PRICE INFORMATION IN THE FRESH FRUIT AND VEGETABLE INDUSTRIES IN AUSTRALIA An Exploratory Analysis of i ts Effectiveness of Transmission

Occasional Paper No. 47

[mq Bureau of Agricultural Economics, Canberra

- Bureau of Agricultural Economics, Canberra

PRICE INFORMATION IN THE FRESH FRUIT AND VEGETABLE INDUSTRIES IN AUSTRALIA An Exploratory Analysis of i ts Effectiveness of Transmission

D.A. Weissel and R.B. Whittingham

Occasional Paper No. 47

Australian Government Publishing Service, Canberra 1978

FOREWORD

The r e s u l t s of preliminary research conducted i n t o t he marketing of some key ho r t i cu l tu ra l products by the Bureau of Agricultural Economics are presented i n t h i s Occasional Paper. This project has focussed on pr ice information i n the cen t ra l wholesale f r u i t and vegetable markets i n the eastern S t a t e s and on the provision and use made of p r i ce information by market par t ic ipants .

The v o l a t i l e nature of short-run f r u i t and vegetable pr ice movements draws i n t o question the effectiveness with which current ly avai lable information is being t ransmit ted through the marketing system and back t o producers. Consignments through the markets a r e determined by the various market par t ic ipants who a c t on the information avai lable t o them from a number of sources. The invest igat ion reported here has analysed p r i ce re la t ionsh ips f o r se lec ted commodities i n order t o draw conclusions about t he effect iveness with which pr ice information f o r the f r u i t and vegetable indus t r ies i s t ransmit ted through the marketing system.

Grateful acknowledgment i s made t o o f f i c e r s of S t a t e Departments and cen t ra l market administrations and t o many wholesalers i n each market v i s i t e d f o r t h e i r co-operation and advice with aspects of f r u i t and vegetable marketing.

GEOFF MILLER Director

Bureau of Agricultural Economics, Canberra. A.C.T. 2600

(v)

CONTENTS

FOREWORD

C h a p t e r 1

WHOLESALE MARKETING OF FRESH FRUIT AND VEGETABLES

I . 1 THE STRUCTURE OF THE NATIONAL WHOLESALE MARKETING SYSTEM

1.2 CENTRAL WHOLESALE MARKETS

1.2.1 D e s c r i p t i o n 1.2.2 Market A d m i n i s t r a t i o n 1.2.3 Impediments t o t h e Free Movement o f Produce

and the C o l Z e c t i o n o f Market Prices

C h a p t e r 2

AN EXAMINATION OF THE A V A I L A B I L I T Y AND TRANSMISSION OF PRICE INFORMATION

2.1 DEFINITION AND AVAILABILITY OF MARKETING INFORMATION 2.2 MtlRKET REPORTING SERVICES I N THE FRUIT AND VEGETABLE

WHOLESALE MtlRKETS 2.3 ASSESSMENT OF PRICE INFORMATION FLOWS BETWEEN MARKETS

C h a p t e r 3

AN EXPLORATORY ANALYSIS OF THE EFFECTIVENESS OF PRICING INFORMATION I N THE FRUIT AND VEGETABLE INDUSTRIES I N EASTERN AUSTRALIA

3.1 HYPOTHESIS 3.2 DATA 3.3 METHOD OF ANALYSIS

3.3.1 Cross S p e c t r a l A n a l y s i s

3.4 RESULTS OF EMPIRICAL ANALYSIS

3.4.1 Spec t raZ A n a l y s i s o f I n d i v i d u a l Price S e r i e s 3.4.2 R e s u l t s o f Cros s S p e c t r a l A n a l y s i s o f S e r i e s

3.5 ASSESSMENTS 3.6 CONCLUSIONS

A p p e n d i x A

A. SURVEY OF WHOLESALERS I N SYDNEY AND MELBOURNE

I . Background 2. Aims o f the S w e y 3. Methodology 4 . S e Z e c t i o n Procedicre 5 . Response R a t e

Page

(iii)

1

2

B. SURVEY RESULTS

Page

25

Appendix B

Appendix C

RESULTS OF SPECTRAL ANALYSIS OF SERIES

Appendix D

RESULTS OF CROSS SPECTRAL ANALYSIS OF PRICE SERIES

f i ) Pineapples fii) Bananas (iii) Oranges ( i v ) Potatoes f v ) TomaeOes ( v i ) Green Peas f v i i ) Green Beam Results of Cross Spectral Analysis of Pea and Bean Prices

i n Each Market

REFERENCES TABLES

1 APPROXIMATE NUMBER OF WHOLESALERS LICENSED TO TRADE IN CENTRAL FRESH FRUIT AND VEGETABLE WHOLESALE MARKETS IN AUSTRALIA 1975

APPENDIX TABLES

A-1 PROPORTION OF WHOLESALERS IN SYDNEY AND MELBOURNE OPERATING AS COMMISSION AGENTS AND MERCHANTS 28

A-2 MAJOR CATEGORIES OF FRUITS AND VEGETABLES HANDLED BY MERCHANTS IN SYDNEY AND MELBOURNE 29

A-3 PROPORTION OF WHOLESALERS IN SYDNEY AND MELBOURNE OPERATING MORE THAN ONE STALL FOR SELLING FRUIT AND VEGETABLES : PROPORTION BY TYPE OF PRODUCE SOLD 29

A-4 PROPORTION OF WHOLESALERS IN SYDNEY AND MELBOURNE ENGAGED IN SECONDARY WHOLESALING 30

A-5 MAJOR CATEGORIES OF FRUITS AND VEGETABLES TRADED BY WHOLESALERS IN SYDNEY AND MELBOURNE WHEN UNDERTAKING SECONDARY WHOLESALING 30

A-6 PROPORTION OF WHOLESALERS IN SYDNEY AND MELBOURNE OBTAINING MARKET INFORMATION ABOUT INTERSTATE MARKETS : RELATIVE FREQUENCY OF PRINCIPAL METHODS OF OBTAINING INFORMATION 31

A-7 PROPORTION OF WHOLESALERS IN SYDNEY AND MELBOURNE WHO READ NEWS REPORTS PREPARED DAILY 31

( v i i )

Page

B-1 RELATIVE FREQUENCY OF PURCHASE AND USE OF SELECTED FRUIT : BRISBANE

B - 2 RELATIVE FREQUENCY OF HOUSEHOLD USE OF SELECTED VEGETABLES : USA

Ij FIGURES

DIAGRAM 1 DISTRIBUTION OF COMMERCIALLY GROWN FRUIT AND VEGETABLES I N AUSTRALIA

APPENDIX FIGURES

FIGURE 1

FIGURE I 1 COHERENCE AND PHASE DIAGRAMS

FIGURE I11

FIGURE C.1 ESTIMATED SPECTRA - ORANGES

FIGURE C.11 ESTIMATED SPECTRA - PINEAPPLES

FIGURE C.111 ESTIMATED SPECTRA - BANANAS

FIGURE C.IV ESTIMATED SPECTRA - TOMATOES

FIGURE C.V ESTIMATED SPECTRA - POTATOES

FIGURE C.VI ESTIMATED SPECTRA - PEAS

FIGURE C . V I I ESTIMATED SPECTRA - BEANS

PRICE INFORMATION I N THE FRESH FRUIT AND VEGETABLE INDUSTRIES I N AUSTRALIA : AN EXPLORATORY ANALYSIS OF I T S EFFECTIVENESS

OF TRANSMISSION

SUMMARY D.A. Weissel and R . B . Whittingham*

The Wholesale Marketing System

- !The wholesaling of fresh f ru i t and vegetables i n Australia occurs mainly through central markets located i n capital d t i e s and regional markets distributed throughout the States.

- Increasing urban expansion and improved transportation have resulted i n fresh frui t and vegetables being grown a t greater distances from these markets.

- Despite the seasonal nature o f production i n one growing area, rapid inter-market flows of produce occur from other areas i n response t o price di f ferentiazs between se l l ing centres.

Price Information Flows

- Responsibility for the establishment and bperation of price recording services i n wholesale f r u i t and vegetable markets has historical ly been vested i n State government ins t i tu t ions , growers organisations and wholesalers ' associations.

- Market price reports are distributed via radio, newspapers, fanning journals and direct by post.

- I t was judged that certain market impediments e x i s t t o the collection and reporting o f price information but that these imperfections are overcome through a high level of comnica t ion between wholesalers, and wholesalers and growers.

Effectiveness o f Transmission of Price Information

- For most comnodities e d n e d there appears t o be an e f fec t ive transmission of price information a t the national level .

- While none of the series examined contain regular seasonal patterns, t h i s does not rule out the likelihood of irregular seasonal patterns.

- I t was f m d that i n the short run of periods up t o about 8 weeks, price movements tend t o be random. In practice, t h i s means that market participants most l i ke ly would find it d i f f i c u l t t o speculate on price movements over t h i s period.

* With the usual caveat, the authors wish t o thank E . L . Jenkins (now with the Department of Primary Industry) and R.C. Trewin for helpful discussions i n the formative stages o f t h i s study and t o G . M . White and J.C. Kerin i n the l a t t e r stages . Sincere thanks are a l so due to P . Twyford-Jones for ass istance with data co l lec t ion .

- Whenever a consistent timing relationship was found between price series for the same comnodity sold i n different markets, movement i n the prices tended t o be i n phase. One except ia t o th i s was for pineapples where it was found that Sydney prices Zagged Brisbane mzd Melbourne prices.

- The physical features evidenced i n t h i s study only highlight the technical price relationships involved and do not provide evidence for causation. Follow tq, research i s needed for clarif ication of particular features of price series.

INTRODUCTION

The na t iona l marketing system f o r f resh fruit and vegetables i n Aust ra l ia comprises a number of S ta te marketing systems, each formed by a cen t ra l wholesale market located i n t h e cap i t a l c i t y and a number of regional o r local markets d i s t r ibu ted throughout t h e r e s t of the State. These marketing systems a r e f a c i l i t a t e d i n t h e i r operation by the transmission of information between and within al l markets. Marketing information enables t r ade t o take place and reduces r i sk and uncertainty, t he e f f e c t s of which a r e normally t ransfer red through the system by price.

There i s l imi ted knowledge of the temporal and s p a t i a l supply and demand re la t ionships f o r f r u i t and vegetables passing through various f r e sh market o u t l e t s i n Austral ia . The r e l a t i v e absence i n the pas t of accurate s t a t i s t i c s of movements f o r most commodities throughout Austral ia has been one cause o f sudden f luc tua t ions i n wholesale p r i ces i n t h e shor t t o medium term due t o t h e i n a b i l i t y of growers and wholesalers t o a n t i c i p a t e t h e i r production and market requirements respectively through adequate planning. There has been speculation about t h e importance and meaning o f p r i c e movements i n wholesale markets because of uncertainty of t h e volume o f production not passing through t r ad i t iona l wholesale market ou t l e t s , and a lso , about the importance of wholesale markets compared t o a l t e r n a t i v e competing ou t l e t s .

An inves t iga t ion i s made of t h e effect iveness with which cur rent ly ava i l ab le p r i c e information is being transmitted. Observations of a c t i v i t i e s i n t h e Adelaide, Brisbane, Sydney and Melbourne wholesale markets during t h e development of t h i s study, including information gathered i n discussions with people who co l l ec t , co l la te , i n t e rp re t and d i s t r i b u t e p r i c e information, have been used t o understand b e t t e r how marketing information promotes the operation of and in terac t ion between wholesale markets. Information was also obtained by surveying wholesalers i n Melbourne and Sydney seeking d e t a i l s of information used by wholesalers i n t h e i r pr ic ing , purchasing and s e l l i n g decisions. Although referred t o i n the text, f u l l d e t a i l s of the survey a re shown i n Appendix A.

