Fruits and Vegetable Price Wars among the Supermarkets - Case Study Example

Fruits and Vegetable Price Wars Introduction The larger percentage of processed fruits and vegetables are sold as frozen foods. The processed fruits account over 65% of the market share. This shows that the farm fruits are sold as processed drinks and not when they are law. However, the main challenge fro the sector has been the issue of pricing. The key drivers for pricing fruits and vegetables are based on various factors. First and foremost, the frozen and packaged fruits’ prices are influenced by the international prices for the same products. This is because even though the country can sustain itself in terms of fruit and vegetable production, imports of the same products account more than 20% of the market share. Second, completion among the processing companies has also been on of the key factor in pricing these products. This is because they want to attract the retailers in order to leverage its operations and ensure proper utilization of its resources. The primary agenda of this essay is to explore the issue of price wars on the fruit and vegetable farmers in Australia. The essay will particularly refer to the recent media release by Coles that they have slashed the prices for their fruits and vegetables products. According to Coles, this move will see the farmers increase their sales and at the same time their products are moving given the fact that this is a high season. Refer to appendix 1. More importantly, this essay will evaluate why this issue is a media issue and why it is considered to be a public relations issue. The essay also seeks to establish the primary publics and their specific interests to the industry. Media issue This issue by Coles to slash the prices for the products is of major public concern. This is because it affects that the entire farming sector. This is particularly so because any move by any single retail company to cut or increase it prices will directly mean that the farmers will be affected. The media is considered as the most convenient way to communicate with sector stakeholders and more especially inform the farmers on issues that affect them. This is to help them make informed decisions and choices. Using the media by Coles to address the issues that affect the products in terms of prices helps inform the farmers on ways the retailer is using to address the plight of farmers (Martin and Mitra 2001). Retailing these products is all about doing business and different companies try to use the media in order to determine the reaction by the public. A good example is the media release of 1st February 2012 talked about protecting the farmers from selling their products a t prices that can sustain their farming. This media was the response by Chris Presland the chair of the Green Box Regional Food Co-operative. According to Presland, farmers need to be protected and punished. Addressing the issue of price wars between large supermarkets, Presland is of the view that the move by Coles does not real demonstrate the good intentions of the bigger supermarkets in addressing farmers problems and instead thy were out to benefit themselves by passing on the cost to them (West 2002). This according to the industry body AUSVEG would be very through if the supermarkets engage in price wars. According to Presland, they are real fed up with the acts of the supermarkets which persistently increase their bottom-line profits at the expense farmers and processors. Presland continues to maintain that famers ought to be given fair prices which are sustainable and that can support them in their farming activities. The media is used as a marketing tool by the majority of these companies. Let’s take example of Presland’s response, after opposing the stand by Coles to cut the prices, he argues that Green Box being a co-operative will provide the best alternative in selling the farmers’ produce given its objective to support the farmers in order to sell their produce directly to the customers from the farm. Refer to appendix 2. The public relations The price wars among the supermarkets is considered the public relations issue since it entails addressing the issue that if not well managed can impact negatively on the majority of Australian farmers. The price wars as seen by farmers and other agricultural organizations such as The Australian Food and Grocery Council and Yarra Valley apple grower Sue Finger, believe taking the issue rightly will greatly hurt the industry which has seen enormous growth over years and at the same which employees many people. This means that the issue requires proper address from all the stakeholders involved in order to safe the farmers from exploitation by self-interested supermarkets. The sector contributes to the country’s annual revenues and its decline will definitely mean a direct impact to the country’s economy. As seen by experts in the industry, the discussion of the matter will mean that proper policy has to be developed to address the key challenges that affect this great sector of the economy (Edwards 2003). The public is also interested in knowing how the government together with other stakeholders can come up with one strategy can ensure sustainability in the industry. Cost of production has been the key concern and more especially after the prices of firms inputs such as fertilizers and pesticides have greatly increased. With this regard, therefore, the process of addressing the issue as a public concern will mean that the respective ministry through the federal government will be expected to respond by making sure that the cost of production is managed in order to protect the farmers from getting losses whenever the market prices for their produces go down. According to the Industry groups, in