Key research provider: Supply Chain STO
This is a final research report from Hort Innovation’s historical archives. Please note that as these reports may date back as far as the 1990s, the content and recommendations within them may be superseded by more recent research.
What was it all about?
Supermarkets (ALDI, Coles, Woolworths) and Independent Grocery (FoodWorks, IGA, SPAR) control most of the sales of fresh and processed vegetables.
The supply chains are increasingly efficient and effective. If there are any cost efficiencies created in these supply chains the retailers tend to extract almost all of the savings. They then attempt to hold onto as much of this value but competitive pressures see much of it leaking to consumers.
Anything that moves through the wholesale markets will have to bear the costs of the system. The role of the market to mediate between supply and demand is still important. Given the large number of independent greengrocers and the size of the hospitality sector, it is likely that the markets will remain for some time to come. As the amount of produce going via Distribution Centres increases, pressure on the financial viability of the merchant/wholesale sector will also increase.
The degree of handling of full containers and unit load devices (ULDs) prior to export is inefficient. The inefficiencies at ports are driven by the structure of relationships between stevedores and shipping companies and by the loading and unloading monopoly that stevedores have on individual vessels.
It is unlikely that growers, or their peak industry bodies, can influence change in these areas. Furthermore, given that fresh produce represents such a small proportion of exports, and that the exporter, in many cases is not the grower, the effect of any change may not filter back to growers anyway.
Vegetable supply chains are complex. In most cases, vegetable growers have no control of their produce once it exits the farm gate. This means that growers have little or no control of the supply chain. They have no real influence over the effectiveness or the efficiency of the total supply chain and unless they vertically integrate in to wholesale or retail roles, they will continue to have very little influence. If the grower wants to capture more value from the supply chain, the grower has to do something more than just grow produce.
Understanding that consumers frequently value having the product in the right place at the right time, more than they value the product may seem counter-intuitive. The fact that consumers buy at stores and not at farms proves the value of time and place. Growers will always be price takers, unless they add value.
The paradox of high prices when supply cannot meet demand, regardless of quality (and the reverse), are a fact of life for producers of commodities. Improving the quantity and quality of product into the market may increase end-user satisfaction but this alone will not increase demand. In fact, demand may decrease and adversely effect grower returns.
