Price Determination in the Australian Food Industry A Report

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MAJOR ADJUSTMENT – WHAT’S HAPPENING The sector The adjustments How these have had impact Industry response Dairy Deregulation of market milk pricing. Lower revenues to processors with the reduction of retail and wholesale prices of packaged milk once the fresh milk market moved to a national arena and retailers sought and were offered lower wholesale prices on private label products. Lower average costs for producers in regions exposed to a high fresh-product mix of milk usage. This effect has been exacerbated with lower returns from the export market which have eroded values of milk used in storable dairy products and the deep impact of drought on feed access and costs. Processor rationalisation of costs. Limited additional response for the production sector is feasible, beyond the assistance provided through the dairy structural adjustment payments to producers to adjust productive capacity and financial position. Exits from dairy production have increased as a result of the impact of drought coupled with low milk prices. Price Determination in the Australian Food Industry A Report Lamb Pork Low supply of lambs due to drought conditions. High export prices due to strong export demand and supply shortages. Commodity imports of pork portions. Tightening of margins for processors who are existing on smaller throughput volumes. Prices have not fully flowed through into retail due to price sensitivity in the face of red and white meat competition. Reduced the available returns to processors and producers from the manufacturing sector. Producers’ viability is now governed by the extent to which they can produce pork at globally competitive costs (which includes access to competitively priced feed grain) and align themselves closely to export processors. Promotion of increased lamb production (with the lure of high prices due to persisting strong export demand). Promotion of fresh pork consumption. Taking advantage of pricecompetitiveness against red meat options. Product innovation in the Australian market to improve overall return from the carcass is crucial to industry profitability. Concentration on fresh chilled exports is critical to this sector. 132
MAJOR ADJUSTMENT – WHAT’S HAPPENING The sector The adjustments How these have had impact Industry response Fresh fruit and vegetables Shift to greater retail direct buying. Rationalisation of suppliers to fewer larger suppliers. Lower volumes flowing into wholesale markets. Greater focus on wholesale sector sustaining business incomes. Limited response at industry level on a commodity-bycommodity basis. Fresh food industries are seeking an extension of the role of the Retail Grocery Industry Ombudsman and greater meaning for codes of conduct. Individual lines facing declining consumer support. Lower demand. Lower produce prices at wholesale. Pushing more fruit to coproduct streams. Improved investment in varieties and points of difference. Enhancing category management in conjunction with retailer. Eggs Increased use of private label by the retail sector at a significant price reduction from proprietary brands. Requirement for egg producers to meet welfare standards in cage design by 2008 will require major capital overhauls. Consolidation of egg production, packing, and marketing has been going on for several years postderegulation of egg production and marketing arrangements on the east coast. Investment in egg production facilities. Industry marketers sought and gained retail price increases due to higher costs. Sugar Significant sustained falls in international sugar prices due to changing world market dynamics coupled with poor seasonal conditions. Investment in greater automation of egg handling through to packing to offset higher fixed costs. Strong seasonal price competition remains at retail and wholesale as nonaligned marketers seek to take advantage of lower production costs. Lower farm incomes. No loss of certainty of supply of sugar to domestic markets due to the abundance of sugar volumes. Industry has sought adjustment assistance through state and federal governments. There is no scope for relief through the domestic products market due to its small scale, the decline in sugar consumption and the cost-competitiveness of other sweeteners in industrial uses. Price Determination in the Australian Food Industry A Report 133
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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
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FRESH HORTICULTURE - WHOLESALE MARK
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FRESH HORTICULTURE - ANALYSIS OF PR
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market access - in the United State
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The industry’s product mix The ke
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PROCESSED FRUIT AND VEGETABLES Anal
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Figure 69. Frozen vegetables, peas,
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PROCESSED PINEAPPLES - ANALYSIS OF
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Figure 75. Fresh fruit, with juice,
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GRAIN AND OILSEED PRODUCTS Analysis
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Figure 79. Flour, 1kg, supply chain
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Figure 82. Share of retail price of
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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 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 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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