the media release of 1st February 2012 in The Age Victoria, as a public concern The Australian Food and Grocery Council, proposed that there is urgent need for the government to react and save the industry. The body proposed that the government appoints the Ombudsman who will ensure fair trade by all key players. This was after realizing that the farmers were reacting to Coles’ move and were keenly watching on what the government would do to safe them from price wars. The publics to the issue The issue of price wars among the supermarkets that are used as retailers for farmers’ produce involves several parties. First and foremost are the processing companies. The processing companies are charged with the responsibility of getting raw fruits and vegetables from the farmers and then process them and tin them ready for marketing. The processing companies are particularly interested in creating good business so that they can break-even and ensure sustainability of the business (Barber and Cutbush 2005). This is likely to be done by producing tinned fruits and vegetables at a relatively cost which attract more retailers. On the other we have the supermarkets who are involved in the industry as retailers and they play the major role in the supply chain. The key retailers involved in this sector include the Coles and the Woolworths. Like the case of the processing companies, the retailers are also interested in making goods profits by reaching many customers as possible (Pollard et al 2007). Different bodies and organizations also have interest in the sector. The Green Box Co-operative, the Yarra Valley and AUSEVAG are among the several institutions that in one way or the other are involved in the industry. They are commonly interested in increasing the numbers of their members. These bodies are particularly formed to champion the farmers’ rights against any unfair trading. Finally, the government and the farmers are also part of the publics involved in this issue (McGovern 1999). As a matter of fact, the government is interested in creating more jobs for its people by ensuring that the sector is as lucrative as possible. The government is also interested in generating more revenues from the sector in form of taxes in order to support service delivery to the citizens. The farmers also key players in the sector. More importantly it’s the farmer that has caused the existence of all other stakeholders. The farmers also are interested in making good profits from their farm outputs. They want good prices for their produce so that they can be able to sustain their farming activities as argued by Pomerleau et al (2004). Good and public relations Public relation is used to address issues of national importance. Public relation is considered to be good if the intention is to bring into the open the issues that face a particular group (Chisholm 1992). Given the case of price of wars among the retailers with regard to fruits and vegetables, the public relation has been used positively by different stakeholders to address those practices that are considered to selfish and harmful to the farmers. On the other hand public relations can be destructive if it’s used to move individual agendas as demonstrated by the reduction of prices by Coles in order to attract more customers and consequently more profits at the expense of the farmers. Conclusion As a matter of fact, the issues horticultural farming has become a very sensitive issue in the recent past. Perhaps this is because of the role it plays in the Australian economy in terms of revenue generation and employment. An open public exchange between several stakeholders is a sign of how the industry matters. The price factor is actually the issue of concern. After Coles decided that it would slash the prices of its tinned fruits and vegetables by around 50% immediate and counter accusations were raised by various stakeholders. This is because the move was seen to have a serious negative impact on the farmers who grow fruits and vegetables. This is because they are the ones to bear the burden of cost. Orange and citrus juices are the major tinned fruit juices in the sector. In the recent past the demand for fruit juices has increased after many people are now very cautious of their health and they are real concerned about the kind of the nutrition they consume. The issue of price wars is a public issue because of the answer that is being sought to address the famers’ problems from the government. References Barber, M. and Cutbush, G. 2005. ‘Contract farming: the future of agriculture?’, Farm Policy Journal, vol. 2, no. 1, February, pp. 4-14. http://ageconsearch.umn.edu/bitstream/47944/2/Ronan.pdf. Chisholm, A.H. 1992. ‘Australian Agriculture: A sustainability Story’. Australian Journal of Agricultural Economics, 36 (1), pp. 1-29. http://ageconsearch.umn.edu/bitstream/117393/2/1467-8489.00143.pdf. Edwards, G. 2003. ‘The story of deregulation in the dairy industry’, The Australian Journal of Agricultural and Resource Economics, vol. 47, no. 1, pp. 75–98. http://ageconsearch.umn.edu/bitstream/116174/2/1467-8489.00204.pdf Martin, W. and Mitra, D. 2001. ‘Productivity Growth in agriculture and manufacturing’, Economic Development and Cultural Change, vol. 49, no. 2, pp. 403–23. http://www.oecd.org/dataoecd/39/45/42122748.pdf. McGovern, M. 1999. ‘On the unimportance of exports to Australian agriculture’, Australasian Journal of Regional Studies, vol. 5, no. 2, pp. 229–252. http://www.southwestnrm.org.au/sites/default/files/uploads/ihub/unimportance-exports- australian-agriculture.pdf. Pollard, C., Miller, M., Daly, A., Crouchley, K., O'Donoghue, K., Lang, A., et al. 2007. Increasing fruit and vegetable consumption: Success of the Western Australian Go for 2&5 campaign. Public Health Nutrition, 11(3), 