The paper i s i n th ree main sect ions. Chapter 1 provides a descr ipt ion of t h e wholesale marketing system f o r f resh f r u i t and vegetables i n t h e Eastern Sta tes of Austral ia , including some pr inc ipa l s t r u c t u r a l f ea tu res of the four markets v i s i t ed . This is followed i n Chapter 2 by a discussion of marketing information out l ining sources of p r i c e and o ther marketing data and t h e i r s u i t a b i l i t y f o r empirical analyses and a s input t o decision making by various industry personnel. Final ly , Chapter 3 i s an account of an empirical study invest igat ing the effect iveness with which p r i ce information is transmitted.

Chapter 1

WHOLESALE MARKETING OF FRESH FRUIT AND VEGETABLES

I . I THE STRUCTURE OF THE NATIONAL WXOLESALE MARKETING SYSTEM

In t he e a r l y s tages of t h i s study v i s i t s were made t o t he Adelaide, Melbourne, Sydney and Brisbane wholesale f r u i t and vegetable markets. Reference i s made i n t h i s Report . to the Perth Metropolitan Market f o r completeness on ly . ( l ) I t was decided t o exclude t h e Perth, Darwin and Hobart markets because, i n t he main, produce from Tasmania, Western Austral ia and t h e Northern Ter r i to ry is generally not traded i n t he markets i n t h e Eastern S t a t e s due t o problems of cos t s of long-distance f r e igh t and p e r i s h a b i l i t y of produce. Similarly, it has been reported t h a t produce from the Eastern S t a t e s i s not normally imported i n t o Western Austral ia except f o r Queensland bananas and pineapples, South Australian oranges and some vegetables, mainly onions and potatoes, which a re occasionally i n sho r t supply (121, p. 88).

The wholesaling of f r e sh f r u i t and vegetables i n Austral ia i s transacted mainly i n cen t ra l markets located i n each cap i t a l c i t y and a number of regional markets d i s t r i b u t e d throughout each State . Regional wholesale markets a r e supplied i n t he main withproduce from loca l growers and by produce subjec t t o secondary wholesaling. (2) A large proportion of t he t o t a l production of any p a r t i c u l a r commodity may be so ld by d i r ec t negotiation between t h e grower and r e t a i l e r o r pre-packer although pr ices are usually based on those preva i l ing i n t h e wholesale markets. A small proportion may a l so be sold by growers d i r e c t l y from farm o r road s t a l l s . Diagram I i s a representat ion of t h e marketing chain f o r f resh fruits and vegetables i n Australia.

Most fruit enter ing p a r t i c u l a r wholesale markets i s grown i n t h e same State , but, because of t h e locat ion and concentration of growing areas f o r p a r t i c u l a r commodities, such as Riverland (South Austral ia) and MIA (N.S.W.) f o r c i t r u s and the Stanthorpe area (Queensland) f o r apples, heavy supplies w i l l from time t o time or ig ina te from o the r States . For example, t rop ica l fruits such a s pineapples and bananas c.ome from Queensland and Northern New South Wales.

The bulk of f resh vegetables so ld i n t h e Melbourne and Adelaide wholesale markets is produced loca l ly , t h a t i s within 80-100 km of t he market although t h i s dis tance i s increasing with increased urban expansion and improved t ranspor t f a c i l i t i e s . However, i n a study of f resh f r u i t and vegetable marketing i n Sydney it is reported t h a t t h e bulk of both f r u i t and vegetables moving i n t o t he Sydney f resh wholesale markets is produced 300 km o r more from Sydney [3].

(1) Comprehensive d e t a i l s o f t he operation and s t ruc tu re of t he Perth Metropolitan Markets and of f resh f r u i t and vegetable marketing i n Western Austral ia may be found i n 111.

(2) Secondary wholesaling r e f e r s t o buying o r s e l l i n g farm produce from a pr inc ipa l who i s a wholesaler.

Diagram I

D I S T R I B U T I O N OF COMMERCIALLY GROWN F R U I T AND VEGETABLES

I N AUSTRALIA

Production I1 Packing I11 Marketing and Distribution

Grower

Export Trade

Own Packing Shed

Cen.tra1 (Co-op) Packing House

4 1 I

Bulk Shipments

Sheds

IV retail in^ and Consumption

LFarm Sales P.

Road Stalls, etc

I

h e ease of movement o f f r u i t and vegetables t o i n t e r s t a t e wholesale markets is grea t ly influenced by such matters as provision f o r orderly marketing arrangements i n t h e S t a t e i n which the produce was grown, r e s t r i c t i o n s from quarantine and s t a tu to ry constra ints on the movement of produce, t h e costs o f t ranspor t ing and handling r e l a t i v e t o pr ices received i n i n t e r s t a t e markets and t h e . s t r u c t u r a l features of individual markets, such as provisions f o r the receival and s a l e of i n t e r s t a t e produce.

2.2 CENTRAL WHOLESALE MiWTS(3 )

The cen t r a l wholesale markets a r e an in t eg ra l pa r t o f t he nat ional wholesale marketing system f o r f resh f r u i t and vegetables. These markets can be considered, along with o ther fac tors such as qua l i ty and quarantine standards, t o show t h e manner i n which t rade i s conducted and product movements occur i n response t o avai lable marketing information.

1.2.1 Description

Within the general t rad ing area(4) provision is usually made for t h e following types of markets:

( i ) an agents' market (including a banana agents' market)

( i i ) a grower-sellers' market

( i i i ) a heavy produce market. (5)

Among t h e wholesalers, who a re a l so cal led commercial s e l l e r s . operating i n t h e agents' market are:

( i ) Primary wholesalers - who a r e wholesalers who buy farm produce from a grower o r who receive f o r s a l e o r s e l l farm produce on commission f o r o r on behalf o f a p r inc ipa l who i s a producer.

' Thus primary wholesalers may be e i t h e r

. Merchants - who a r e primary wholesalers t rading other than by receiving for s a l e o r s e l l i n g farm produce on commission and/or

. Commission agents - who a re primary wholesalers who t rade by receiving f o r s a l e o r s e l l i n g farm produce on commission.

(3) Information provided i n Section 1.2 is designed t o give an overview of t h e cen t r a l wholesale market system. For de ta i led information on t h e operation and s t ruc tu re of individual markets, r e f e r t o one of t h e appropriate publ icat ions l i s t e d i n t h e references.

(4) The 'general t rad ing area ' i n wholesale markets is usually characterised by the presence of commercial s e l l e r s of f r u i t and vegetables as opposed t o pre-packers, t r ade and bulk suppl iers of produce.

(5) Heavy produce includes potatoes , pumpkins and onions.

(ii) Secondary wholesalers - who buy farm produce from another wholesaler or receive f o r s a l e o r s e l l farm produce on commission f o r o r on behalf of a primary wholesaler.

The survey showed t h a t i n Sydney and Melbourne combined, over 50% of wholesalers operating both as commission agents and merchants, derived more than half t h e i r s a l e s turnover as merchants. However, there i s a la rge difference i n the t o t a l number of wholesalers operating i n t h e various c e n t r a l wholesale f r u i t and vegetable markets around Austral ia as t h e following t ab le shows:

Table 1

APPROXIMATE NUMBER(a) OF WHOLESALERS LICENSED TO TRADE IN CENTRAL FRESH FRUIT AND VEGETABLE WHOLESALE MARKETS I N AUSTRALIA

1975

Melbourne 500 (+ growers)

Sydney 350 (+ growers)

Brisbane 40 (No separa te growers' markets)

Adelaide 50 (+ growers)

Perth 11 (+ growers)

(a) Although there has been a gradual reduction i n the number of wholesalers operating i n cen t ra l markets the number of wholesalers a t any point i n time can be expected t o vary from t h a t shown i n t h e tab le . The industry has a high turnover of wholesaler tenants caused by l iquida t ion o f businesses, amalgamations and retirements.

Source: Victorian Fru i t and Vegetable Wholesalers' Association, An Opinion of the MeZbourme Wholesale F r u i t cmd Vegetable Market, i t s ProbZems, Their Causes mul Recornended SoZutions, October 1976.

Primary wholesalers occupy permanent s i t e s f o r which a r en ta l is payable t o t h e market authori ty . Permanent s i t e s may be developed such as through the i n s t a l l a t i o n of cool room f a c i l i t i e s and the provision of o f f i ce space. The r e s u l t s of the survey ind ica te t h a t i n Sydney and Melbourne combined the majority o f wholesalers i n the general t rading area occupy only one s i t e . Where another s i t e i s rented, it is used fo r s e l l i n g f r u i t and vegetables, o ther than heavy produce, i n 70% of cases. It w a s a l so found t h a t , fo r these two markets combined, around 25% of wholesalers have t h e i r own cool room f a c i l i t i e s but marked differences were noted between the two markets.

On t h e other hand, grower-sellers may take out a permanent lease on a temporary s i t e o r make arrangements f o r a casual lease, i n which case the s i t e used may vary. However, temporary s i t e s must be vacated daily.

1.2.2 Market Administration

There a r e marked differences between au thor i t i es responsible for the administration and control of wholesale markets i n Austral ia and i n t he degree of autonomy held by these au thor i t i es i n exercising control. The type o f au tho r i t i e s include pr iva te companies, departments within local government bodies and autonomous t r u s t s . In general, f a c i l i t i e s and market services provided by trusts w i l l be more extensive than those provided by p r iva t e companies, although the l a t t e r a s s i s t with some of these f a c i l i t i e s and serv ices , such as by ca l l i ng f o r tenders and leasing land and buildings f o r carrying out t r a d i t i o n a l market a c t i v i t i e s .

S ta tu tory au tho r i t i e s ( Trus ts ) i n Perth, Brisbane and Sydney provide a range of se rv ices which include:

. f a c i l i t i e s f o r t he s torage, s a l e and packaging of f r u i t and vegetables

. publ ic u t i l i t i e s such as e l e c t r i c i t y , sewerage, i n t e rna l road systems, c a r park f a c i l i t i e s and attendants f o r pol ic ing of i n t e rna l ru l e s and regulat ions

market refuse disposal o r t he l e t t i n g of contracts f o r refuse disposal

. arrangements f o r casual labour

. t he provision of o ther market f a c i l i t i e s such as p a l l e t h i r e , fork l i f t trucks, cool moms and warehouses.

As well as t he above functions t he Trusts may make appropriate recommendations t o parliament (through the Minister) concerning any matter r e l a t ed t o t he wholesale markets. Recommendations may be made about hours of t rading, l icensing of wholesalers, co l lec t ion and recording of t he movements of produce, inspection of wholesalers' books, wholesalers' guarantee.funds and any matter l i k e l y t o a f f e c t t h e manner i n which t rade is conducted and organised within t h e markets and f o r t he continued e f f ic iency with which farm produce passes through t h e markets.

In Melbourne, t h e Melbourne Ci ty Council i s responsible f o r the provision, operation and control of the wholesale f r u i t and vegetable markets, but l eg i s l a t i on proposing the formation of a Trust has been passed by t h e Parliament.(6) I n Adelaide, the cen t ra l markets are operated by two p r iva t e companies, t h e Adelaide Fru i t and Produce Exchange Company Limited and the East End Market Company. These two companies are owners of r e a l e s t a t e and l ea se s t a l l s t o l icensed wholesalers. The Melbourne City Council and the Adelaide market companies provide a small s t a f f of se rv ice personnel, maintain publ ic u t i l i t i e s (water, sewerage, e l e c t r i c i t y , refuse disposal, e tc . ) and a s s i s t by providing accommodation for other f a c i l i t i e s normally found i n a market, such as p a l l e t and barrow h i r e and warehouses.

