Price Determination in the Australian Food Industry A Report

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Figure 51. Fresh vegetables: Major drivers of prices and costs The fresh vegetable category is highly diverse in terms of the product groups, scale of enterprises in farm production and the extent of integration that exists through the chain. The sector is strongly driven by the competition at retail level between major supermarkets and other outlets for a share of the consumer dollar. 1. Farm production factors • Production volume highly volatile and seasonal which has a major bearing on the volumes coming to market, resulting in large fluctuations in wholesale and retail prices. • High perishability and limited shelf life of product requires timely access to market once crops are planted and picking time committed. 2. Value-chain integration • Increasing integration of growing/packing and brand marketing activities by larger growers. • Increasing incidence of direct supply by integrated growers/packers to chain retailers, providing stable pricing in order to secure long lines of consistent quality product. • Increasing scale efficiency of growers and packing houses. • Pressure on wholesale/agency enterprises through growth in direct supply business. 3. The marketing approach • Increasing branding of product by grower/packer has impact on market access to more stable returns at retail and wholesale. • Increased use of fresh food retail themes and systems by major chain retailers as a point of differentiation has driven strong supply and quality management disciplines back through the value chain to suppliers and logistics systems. • Limited branding of fresh food at point of retail sale. Farm production Packing Wholesaling Retail Food service Price Determination in the Australian Food Industry A Report 4. Regulation and compliance • Increasing costs of doing business in farm enterprises to meet environmental, product integrity and food safety demands. • Meeting ethical and product integrity demands. 5. Trade impacts • Limited influence of exports on domestic market dynamics, as volumes are generally minor only. • Export volumes are increasing in scale but based on market windows into premium fresh markets in Asian cities. • Limited overall influence of imports or prevailing commodity prices. 6. Technology and innovation • Increasing capital intensity in largescale production and in packing house efficiency is changing operating cost structures. • Limited transparency of market prices and costs through the wholesale market sector. • Greater investment in innovation to improve production consistency and quality, varietal performance and handling efficiencies in harvesting, grading and packing. • Innovation in minimal processing and pre-preparation of fresh vegetables for more convenient end use in home and food service. 7. Retail market dynamics • Strong competition at retail level between major chains and between chains and other forms of convenience and specialty retail. • Greater demand for convenience and lifestyle solutions in meals and food preparation. • Greater preference for consistency of product availability and quality in retail presentation. 56
Figure 52. Fresh fruit and vegetables, generic, supply chain map Farmer Consolidation Market Logistics Retail haul Grower Packer/Marketer Chain Retailer Consumer Wholesalers/Agents Specialist Convenience Retailer • There is increasing integration of growing and packing, yet most fruit and vegetables are produced by growers who do not have a stake in packing. • There is an increasing volume of business being sourced by retail chains direct from the grower/packer, including that sourced by packers from groups of growers on behalf of retail buyers. • There are major terminal wholesale markets in each capital city and certain other major cities which operate as trading floors, allowing suppliers and buyers to deal with wholesalers. • Major retail buyers use certain agents as specialist procuring agents to procure major supply requirements on their behalf either in specific commodities or across the fresh food category. • The majority of fresh food is transacted by wholesalers without the produce physically passing through market premises, as described below. Similar practices apply between parties. Food Service • There is a diverse retail market for fresh food with a large number of independent or specialist fruit and vegetable retailers maintaining a significant role alongside major chains and other independent retail groups. Figure 53. Tomatoes, apples, supply chain map Farmer Consolidation Market Logistics Retail Grower • Gross value of production is approx. $230m at farmgate for fresh produce which is about 25% of total tonnage produced. • A further $40m per annum is sold into the processing sector (low-grade product). haul Packer/Marketer • Strong trend towards close alliance between growing and packing/marketing. • Minimal fresh exports. Processor Distributor Wholesalers/Agents • Influential competition for processed tomatoes from imported processed product (generally packaged as generic chain retail brands). • Supermarket chains prefer different logistics arrangements for fresh product. Chain Retailer Food Service Specialist Convenience Retailer • There is a diverse retail market for fresh food with a large number of independent or specialist fruit and vegetable retailers maintaining a significant role alongside major chains and other independent retail groups. Consumer Price Determination in the Australian Food Industry A report 57
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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
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 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 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
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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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