314-320. http://www.biomedcentral.com/content/pdf/1743-8462-5-27.pdf. Pomerleau, J., Lock, K., McKee, M., & Altmann, D. 2004. The challenge of measuring global fruit and vegetable intake. Journal of Nutrition, 134, 1175-1180. http://www.who.int/bulletin/volumes/83/2/100arabic.pdf. West, G. 2002. ‘Decomposition of exports and GDP into direct and indirect industry contributions’, Australasian Journal of Regional Studies, vol. 8, no. 2, pp. 143–164. http://www.anzrsai.org/system/files/f8/f4/f25/o101//AJRS%208(2)%202002%20Text.pdf. Appendixes Appendix 1: Abstract of the alliance report 2011. The challenges facing fruit and vegetable producers are becoming overwhelming. Farmers are leaving the industry, and fewer young farmers are taking up fruit and vegetable farming, adding to the threat of the long-term security of Victoria’s fruit and vegetable supply. Victoria’s fruit and vegetable industries also bring economic benefits to the state. Victoria is one of Australia’s two main horticultural producers, and horticultural production is worth about $1.3 billion per year to the state. In fact, the food sector as a whole is one of the most significant industries in Victoria, generating around 15% of the state’s gross value added. Key issues that should be considered by this cross-sector and cross-supply chain group include: identifying and protecting productive agricultural land, increasing the water security of key fruit and vegetable production areas, improving farm profitability through regulatory measures and supply chain innovation, promoting sustainable and resilient production systems and increasing consumption of fruit and vegetables. Appendix 2: Coles’ advertisement on 1st February 2012 Australian fruit and vegetable growers fear they will become the latest victims in the supermarket price wars after Coles slashed its fresh produce prices. A bumper growing season combined with the high Australian dollar has meant there is an abundance of fruit and vegetables available. These conditions prompted Coles to announce it would help farmers move excess stock by slashing prices it its stores. Coles said by making fruit and vegetables more affordable they would be provide a more certain market for Australian growers. But vegetable industry body Ausveg said if the supermarkets got locked into a price war the opposite would be true. The group's national marketing manager Simon Coburn said aggressive discounting would hurt Australian growers. "It's not going to be long before Woolworths jump in," he said. "There's no way they're going to be giving this much ground on Coles. "The issue is whether these retailers are going to be absorbing the costs themselves, which is pretty unlikely, in which case these discounts will be passed on to the growers to absorb and that's not sustainable at all." Mr Coburn said in the short term the growers supplying Coles would benefit from higher sales. But if the aggressive pricing tactics prompt Woolworths to follow suit, the effect on the industry as a whole would be negative. National Farmers Federation CEO Matt Lennigar said the price cuts were about attracting customers and the benefits to growers relied on Coles increasing sales. "How much of what we're seeing is only short term? Can prices continue to be slashed?" he said. Riverine Citrus chairman Frank Battistel, spokesman for more than 500 citrus fruit properties in the Riverina Citrus sector, feared growers' margins would be squeezed further by a slide in prices. He said after a productive growing season, many citrus farmers were already selling their produce at a loss. He too questioned where Coles would be recouping the cost of cutting fruit and vegetable prices. "When I get 20 cents a kilo and ask why do you charge $2 per kilo they say we need to sell at that price, this is what it costs to do business," Mr Battistel said. "Now they're saying that they can knock off 50 per cent." Coles and Woolworths have previously tried to undercut each other on a range of other staples including bread and milk. Appendix 3: MEDIA RELEASE Wednesday 1st February 2012 “Support our farmers – don’t penalise them,” says Chris Presland, Chair of Green Box Regional Food Co-operative based in Gerringong. As a price war over fruit and vegetables heats up between supermarket giants Coles and Woolworths, Coles says that by making fruit and vegetables more affordable they would provide a more certain market for Australian growers. But vegetable industry body Ausveg and peak farming bodies state if the supermarkets got locked into a price war the opposite would be true. “We are all pretty fed up with the big supermarkets trying to increase their bottom line profit at the expense of local producers and growers of our food. We need to make sure farmers are paid a fair price for what they grow to ensure theycontinue to grow our food.” “There are alternatives out there to buying at big supermarkets; Green Box is one of those alternatives.” Green Box is a locally owned and run co-operative that supports local producers by providing a distribution network from the farm directly to the customer. Green Box members order online weekly then collect from the warehouse in Gerringong (or by home delivery). Their “Green Box” full of locally grown fruit, vegetables, bread, milk, yoghurts and cheeses as well as olives, biscuits, dry goods, oil and jams. Fruit and vegetables are often picked the day they are ordered. “Green Box was started in 2010 and already we have over 150 members. We support many new and established growers who have been able to expand their business because they can more easily reach their customers,” Presland says. “Consumers can make a real difference. Together we can make a significant difference.” Chris Presland Chair, Green Box Regional Food Co-operative Read More