(6) This l e g i s l a t i o n a r i s e s i n p a r t from recommendations made by the Report of t he S t a t e Development Committee on The Administration and Operat-ion o f the Melbourme WhoZesale Fruit and -Vegetable Market, Victor ia 1973.

1.2.3 Impediments to the Free Movement of Produce and the CoZZection of Market Prices

The physical s i z e of markets and t h e a l loca t ion of f loo r space between d i f f e r e n t c lasses of commercial s e l l e r s influence pa t te rns of t r a d e i n t h e markets. The s p a t i a l separat ion of s e l l e r s i n d i f fe rent buildings, separat ion by car parks, loading bays and s torage s i t e s , etc. impedes t h e assemblage of quantity and p r i c e information by s e l l e r s , buyers and market news of f icers .

Buyers tend t o meet these circumstances by establ ished buying p a t t e r n s and dealing with a l imited number of commercial s e l l e r s . Pr ice and quant i ty recording by market news o f f i c e r s , on t h e o ther hand, takes p lace during the period of ac t ive t rading. However, some s a l e s may be

. negotiated outs ide t h i s period so t h a t a l l p r i c e movements, q u a l i t i e s and q u a n t i t i e s traded may not be r e f l ec t ed i n published data.(7)

Variations between market regulat ions covering ent ry and e x i t of produce from the markets may a f fec t t h e p r o f i t a b i l i t y of an agent 's business while also a f fec t ing some growers' consignments. Regulations r e s t r i c t i n g the de l ivery of produce from spec i f i ed growing areas place some growers at a disadvantage f o r access t o p a r t i c u l a r markets. Also, as operat ions i n f r u i t and vegetable markets a re generally labour intensive, wholesalers may be required t o pay wages and s a l a r i e s f o r casual labour a t overtime and penal ty r a t e s , p a r t i c u l a r l y when de l iver ies a re r e s t r i c t e d t o s p e c i f i c hours.

(7) Market p r i c e recorders typ ica l ly take a number of quotes, usually about twenty f o r each commodity, i n order t o obtain a range of pr ices before averaging t o give a market p r i ce .

Chapter 2

AN EXAMINATION OF THE AVAILABILITY AND TRANSMISSION OF PRICE INFORMATION'

This chapter describes the main features of the commodity reporfing services and assesses the price information collected.

2.1 DEFINITION AND AVAILABILITY OF MARKETIIYG INFORMATION

'Market information includes or may be defined as any information about prices, supply, demand and stocks, as well as about government policy and other background factors affecting the markets on which the operator (end-user of the information) bases his actions1 [4].

This definition includes data which, in total, are used to reduce the degree of risk and uncertainty associated with decision making about markets and marketing activities. Accurate and timely marketing information is the core of the efficient performance of any marketing system. The importance of information in facilitating effective trade in the market, in reducing costs in the marketing system and the consequences of decisions made on incomplete information, has been investigated by Vincent ([s], pp. 80-81).

'Producers, traders and consumers all require accurate information on demand, supply and price if the marketing mechanism is to work effectively. Improved market information reduces risks in marketing and thereby reduces costs and ensures the most efficient operation of the market'.

The way in which information performs these functions is difficult to quantify. It can be readily understood how exchange could fail to take place with a complete lack of knowledge. However, while the market cannot work without some information the assumption of 'the more, the better' may not hold true. The satisfactory functioning of a market requires a level of information together with appropriate characteristics such as accuracy, timeliness, type,. cost relative to benefit and intelligibility.

\ If marketing information is to be useful for decision making on

future actions it should also be adequate in coverage and reliable. In particular, marketing information does not relieve individuals from the responsibility of judgments on their own behalf. Thus information relates to particular uses and requires appropriate presentation, dissemination and collection procedures.

Existing information services available to the Australian fruit and vegetable industries are largely centred on Government sponsored authorities such as respective State agriculture departments, State marketing boards, the Commonwealth Department of Primary Industry and rural industry organisations. These organisations provide information about prices, quantities, market assessments, predictions, commodity surveys, outlook reports, trade and policy developments and many other

r e l a t e d f i e l d s of information. (8) The pr inc ipa l media used f o r disseminating cur rent ly avai lable information a r e published reports, radio broadcasts and newspapers.

Rel iable s t a t i s t i c s of t h e volumes of commodities marketed through wholesale f r e sh o u t l e t s and t h e d i s t r ibu t ion by o u t l e t s a re generally ava i lab le from marketing boards o r committees control l ing the handling and movement of suppl ies of f r u i t and vegetables. Examples are t h e C i t rus Organisation Committee of South Australia, the South Australian Potato Board and the Western Australian Potato Marketing Board, which a r e each responsible f o r t h e orderly marketing o f t h e i r products i n t h e i r respec t ive States . A s the vas t majority of Aust ra l ia ' s f resh f r u i t and vegetable produce is not d i s t r ibu ted through Boards o r under marketing arrangements t h e r e remain few r e l i a b l e s t a t i s t i c s measuring the volume of produce enter ing a l t e rna t ive markets.

The process of recording throughput of the f r u i t and vegetable wholesale markets i n Aust ra l ia i s mostly a recent phenomenon. The Sydney Farm Produce Market Authority and t h e Melbourne City Council i n s t iga ted systems i n mid-1976 t o record throughput i n t h e markets. The Brisbane Market Trust has been recording throughput s ince 1964 and the Perth Metropolitan Market Trust has been recording the volume of produce sold only by agents s ince around 1958. To date, no da ta a re avai lable of the throughput o f f r u i t and vegetables f o r the Adelaide markets.

In general, l i t t l e research has been conducted i n t o aspects of temporal and s p a t i a l supply re la t ionships of f r u i t and vegetables enter ing t h e wholesale marketing system i n Australia. As a r e su l t there e x i s t s l i t t l e empirical knowledge concerning movements of f resh f r u i t and vegetables en ter ing wholesale markets, o r ig ins of supply, methods of t ransport , . p r i c e information and the o ther i s sues which af fec t growers' consignment decisions.

Some recent work has been ca r r i ed out on t h e timin and location o f po ta to production i n Aust ra l ia by Hackett and Rattigan 61 i n which t y p i c a l monthly production cycles i n Austral ia 's pr incipal potato growing d i s t r i c t s were estimated. These authors a l so invest igated the extent of on-farm s torage and disposals of potato production i n Australia [7]. This has been, perhaps, t h e f i r s t attempt t o co-ordinate de ta i led s t a t i s t i c s t o est imate nat ional flows of a f ru i t o r vegetable i n Australia. Other s t u d i e s have, however, invest igated a r t i c u l a r a s ec t s of flows onto a s i n g l e market ( for example see [8], f9], [ lo] , , 1123, 1271 and 1281).

The lack of de ta i led quant i ty s t a t i s t i c s f o r f r u i t and vegetables en ter ing wholesale markets i n Austral ia leads t o conjecture about t h e importance of these markets as indica tors of the industry's s i tua t ion . Hackett and Rattigan claim t h a t only 20% o f the t o t a l value of apparent r e t a i l s a l e s of potatoes i n N.S.W. passes through the Sydney primary wholesale markets. In Adelaide it i s reported El31 t h a t between

(8) More complete d e t a i l s of the organisat ions involved i n the col lect ion and dissemination of marketing information and sources i n Austral ia may be found i n ~ e f i d e n c i e s i n Market InforrnuCion, Report, 4 , Chapter 4 and Annex A.

40% and 60% of wholesale produce sold i n the Adelaide metropolitan area by-passes(9) the central markets, although a more recent estimate places t h i s figure a t 38% [14]. In Melbourne no firm estimates of the incidence

- of by-passing the markets a re avai lable but the incidence and issues surrounding by-passing provided a 'good deal of evidence, some of it

' ill-informed1- concerning the s i tua t ion , and 'no other matter was So exhaustively covered i n evidence submitted1 t o a S ta te Development Cormnittee Investigation ([IS] p. 41).

The p r i ce and commodity reporting services provided by the various S ta te agricul ture departments and grower and wholesaler organisations provide information i n each of the central wholesale markets. They form the primary source of pr ice information about the central f resh f r u i t and vegetable wholesale markets which i s transmitted t o growers, wholesalers, r e t a i l e r s and other in te res ted persons and organisations.

2.2 MARmT REPORTING SERVICES I N THE FRUIT AND VEGETABLE WHOLESALE MILRKETS

Responsibility fo r the establishment and control of information services i n wholesale f r u i t and vegetable markets i n Australia has h i s to r i ca l ly been vested i n publ ic in s t i tu t ions as p a r t of the wider recognised respons ib i l i ty of government t o provide f a c i l i t i e s i n the community f o r the wholesaling of f r u i t and vegetables. In recent years the trend towards the establishment of Trusts t o administer and control wholesaling operations has brought about an awareness of the ro le of public in s t i tu t ions i n the provision of marketing information services , par t icu lar ly i n view of the high costs of providing these services. The role and relat ionship of a l te rna t ive pr ice recording services, such as occurs i n Queensland and South Australia, may also show the need f o r a reassessment of the bases fo r providing these services by Sta te governments, pa r t i cu la r ly i n re la t ion t o the degree of emphasis expected t o be placed on the relevancy and adequacy of ex is t ing services.

The South Australian Frui t Growers1 and Market Gardenersq Association has provided a f r u i t and vegetable wholesale market pr ice and commodity reporting service s ince about 1930 and the Chamber of Fru i t and Vegetable Industr ies has been recording and reporting market pr ices fo r more than f i f t e e n years. The Perth Metropolitan Market Trust compiles a market report of pr ices which a re col lected from agents who complete a F r u i t and Vegetable Schedule indicat ing l ines of produce so ld and the range of pr ices , namely most sa les , specials and others.

The market news o f f i ce r s i n the S ta te agricul ture departments i n New South Wales, Victoria and Queensland have provided a continuous service of recording marketing information f o r f r u i t and vegetables fo r a number of years. In Sydney, of f icers of the Division of Marketing and

- Economics have provided a continuous record of wholesale and r e t a i l p r ices fo r f r u i t and vegetables since the l a t e 1920s. In Melbourne, o f f i ce r s of the Market N e w s Service have been recording pr ice and other marketing information.since the markets commenced operations a t Footscray i n 1969 and p r i o r t o t h i s a t the Queen Victoria markets s ince 1965. In

(9) By-passing the market r e f e r s t o t ransact ions concerned with the wholesaling of f r u i t and vegetables through channels other than those provided fo r t h i s purpose i n wholesale markets.

Queensland, off icers of the Marketing Services Branch have been recording market pr ice information a t the Sherwood Road markets since trading commenced there i n 1964, and pr ior t o t h i s a t the old Roma and Turbot S t r ee t markets since the l a t e 1940s.

In each of these markets price information i s collected fo r a wide range of produce and a quali tat ive assessment i s made of levels of supply and demand and of carryover stocks. Reports are prepared each day the markets are open and these are made available for collection a t the markets and fo r postal distribution. The information i s also distributed via radio broadcasts through the ABC and selected regional commercial networks, newspapers and agricultural journals.

In addition t o the market price reporting services offered by the Queensland Departmnt of Primary Industries, the Queensland Chamber of Fruit and Vegetable Industries, which i s an Association of merchants and commission agents i n the Brisbane markets, has extended i t s in teres ts into a wide range of commercial and marketing areas. In part icular , the Chamber commenced a market price reporting service i n mid-1976. The price recording a c t i v i t i e s and market reports prepared are similar t o the State Department's reports but have the essential difference that the Chamber in terpre ts its own reports and advises operators on the basis of these reports.

