Price Determination in the Australian Food Industry A Report

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
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