Premium perceptions vital for Australian food: industry report

Posted by Daniel Palmer on 10th November 2008

Australian horticulture must position itself as a supplier of high-quality produce that attract premium prices to be competitive both domestically and abroad, according to a recently-released industry report.

The Global Focus report Australian Horticulture – fresh fruit and vegetables, by specialist agribusiness lender Rabobank, notes, “Australian horticulture cannot build its competitive advantage on cost leadership due to increased competition from low-cost producers who don’t face production challenges that local producers do such as water scarcity and labour shortages”.

“Therefore, Australian fruit and vegetable suppliers must position their produce on non-price attributes such as quality, food safety, and environmental and social responsibility,” Vera Zelenay, report author and Rabobank analyst, suggests.

According to the report, global and domestic markets offer emerging opportunities for fresh fruit and vegetables suppliers. As consumer preferences shift towards the need for freshness, quality and convenience, consumers are demonstrating their willingness to pay a premium for these attributes. “This is particularly evident in mature markets where value growth is expected for the horticulture industry as consumers demand more value-added products – food appealing to health and well-being, convenience and practicality, and experience and taste,” Ms Zelenay advised. “And in emerging markets, economic and population growth, are expected to drive market volume growth.”

Another opportunity of expansion for Australian horticulture is the potential for an increase in consumption over and above population growth. “Australia’s fruit and vegetable per capita consumption of 199 kilograms per year is relatively low when compared to other developed countries such as Italy (298 kilograms per year) and New Zealand (250 kilograms per year),” the report notes.

Production challenges for Australian fruit and vegetables
A key challenge for the production of Australian fruit and vegetables is its high dependency on irrigated water. “Water scarcity, particularly in the Murray Darling Basin, will pressure local producers to increase their efficiency in the delivery and use of irrigated water, and force them to develop water management strategies and increase the accuracy of their budgeting processes,” the report adds.

Climate change also presents a double challenge for the production of fruit and vegetables: producers – in Australia and around the globe – will need to adapt to a changing environment and cope with the implementation of an Emissions Trading Scheme (ETS).

“Adaptation and mitigation responses to these challenges will be vital. They include changing the product mix to those activities more suited to the new conditions, or moving the enterprise to a new region where climate and resources are more favourable.”

Australian competitiveness in world horticulture trade
According to the Rabobank report, increased competition from imports during the past five years has meant that Australian suppliers have been progressively losing market share. Together with other challenges fruit and vegetables producers face, such as water scarcity and climate change, this may drive major restructuring within the horticulture industry. “This could potentially give rise to a certain degree of specialisation in the industry’s most competitive products,” it states.

Macro-economic factors such as the AUD exchange rate have also decreased Australia’s competitiveness in global horticulture trade over the past three to five years. “However the recent depreciation of the Australian dollar is welcome news for local producers and will increase the relative competitiveness of Australian fruit and vegetables suppliers both at home and abroad.”

Outlook
It is anticipated that increasing populations and incomes, especially in developing economies, and a growing demand for year-round supply of fresh produce to developed northern hemisphere markets, will sustain growth in world horticultural trade until 2020.

“Asia is currently experiencing rapid population and income growth, making it a very attractive export market for Australian fresh produce,” Ms Zelenay said. “At the same time it is believed the Australian domestic market will expand by around three million people, and both international and domestic per capita consumption of
fresh fruit and vegetables will increase as consumer preferences shift towards horticultural products and away from alternative foods, driven by wellbeing trends.”

“Understanding these trends and supplying accordingly is an imperative for Australian fruit and vegetables suppliers who aim to succeed in such a competitive environment,” the report concluded.