Published market prices are usually quoted i n ranges, although a t tent ion is given t o re la t ing these t o qual i t ies , descriptions and sizes of produce with interpretat ion being l e f t t o individual users. The general principles underlying o f f i c i a l dai ly quotations include:

. only fair average quality produce is quoted

. only produce sold is quoted

. prices quoted are most s u b s a t which most produce i s actually so ld .

However, it is possible that buyers using published information as an input t o decision making are using a sa le price different from that received by growers whose produce may be sold a t a discount (or perhaps premium) from published prices.

2.3 ASSESSMENT OF PHICE INFORMATION FLOWS BETWEEN MFXETS

The essence of e f f ic ien t market operation i s that prices facing producers and consumers should re f lec t the long-run marginal cost of producers. Prices are used t o al locate available supplies, guide production &d investment decisions for producers and determine consimption levels for consumers. Therefore a marketing system cannot function e f f i c i en t ly without adequate and suitable price information.

The operation of an e f f ic ien t market requires that prices r e f l ec t all available information and that the information i s free, instantaneously available and tha t agreement exis ts on what the information means. Where markets are not informationally eff icient , considerable and cost ly external information w i l l be needed such as about producers, consumers, competitors, lags i n production and certain .technical imperfections i n the supply of information. Harris e t a l ,

report s tud ie s t h a t doubt whether market par t ic ipants use a l l avai lable information, pa r t i cu l a r ly i n commodity markets (1161, p. 14). Markets are a lso l i k e l y t o be l e s s than f u l l y e f f i c i e n t because information i s undersupplied and used inadequately o r because of ce r t a in non-competitive market behaviour such as through group action i n t he market place.

Flows df p r i ce information and produce within a marketing system w i l l be e f f i d e n t when, a f t e r a sho r t adjustment period, movements i n pr ices occur simultaneously i n each market. However, t h i s is not t o say t h a t pr ices i n each market w i l l necessar i ly be a t t he same leve l a f t e r t he adjustment; fac tors such as t ranspor t and storage, marketing s t r a t eg i e s and costs and qua l i ty dif ferences i n produce w i l l generally r e su l t i n p ~ i c e d i f f e r e n t i a l s between markets f o r a pa r t i cu l a r commodity.

In t he absence of e f f i c i e n t flows of p r i ce information and produce between markets several s i t u a t i o n s could a r i se . If changes i n the market conditions (e.g. a change i n supply) always occur i n one pa r t i cu l a r market f i r s t then it is l i ke ly t h a t p r i ce changes i n t h i s market w i l l lead p r i ce changes i n other markets over a p a r t i c u l a r time period. Alternatively, i f changes i n market conditions occur with equal probabi l i ty i n any market then t h e r e w i l l not be consis tent re la t ionships between p r i ce movements i n these markets (during the adjustment period), although p r i ce changes w i l l occur simultaneously a f t e r t h i s i n i t i a l adjustment.

Another p o s s i b i l i t y is tha t the cen t ra l markets may be e f fec t ive ly independent of each o the r due t o such fac tors as geographical i so la t ion , t h e e x i s t e n c e of ce r t a in order ly marketing arrangements and the or ientat ion of supplies f o r a p a r t i c u l a r market. In these circumstances, it i s l i ke ly t h a t p r ice movements i n t he d i f f e r en t markets w i l l be independent of each other.

Discussions held with wholesalers i n Brisbane, Sydney, Melbourne and Adelaide markets indicated t h a t di rect-contact between wholesalers is more important than published information a s a source of information about pr ices . It was a l so found on t h e bas i s of t h e survey r e s u l t s , t h a t i n Sydney and Melbourne combined, around 44% of wholesalers read market reports with i n t e r e s t . Comments by wholesalers about t h e adequacy and s u i t a b i l i t y of d e t a i l s contained i n reports were concerned with the accuracy of quotes, although o ther comments included:

. t he range of produce quoted was not large enough

. there were not enough d e t a i l s provided, such as s izes , qua l i t i e s and or igins of individual commodities

. pr ices quoted were .not r e l a t e d closely enough t o pa r t i cu l a r commodities

. reports indicated only sa les , while not enough d e t a i l s were provided about stocks and unsold produce.

Apart from the general a v a i l a b i l i t y of marketing information, a high level of communication between growers and wholesalers, and among wholesalers themselves, i s required f o r t he e f f i c i e n t operation of a market. Wholesalers normally an t i c ipa t e t h e a r r i v a l of produce, a f t e r advice from growers of prospective consignments. However, it was found

that i n Sydney and Melbourne combined only 60% of wholesalers are notif ied i n advance of the a r r iva l of produce. While a number of growers regularly consign produce t o the same wholesaler i rrespective of price movements, many wholesalers, including some of those normally i n contact with growers, are s t i l l largely uncertain of growers' consignment decisions. A large number of consignments are s p l i t e i t he r between markets o r between di f ferent wholesalers in the same markets.

The qual i ta t ive material contained in wholesale f r u i t and vegetable market price reports, and the fact that prices tend t o be quoted i n ranges, emphasises the need for reported prices t o be related t o par t i cu la r qua l i t i es , s i zes and var ie t ies of produce which are also quoted. The long-term success of these reports depends largely upon the accuracy of quoted information and t h i s depends largely on methods of collection. Consistency over time in the ac t i v i t i e s associated with the preparation of pr ice information i s also necessary so tha t trends i n market behaviour are correct ly reflected. To enable valid comparisons t o be made between markets some attention should be given t o standardising methods of collecting, writing LIP and quoting pr ice information.

One of the most important aspects determining the relevance of p r ice information for growers is the element of 'timeliness'. Because many decisions which have t o be made by growers are essential ly short-run decisions, such as about liarvesting and consignments, price information needs t o be current and not h is tor ical . For t h i s reason a great deal of published price information i s only relevant fo r growers' longer-term decisions, such as plantings and investment, fo r which price trends may be more appropriate.

Despite limitations i n scope and de t a i l the price data published by the various market reporting services appear t o ref lec t adequately the levels and movements of prices for most commodities sold i n the markets. The prices may not, of course, re f lec t any one individual's transaction pr ice although movements i n these prices over time may be expected t o follow the general level of market prices.

Chapter 3

AN EXPLORATORY ANALYSIS OF THE EFFECTIVENESS OF PRICING INFORMATION I N THE FRUIT AND VEGETABLE INDUSTRIES I N

EASTERN AUSTRALIA

Prices col lected by market news o f f i c e r s a r e used t o make some inferences about t he effect iveness of transmission of a l l marketing information. The analysis undertaken examines how e f f ec t ive ly information i s being t ransmit ted within and between markets by analysing the pr ice movements f o r se lec ted commodities so ld i n each of t h e Brisbane, Sydney and Melbourne cen t ra l wholesale markets.

In wholesale f r u i t and vegetable markets, a s e r i e s of negotiations take place between buyers and s e l l e r s i n order t o a r r ive a t a f i n a l t ransac t ion pr ice . This p r i c e may deviate from t h e l o n ~ - r u n equilibrium p r i ce under conditions of imperfect knowledge concerning such matters as market supply and demand, future supplies and q u a l i t i e s of produce. Market p r ices 'arranged1 by wholesalers i n t h e markets move quickly towards equilibrium p r i ce s because of t h e reduced degree of r i s k and uncer ta inty of each t ransac t ion brought about by the increased a v a i l a b i l i t y and use of re levant marketing information [17].

Empirical s tud ies by others have shown t h a t changes i n market supplies are responsible f o r most o f t h e var ia t ion i n commodity pr ices i n t h e wholesale fruit and vegetable markets (LIZ], 1181, [19]). Observations of da i ly pr ice s e r i e s together with information received from wholesalers and market news o f f i c e r s suggest t h a t weekly p r i ce leve ls are generally es tab l i shed each Monday, when the bulk of supplies a r r ive i n t he market. Relatively smaller proportions of t o t a l weekly consignments a r e received f o r s a l e on other days of t he week. In recent years, t he plant ing of new and improved v a r i e t i e s of a l l produce, improved cu l tu ra l methods and t h e increasing production of winter fruits i n Queensland t o take advantage of higher out-of-season p r i ce s i n i n t e r s t a t e markets, have tended t o reduce t h e amplitude of seasonal f luc tua t ions i n supplies, and hence, of p r i ce s ([11], p. 104).

In t h e shor t run(lO), q u a n t i t i e s marketed can only be adjusted marginally, such as by delaying harvest o r through the use of cool storage. In an e f f i c i e n t l y operat ing market, p r i ce s vary continuously and automatically i n response t o changes i n supply and demand. Pr ices f o r a l l produce w i l l show both short-run and long-run movements as ex is t ing 'supplies are ra t ioned impersonally among buyers prepared t o pay t h e market c lear ing pr ice .

The hypothesis t o be t e s t e d is presented i n Section 3.1 and the data used i n t he empirical ana lys i s a r e explained i n Section 3.2. The method of analysis used t o t e s t t h e hypothesis is described i n Section 3.3. The spec t r a l and cross spec t r a l r e s u l t s f o r p a r t i c u l a r commodities a r e discussed i n Section 3.4 and t h e r e s u l t s are assessed i n Section 3.5,

( 1 0 ) I n t h i s case t he shor t run r e f e r s t o periods l e s s than t h e production period f o r t h e pa r t i cu l a r commodity. However, when discussing the r e s u l t s of the empirical ana lys i s t h e shor t , medium and long run r e f e r t o periods of 2 - 3 weeks, 4 - 8 weeks and 9 weeks and over respectively.

which includes a discussion of some known characterist ics of the industries. Finally, the conclusions are drawn together i n Section 3.6.

3.1 HYPOTHESIS

As flows of information affect product movements and prices within and between markets it i s possible t o investigate the effectiveness of transmission of marketing information by analysing commodity price movements between markets.

The spec i f ic hypothesis of t h i s study is:

. that there are regular seasonal movements i n f r u i t and vegetable prices and these price movements i n the Sydney, Brisbane and Melbourne markets are i n phase with each other over a l l periods of time.

3.2 DATA

Average weekly price data f o r the period 1 July 1966 t o 3 September 1976 were available from the Queensland Department of Primary Industries and the N.S.W. and Victorian Departments of Agriculture. I t was f e l t t ha t the data se r ies for South Australia were not comparable t o the Brisbane, Sydney and Melbourne markets and consequently the Adelaide wholesale market was not included in the examination.

In choosing the commodities t o be included in the analysis, consideration was given t o the extent t o which each commodity was on sa le throughout the year i n each of the three centres. Consideration w a s also given t o the importance, or popularity, of the commodity i n terms of frequency of use i n the household. The commodities chosen are oranges, pineapples, bananas, green peas, green beans, potatoes and tomatoes. (Some de t a i l s of frequency of use of these commodities are shown in Appendix B). Other than for oranges, the price ser ies for a l l commodities were continuous, except for an occasional missing observation which was estimated by interpolation. None of the se r ies contained regularly missing observations.

For oranges, a continuous pr ice se r ies w a s constructed by 'graft ing' se r ies fo r different var ie t ies . This approach was considered acceptable based on the judgment tha t consumers view different var ie t ies of oranges as much the same commodity. I f t h i s were not so, and consumers discriminated between var ie t ies t o the extent that prices were s ignif icant ly di f ferent , the analysis would reveal a strong annual effect i n the data series.

