Price Determination in the Australian Food Industry A Report

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PROCESSED PINEAPPLES – ANALYSIS OF PRICING The industry’s product mix The majority of the annual pineapple crop is processed into a range of tinned and minimally processed products. It is estimated that the offtake of product by the major processor, Golden Circle, is about 70 per cent of total output. Figure 72. Retail and farmgate prices for pineapple, 450g tin, cents/tin, 1996–2003 cents 160 140 120 retail 100 80 60 40 20 fruit growers 0 1996 2003 Pricing of pineapples at the farmgate has historically been set according to production quotas. These were allocated by Golden Circle according to the level of supplier shareholding in the company. Supply rights were stapled to the shares. Through this mechanism, the company set pool prices for quota and non-quota supply where the quota allocation represented the majority of the company’s committed production requirements and the non-quota returns fluctuated as influenced by the world market for pineapples. Price Determination in the Australian Food Industry A Report During this time, pineapple pricing was treated in a similar way to milk pricing by a cooperative. Pineapple prices were set as a key balancing item in the financial performance of the group. In 2001, the nexus between fruit prices and shareholding was broken and commercial prices were set for fruit in accordance with long-term supply contracts which contain specifications on supply commitments and product quality. The pricing of product The chart on the left shows the comparison between retail value (per ABS data) and the payment for fruit content in the tinned product. Fruit payments represent a small portion (less than 10 per cent) of the overall costs of the business given the diverse nature of the business of the company. The sensitivity of margin analysis to the company and the industry prevents the disclosure of an analysis of the share of the retail dollar. Figure 73. Use of raw material in processing Minimally processed lines Canned fruit Outsized fruit Usage: < 3% 20-25% remainder low-volume fresh products using the best qualiy fruit. • slices • pieces • crushed Fruit • waste (up to 30%) • juice • concentrate 70
The overall use of raw material product through a fruit processing operation is balanced between the demand for fresh (minimally processed) lines, the usage of product which meets specifications for canning and optimising the use of outsized fruit in juice or concentrate. A significant portion (around 30 per cent) is disposed of as waste product, generally to the livestock sector as feed. While retail prices for canned lines have steadily risen over time (at a rate close to 2 per cent per annum), the ability for the processor to extract sufficient returns across all uses of fruit has been limited due to the strength of competition in the drinks market (with imported concentrates accessible to industry) and the need to invest in products and market promotion to widen the product range. Costs of marketing, packaging and factory labour have increased over time at faster rates than price rises have allowed. Figure 74. Fruit juice, citrus: Major drivers of prices and costs The juice processing channel has a major impact on the prices and costs in the citrus and apple industry value chains. The earlier overview showed its impact on those sectors. This figure overviews the juice sector itself as a standalone category. 1. Farm production factors • Relatively stable production volumes of juice-grade fruit available for processors. • Production has defined seasonality in different varieties (navel and valencia) across the production industry with different growing regions. • Product perishability limits holding time in the chain – therefore strong interplay between domestic fresh, export and juice demand in setting farmgate returns. 2. Value-chain integration • Increasing scale efficiency and integration of growing and packing activities by larger growers. • Concentration of juice processing into a small number of large processors/converters and a number of regional juice companies. • Strong influence of concentrate availability limits the extent of or reliance on contracted juice supplies or any further backward integration into the growing sector. Marketing 3. The marketing approach • Limited differentiation in product has been occurring to enhance appeal of 100% fresh juice products at the premium end of retail and convenience markets. • Differentiation through addition of functional ingredients and boosters in juice drinks. • Growth in the convenience markets provides scope for strength of brand-driven products. • Limited retail package innovation beyond convenience packs for lunches and entertainment. Growing Packing Processing Distribution Retail Concentrate imports Food service 4. Regulation and compliance • Increasing costs of doing business in farm enterprises to meet environmental, product integrity and food safety demands. 5. Trade impacts • Strong influence of imported concentrate volumes of orange juice on the available processor prices for juice grade fruit. • Very limited influence of export market volumes of fresh and processed products. • Export returns and demands in sectors of citrus influence fruit supplies available for juicing and can affect ex-packing house prices. 6. Technology and innovation • Increasing capital intensity in large-scale production and in packing house efficiency is changing operating cost structures. • Limited transparency of market prices and costs through the packing sector. • Some investment in innovation relevant to juice fruit to improve production consistency and quality, varietal performance and handling efficiencies in harvesting, grading and packing. Uptake in production sector is patchy due to unstable prices. 7. Retail market dynamics • Price differentiation accepted by consumer between fresh and concentrate-based juices. • Strong competition in the beverage and health beverages category between juice, carbonated drinks and waters. • Emerging competition from in-house juicers in food service establishments and the proliferation of themed fresh juice outlets. • Large range of juice drinks and concentratebased products competing on price. Price Determination in the Australian Food Industry A Report 71
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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
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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 80 and 81: Figure 69. Frozen vegetables, peas,
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
Page 130 and 131: 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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