Sydney Meat Marketing Margins January 1971 To
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- 3'. SYDNEY MEAT MARKETING MARGINS JANUARY 1971 TO JUNE 1974 G. R. GRIFFITH and R. A. WHITELAW MISCELLANEOUS BULLETIN 20 Division of Marketing and Economics ?NEW SOUTH WALES. DEPARTMENT OF AGRICULTURE New South Wales Department of Agriculture Division of Marketing and Economics SYDNEY MEAT MARKETING MARGINS • JANUARY 1971 TO JUNE 1974 G.R. GRIFFITH and R.A. WHITELAW Miscellaneous Bulletin N 0 January 1975 Editor: George Mason ACKNOWLEDGEMENTS The authors wish to record their appreciation to various members of the Division of Marketing and Economics for help with this project. Garry Griffith wishes to acknowledge the assist- ance of the Australian Pig Industry Research Committee in providing funds for his participation in the study. iii CONTENTS ACKNOWLEDGEMENTS iii LIST OF TABLES vii LIST OF FIGURES vii INTRODUCTION 1.1 The Problem 1.2 The Concept of Marketing Margins 2 1.3 Previous Work on Meat Marketing Margins 2 METHODOLOGY L. 2.1 Establishing Comparable Prices 4 Auction prices, Wholesale prices Retail prices 5 2.2 Definition of Terms 5 Auction price 6 Wholesale price, Retail price, Retail margin, Share of consumers dollar 7 3 INTERPRETATIONS 9 3.1 Monthly Prices and Margins Jan 1971-June 1974 9 Mutton 9, Lamb 10, Beef 15, Pork 16 3.2 Comparisons Between Meats 17 3.3 Share of Consumers Dollar 19 REFERENCES 29 v. LIST OF TABLES 1 Approximate Average Yield of Various Cuts of Meat from Carcases 8 2 Mutton. Prices and Margins Jan 1971-June 1974 11 3 Lamb. Prices and Margins Jan 1971-June 1974 12 4 Beef. Prices and Margins Jan 1971-Jane 1974 13 5 Pork. Prices and Margins Jan 1971-June 1974 14 6 Average Annual Indices of Prices and Margins 18 7 Annual Averages of the Shares of Consumers Dollar 20 8 Mutton and Lamb. The Share of Consumers Dollar 25 9 Beef and Pork. The Share of Consumers Dollar 26. 10 Lamb. Prices and Wholesale Margin for Trade in 90 per cent Light and 10 per cent Heavy lambs 27 LIST OF FIGURES Mutton. Auction, Wholesale, and Retail Prices Jan 197I-June 1974 21 2 Lamb. Auction, Wholesale, and Retail Prices Jan 1971-June 1974 22 3 Beef. Auction, Wholesale, and Retail Prices Jan 1971-June 1974 23 4 Pork. Auction, Wholesale and Retail Prices Jan 1971-June 1974 24 vii • CHAPTER 1 INTRODUCTION 1.1 THE PROBLEM This study provides a set of basic data on Sydney meat price and margin movements for the period January, 1971 to June, 1974.1 Auction, wholesale, and retail prices; wholesale and retail margins; and the shares of the consumers dollar going to producers, wholesalers, and retailers, are presented on a monthly basis for beef, mutton, lamb and pork.2 This data was generated as a basis for analysing price formation in meat marketing. In recent years, live- stock and meat marketing methods in Australia have come under close scrutiny and criticism from consumers, primary pro- ducers, the meat marketing industry itself, and academics. The general concern has been with the overall efficiency with which the present meat markets function. Typically though, attention has been focused on. price formation, and in par- ticular on three aspects of this function, namely the highly' variable and uncertain returns to producers, the role of 'middle men' and the rising trend in retail prices. Pressure from various groups concerned about meat marketing resulted in the formation of a number of committees and study groups to examine and report on this subject. Producer action led to the establishment of two state marketing boards - the Sheep Meats Marketing Board for the State of New South Wales and the Lamb Marketing Board of Western Australia. Reports from a government enquiry in Victoria [71 and parliamentary enquiries in New South Wales C:15] and at the federal level E11?-3 have presented a cross-section of views on the ills of the present marketing system. Study groups formed by the New South Wales Branch of the Australian Agricultural Economics Society En and the Australian Pig Industry Research Committee C43 presented further analyses of the available• information. 'The study follows some work initiated by. R.N. Irish C1213. Irish calculated margins for beef, mutton, and lamb, for 1969-71, but because of differences in calculation procedures, the two sets of data are not comparable. For details of the calculation procedures used by Irish seet12, pages 18-20]. 