3.3 mTH0D OF ANALYSIS

Prices were chosen as the medium for examining the inter-relat ionships between markets, f o r the reasons outlined a t the beginning of the chapter. Given the hypothesis t o be tested and the form of the data t o be analysed, spectral techniques were considered t o be the most appropriate analytical method. The application of these techniques w i l l provide information enabling the hypothesis to be tested and the evaluation made of information about prices. They are considered t o be par t i cu la r ly appropriate for t h i s type of problem as they do not require

t he spec i f ica t ion of a r i g i d model ( i n t h e sense of a formal econometric model) f o r t h e i r application, thus eliminating the r i s k of introducing spec i f ica t ion e r r o r s i n the ' analysis.

3.3.1 Cross Spectral Analysis

Cross spec t r a l analysis provides a means of examining the re la t ionsh ip between two s e r i e s , e.g. the re la t ionsh ip between the annual component of two s e r i e s may be examined ([zo], pp. 135-148).

The in t e rp re t a t i on of t he cross spectrum of two s e r i e s is aided by consideration of t h r e e derived s t a t i s t i c s , namely the coherence, phase angle and gain, of which only t h e f i r s t two are required t o t e s t t he hypothesis.

The coherence between two s e r i e s X(t) and Y(t) can be in te rpre ted as the proportion of t h e variance i n ei ther s e r i e s which.can be explained by i t s l i n e a r regression on t h e other s e r i e s ([21], p. 142). (11)

The phase angZe ind ica tes t he timin difference between the per iodic component of t he X(t) and Y(t) s e r i e s ( 221, p. 138).

A useful (and log ica l ) extension of cross spec t r a l analysis i s partial cross spec t r a l analysis. Using t h i s technique the re la t ionsh ip between two s e r i e s may be inves t iga ted a t each frequency where the e f f e c t s o f other var iab les i n t h e system have been removed from these two var iables ([23], p. 74). It w i l l be necessary t o consider p a r t i a l cross spec t ra l s t a t i s t i c s i n t h i s study s ince the ordinary cross spec t r a l s t a t i s t i c s when considered i n i s o l a t i o n may prove t o be misleading. For example, t h e coherence between Brisbane pr ices and Sydney pr ices may be qu i t e high, not because the two var iables a r e highly r e l a t ed themselves over t he re levant frequencies, but because both s e r i e s are s t rongly r e l a t ed to, say, Melbourne pr ices . The t r u e re la t ionsh ip between Brisbane and Sydney pr ices can only become apparent once t h e e f f ec t of Melbourne pr ices i s removed from each of these other p r i c e s e r i e s .

The hypothesis can be t e s t e d by t h e application of cross spec t r a l techniques (both ordinary and p a r t i a l ) t o each p a i r of s e r i e s . When examining a subset of the frequency range, t h e coherence between two p r i ce s e r i e s ind ica tes t he s t rength of linear association (or correla t ion) between these two s e r i e s over t h e relevant frequency band. I f t h e phase diagram i s a s t r a i g h t l i n e within t h i s frequency band, t h i s ind ica tes t h a t there is a consis tent timing relationship between the two s e r i e s over the relevant frequencies ([22], pp. 96-98).

There a r e several spec ia l examples of s t r a igh t l i n e phase diagrams of p a r t i c u l a r i n t e r e s t . If the phase diagram i s a s t r a i g h t l i n e of slope k un i t s passing through the or ig in t h i s indicates t h a t one se r i e s (which i s iden t i f i ab l e ) lags the o ther by k time un i t s over t h e relevant frequencies. If the phase diagram i s a hor izontal l i n e passing through the or ig in (or equivalent ly through 211 radians) , t h i s ind ica tes movements of t he two s e r i e s a r e per fec t ly i n phase over t he relevant frequencies,

(11) The coherence is . analogous i n concept t o R' of regression analysis.

i .e. movements i n the two series occur simultaneously over the part icular frequencies.

Thus, cross spectral techniques can be used t o assess the degree of l inear and timing association between two ser ies , and whether o r not any consistent relationship present is invariant over the en t i re frequency range; the use of these techniques allows the hypothesis t o be tested.

3.4 RESULTS OF EMPIRICAL ANALYSIS

3.4.1 Spectral Analysis of Individual Price Series

A l l of the estimated spectra exhibited the same general shape of downward sloping t o the right. This i s the t i ca l spectrum shape of an economic time se r ies as discussed by Granger 'P 211 and indicates that short-run pr ice movements contribute re la t ively less t o the t o t a l variance of the se r ies than do longer-run price movements.

None of the estimated spectra contained s t a t i s t i c a l l y s ignif icant peaks indicating that none of the price ser ies examined contained r e g u h seasonal behaviour. However, t h i s evidence does not preclude the existence of very irregular seasonal price movements. Granger [21] points out that i f a time ser ies contains a cycle which i s no t s t r i c t l y periodic, t h i s w i l l resul t i n any 'peaksr i n the spectrum merging together t o form a smooth continuous curve.

The spectrum for banana prices i n Melbourne l i e s well above the spectra i n both Sydney and Brisbane, indicating that the t o t a l variance of the Melbourne se r ies is greater than tha t f o r e i ther the Sydney o r Brisbane series. The Melbourne banana price spectrum is also very f l a t across periods of two t o twenty weeks, indicating that price movements tend t o be random over these periods. (12)

The estimated spectra fo r several other price ser ies also provide evidence of random price movements i n the short run; namely peas (for a l l c i t i e s ) over frequencies of periods two t o s i x weeks, beans (for a l l c i t i e s ) over periods two t o f ive weeks and potatoes (for a l l c i t i es ) f o r periods two t o three weeks.

'IRe implication of random movements i n the price ser ies mentioned is tha t i n the short t o medium run prices are random, o r approximately random, while i n the longer run prices exhibit an upward trend. This appears t o be consistent with observed behaviour of the relevant p r ice se r ies and, i n practice, t h i s means that 'todays' price w i l l be of no use t o a buyer or s e l l e r i n attempting t o ascertain rtomorrows' price.

Further de t a i l s of the resul ts obtained from the spectral analysis of individual se r ies are presented i n Appendix C.

(12) A random ser ies w i l l have a f l a t spectrum since no one part icular frequency band predominates.

I 3.4 .2 Results of Cross SpsctraZ AnaZysis of Series

In order t o t e s t the hypothesis both ordinary and p a r t i a l cross spec t r a l s t a t i s t i c s were ca lcu la ted f o r each p a i r of commodity p r i c e s e r i e s among the th ree c i t i e s . I t was found t h a t f o r most p a i r s o f s e r i e s Considered, both s e t s o f cross spec t r a l s t a t i s t i c s had t o be considered f o r t h e nature of t he re la t ionsh ip between s e r i e s t o be f u l l y appreciated. The coherence and phase diagrams a r e s h o h f o r pineapples only as t h i s s e t of p a r t i a l cross spec t r a l r e s u l t s f u l l y i l l u s t r a t e s t h e range of r e s u l t s obtained i n a l l analyses (see Figures I t o 111).

Whenever a consis tent timing rela t ionship between a p a i r of s e r i e s was found, t h i s r e l a t i onsh ip only held for a subset of t h e frequency range. Pa i r s of s e r i e s which a re covered by t h i s general p ic ture a r e Melbourne and Brisbane pineapples, Sydney and Brisbane bananas, oranges f o r a l l th ree c i t i e s , tomatoes f o r Sydney and Brisbane, peas f o r a l l t h r ee c i t i e s , Melbourne and Brisbane beans (only i n t h e sho r t run) and potatoes f o r a l l th ree c i t i e s .

However, while the s e r i e s appeared t o be i n phase, t h e coherences generally ranged from low t o very high. Coherences were moderate t o high between Sydney and Brisbane bananas and Sydney and Brisbane tomatoes; moderate between Melbourne and Brisbane pineapples, Sydney and Brisbane potatoes, and Melbourne and Sydney potatoes; low t o moderate between Melbourne and Sydney oranges, Sydney and Brisbane oranges, Sydney and Brisbane peas, Melbourne and Brisbane peas and Melbourne and Brisbane potatoes; and low between Melbourne and Brisbane oranges and Melbourne and Sydney peas.

There were several exceptions t o t h i s general pic ture . The pr inc ipa l exception being pineapples f o r which i t was estimated t h a t u f t e r periods of about 3 weeks. Sydney p r i ce s lagged Brisbane (and Melbourne) pr ices by about 1.5 t o 2.0 weeks. There was a lso some evidence of consistent.out-of-phase behaviour i n t h e medium term f o r beans, although t h i s re la t ionsh ip was not well defined and the in te rpre ta t ion of t h i s behaviour is only tentat ive. In general, it was found t h a t when a consis tent timing re la t ionsh ip w a s evident between two p r i ce s e r i e s , movements i n these s e r i e s tended t o be i n phase and, therefore, the ' hypothesis may be accepted f o r a l l commodities except pineapples.

Complete d e t a i l s o f t h e cross-spectral r e su l t s fo r individual s e r i e s , including the ' analysis of pea and bean pr ices within t h e same market, a r e presented i n Appendix D.

3.5 ASSESSMENTS

The r e s u l t s from the empirical analyses show t h a t f o r most commodities there appears t o be an e f f ec t ive transmission of marketing information about p r i ce s between t h e d i f f e r en t markets over periods of two weeks and longer. However, t h e cross spec t r a l r e s u l t s suggest t h a t some fac tors which may include i t e m s such as t ranspor t cos t s , qua l i t y dif ferences and perhaps r e s t r i c t i v e marketing prac t ices a f f ec t these flows t o varying degrees f o r d i f f e r en t commodities and c i t i e s . In some cases imperfections t o the uninhibited market operation may be qu i t e s ign i f i can t , e.g. f o r oranges i n Melbourne and Brisbane. These comments a r e consis tent with t he observation t h a t i n a given wholesale market p r i ce s tend t o be in f l ex ib l e i n t h e very shor t nm responding over time mainly t o changes i n supplies.

FIGURE1 (a) SYDNEY AND BRISBANE PINEAPPLES

COHERENCE DIAGRAM

FIGURE Il (a) MELBOURNE AND SYDNEY PINEAPPLES

COHERENCE DIAGRAM

FIGURE I (b) SYDNEY AND BRISBANE PINEAPPLES

PHASE DIAGRAM

FIGURE Il (b) MELBOURNE AND SYDNEY PINEAPPLES

PHASE DIAGRAM

- 2 .- - e - s ;

FIGURE Ill la) MELBOURNE ANDBRISBANE PINEAPPLES

COHERENCE DIAGRAM

- i" i Phaw . . . . . . . . . . . . . . '- . . . . . : . .. : : . . . . . ..

5 1 2 6 1 1 I 4 3 1 Wwb

?! - = m.

.. ..:

Panial Phaxl

/

0 I I / 1

S l Ib 1 1 I Week. I

FIGURE Ill(b) MELBOURNE AND BRISBANE PINEAPPLES

PHASE DIAGRAM

Evidence t o support t h e hypothesis o f e f f ec t ive flows of pr ice information and supplies i s provided by the r e s u l t s o f t h e spec t r a l analysis of individual se r ies . There was no evidence of reguZar pr ice movements f o r any of the commodities i n t h e markets considered, despi te t he f a c t t h a t i n a given geographical area, production of t h e commodities invest igated tends t o be seasonal. This r e s u l t most l i k e l y r e f l e c t s the atomistic nature of production of most ag r i cu l tu ra l commodities i n Australia, t h e wide range of c l imat ic regions ex is t ing i n t h e eastern zones of Austral ia and a marketing system which d i s t r i b u t e s produce r e l a t i ve ly f r ee ly from marketing controls (e.g. fo r potatoes see [261, p.

