer surplus are maximized in respect to generic advertising in retail level. According to market where two levels of farm and processing before retail exist and there is trade in farm and retail level, we present different models. Fixed and variable proportion hypothesis is another one. Finally, eight relations are presented for determination of milk generic advertising optimum budget. So, we use data from several resources such as previous studies, national (Iran Static center) and international institute (Fao) formal data and own estimation. Because there are several estimations in previous studies, we identify some scenarios (in two general scenarios) for calculation of milk generic advertising optimum budget.
Estimation of milk generic advertising optimum budget in scenario 1 shows that in case of one market level, fixed supplies and no trade, optimum budget is 0.4672539 percent. In case of one market level and no trade, optimum budget is 0.3674844 percent. In case of one market level with trade, optimum budget according to own price trade elasticity of farm input, changed from 0.3675013 to 0.3674941 percent. In case of two market level and no trade at either market levels, optimum budget is 0.5094457 percent. In case of two market levels with trade only at retail, optimum budget according to own price trade elasticity of retail goods are changed from 0.509446 to 0.3674844 percent. In case of two market levels with trade only at farm, optimum budget according to own price trade elasticity of farm input are changed from 0.5094600 to 0.5094951 percent. In case of two market levels with trade at both retail and farm, optimum budget according to own price trade elasticity of retail goods and farm input are changed from 0.5085780 to 0.5117381 percent. This index in variable proportion hypothesis will be changed from 0.4143826 to 0.4164392.Estimation of milk generic advertising optimum budget in scenario 2 shows that in case of one market level, fixed supplies and no trade, optimum budget is 9.639368 percent. In case of one market level and no trade, optimum budget 8.9480986 percent. In case of one market level with trade, optimum budget according to own price trade elasticity of farm input, changed from 8.948178 to 8.948440 percent. In case of two market level and no trade at either market levels, optimum budget is 14.4113143 percent. In case of two market levels with trade only at retail, optimum budget according to own price trade elasticity of retail goods are changed from 14.413087 to 14.447182 percent. In case of two market levels with trade only at farm, optimum budget according to own price trade elasticity of farm input are changed from 14.413301 to 14.413689 percent. In case of two market levels with trade at both retail and farm, optimum budget according to own price trade elasticity of retail goods and farm input are changed from 14.379081 to 14.413792 percent. This index in variable proportion hypothesis will be changed from 13.294219 to 13.323525. Finally, Results indicate that milk generic advertising budget intensity index will be changed from 0.3674844 to 14.4474182 percent with mean of 0.4617576 percent for scenario 1 and 13.445766 percent for scenario 2.
According to the results, we proposed that milk producer should spend 13.44 percent of their production cost to generic advertising. This spending can increase milk consumption and it increase health society. Moreover, it decreases the household care and remedy spending and it increases the profitability of milk production firms. Also, government could spend to milk generic advertising from healthy budget of ministry of medical health, care and education or from agricultural promotion budget of ministry of Agri-Jahad.