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36 Economic Update The importance of understanding the consumer R&D Drive Train THE CONSUMER PLAYS A VITAL ROLE IN DETERMINING THE SIZE OF FARM PROFITS EVERY FINANCIAL YEAR. AUSVEG ECONOMIST ANDREW KRUUP EXPLAINS HOW GROWERS CAN OBTAIN AND COLLECT CONSUMER INFORMATION AND USE THIS TO IMPROVE THEIR OVERALL FINANCIAL PERFORMANCE. Percentage Change Growers are extremely knowledgeable of their product’s cost structures and the margins they would like to make, but often underestimate the consumer’s level of power and influence on the final price that is received from the market. After all, it’s the consumer who pays for the vegetables that are being produced. Given this, it is important for producers to know about their customers’ tastes, preferences, willingness-to-pay or the general consumer trends within the market place. Why is the consumer important? The human body requires vegetable nutrients for survival. The average annual Australian consumption of vegetables is estimated to reach 162kg per capita and this statistic is expected to rise further into the future. A key determinant of growth in the vegetable industry is the domestic demand for vegetables, which is inextricably linked to Australia’s population growth. Figure 1: Australian Population Growth by State 4.00% 3.50% 3.00% 2.50% 2.00% 1.50% 1.00% 0.50% 0.00% -0.50% -1.00% Population growth Figure 1 presents a time series of Australia’s population growth by state. Most states are experiencing population growth of around one per cent or greater per year, with Australia’s national population expected to increase by an estimated 1.7 per cent annually. Australia’s growth in vegetable production (around two per cent per annum) is consistent with this population increase, illustrating the key relationship between population growth and vegetable production. To capitalise on this information, several questions need to be answered. For example, what vegetables are these Australians likely to purchase in the future? It is well-known that over the past five years, there has been a stronger demand for healthier foods, but is this trend likely to continue? What vegetables does the consumer perceive to be healthy? How can your business use this information to find a niche within the market? These questions can be answered through a deeper understanding of how the consumer thinks and operates. Jun-1982 Nov-1983 Apr-1985 Sep-1986 Feb-1988 Jul-1989 Dec-1990 May-1992 Oct-1993 Mar-1995 Aug-1996 Jan-1998 Jun-1999 Nov-2000 Apr-2002 Sep-2003 Feb-2005 Jul-2006 Dec-2007 May-2009 Oct-2010 Mar-2012 Aug-2013 Jan-2015 NSW VIC QLD SA WA TAS Source: Australian Bureau of Statistics, Australian Demographic Statistics, March 2015 Figure 2: Vegetable Price Index Price Index 160 140 120 100 80 60 40 20 0 2005–06 2006–07 2007–08 2008–09 2009–10 2010–11 2011–12 2012–13 2013–14 Price Index Potatoes Pumpkins Onions Carrots Source: Australian Bureau of Statistics, Australian Demographic Statistics, March 2015 Cost of vegetables Figure 2 illustrates that vegetable prices can fluctuate often. One explanation is that consumers can have a significant impact on the market prices for vegetable commodities. If consumers value a commodity less than the market price, they would be unwilling to purchase that commodity. The absence of customers wanting to purchase the commodity would translate into losses for both producers and retailers. In this case, the typical response by retailers and producers is to decrease the price to generate sales and regain profits. For example, if the average consumer values carrots at $2.00kg yet the asking price is set at $3.00kg, the likely outcome is that consumers would not buy carrots. If producers and retailers set the price below what the consumer is willing to pay, they are more likely to generate sales. It is through this market mechanism that the consumer is able to influence vegetable prices and therefore reduce (or improve) grower margins. The key to unlocking greater profitability is to research and understand what commodities are in high demand, how much consumers are willing to pay for them, and how these characteristics are likely to trend into the future.
37 Price and Perceived Value Figure 3: Average recalled last spend and perceived value 8 7 6 5 4 3 2 1 0 Broccoli Lettuce Sweet Corn Green Peas Beetroot Sweetpotato Capsicum Capitalising on consumer behaviour Figure 3 plots the average last recalled price against a measure of perceived fair value for a range of Australian vegetables. There is an expected inverse relationship between price and perceived value – for instance, the lower the price, the higher the perceived value and vice versa. This graph also shows that consumers are particularly happy with the prices for both sweet corn and broccoli, with perceived fair value scores of 6.7 and 6.4 respectively. These scores could be an indication that consumers are willing to pay more money than the current market price, which is Average Recalled Last Spend Source: Project Harvest June 2015 and January 2015 edition an opportunity for growers to increase prices to meet the value that consumers place on their produce. This is just one example of how consumer market information can be used to the benefit and growth of the vegetable industry. Learning more about consumer behaviour AUSVEG and Horticulture Innovation Australia Limited (HIA) recognise the importance of understanding both the consumer and the market in which growers operate. This importance has been reiterated throughout the vegetable industry’s Strategic Investment Plan (SIP). Perceived Value There are many publications available that focus on qualitative consumer information. Project Harvest conducts monthly online vegetable tracking reports, which focus on desk and field market research and include information on perceived value, supermarket prices, innovation and branding. In addition, Nielsen HomeScan data focuses on specific commodity information collected from 10,000 Australian household purchases of take-home grocery goods. These publications are crucial to growers who would like to collect information on consumers of specific crops and follow-up on some of the ideas discussed in this article. • It is important for producers to know about their customers’ tastes, preferences, willingness-to-pay or the general consumer trends within the market place. • A key determinant of growth in the vegetable industry is the domestic demand for vegetables, which is inextricably linked to Australia’s population growth. • Consumers can have a significant impact on the market prices for vegetable commodities. • There is an expected inverse relationship between price and perceived value – for instance, the lower the price, the higher the perceived value and vice versa. • There are many publications available to growers that focus on qualitative, consumer information. This includes Project Harvest and Nielsen HomeScan data. i THE BOTTOM LINE For more information, contact AUSVEG: Phone: (03) 9882 0277 Email: info@ausveg.com.au This project has been funded by Horticulture Innovation Australia Limited using the National Vegetable Levy and funds from the Australian Government. Project Number: VG12071
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Page 3 and 4: Contents November/December 2015 Reg
Page 5 and 6: AUSVEG Chairman and CEO messages Ge
Page 7 and 8: As we approach the end of 2015, the
Page 9 and 10: Nufarm 9 WIN THE DOWNY FIGHT WITH D
Page 11 and 12: 11 GIVE YOUR CROP A CLEAN GETAWAY V
Page 13 and 14: Dr Kristiansen noted that there was
Page 15 and 16: 15 Photography by Chris Kershaw. gr
Page 17 and 18: 17 Vegetables Australia November/De
Page 19 and 20: The Front Line 19 stakeholders. The
Page 21 and 22: Export Development 21 JAEPA opens g
Page 23 and 24: Two centuries of innovation. A life
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Page 27 and 28: Veggie Stats: Beans R&D Drive Train
Page 29 and 30: 29 Gross Value of Production $180 $
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Page 33 and 34: Sustainable Farming 33 Focus Region
Page 35: 35 of our soil and the farming prop
Page 39 and 40: 39 such as ladybirds, spiders and w
Page 41 and 42: 41 improve the strength of the root
Page 43 and 44: Recent issues and developments in A
Page 45 and 46: Minor use permits Permit Number PER
Page 47 and 48: 47 47 Around the states South Austr
Page 49 and 50: 49 Northern Territory Spring is a t
Page 51: CALENDAR 30 January - 2 February 20

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