-17) . I t may a l so be due t o t h e e f f ec t ive d i s t r i bu t ion of supplies

throughout t h e year from a l l production areas i n response t o ant ic ipated pr ice d i f f e r en t i a l s . Nonetheless, it i s s t i l l possible t ha t some short-term pr ic ing r i g i d i t i e s may e x i s t due t o p r i c ing prac t ices within t he industry. A very strong l i n e a r and timing re la t ionsh ip was found between Sydney and Brisbane banana pr ices , while there was no r e l a t i on between Melbourne pr ices and e i t h e r of these o the r two se r i e s . S t a b i l i t y of p r i ce s i n one market, espec ia l ly when pr ice s t a b i l i s i n g measures are operating, has been associated with a high v a r i a b i l i t y i n other markets.(13) For example, the estimated spectrum f o r Melbourne banana pr ices suggested t h a t , over periods up t o about 26 weeks, these pr ices a r e random and have a very large variance.

The r e s u l t s f o r pineapples a r e not as read i ly explained i n terms of orderly marketing arrangements. Although about 75% t o 80% of pineapple production moves i n t o processing o u t l e t s , growers consigning pineapples t o f resh o u t l e t s are r e l a t i ve ly f r e e t o consign t h e i r produce t o whichever market they wish, subject only t o S t a t e qua l i t y and quarantine inspections, espec ia l ly i n Victor ia and South Australia. As movements i n Sydney p r i ce s f o r pineapples lag both Melbourne and Brisbane pr ices by 13 and 10 days respectively, it seems t h a t growers send pineapples t o both Brisbane and Melbourne markets before sending produce t o Sydney which, for some reason, i s seen a s a l e s s pre fe r red market.

The r e s u l t s obtained f o r potatoes, green peas and green beans are a l so consis tent with the r e s u l t s obtained i n t h e survey of wholesalers i n t h e Sydney and Melbourne markets, where it was found t h a t around 36% of wholesalers were involved i n secondary wholesaling of sa lad vegetables and around 19% were involved i n t h e wholesaling of green peas and green beans, but t h a t only around 10% were involved i n t h e secondary wholesaling of heavy produce. Results from both the empirical analysis car r ied out and the survey suggest t h a t the more per ishable produce i s being so ld more quickly before deter iorat ion while o the r produce such as potatoes is able t o be held over during small p r i ce f luctuat ions .

In contras t t o the general pa t t e rn f o r most commodities, t he r e s u l t s of cross-spectral analysis of banana p r i c e s e r i e s f o r Sydney and Brisbane show a very strong re la t ionsh ip i n both a l i n e a r and timing sense. However, no consis tent re la t ionsh ip was found between banana pr ices i n Melbourne and e i t h e r of t he o t h e r two c i t i e s . From t h e r e s u l t s

(13) This observation has been made by Bureau o f f i ce r s f o r a number of commodities so ld i n fresh market ou t l e t s . However, empirical support from t h i s ' s t u d y does not provide explanations f o r t h i s phenomenon.

it seems that bananas supplied t o the Victorian market are a residual of supplies t o the northern markets which are closer t o the production areas i n Queensland and Northern N.S.W. From pr ior information it is expected tha t a strong relationship should exis t between banana price movements i n the Sydney and Brisbane markets as supplies t o these markets are subject t o selected marketing arrangements regulated by the Banana Growers' Federation of N.S.W. and the Banana Sectional Committee of the Queensland Committee of Direction.

The estimated spectrum for Sydney banana prices i s notably different from tha t obtained by Aggrey-Mensah and Tuckwell [ll] in a study examining seasonality i n the demand for bananas. They found that Sydney wholesale banana prices contained a signif icant annual component. The difference i n the two se t s of resul ts i s most l ikely due t o the different data periods used i n each study. The data used by Aggrey-Mensah and Tuckwell are from 1953 t o 1966 while the data used i n t h i s study are from 1969 t o 1976.

I 3.6 CONCLUSIONS

This study has examined pr ice relationships for selected f r u i t and vegetables sold i n different wholesale markets. Information gained from a survey of wholesalers i n Sydney and Melbourne has been used, together with the resu l t s from the empirical analysis, t o make some tenta t ive conclusions and draw some inferences about the effectiveness of marketing information i n general and of product flows through the marketing system. The methods used i n the empirical estimation present the underlying physical properties of the marketing system for f r u i t and vegetables without necessarily creating evidence of technical relat ionships i n the production and marketing areas. In fact , the analysis of markets f o r t he i r use made of price and other information does not necessarily lead t o clear conclusions, as pointed out by Harris, (C161, P. 15).

Similar patterns of behaviour were observed in the different markets fo r the various commodities considered. It was found that the pr ice s e r i e s a l l exhibited the usual behaviour of normal economic variables, but none of the se r ies examined contained m g u b seasonal movements. With the exception of bananas i n Melbourne, the short-run components of t he price se r ies a l l contributed a relat ively insignificant amount t o the t o t a l variance of the series. Further, it is suggested from the r e su l t s that when a consistent timing relationship existed between price movements i n different markets, these movements tended t o occur simultaneously, except i n the case of pineapples where lags i n price adjustments between markets were found.

Although the analysis has been concexned with price data, the resu l t s have general implications for the distribution of supplies throughout the marketing system because of the strong relationship between supplies onto the market and wholesale prices, as evidenced by pr ior information. Therefore, it is suggested from the results , that as supplies are being quickly distr ibuted throughout the wholesale marketing system there i s an effect ive distr ibution of price information throughout the markets and between the markets and growers which further suggests that , a t the wholesale level , there i s a re la t ively high e l a s t i c i t y of supply. Because of the random nature of most short-run price movements

there is l imited opportunity f o r speculat ive a c t i v i t y over periods of up t o about e igh t weeks. However, i n t h e longer run p r i ce s f o r a l l commodities exhibited an upward trend.

From a pol icy viewpoint, there may be l imi ted opportunity f o r advantage from marketing controls t o be implemented f o r t h e commodities considered over and above those t h a t may already be i n operation. However, due t o t h e problem of by-passing the cen t ra l markets, which has been highlighted i n t h e study, it i s not known whether t h e r e s u l t s f o r each commodity a r e generally applicable over t h e whole industry. Further de ta i led information is needed about volumes and pr ices and percentages of t he t o t a l crop which is by-passing the markets before t h e f u l l po ten t ia l of se lec ted marketing arrangements can be assessed.

Finally, aspects which have not been analysed i n t h i s study and which require fu r the r invest igat ion include an analysis o f very short-run pr ice behaviour over periods up t o two weeks. To analyse periods of up t o two weeks by the method used i n t h i s study would require da i ly data. From the r e s u l t s of t h i s study it is suggested t h a t wholesalers play an important ro l e i n re-direct ing suppl ies throughout t he marketing system i n response t o p r i ce d i f f e r e n t i a l s between markets. I t i s not known, for example, whether e f f ec t ive flows of produce throughout t h e marketing system r e s u l t primarily from the co l lec t ive action of wholesalers o r of growers o r whether some contribution is being made by both market par t ic ipants . As a r e su l t , f u tu re work i n t h i s area should be d i rec ted a t obtaining re levant p r i ce and quant i ty data a t d i f f e r en t s tages of t he marketing process. Estimation of p r ice e l a s t i c i t i e s o f supply a t these various s tages would a s s i s t i n understanding and explaining flows of market supplies a t a l l levels as well as a s s i s t i n t he formulation and appl icat ion of fu ture marketing arrangements should they become necessary.

Appendix A

A. SURVEY OF WHOLESALERS I N SYDNEY AND MELBOURNE

I . Background

The use o f marketing information by operators i n markets helps t o reduce r i s k and uncertainty which are normally t ransfer red through the system by price. Market recording and disseminating services i n wholesale markets have been an important source of marketing information f o r a number of years.

I t was decided t o obtain information about cer ta in wholesaling operat ions and of t h e usage of marketing information services by conducting a survey o f wholesalers i n t h e two la rges t markets with quest ionnaires completed during a personal interview.

2 . Aims of the Survey

The survey was designed t o provide information t o supplement mater ia l obtained during a v i s i t t o the Brisbane, Sydney, Melbourne and Adelaide markets. The type of information sought r e l a t ed t o wholesalers (and t h e i r businesses) operating as commission agents and merchants within t h e general t r a d i n g a rea i n the markets i .e . t h e commercial s e l l i n g area as opposed t o warehouses and other bulk handling depot areas.

The type o f information sought about businesses re la ted t o general wholesaling operations r a the r than t o de ta i led a c t i v i t i e s . The information mainly concerned the type of wholesaling i lcence held, methods o f s a l e including t h e type and range of produce handled and some d e t a i l s about the use o f published and unpublished marketing information.

The survey w a s r e s t r i c t e d t o the Sydney and Melbourne wholesale markets because these two markets account f o r around 73% of t h e population of wholesalers i n t h e general t rad ing areas i n Brisbane, Sydney, Melbourne and Adelaide markets. It was considered the re would be l i t t l e gain i n extending t h e survey t o Adelaide and Brisbane.

Discussions with various wholesale market personnel and market a u t h o r i t i e s i n October 1970 indicated t h a t , t o achieve maximum response rate i n a survey of wholesalers, t h e questionnaire should deal with matters of a general na ture r a the r than contain questions seeking de ta i led information, such as f inancia l s t a t i s t i c s and questions about business operat ions which would require wholesalers t o r e f e r t o t h e i r o f f i ce records. In view of these comments the questionnaire was designed t o y i e l d the required information with the highest possible response r a t e . Further , t h e information sought r e l a t e d t o t h e normal business operations over a whole year r a t h e r than t o any p a r t i c u l a r time o r t o any pa r t i cu la r a c t i v i t y .

4 . Setection Procedure

The population of wholesalers was defined as the t o t a l number of commercial s e l l e r s t rad ing as primary wholesalers i .e. e i t h e r commission

agents o r merchants, i n f r u i t and vegetables within t h e general t rading area i n both Sydney and Melbourne markets. L i s t s o f wholesaler tenants were obtained from t h e market au tho r i t i e s responsible f o r leasing s t a l l s i n t he markets. The l ists were adjusted t o eliminate mult iple tenants i.e. tenants carrying out commercial s e l l i n g under t h e same business name but f r o m d i f f e r en t s t a l l s i n t h e general t rad ing area.

The sample was chosen by systematic s e l ec t ion th rough t h e lists. As comission agents and merchants a r e located' i n d i f f e r en t areas i n t he two markets, systematic s e l e c t i o n e n s u r e d t h a t both groups were well represented. Final l i s t i n g s gave a population of 278 wholesalers divided 122 i n Melbourne and 156 i n Sydney.

The t o t a l sample s i z e was r e s t r i c t e d t o enable two o f f i c e r s t o complete personal interviews o f wholesalers i n two days i n each market. Final sample s i z e was 53 wholesalers, which by t h e nature of t h e se lec t ion procedure, gave 30 wholesalers i n Sydney and 23 i n Melbourne.

5. Response Rate

Personal interviews were performed i n Sydney on 27 and 28 April 1977 and i n Melbourne on 3 and 4 May 1977. Questionnaire response r a t e is as follows:

Melbourne Sydney Both Markets

Sample s i z e 2 3 30 5 3

No. of respondents 20 30 50

Percentage response r a t e 87% 100% 94%

The three non-respondents arose because one wholesaler had closed the business, one was not i n t e r e s t ed i n co-operating under any circumstances and one had f in i shed t rading each day before t he interviewers had c a l l e d ( a t about 8.30 a.m.) although the business appeared t o be operating i n t h e r eg i s t e r ed name shown on t h e tenant list.

