Price Determination in the Australian Food Industry A Report

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Figure 79. Flour, 1kg, supply chain map Farmer Primary Processing Market Logistics Retail Brand Ownership/Management Farmer harvest/ transport/store Miller* Packer* Consumer Foods Marketer* Wholesalers Export Markets (bulk only) Chain Retailers Food Service Consumer • 20+ million tonnes of wheat produced. • Australia-wide production but traditional milling wheats focused in Queensland/northern New South Wales. • Price drivers include net returns from world market. • Large number of players but Australian Wheat Board still dominates supply of wheat to millers. This may change with Allied purchase of Goodman Fielder mills. *can be integrated or separate players • 65% of total wheat produced is exported, but only 15% of flour produced is exported. • Four mills producing retail flour with considerable excess capacity (10 milling companies of which three have total of 84% of capacity). • Domestic milling industry uses only 2 million tonnes of wheat produced. • Little value-adding activity. • Most flour sold in bulk. • 1.25 tonnes wheat produces 1 tonne flour. • By-product recovery prices a key factor in profitability. Other Retailers • Little sale of 1 kg packet flour into food service – 1kg is a specialty retail item. • Supermarkets account for 95% of sales. • Branded product about 50%. FLOUR – ANALYSIS OF PRICING The Australian retail market Price Determination in the Australian Food Industry A Report Flour is the key product line for the Australian wheat industry in terms of domestic processing. However, the packet flour market is only a small component of overall flour usage. Packet flour accounts for only 5 per cent of flour manufacturing. As such, the packet flour market has a relatively small influence on overall miller profitability and trends through the chain. About 95 per cent of packet flour sales are through the supermarket channel. Private label represents about 30 per cent by value but almost 50 per cent by volume. The graph below shows the difference in pricing between private label and the range of branded product. Figure 80. Retail price of flour by label, 1kg pack, $/kg $ 2.50 2.00 1.50 1.00 0.50 0 private commodity premium label brand brand Source: Industry sources 76
The packet flour segment declined by almost 1 per cent by value and 2 per cent by volume in 2002. This is a long-term trend and applies to other cooking inputs such as cake mixes and bread mixes. This reflects the fact that consumers are not baking in the home but tend to purchase finished products from hot bread and cake shops. Given this outlook for the sector, there is little investment or activity in value-adding. This is different at the food service level where bread and cake mix sales to hot bread shops, pastry and cake manufacturers and other food manufacturers are strong. In these segments there is considerable activity in new product development using specialty flours such as soy and rye. However, despite the level of activity, these products represent a small part of the overall market – specialty grains are estimated to be 5 per cent of the volume of wheat used. Retail prices The average value of the grocery retail market in the last 10 years has risen from $1.20/kg to $1.70/kg. However, this is an annual average increase of around 3.5 per cent, suggesting that prices in real terms have declined. This reflects the declining position of the product range and the increasing dominance of private label product. Increasingly the pricing and product sourcing policies of the major retail chains have restricted the increases in retail prices of private label flour products. The chart below shows average retail prices for 1kg packet flour product. Figure 81. Retail price of flour, 1kg pack, $/kg, 1993–2003 $ 2.50 2.00 Melbourne 1.50 Brisbane 1.00 Perth 0.50 0 Q3 1993 Q2 1994 Q1 1995 Q4 1995 Source: Industry sources Background Wheat for milling is a major part of the grains industry and traditionally has been seen as the high quality end of the market, that is, seeking prime hard or specialist categories of wheat such as soft wheat. However, as technology advances are made in areas such as bread improvers, the quality of the wheat input is becoming less of an issue. Bread manufacturers are seeking ways to reduce raw material prices and utilising lower quality wheat is one means of achieving this. Retail pricing Q3 1996 Q2 1997 Q1 1998 Q4 1998 Q3 1999 Q2 2000 Q1 2001 Our analysis of the margins captured by each major sector engaged in the flour value chain is represented in the chart (note this applies to retail packaged flour only). This has been compiled by reference to the average retail value of retail flour product in the Australian market (per ABS data), the average net selling price achieved by the domestic miller/marketer and the farmgate return based on average prime white grade wheat delivered port prices adjusted to farmgate. Q4 2001 Q3 2002 Q2 2003 Price Determination in the Australian Food Industry A Report 77
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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
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DAIRY - PACKAGED MILK Overview of t
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Figure 10. Whole milk, 2 litre, sup
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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 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 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
Page 132 and 133: GROCERY RETAIL - PERFORMANCE OF GRO
Page 134 and 135: 6. Issues for consideration ISSUES
Page 136 and 137: 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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