VEGETABLE MARKETING COSTS ‘EXCESSIVE’

Press, Volume CIV, Issue 30782, 21 June 1965, Page 8

VEGETABLE MARKETING COSTS ‘EXCESSIVE’

. . The cost of marketing vegetables is excessive, in the view of a specialist advisory panel consisting of Professor B. P. Philpott and Messrs D. Richer and L. M. Enting which has reported to the economic” investigation committee; of the New Zealand Vegetable and Produce Growers’ Federation. A summary of the conclusions' and recommendations of the panel’s report on the economic position of the fresh vegetable industry in New Zealand says that retail mark-ups on auction prices for several important vegetables were conservatively estimated to be of the order of 100 per cent at present. Vegwahies eost about as much to retail as to produce and transport to consuming areas. Wholesale-to-retai! spreads are a high proportion of the final price compared

with vegetable marketing overseas and New Zealand pip fruit marketing. The grower’s share, of the final price for several field crops was probably at best around 40 per cent. Wide Differences There are wide differences in retail prices in the four main centres. These differences reflect retailing cost rather than cost of supply to these areas. For example, carrots are high priced at retail in Wellington and Christchurch, and in 1961-64 retailing cost averaged nearly two-thirds of the retail price compared with about half in j Auckland and Dunedin. i More Data Needed Wide and inflexible retail 1 margins contribute both to 1 the instability of grower ■ prices and to the low aver- ] age price levels. Their exis- 1 fence may point to consider- ' able imperfection in retail 1 buying behaviour and operation. More comprehensive 5 data on margins and prices, < especially as between differ- < ent kinds and sizes of retail- * ing firms, is required to con- 1 firm this situation as a basis I for recommending improvements in marketing. ; The panel says that 1 theoretically auction or pri- • vate treaty wholesaling should ' lead to price formation under 1 conditions of competitive 1

bargaining, but serious criti-i cism of the auction system arises from the possibility of collusion between buyers and on the obstacles which it places on alternative methods of trading which might lead ito more efficient and costreducing distribution. “Ring” Buying Tacit or explicit agreements on prices bid at auction seem ito be made. The practice of splitting up lots knocked down to one bidder between other buyers on the floor is a priority evidence of “ring” buying and is sometimes done with the collaboration of the auctioneer in consigning to. and billing, such retailers separately. Collusive buying in this way would be a factor permitting high retail margins and the survival of low turnover retail businesses. The practice should be eliminated and it is the auction-' eer’s responsibility to assist in doing so, the panel says. There are no formal rules for the conduct of the auction method of selling in New Zealand and in the interest of fair trade practice for their grow-

er clients rules for auctioneers should be introduced without delay. One of the recommendations . of the panel is that the federation should endeavour to ' gather evidence of “ring” buying at vegetable auctions with a view to making a complaint under the Trade Prac- 1 tices Act, and another that the federation should study the feasibility of financing the test i withdrawal of produce in the i off-season when it is sold at ; unduly low prices as a result ; of “ring” buying. i Half and Half The panel says that in the 1 industry as a whole almost as 1 many growers claimed to be i satisfied as dissatisfied with net profit. They note that part | of the gains that should have | accrued in terms of growers : net incomes have been offset i by rising costs so that grower < incomes have risen in the , last seven years at a much - slower rate than in the early 19505. In the light of the evidence available, they do not consider that there is a serious declining trend in grower incomes as a result of overproduction. However, when all necessary adjustments are made for a return on growers’ equity, the present level of labour and management return is unsatisfactory in relation to the skill and risks in-

ivolved and by comparison with returns in other occupations. Federation and official sample surveys of growers’ accounts place the average labour and management return within the range £9OO to £l3OO and around £looo.' The panel does not consider that this is an adequate re-1 ward. Unless the industry is to be! hamstrung with restrictions i and controls, increasing pro ] ductivity and survival of the] efficient is the only route the] industry can take, the pane) ■ j believes. | The panel says that indications are that the market grower’s share of the vegetable market is diminishing. Probably not more than half of purchases of vegetables are now made in the form of fresh vegetables, excluding potatoes. Almost Doubled Processed vegetable consumption a head almost doubled in recent years from 161 b in 1955 to 301 b in 1962. The New Zealander is now the world’s leading consumer

of frozen vegetables and it is likely that the quickfreezing industry has captured the major part of any growth element in the total demand for vegetables. ■ The panel says that there is no clear evidence of chronic over-production in the industry. Trends in retail prices for major vegetables from 1950 are upwards in all cases studied and trends in auction prices over recent years moved in line with retail prices. Over-production would be expected to show quite distinct depressive effects on “real” prices had it occurred. It is, however, noted that a prime cause of instability is probably fluctuation in annual supplies caused more by changes in acreages than by chance conditions affecting yields.