B. SURVEY RESULTS

The r e s u l t s o f t h e survey were used t o estimate cer ta in cha rac t e r i s t i c s r e l a t i n g t o types o f business operations among the population of commercial s e l l e r s i n t he Sydney and Melbourne wholesale markets. The es t imates derived r e l a t e t o t h e operations of wholesaling businesses i n these markets over a f u l l twelve-month period and not t o any pa r t i cu l a r period.

The survey estimates a r e l i k e l y t o d i f f e r from estimates t h a t would have been obtained i f information had been co l lec ted from a l l wholesalers. This dif ference i s ca l led sampling e r r o r and a measure of t he l i ke ly difference i s given by t h e standard e r r o r of t he estimates.

There are about two chances in three that sample estimates w i l l d i f fe r by less than one standard error from figures that would have been obtained from a comparable collection from a l l wholesalers and about ninetsen chances i n twenty tha t the differences w i l l be l ess than two standard d I T O T S .

For example, the survey showed tha t an estimated 44% of wholesalers operate as both a commission agent and merehait and the standard e r ro r of t h i s estimate is 5.8%. This means that there would be two chances i n three that a comparable complete collection would give a figure in the range 38.2% t o 49.8% and nineteen chances i n twenty that the figure would be i n the range 32.4% t o 55.6%.

In addition t o sampling errors, biases are possible from a number of sources (e. g. questionnaire design, interview technique, estimation process). Such biases are expected t o be negligible because the survey was intentionally kept s m a l l and simple.

I t was found that approximately 44% of the population of wholesalers i n the Sydney and Melbourne markets combined operate t he i r businesses a s both a commission agent and merchant. This compares with 21% who operate as a commission agent only and 35% who operate as a merchant only. These resul ts and others showing the differences between Sydney and Melbourne are shown in Table A-1.

It was a l so found tha t , of those wholesalers who operate as both a commission agent and merchant, around 52% derived more than half of t h e i r sa les turnover as a merchant. Wholesalers who conduct a l l o r part of t h e i r business as a merchant were asked t o indicate the f ive major commodities handled on a merchant basis. Answers given were grouped in to a number of categories(l4) for each of f r u i t and vegetables. These categories were then ranked according t o the percentage frequency of replies. These resu l t s show that around 26% included c i t rus and 22% included apples and/or pears in t he i r answers. For vegetables, around 38% included heavy produce and around 27% included salad vegetables in t he i r answers. These resu l t s a re shown i n Table A-2.

The majority of wholesalers operate only one s t a l l for se l l ing f r u i t and vegetables. I t was found that only 27% of wholesalers have any legal business in te res t i n any other s t a l l s . The resul ts show that 70% of these other s t a l l s were used for se l l ing f r u i t and vegetables other than heavy produce. The remaining 30% of s t a l l s were more o r less evenly divided between those which were used fo r se l l ing heavy produce only and those used fo r s e l l i ng a l l types of produce. These resul ts and the comparison between Sydney and Melbourne are shown in Table A-3. The resu l t s r e f e r t o s t a l l s located elsewhere within the general trading area used f o r commercial se l l ing purposes and exclude warehouses, office space etc.

An increasing trend in wholesale f r u i t and vegetable markets and of marketing i n general has been the greater mechanisation t o reduce unit costs of the operations involved in handling, s toring and transporting comodities. Individual wholesalers have attempted t o contain t he i r

(14) For def ini t ions of categories of produce r e f e r t o Appendix A, Table A-2.

expanding r e n t a l charges for warehouses, cool storage and o ther market f a c i l i t i e s and of labour costs f o r al l intra-market handling and se l l ing . Included i n t h i s cap i t a l expansion of individual wholesaling businesses has been the i n s t a l l a t i o n of cool mom f a c i l i t i e s within s t a l l s . The survey r e s u l t s show t h a t cur ren t ly around 25% of wholesalers have t h e i r own cool room f a c i l i t i e s but t h a t a s ign i f i can t difference e x i s t s between Sydney a t around 6% and Melbourne a t around 50%.(15)

By estimating the incidence of secondary wholesaling undertaken by commercial s e l l e r s , a l t e r n a t i v e flows of produce within and between markets can be b e t t e r understood. The r e s u l t s show t h a t around 48% of wholesalers engage i n secondary wholesaling i n t h e i r . own market, while around 33% engage i n secondary wholesaling i n other markets (see Table A-4). Wholesalers were asked t o list the f i ve major commodities traded when undertaking secondary wholesaling. These r ep l i e s were a l so categorised as before and ranked according t o t h e frequency of repl ies . These r e s u l t s show t h a t around 30% of wholesalers included c i t r u s and the same percentage included apples and/or pears , while around 12% included grapes i n t h e i r answers. For vegetables, around 36% included salad vegetables and around 19% included green peas' and/or beans i n t h e i r answers. These r e s u l t s are shown i n Table A-5.

The questions on marketing information were designed t o e l i c i t the p r inc ipa l methods of connnunication between growers and wholesalers and between d i f f e r en t wholesalers. Detai ls of methods of communication can be r e l a t ed t o growers' and wholesalers' act ions which a re made on the bas i s of marketing information made ava i lab le t o them. When asked about t he type of information sought by growers, 40% of wholesalers s a i d t h a t growers d id not r ing up. The remaining 60% indicated t h a t t h e main information sought by growers included market conditions (pr ice , supply and demand), or igins of suppl ies i n t o t h e market, d e t a i l s about s a l e s of previous consignments and expected market developments.

On the other hand, when wholesalers were asked f o r t he main d e t a i l s they consider when advising growers about sending t h e i r produce, 10% s a i d t h a t they never advise growers. Of t h e remaining 90% who do, t he range of information given t o growers included current d e t a i l s of market p r ice and supplies, condition of produce on a r r i v a l a t t he market including presentation and packaging, and advice about despatching consignments such as timing of produce i n t o t he market and whether t o cool s to re . Wholesalers provided t h i s information t o growers as feed-back t o help growers make short-run decisions about timing and conditions of produce a t harvest and methods of packaging, as a l l these fac tors a f fec t p r ices r ea l i s ed i n t he market.

In order t o carry out secondary wholesaling of produce with wholesalers i n other markets ce r t a in marketing information i s required. The r e s u l t s show t h a t around 55% of wholesalers would l i k e addi t ional information about o ther markets. Presumably the other 45% of wholesalers who do not want addi t ional information, e i t h e r have s u f f i c i e n t information a t present o r do not have any use f o r t h i s type of information.

When wholesalers want t o obtain information about markets i n other S t a t e s it was found tha t t h e most frequently used method i s the telephone. Around 47% included telephone contact with agents i n other - (15) This dif ference was found t o be s ign i f i can t a t t he 1% level .

markets i n t h e i r answer, around 29% included information provided by growers and observations of f r u i t and trucking movements around the markets, around 13% included word of mouth among wholesalers i n t h e i r own market, only 7% included radio broadcasts as a source of information about i n t e r s t a t e markets and the balance of 4% o f wholesalers included other means. An i n t e r e s t i n g r e s u l t is t h a t none of t h e wholesalers interviewed indicated published material , such a s market reports , as sources of information about i n t e r s t a t e markets. These r e s u l t s a re suwnarised i n Table A-6.

I t was found t h a t 44% of wholesalers read with i n t e r e s t t he commodity and p r i c e repor ts prepared da i ly by market news o f f i ce r s i n t h e i r own market. This compared with 30% who gave only a casual glance a t t h e repor ts and 26% who never read them at a l l (see Table A-7). Comments about the adequacy and s u i t a b i l i t y o f d e t a i l s contained i n published market repor ts were concerned with accuracy of quotes, although o ther comments included: the range of produce quoted was not wide enough; the re were not enohgh d e t a i l s , such as s i z e s , q u a l i t i e s and or igins of supplies, provided about individual commodities; p r i ces quoted were not r e l a t ed c lose ly enough t o p a r t i c u l a r q u a l i t i e s ; repor ts provided information about sales only, not enough d e t a i l s were provided about stocks and unsold produce.

Table A - 1

PROPORTION OF WHOLESALERS I N SYDNEY AND MELBOURNE OPERATING AS COMMISSION AGENTS AND MERCHANTS

I tem Melbourne Weighted

Average

% S.E. % % S.E. % % S.E. %

Commission agent only 5 (4.4) 33 (7.7) 21 (4.7)

Merchant only 75 (8.8) 3 (2.8) 35 (4.2)

Both 20 (8.2) 64 (8.1) 44 (5.8)

- 29 -

Table A-2

MAJOR CATEGORIES OF FRUITS AND VEGETABLES HANDLED BY MERCHANTS I N SYDNEY AND MELBOURNE

Fruits % S.E. % Vegetables % S.E. %

Citrus 25.5 (6.4) Heavy produce(c) 37.8 (7.1)

Apples and/or pears 22.3 (6.2) Salad vegetables(d) 27.3 (6.5)

Queensland fruit (a) 15.8 (5.4) Carrots 4.5 (3.2)

Bananas 9.5 (4.4) Green peas and/or beans 12.2 (4.8)

Grapes 7.9 (4.0) Other vegetable v a r i e t i e s 18.2 (5.6)

Soft f r u i t s (b) 4.7 (3.2) c Other f r u i t v a r i e t i e s 14.3 (5.0) - -

100.0 100.0

(a) Tropical fruit va r i e t i e s , but mainly bananas and pineapples. (b) Typically stone fruits, not including cherr ies . (c) Includes potatoes, onions, pumpkins only. (d) Includes cucumbers, tomatoes, l e t t u c e and celery only.

Table A-3

PROPORTION OF WHOLESALERS I N SYDNEY AND MELBOURNE OPERATING MORE THAN ONE STALL FOR SELLING FRUIT AND VEGETABLES :

PROPORTION BY TYPE OF PRODUCE SOLD

Item Melbourne Sydney

Weighted Proportion

% S.E. % % S.E. % % S.E. %

Percentage operat ing more than one s t a l l 35 ( 9.8) 20 ( 6.6) 27 ( 5.6)

Proportion of Other S t a l l s Se l l i ng

- heavy produce 28 (16.5) - ( - ( 9 . 6 )

- other fruits and vegetables

- both 15 (13.5) 17 (15.0) 15 ( 9.6)

Table A-4

PROPORTION OF WHOLESALERS I N SYDNEY AND MELBOURNE ENGAGED I N SECONDARY WHOLESALING

Item Melbourne Sydney Proportion Weighted

% S.E. % % S.E. % % S.E. %

In own market 55 (10.2) 43 ( 8.8) 48 ( 6.6)

In o ther markets 50 (10.2) 20 ( 6.6) 33 ( 5.8)

Table A-5

MAJOR CATEGORIES OF FRUITS AND VEGETABLES TRADED BY WHOLESALERS I N SrdNEY AND MELBOURNE WHEN UNDERTAKING

SECONDARY WHOLESALING (+)

F r u i t s % S.E. % Vegetables % S.E. %

Ci t rus 29.5 (6.7) Salad vegetables(d) 35.7 (7.0)

Apples and/or pears 29.5 (6.7) Green peas and/or beans 19.0 (5.7)

Grapes 11.8 (4.8) Heavy produce(c) 9.5 (4.3)

Sof t f r u i t (b) 11.6 (4.8) Carrots 7.2 (3.7)

Bananas 5.8 (3.4) Other vegetable v a r i e t i e s 28 .6 . (6.6)

Queensland f r u i t (a) - ( - 1

Other f r u i t v a r i e t i e s 11.8 (4.8)

(+) For footnotes see Table A-2.

