Price Determination in the Australian Food Industry A Report

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Figure 96. Consumer price index, food and eggs, 1996–2002 Index 170 160 food 150 140 130 120 eggs 110 December 1996 December 2002 Source: Australian Egg Industry annual statistics 2002 • The low price of eggs has been achieved through a combination of factors including: – the passing to consumers of the benefits of the gradual consolidation of the industry in production and packing sectors; and – the use of supermarket brands to compete with independent operators who face lower cost regimes than the emerging major suppliers of supermarket and proprietary brands. Retail versus farmgate prices over time The comparison of retail and farmgate returns over time is as follows. Figure 97. Retail and producer prices for eggs, cents/dozen, 1996–2003 cents 450 400 350 retail 300 250 Price Determination in the Australian Food Industry A Report 200 150 100 50 0 producer 1996–97 1997–98 1998–99 1999–00 2000–o1 2001–02 2001–03 Source: Australian Egg Industry annual statistics 2002 The farmgate numbers above are based on industry estimates. The rise in both values in 2003 was due to the effects of drought, where the egg marketers set higher selling prices (about 30c per dozen at wholesale) to assist in recovering the sharp increase in the cost of feed grain. Retail prices rose by a larger amount. The sharp rise in feed costs has not yet been reversed in production cost structures. It is expected that the full cost of greater future security of feed grain supply to the poultry industry will see feed costs do not return to reliable pre-drought levels. 90
Margins in the chain Our analysis of the margins captured by each function in the cage egg value chain is represented as follows. Figure 98. Shares of retail price and volume of eggs % 100 80 60 40 20 retail market pack egg private brand 0 Aug 2001 Aug 2003 share of retail dollar Aug 2001 Aug 2003 share of retail volumes The average retailer margin as a percentage of retail value has changed in recent years with the rapid move to dominance of the category in major retail by private label product. This is a higher volume, lower margin product for the retailer compared with proprietary brand due to the significant retail price differential that has developed in the past two years. Aggregate retail return has increased with the volume growth through supermarket retail. The chart under ‘Private label as a weapon’ illustrates the increasing difference in retail prices for each private and proprietary branded line. The concept of a farmgate is less applicable to a standalone sector in the larger scale end of the industry. This is due to the greater incidence of integrated production, grading and packing operations, and more use of in-line systems that reduce egg handling. The cost of packaged egg products costs vary considerably with the scale of production systems that are employed, the extent of integration between laying, grading and packing, and the degree of automation that is used in the process. Cage regulation • The largest issue facing the future of the industry is the change in production systems. • Cage egg producers face a mandatory requirement to ensure cages comply with animal welfare standards as agreed by government ministers at the Agricultural and Resource Management Council of Australia and New Zealand. State governments have indicated their intention to enforce requirements for cage egg production to switch to larger cages on or before 31 December 2007. • The change in production systems requires substantial capital investment by industry. • Major integrated producer-marketing groups have committed to such investments. Some are currently underway. • There is ongoing price competition in the retail marketplace between major retail chains and independent retailers – in the latter case where local store operators can make individual decisions regarding sourcing of eggs. • Independents are largely serviced by operators in the box market – where smaller and/or nonaligned producer-packers supply direct to the store offering significant price advantages over major marketers. Price Determination in the Australian Food Industry A Report 91
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Price Determination in the Australi
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© Commonwealth of Australia 2004 T
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FOOD AND AGRICULTURE BUSINESS GROUP
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FIGURES Price Determination in the
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• The current focus of retail cha
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• assertions as to market power i
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Overview - main drivers of prices i
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Food lines The analysis of food pro
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Figure 1. Overview of the approach
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Figure 2. Corporate profitability I
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Figure 4. Major drivers of prices a
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5.3 The greater influence of prevai
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DAIRY - PACKAGED MILK Overview of t
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Figure 10. Whole milk, 2 litre, sup
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Prices through the chain Our analys
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Figure 16. Natural cheddar cheese:
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Farmgate prices Farmgate prices are
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DAIRY - ANALYSIS OF PRICING OF DAIR
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Figure 25. Dairy butter and blend s
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‘Step-ups’ are paid by several
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THE MEAT SECTOR Analysis of the det
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The approach taken The pricing anal
Page 52 and 53: The changing value chains - various
Page 54 and 55: The approach taken Assumptions used
Page 56 and 57: Figure 39. Lamb market sales, ’00
Page 58 and 59: Figure 41. Lamb: Major drivers of p
Page 60 and 61: Observations The price comparison s
Page 62 and 63: Figure 46. Pork products, supply ch
Page 64 and 65: Figure 48. Value and cost-adding fr
Page 66 and 67: Supply chain management Wholesale m
Page 68 and 69: Figure 51. Fresh vegetables: Major
Page 70 and 71: FRESH HORTICULTURE - WHOLESALE MARK
Page 72 and 73: FRESH HORTICULTURE - ANALYSIS OF PR
Page 74 and 75: market access - in the United State
Page 76 and 77: The industry’s product mix The ke
Page 78 and 79: PROCESSED FRUIT AND VEGETABLES Anal
Page 80 and 81: Figure 69. Frozen vegetables, peas,
Page 82 and 83: PROCESSED PINEAPPLES - ANALYSIS OF
Page 84 and 85: Figure 75. Fresh fruit, with juice,
Page 86 and 87: GRAIN AND OILSEED PRODUCTS Analysis
Page 88 and 89: Figure 79. Flour, 1kg, supply chain
Page 90 and 91: Figure 82. Share of retail price of
Page 92 and 93: OILSEEDS - OVERVIEW Background The
Page 94 and 95: Figure 87. Oils and fats, supply ch
Page 96 and 97: The amount represented by the retai
Page 98 and 99: Industry risks The key area of risk
Page 100 and 101: • The major cost faced by egg pro
Page 104 and 105: • Many such operators have indica
Page 106 and 107: SUGAR PRODUCTS Analysis of the dete
Page 108 and 109: Figure 103. White sugar, 2kg, suppl
Page 110 and 111: Projected export returns for the co
Page 112 and 113: • Export prices are driven by glo
Page 114 and 115: Retail prices • The average retai
Page 116 and 117: Industry risk • The overall retur
Page 118 and 119: 4. The performance of Australian fo
Page 120 and 121: THE PERFORMANCE OF AUSTRALIAN VERSU
Page 122 and 123: THE PERFORMANCE OF GLOBAL BRAND MAN
Page 124 and 125: THE PERFORMANCE OF PRIMARY MANUFACT
Page 126 and 127: Our purpose in preparing this secti
Page 128 and 129: GROCERY RETAIL - WHAT DETERMINES PR
Page 130 and 131: The consumer trend towards eating o
Page 132 and 133: GROCERY RETAIL - PERFORMANCE OF GRO
Page 134 and 135: 6. Issues for consideration ISSUES
Page 136 and 137: PRODUCER INTEGRATION Does integrati
Page 138 and 139: Industries have in several cases ta
Page 140 and 141: Examples include: • 1 litre milk
Page 142 and 143: Figure 132. Targeting the stomach H
Page 144 and 145: MAJOR ADJUSTMENT - WHAT’S HAPPENI
Page 146 and 147: THE IMPACT OF DROUGHT The sector Di
Page 148 and 149: Price Determination in the Australi
Page 150 and 151: Oczkowski, E, Murphy, T 1999, Influ
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Price Determination in the Australian Food Industry A Report

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