Price Determination in the Australian Food Industry A Report

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Figure 1. Overview of the approach 2. Access data 1. Map chains and scan data • commodity and value-added • domestic and export/import • fresh and processed • national and regional Assess scope and extent Product lines 3. Map and analyse product chain Commodity Value-added All lines Farm–retail price spreads Whole-ofchain prices and margins Industry profitability Value-chain dynamics Company peformance DEPARTMENT OF AGRICULTURE, FISHERIES AND FORESTRY REFERENCE GROUP 4. Report Price Determination in the Australian Food Industry A Report Pricing and cost information The information contained in this section of the report has been compiled and analysed by Whitehall, based on its own investigations and in consultation with a number of industry organisations and participants, as well as a review of available published material. This is not an economic study of food pricing – it has been based on significant commercial analysis and consultation with food industry decision-makers. It therefore contains a significant number of assertions that have been based on the consultant’s analysis of factors influencing pricing and cost relationships. These assertions are not always backed by empirical data but result from confidential discussions with industry. One of the significant challenges in undertaking an exercise of this nature is accessing reliable and accurate data. In general, the study found that food industries are currently making a low level of investment at industry level in industry-wide data. As the food industry becomes more concentrated and integrated, there is a high risk that the transparency of information and intelligence will be reduced. Literature reviews A comprehensive review has been undertaken of available literature published in recent years. This has relevance to the analysis of food pricing and the factors affecting prices and costs through major grocery food value chains. 12
This has included: • industry outlook and analysis papers; • reviews and inquiries into market structures, including a number of reviews into the structure of food retailing; • Productivity Commission reviews; and • international papers on innovation in food value-chain management and market innovation. These sources are listed in the bibliography. Value-adding Our work has recognised the areas where industries and enterprises are striving for value-adding in the relevant product areas. The aim in exploring value-adding is to establish what is driving the initiatives and what sort of gains are flowing to the food industry and its participants from such endeavours. There is substantial investment in value-adding across the food sector and a full study of valueadding itself is beyond the scope of this study. Our work identifies the primary ways in which food industries and enterprises are striving to add value to their products and services to customers and the factors that are driving those endeavours. As identified in the report, there is little willingness to disclose, in a public document such as this, the sharing of gains from involvement in value-adding. The analysis of the performance of companies will discuss the implications of the pursuit of value-adding at a corporate level. ASSESSING CORPORATE PROFITABILITY Industry analysis A key part of the study requires us to undertake an assessment of the implications of food pricing and the relative profitability of food companies. There is not necessarily a direct and causal link between the pricing of key food lines and the profitability of major food companies. As the chart on the right shows, corporate profits are driven by a convergence of issues which include: • industry dynamics and the competitive environment; • dynamics in the product value chain which largely determine the influences on product group returns; and • the appropriateness of corporate strategy and the quality of management’s execution of that strategy. Corporate sector Relatively few Australian food companies are locally listed firms where full financial analysis is readily available. Limited data is available on Australian subsidiaries of overseas-based parent companies. Price Determination in the Australian Food Industry A Report 13
Page 1: Price Determination in the Australi
Page 4 and 5: © Commonwealth of Australia 2004 T
Page 6 and 7: FOOD AND AGRICULTURE BUSINESS GROUP
Page 8 and 9: FIGURES Price Determination in the
Page 10 and 11: Price Determination in the Australi
Page 14 and 15: • The current focus of retail cha
Page 16 and 17: • assertions as to market power i
Page 18 and 19: Overview - main drivers of prices i
Page 22 and 23: Food lines The analysis of food pro
Page 26 and 27: Figure 2. Corporate profitability I
Page 28 and 29: Figure 4. Major drivers of prices a
Page 30 and 31: 5.3 The greater influence of prevai
Page 32 and 33: DAIRY - PACKAGED MILK Overview of t
Page 34 and 35: Figure 10. Whole milk, 2 litre, sup
Page 36 and 37: Prices through the chain Our analys
Page 38 and 39: Figure 16. Natural cheddar cheese:
Page 40 and 41: Farmgate prices Farmgate prices are
Page 42 and 43: DAIRY - ANALYSIS OF PRICING OF DAIR
Page 44 and 45: Figure 25. Dairy butter and blend s
Page 46 and 47: ‘Step-ups’ are paid by several
Page 48 and 49: THE MEAT SECTOR Analysis of the det
Page 50 and 51: 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
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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
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Figure 87. Oils and fats, supply ch
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The amount represented by the retai
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Industry risks The key area of risk
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• The major cost faced by egg pro
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Figure 96. Consumer price index, fo
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• Many such operators have indica
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SUGAR PRODUCTS Analysis of the dete
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Figure 103. White sugar, 2kg, suppl
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Projected export returns for the co
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• Export prices are driven by glo
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Retail prices • The average retai
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Industry risk • The overall retur
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4. The performance of Australian fo
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THE PERFORMANCE OF AUSTRALIAN VERSU
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THE PERFORMANCE OF GLOBAL BRAND MAN
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THE PERFORMANCE OF PRIMARY MANUFACT
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Our purpose in preparing this secti
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GROCERY RETAIL - WHAT DETERMINES PR
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The consumer trend towards eating o
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GROCERY RETAIL - PERFORMANCE OF GRO
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6. Issues for consideration ISSUES
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PRODUCER INTEGRATION Does integrati
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Industries have in several cases ta
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Examples include: • 1 litre milk
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Figure 132. Targeting the stomach H
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MAJOR ADJUSTMENT - WHAT’S HAPPENI
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THE IMPACT OF DROUGHT The sector Di
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Price Determination in the Australi
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Oczkowski, E, Murphy, T 1999, Influ
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Price Determination in the Australian Food Industry A Report

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