Price Determination in the Australian Food Industry A Report

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Figure 69. Frozen vegetables, peas, beans, supply chain map Farmer Processor Market Logistics Retail and Food Service Brand Ownership/Management receival consolidation Grower Processor Chain Retailer Consumer harvest/haul Wholesalers Convenience Retailer • Majority of frozen vegetables are produced in Tasmania due to climate, soil and regional expertise. • All production is under direct contract with processor based on tight specification and planned production offtake. • Two major processors dominate the sector – McCain and Simplot. • Total processed sector (Australian origin) is about 30,000t peas. • One-third of total market in peas (15,000t) is imported, mostly from New Zealand, which is brought into the category as private label or discount product. Food Service • Total market for single vegetable product regarded as static against competition from frozen and pre-cooked meals which are the dominant product group in the frozen food category. Figure 70. Processed potatoes, supply chain map Farmer Processor Market Logistics Retail and Food Service Brand Ownership/Management Price Determination in the Australian Food Industry A Report Grower harvest/haul • 1.3 million tonnes of potato output of which 600,000t is processed (200,000t is for snack food and the remainder fresh). • 70% of processed potatoes are produced in Tasmania due to climate, soil and regional expertise. • All production is under direct contract with processor based on tight specification and planned production offtake. Processor by-product processing • Two major processors dominate the sector – McCain and Simplot. • 50% yield from potato to the processed frozen chip. • Remainder goes into coproduct (gems, hash browns etc.) processing and by-product waste markets (such as animal feed). Wholesalers • Market is approximately one-third each into retail, food service and quick service restaurants – each of which requires different product (and usually varietal) specification. cooking preparation Chain Retailer Quick Service Restaurants Food Service Other Retailers • Total market for single vegetable product regarded as static against competition from frozen and pre-cooked meals which are the dominant product group in the frozen food category. Consumer 68
FROZEN PROCESSED VEGETABLES – ANALYSIS OF PRICING Background Australia has a small frozen vegetable processing sector that services the products markets in frozen peas, beans and potato products. The green vegetable sector is based in Tasmania, which has a low-cost production environment in a very reliable climate without water and heat issues which affect yield and quality, and a reliable skills base in growing. Grower contracts The supply of vegetables to processors for use in processed beans, peas and potatoes is made under supply contracts with processors. Suppliers are contracted to supply in certain time windows. Overall production is managed by the processor to maintain a supply profile that is in line with the needs of the business. The contracts specify area, timing, yield performance, product specifications, price and terms. The contracts carry strict penalties for variation from specification to avoid wastage or poor yields through processing. The major challenge facing producers in the regions supplying the vegetable processors has been the lack of price increase over time despite the perceived gains in the end price of the products. There are high cost barriers to entry in the game – gaining access to land, technology, equipment and a contract. Limited land availability is another restriction. Processors of these products have invested substantially in automation of processing to reduce the costs and increase yields. The approach taken The only available data on the analysis of farmgate and retail prices in the processed frozen sector is that which compares the products on an equivalent basis in a snapshot approach. Other than the reported retail prices for frozen products from the retail sector, there is little transparency in the information at wholesale and farmgate levels. While there is a time series of data at retail level for frozen peas (shown below), no such analysis exists for potato products. Anecdotal retail data is available in this regard. In the case of peas, an imputed estimated average farmgate cost per kg of product has been used. Figure 71. Retail prices for frozen peas, cents/kg, 1993–2003 cents 350 300 250 200 150 100 50 0 Source: Industry sources and ABS retail 1993 2003 farm Price competition for domestically produced peas and beans comes in the form of imported product which is generally sold under private label, though imported brands. This maintains tight pressure on the scope for price increases to the processor, though the extent of margin pressure is unclear. Price Determination in the Australian Food Industry A Report 69
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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
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
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
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
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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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