2A11 price data for this study was obtained from the Division of Marketing and Economics; N.S.W. Department of Agriculture. Auction and wholesale prices relate to Homebush Saleyards and Meat Hall respectively. Retail prices are from a represent- ative sample of Sydney retail outlets. ••• The analyses in the above studies mainly des- cribed the structure of the various livestock and meat markets. Little attention was given to quantifying the pricing mechanisms of these markets3 or to assessing their efficiency. The marketing margins Presented in this bulletin were compiled to provide a basis for subsequent quantitative analysis of market structure, conduct and performance. Marketing margins, by showing the magnitude of. price differentials between each market level, are one means of quantifying some aspects of a marketing system. For ox- ainle the retail margin gives some:measure of retail marketing costs and can be used to assess the proportion of retail price which these costs comprise. Also, comparison of margins with operating costs of firms operating at various market levels gives an indication of profit, and allows comment on market performance. Simple measurement of prices and margins cannot alone .answer questions about market efficiency and profitability, but the calculation of margins is an important preliminary step [A. 1.2 TT-fl CONCEPT OF MARKETING MARGINS A marketing margin of a commodity is the difference in its Price between the various levels of the marketing system. For meat, as with other commodities, price needs to be expressed on an equivalent weight basis for com- -oarisons to be properly made between the various marketing levels.5 In this study, the wholesale margin is the difference between equivalent weights of meat sold in retail and wholesale markets. The wholesale and retail margins are the amounts available to wholesalers and retailers to cover their costs of marketing services and provide a profit margin. They reflect changes in the demand and supply for these market services. 1.3 PREVIOUS WORK ON MEAT MARKETING MARGINS Australian studies on meat marketing margins have been done by Woodward r203, Hodan DOI Anderson I:231 and Irish [12,pp. 18-22, appendix V3. Woodward made a 'detailed study of Sydney margins for beef, lamb and mutton on a weekly and monthly basis for the period 1961-67, and on a quarterly and annual basis for the period 1957-66. -Hodan calculated prices and margins for beef, lamb, mutton and pork for all State capitals on an annual 'basis for the period 1967-71. Anderson used Hodants data in a South Australian 3The B.A.E. have recently released a study which provides empirical information on market conduct in pig marketingin Australia Cs). Defined in chapter 2. 5An explanation of this is given later. 6L,ore precise definitions of these margins appear later. This study uses the comparative prices method to calculate margins. This method, and others, ,have been reviewed by Hodan C10,pp. 131-1321 Houston [ii,pp.3-9] and Woodward [20,Dp.7-93. context. Irish tabulated monthly beef, lamb, and mutton margins for Sydney for 1969-71., Overseas, the USDA began calculating meat market- ing margins during the 1950's E18, 193 and annual and quarterly checks on beef and pork have been maintained since 03. The National Commission on Food Marketing also calculated U.S. meat margins E133, •recommexiding changes in USDA procedures •which were subsequently. implemented E.53. similar commission in Canada E62, an °EEC study E163, and Houston in U.K. E113, also examined aspects of meat market- ing by margin analysis. CHAPTER 2 METHODOLOGY 2.1 ESTABLISHING COMPARABLE PRICES FOR THE CALCULATION OF MARGINS Duewer 26] has described the requirements, in respect of the basic price data, necessary for deriving accurate marketing margins by the comparative price method. These requirements adapted for use in this study, are given below.? AUCTION PRICES8 (1) Comparisons between live animal price and price of retail cuts should be for meat of a similar quality. (2) Live animal prices should be expressed per unit of weight of retail meat which the animal represents, i.e. the dressed weight. In addition, the live animal price used is the gross price for the animal less the value of inedible byproducts WHOLESALE PRICES (1) Similarly to (1) above, comparisons between wholesale carcase price and the price of retail cuts should be for meat of comparable quality. (2) Wholesale prices for an area are averages calculated by weighting the component prices by the volume of meat sold at each price. Attention therefore needs to be paid to terms of sale and volume discounts. (3) Wholesale prices need to be adjusted to allow for weight losses which the meat is subject to before being sold at retail. This is ex- plained more fully in Section 2.2. 7Duewer also points out that the basic price data used for calculating margins needs to conform to further requirements if they are to be compared with margins for other geogra- phical areas. Duewer uses the difference between wholesale price and farm Price as his measure of wholesale margin. As his require- ments for farm prices data are also relevant to auction Prices data, they have been adopted here. Duewer's farm price is the proceeds to the producer "at the farm gate" for the sale of stock, and is equivalent to auction price less his marketing costs.