Price Determination in the Australian Food Industry A Report

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• Export prices are driven by global supply and demand. Unlike other globally traded commodities, rice trade is based on customer specifications encompassing quality, packaging and delivery. This produces a range of price outcomes. • Total recorded Australian retail market volumes of main table packet rice varieties have been steady over recent years. Overall consumption of rice however has been estimated as having grown, as there has been increased consumption by the food service and food processing sectors, and an increase in the volumes of imported fragrant and specialty rices. • Sales by the major grocery retail chains have increased in recent times to be close to 80 per cent of retail grocery market share, yet this estimate does not include all outlets retailing rice (such as Asian market outlets). Figure 106. Rice: Major drivers of prices and costs The rice industry is a closely integrated industry that retains a managed single desk for export markets. This dominates consumption of Australia’s rice output. Domestic consumer products are subject to analysis in this study. 1. Farm production factors • Production volume is highly dependent on water supplies. • Most paddy rice businesses are mixed farm businesses and therefore rice competes with other crop options based on return outlooks. 2. Value-chain integration • Close integration between rice production, milling and marketing. • Increasing scale efficiency and automation in milling plants to closely match crop production. • Farmer-owned business dominates domestic milling and marketing. 3. The marketing approach • Standard product is a staple food item differentiated by variety, packaging, quality and service elements. • Category is being diversified away from exposure to commodity markets. • Increasing differentiation of a range of rice food products tailored to different meal and snack solutions, and food service markets. Export marketing Farm production MIlling and finishing Packaging Marketing Wholesaling Distribution Retail Food service Price Determination in the Australian Food Industry A Report 4. Regulation and compliance • Single desk export marketing of rice maintains stability in management of domestic and export markets. • Meeting ethical and product integrity demands. • Highly focused on meeting food standards legislation. 5. Trade impacts • Strong influence of rice exports which account for 80–85% share of primary production (varying with crop size). • Industry returns are driven by the success by which the marketer manages the sale of rice into various export markets in the context of the tradable world market for the commodity. • Export marketing dominated by branded products. • Open domestic market for imports of commodity and specialty rices. 6. Technology and innovation • Increasing capital intensity is improving cost structures. • Transparency of market prices and costs in the chain are provided in pricing and returns signals to producers. • Greater investment in innovation to diversify core rice food products and extract value from co-products. 7. Retail market dynamics • Growth in specialty varieties (cuisine driven). • The growth of the private label has increased the share of the market governed by low-priced products. • Greater demand for convenience and lifestyle solutions in meals has created strong niches for pre-prepared meals and snack foods based on rice. 100
Figure 107. Packet rice, supply chain map Farmer Primary Processing Market Logistics Retail Brand Ownership/Management FOOD PROCESSORS Export Markets Farmer MILLER Marketer Chain Retailers Consumer value-adding Wholesalers Other Retailers harvest/haul Food Service • 1.0–1.2m tonnes of rice produced in normal year. • Majority in New South Wales Riverina region. • Price drivers include net returns from world market, though rice is not a transparently traded global commodity as are other grains. • 80–85% of total rice produced is exported (varying with crop size). • One processor accounts for majority of processing – operating with vesting and single desk powers. • Value-adding activities integrated with marketing activities to enhance overall uses of rice in range of branded consumer goods. • Significant export marketing activities to enhance overall returns from the crop for the benefit of industry. • Majority of packet rice sales into the major chains in the grocery retail sector. They now command more than 70% of sales volumes. • Australian-sourced product is approx. 80% of retail volumes across varieties (excluding specialty Asian food outlets). RICE – ANALYSIS OF PRICING The Australian retail market • Domestically grown regular long grain and medium grain packet rice products make up about 66 per cent of the domestic retail grocery market volume – a declining proportion with greater market share being gained by specialty products and imported lines. • These specialty varieties (for example, jasmine and basmati) have been aided in sales by the increased consumer interest in cuisine and awareness of the versatility of different rice styles. • In the past five years, sales of Australian-grown proprietary branded retail product have increased through promotional efforts of the domestic rice marketer. • However, in more recent times a greater market share in the total Australian retail rice market has been won by private label products drawn by retailer desires to launch new products and offer the consumer greater choice. Sourcing of supply to private label products is split between local supply and imports. Figure 108. Share of supermarket sales volumes, 2003 annual turnover private label 19% Source: Industry sources company brand 81% Price Determination in the Australian Food Industry A Report 101
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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
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The changing value chains - various
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The approach taken Assumptions used
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Figure 39. Lamb market sales, ’00
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Figure 41. Lamb: Major drivers of p
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Observations The price comparison s
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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
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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
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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
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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 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
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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
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Price Determination in the Australian Food Industry A Report

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