Price Determination in the Australian Food Industry A Report

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Figure 2. Corporate profitability Industry structure and dynamics • demand growth • influence of international trade • basis of competition and product substitution • barriers to entry Execution of corporate strategy • positioning • diversification and business mix • risk profile • financial capacity • success of management’s execution Product value-chain dynamics • balance of demand and supply • influence of trade • extent of integration • scope for differentiation • influence of technology and innovation • basis of competition Corporate profitability measures based on key financial indicators Line item pricing through the chain • key grocery lines • retail products • influence of product value-chain drivers (above) • apparent margin capture Price Determination in the Australian Food Industry A Report 14
2. Principal determinants of prices and costs in agrifood products DETERMINANTS OF FOOD PRICES What is price? The following page provides a summary of the respective price concepts that apply through the food value chain. Whilst the concepts of price are reasonably straightforward closer to the farmgate, at the wholesale points of sale into the retail sector, price becomes more complex. The net price received by a fresh food supplier is at times net of selling commissions when a wholesaler assumes a role as agent. The relevant price points at which a supplier makes a sale to a large retailer may vary between ‘back of store’, ‘delivered into central store’ or – in line with more recent innovations that are being rolled out at present – ‘factory gate’. Different treatments will apply to the costs of logistics which will see different cost recovery and net returns to the manufacturer. Figure 3. Food prices: Key concepts Farmgate price Net price paid to the primary producer after the deduction of costs to get produce to market. Wholesale price The price paid for goods at the point where they enter the retail distribution sector – either at the factory door of a processor or manufacturer, or as sold by a produce wholesaler. Retail price The price paid by a consumer for an item at the retail point of sale. Farm production Processing Distibution Retail Wholesaling Factory gate price Gross price paid to the primary producer based on the value to the buyer at the factory or market location. In the case of the meat sector, ‘over the hooks’ (OTH) is a term used for the sales basis of an animal based on its assessed carcass weight, at an equivalent point in the value chain. Back of store price The price paid by a retailer at the point of delivery to the retail business – whether at a central warehouse facility or at the back of an individual grocery store. In addition to this, the wholesale price is rarely ever a list price which is offered by a supplier to a retailer. The price is adjusted by settlement terms, discounts or plans for specials, promotional plans and other price adjustments. Some of these apply to the individual product line, others apply across the supplier’s product range. In recent times, most suppliers have opted to accept rolled-up terms in dealing with supermarket buyers, whereby all price and terms adjustments are combined into a single percentage adjustment to list or gross price. This is preferred as it offers simplified administration for retailer and supplier in terms of accounting for transactions and volume or promotional adjustments. The analysis that has been done in this report when assessing the sharing of retail selling price of individual products has been based upon a supplier’s estimate of net selling price after an allocation of appropriate adjustments to price. Price Determination in the Australian Food Industry A Report 15
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 24 and 25: Figure 1. Overview of the approach
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
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
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Figure 69. Frozen vegetables, peas,
Page 82 and 83:
PROCESSED PINEAPPLES - ANALYSIS OF
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Figure 75. Fresh fruit, with juice,
Page 86 and 87:
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
Page 92 and 93:
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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