Price Determination in the Australian Food Industry A Report

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Figure 46. Pork products, supply chain map Farmer Primary Process Secondary Process Market Logistics Retail Brand Ownership/ Management saleyards Boning Rooms Chain Retailer Producers Abattoir Wholesalers Independent Butchers Domestic Consumer Breeders Smallgoods Manufacturers Food Service • About 2,500 pig production enterprises (herds) in Australia prior to drought impact. • Total production of 420,000t, which has seen an increase over the past year of about 5%. • Main drivers of price are the balance of supply and demand and the influence of imported product on the demand from the smallgoods sector. • There are six major pork processors which process more than 60% of total production. • About 60% of meat usage is in the smallgoods sector. • Bone out is done primarily at the abattoir where the animal was killed. • A disaggregated value chain typifies the pork industry. Separate wholesaling has a major role in the value chain with about 70% of volume. • Exports of about 66,000t mostly to higher value fresh pork markets in Singapore and Japan. • Imports of 45,000t of frozen pork supplied into the smallgoods market. This has seen sharp growth since 1998. • Large number of smallgoods plants across industry – approx. 150 in bacon, ham and smallgoods. • Fresh pork and smallgoods are sold through major supermarket chains and specialist butcher shops and delicatessens. PORK – ANALYSIS OF PRICING Background Price Determination in the Australian Food Industry A Report As discussed above, there are dangers in simple comparisons between farmgate and retail prices. Figure 47. Farmgate, wholesale and retail pig meat trends, cents/kg, 1998–2003 cents/kg 1200 1000 800 600 400 200 0 Source: NLRS and ABS legs wholesale OTH leg retail loin chops retail carcass wholesale Oct 1998 monthly June 2003 The carcass return which drives the wholesale and OTH prices is strongly influenced by the returns from the processed meat market which consumes 60 per cent of output and is subject to seasonal import competition. The fluctuations in wholesale prices reflect these forces. Processors have accordingly sought to extract optimum value from the domestic fresh retail segment of the market 50
y steadily increasing prices (subject to red meat and chicken meat competition). Retail prices above reflect retailers’ addition of margins over such buying and further processing costs. The approach taken Assumptions used in this analysis are: • OTH sales have been based on a baconer carcass; • wholesale prices for carcasses and legs are based upon wholesale market data from the Sydney wholesale market; and • retail prices for leg meat and loin chops have been based on ABS surveyed data. Observations The price comparison gives evidence of the lack of nexus between retail prices of products and the wholesale and farmgate prices for portions and carcasses. Prior to the last couple of years, where growth in imports increased sharply, prices at retail generally followed the trends at wholesale and farmgate. Higher value cuts such as loin chops have increased to a greater level than legs. This indicates a stronger demand for premium product and cuts as consumers become more conscious of the eating characteristics in meat products. Prices and costs The work in this study has included a measurement of the returns from whole-of-carcass based on a domestic animal. The analysis of the returns from the carcass shown in the chart is valid as a snapshot. It indicates how each major sector is involved in the value chain. It shows the gross returns that are available to each major sector through the chain. The analysis has been based on national average spot retail prices for common cuts prevailing in July 2003, as well as estimates of the returns at wholesale for pig meat and co-products. Significant value and cost-adding occur throughout the chain to create retail value from the dressed carcass. No assertions can be made as to which sector captures each of the margins in the sale of pork portions and cuts from such a carcass due to the fact that various potential models may exist as to who value-adds at what stage. The analysis is based on a model of the typical usage of a 70kg carcass, designed for fresh pork products in a domestic market across the various meat segments. These assumptions would not hold for baconer and backfatter animals which will have more of their carcass sold to the smallgoods sector, subject to direct import competition. As in the case of beef, this analysis is inherently complex and subject to a large number of assumptions regarding carcass purpose, market conditions and cost structures. Yet as an approach it remains the only valid means of making comparisons between the returns at each stage in the value chain. Our analysis of the returns at each stage of conversion from a domestic pork carcass is best performed using the same analysis as undertaken in Beef – analysis of pricing. Price Determination in the Australian Food Industry A Report 51
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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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Page 12 and 13: 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 20 and 21: Price Determination in the Australi
Page 22 and 23: Food lines The analysis of food pro
Page 24 and 25: Figure 1. Overview of the approach
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 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
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
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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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Oczkowski, E, Murphy, T 1999, Influ
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Price Determination in the Australian Food Industry A Report

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