Price Determination in the Australian Food Industry A Report

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THE PERFORMANCE OF AUSTRALIAN VERSUS WORLD DAIRY COMPANIES Profitability We have compared the best in class from the Australian information (mostly based on the results of National Foods) with a number of dairy companies from the world dairy industry. These companies include: Glanbia (Glan) – an Irish-based cheese and dairy ingredients group; Friesland Coberco (FC) – a major Dutch cooperative; Saputo (Sap) – a listed Canadian cheese maker; Express Dairies (Exp) – a listed United Kingdom milk processor; Dean Foods (Dfood) – a listed major United States processor and manufacturer; Dairy Crest (Dcrest) – a leading United Kingdom milk processor and cheese business. In this analysis, Australian dairy companies performed well against these international companies in terms of margins and return on assets. Australia’s best of class compare favourably with listed dairy companies from North America and the United Kingdom. Figure 116. Returns of dairy companies, three-year average Aust best Glan ROA EBIT/sales ROE FC Sap Exp Dfood Price Determination in the Australian Food Industry A Report Dcrest 0 5 10 15 20 25 30 % Financial structure The combined financial position of the Australian dairy cooperative sector has been compared to the major cooperatives in the global dairy industry. Arla – a major Scandinavian cooperative; Friesland Coberco – a major Dutch cooperative; Land o Lakes (LoL) – a large United States cooperative; Fonterra – the major New Zealand manufacturer/exporter; Dairy Farmers of America (DFA) – the largest cooperative in the United States and the world. Again the financial structures of the Australian sector are not significantly different from those of the overseas cooperatives, yet there are major differences in the nature of the businesses covered in this sample. The management by cooperatives of their cash flows, financial position and supplier payments is broadly similar. Northern European cooperatives are engaged in brand management as well as commodity manufacture, whereas United States cooperatives are primarily engaged in manufacturing. 108
Figure 117. Financial position of dairy companies Aust Cooperatives Arla FC months stock SHF: assets debt: equity LoL Fonterra DFA 0 0.5 1 1.5 2 Source: Whitehall Associates’ analysis of financial statements BRAND MANAGERS IN THE GROCERY FOOD INDUSTRY Foreign domination of brands We have set out in the chart below a comparison of the ownership of brands in major branded grocery food categories in the retail sector. Many categories in the grocery sector are now dominated by a limited number of foreign-owned multinationals and local dominance is restricted to those which are based on fresh food industries (some categories of dairy, citrus, bread) and aspects of grains and oilseed products (pasta, spreads). The analysis below retains Goodman Fielder as a local public company, even though it recently passed into the control of a New Zealand-based group. An evaluation of the performance of Australian food companies based on reported financial information is therefore somewhat difficult, as this requires reliance on: • the publicly reported results of the few large listed Australian food companies which remain independent; • a review of documents lodged by Australian subsidiaries of multinational food groups with significant local interests; and • a review of the reported results of global food groups with significant operations in the Australian food industry. Figure 118. Control of brands, share by value, 2002 pasta frozen vegetables frozen dinners tinned fish cereals biscuits white bread rice juice coffee tea ice cream yoghurt veg spreads dairy spreads cheese 0 20 40 60 80 100% Source: Foodweek 2003 local proprietry private label foreign owned Price Determination in the Australian Food Industry A Report 109
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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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Figure 46. Pork products, supply ch
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Figure 48. Value and cost-adding fr
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Supply chain management Wholesale m
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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 102 and 103: Figure 96. Consumer price index, fo
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 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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