IN THIS SECTION:
New consumer preferences will force food prices higher
29 January 2008
AS SLUMPING global supply and bourgeoning demand take their toll on world agricultural commodity prices, Australian consumers are increasingly attuned to the impacts on their weekly food bills.
Illustrating this international trend, the January Westpac-NFF Commodity Index – recording the weighted average world price of agricultural commodities – hit its highest point on record, 19.5% higher than the same period last year.
“Consumers may expect to see this increase in prices passed on to them,” Westpac senior economist Justin Smirk noted.
“A seldom recognised contributor to higher food prices are the ever-changing expectations of consumers, who expect farmers to deliver an almost infinite ‘value add’ through the supply-chain – clean, green, safe and naturally-produced food, fresh to their local store.
“Now, more than ever, consumers are demanding additional services and products adhering to new checks and balances. For example, through-chain testing and labeling, comprehensive traceability of food sources and production of new varieties of functional foods are all consumer-driven responses.
“Consumers will demand even more environmentally-sustainable production in the face of climate challenges. Those desires are often reasonable and Australia’s low-emission and highly innovative farm production systems are eminently equipped to deliver.
“However, consumers must understand that these new and changing demands inevitably add to the cost of food at the check-out.”
National Farmers’ Federation (NFF) Vice-President Charles Burke agrees: “Consumers are exercising their right to make demands on the food supply chain regarding food safety and environmental impacts. This is emerging into growing expectations that products, including food, will leave a smaller carbon footprint into the future.
“As these issues take greater prominence in consumer psyches, they will likely place new and increased expectations on farm production. Australia’s farm sector has demonstrated the ability, and willingness, to respond to changing consumer preferences, provided consumers recognise that these new expectations will see prices rise.
“That is an inevitable consequence. We all need to ‘go in with our eyes open’ – that is, understanding that new consumer choices impose new production costs.”
Compared with November 2007 levels, global prices in December increased for Barley (6.1%), Wool (1.7%), Canola (8.5%), Wheat (14.9%), Beef (3.9%), Cotton (3.8%) and Sugar (8.7%). Only Dairy (-6.7%) experienced a downturn in prices during the month. The overall weighted index increased 4.7% in Australian dollar terms during December, rising to 19.5% above year ago levels.
The Westpac-NFF Commodity Index is weighted according to the value of Australian agricultural exports and includes only rural commodities – unlike other price indices that are overshadowed by oil, mineral and energy prices. It provides daily movements based on prices of Australia’s eight key farm exports – wheat, barley, beef, wool, cotton, sugar, dairy and canola – in both $US and $A.
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