Table A-6

PROPORTION OF WHOLESALERS I N SYDNEY AND MELBOURNE OBTAINING MARKETING INFORMATION ABOUT INTERSTATE MARKETS : RELATIVE

FREQUENCY OF PRINCIPAL METHODS OF OBTAINING INFORMATION

Item % S.E. %

Percentage of wholesalers who seek i n t e r s t a t e marketing information

Relative frequency o f methods o f obtaining i n t e r s t a t e marketing information:

- phone c a l l s t o merchants i n o the r markets

- Information from growers and observations of f ru i t and trucking movements

- Word of mouth around own market

- Radio broadcasts

- Other means

Table A-7

PROPORTION OF WHOLESALERS I N SYDNEY AND MELBOURNE WHO READ MARKET NEWS REPORTS PREPARED DAILY

Melbourne Weighted

Sydney . Proportion Item

% S.E. % % S.E. % % S.E. %

Read with i n t e r e s t 35 ( 9.8) 50 ( 8.2) 44 ( 6.3)

Casual glance 45 (10.2) 20 ( 6 . 6 ) 30 ( 5 . 8 )

Never read repor t s 20 ( 8 . 2 ) 30 ( 7 . 5 ) 2 6 ( 5 . 5 )

100 100 100

Appendix B

Table B - l

RELATIVE FREQUENCY OF PURCHASE AND USE OF SELECTED FRUIT : BRISBANE

% of Households Indicat ing % of Households Indicating

F ru i t as Variety Most Frequency of Fru i t use as Fru i t Recently Purchased 1.2 o r More Days per

Week as Fresh Product(a)

Bananas

Oranges

Pineapples

(a) Except Pineapples, which are one o r more p e r for tnight .

Source: Queensland Department of Primary Industr ies , HousehoMersr Purchasing Habits and Attitudes t o Fruit, Marketing Services Branch, November 1974, various tab les .

Table B-2

RELATIVE FREQUENCY OF HOUSEHOLD USE OF SELECTED VEGETABLES : USA

% of Households Indicating Frequency Vegetable of Vegetable Use as Two Times a

Week o r More

Tomatoes

White potatoes

Green beans

Green peas

Carrots

Source: USDA, Consumers Preferences, Uses m d Buying Practices fop Selected VegetabZes, A Nationwide Survey, Marketing Research Report No. 1019, April 1974.

I Appendix C

RESULTS OF SPECTRAL ANALYSIS OF SERIES

In t he process of obtaining cross spec t ra l r e s u l t s t he estimated spectrum f o r each pr ice s e r i e s was obtained. These were analysed f o r evidence of regular cyc l ica l and seasonal p r ice movements as these phenomena a re expected (except under cer ta in d i s t r ibu t ion and marketing systems) from the seasonal nature of production of t h e commodities considered. The analyses provided fu r the r empirical understanding of market operations and were used, along with t he cross spec t ra l r e s u l t s , t o obtain a more complete p i c tu re of t he marketing system i n Eastern Australia.

The estimated power spectrum for each of t he pr ice s e r i e s considered i n t h i s study are shown i n Figures C . 1 t o C .VI I . A l l of these estimated spec t r a exhib i t t he same general shape of downward s loping t o the r i g h t , which is the t y p i c a l spectrum shape of an economic var iable discussed by Granger [21]. The shape indicates t h a t t h e short-run components of t h e s e r i e s contr ibute r e l a t i ve ly l e s s t o t he t o t a l variance of t he s e r i e s than do t h e longer-run components.

While none of t he estimated spec t ra contain any s t a t i s t i c a l l y s ign i f i can t peaks (apar t from t h a t a t zero frequency), t he three-market comparison of spec t ra f o r p a r t i c u l a r commodities reveals some in t e re s t i ng features. This ind ica tes t h a t none of the s e r i e s examined contained regular cyc l ica l behaviour of any importance. However, t h i s evidence does not preclude the existence of very i r r egu la r cyc l ica l p r ice movements (e.g. see [24], p. 32). Granger and Hatanaka [22] point out t h a t i f a time s e r i e s contains a cycle which i s not exact ly regular t h i s w i l l r e s u l t i n any peaks present i n t h e spectrum merging together t o form a smooth, continuous curve.

The spectrum f o r banana pr ices i n Melbourne l i e s well above t h e spec t ra f o r both Sydney and Brisbane, ind ica t ing t h a t t h e t o t a l variance i n t he Melbourne s e r i e s i s g rea t e r than tha t f o r e i t h e r the Sydney o r Brisbane se r i e s . Further, t h i s re la t ionship.holds over most periods (see Figure C.111) . The Melbourne banana p r i ce spectrum i s f l a t o v e r . t h e period of two t o twenty weeks ind ica t ing tha t p r ice movements tend t o be MndoPn over these periods.(l2) These spec t r a l r e s u l t s d i f f e r from those obtained from an analysis o f Sydney banana pr ices by Aggrey-Mensah and Tuckwell ([ll], p. 109) who found t h a t a ' subs tan t ia l proportion of t h e t o t a l variance is a t t r i bu ted t o a 52 week cycle'.

The estimated spec t r a f o r some o ther pr ice s e r i e s a l so provide evidence fo r random pr ice movements i n t h e shor t run, namely, peas ( fo r a l l markets) over periods of two t o s i x weeks, beans ( for a l l markets) over periods of two t o f i ve weeks and potatoes ( for a l l markets) f o r periods of two t o th ree weeks. The estimated spec t ra f o r other s e r i e s , while not f l a t , a r e gently downward s loping t o the, r igh t .

- The spec t r a l r e s u l t s show evidence tha t for t h e p r i ce s e r i e s

investigated, longer-run p r i c e movements assume much more importance than shorter-term p r i ce movements but t he re i s no evidence t h a t these movements occur regularly.

FIGURE C.1

ESTIMATED SPECTRA-ORANGES

FIGURE C.II

ESTIMATED SPECTRA-PINEAPPLES

95% Confidence Interval

FIGURE C.lll

ESTIMATED SPECTRA-BANANAS

FIGURE C.lV

ESTIMATED SPECTRA-TOMATOES

I 95% Confidence Interval

FIGURE C.V

ESTIMATED SPECTRA-POTATOES

I 95% Confidence lnte~al

3

2

Weeks

Brir. \.-. - ./.- .-.- . 4. -.-.- -I -

\

-2

-3-

1

-

FIGURE C.VI ESTIMATED SPECTRA-PEAS

I I I I I I 52 26 13 8 4 3

I 2

Weeks

FIGURE C.VII

ESTIMATED SPECTRA-BEANS

Appendix D

RESULTS OF CROSS SPECTRAL ANALYSIS OF PRICE SERIES

( i l Pineapples

Pineapple pr ices f o r Melbourne and Brisbane exhibi ted moderate coherence(16) over a l l periods, while t he phase diagram indicated tha t both p r i c e s e r i e s were more o r l e s s i n phase over a l l periods.

There were moderate coherences i n t he medium t o long run between Sydney and Brisbane pr ices , and t h e phase diagram indicated t h a t Sydney pr ices l a g Brisbane pr ices by about 10 days over these periods.

Similar ly , there were moderate coherences i n t h e long run between Melbourne and Sydney pr ices , Sydney pr ices lagged Melbourne pr ices by around 13 days over these periods. For both these psi$ of s e r i e s , i.e. Sydney and Melbourne, and Sydney and Brisbane, t he re was no consis tent re la t ionsh ip evident between pr ices i n the shor t run.

Hence, t he overa l l p i c tu re of t he pineapple market i s t ha t Melbourne pr ices tend t o be f a i r l y s t rongly re la ted t o Brisbane pr ices over a l l periods (Melbourne p r i ce s moving i n phase with Brisbane pr ices ) and t h a t Sydney pr ices l ag Brisbane pr ices (and consequently a l so lag Melbourne p r i ce s ) by about 10 t o 13 days i n t he medium t o long run.

(ii) Bananas

There was moderate t o very high coherence extending over a l l frequencies between banana pr ices f o r Sydney and Brisbane and these pr ice s e r i e s were e f f ec t ive ly i n phase over a l l periods. There appeared t o be a very s t rong l i n e a r re la t ionsh ip between banana p r i ce s i n Sydney and Brisbane and p r i ce s i n both c i t i e s e f f ec t ive ly moved simultaneously over a l l periods (from two weeks t o t h e very long-run periods).

The coherence and phase diagrams f o r Sydney and Melbourne pr ices , and f o r Brisbane and Melbourne pr ices indicated t h a t there was no consis tent re la t ionsh ip between these pr ice s e r i e s over any periods. Coherences were generally low f o r these pr ice s e r i e s and t h e phase diagrams showed no consis tent (timing) re la t ionships .

The cross spec t ra l analysis of orange p r i c e s presented a s l i g h t l y d i f f e r en t p i c tu re from t h a t obtained f o r pineappled and banana pr ices . Except i n the very long run, coherence between orange p r i ce s i n Melbourne and Brisbane was low. However, t he phase diagram indicated tha t these p r i c e s e r i e s were e f f ec t ive ly i n phase over a l l frequencies and, from the r e s u l t s of a simulation study by Granger and Hughes [25], t h i s can be taken a s evidence of a consis tent timing re la t ionsh ip between these se r ies .

(16) Unless otherwise specif ied, t he use of coherence and phase r e f e r s t o partial coherence and partiaZ phase respectively.

These r e s u l t s imply tha t , while p r i c e movementsfor oranges i n each market occur i n the same direct ion and a t the same time, t h e r e i s l i t t l e r e l a t i o n between the magnitudes of p r i c e movements i n t h e two c i t i e s .

?he phase diagram f o r Melbourne and Sydney orange p r i ces indica ted t h a t t hese p r i c e s e r i e s were i n phase over periods ranging from about 3 weeks t o t h e very long nm. The s e r i e s were out of phase i n the shor t run and exhibi ted low coherence over t h i s period.

Sydney and Brisbane orange pr ices appeared t o be i n phase over periods of 2-8 weeks while the coherence values were generally low over these frequencies. In the longer run t h e two s e r i e s were out of phase and a l so exhib i ted low coherence.

The ove ra l l p i c tu re obtained from the ana lys is of orange p r i ces was t h a t , general ly , t he re was no strong l i n e a r relat ionship between any markets over' al l periods while pr ice movements appeared t o be in phase over p a r t of: t h e medium-run period.

f i v ) Potatoes

Potato p r i c e s f o r Sydney and Brisbane showed moderate coherence over most of t h e frequency range and appeared t o be i n phase over a l l but t he very short-run periods. These pr ice s e r i e s were out of phase over per iods of 2-2% weeks and the coherence was a l so low over t h i s period.

Potato p r i ce s e r i e s f o r Sydney and Melbourne showed moderate coherence over a l l periods and appeared t o be i n phase over these periods.

Coherence between Melbourne and Brisbane pr ices was generally low, p a r t i c u l a r l y i n t h e medium t o long run. The phase diagram indicated t h a t t hese s e r i e s were roughly i n phase over a l l periods, although the r e l a t ionsh ip was not w e l l defined.

Hence, it appeared t h a t there was a moderate l i n e a r associat ion between p r i c e movements f o r potatoes i n markets i n adjacent S ta t e s ( i .e . N.S.W. and Vic tor ia , and N.S.W. and Queensland) with the p r i c e s e r i e s being i n phase. The degree of l i n e a r and timing association between Melbourne and Brisbane p r i c e s did not appear t o be as strongly defined.

(0) Tomatoes

The tomato p r i c e s e r i e s f o r Sydney and Brisbane showed moderate coherence over a l l per iods and appeared t o be i n phase over these periods.

The coherence between Sydney and Melbourne p r i ces and between Melbourne and Brisbane p r i ces was generally low and the phase diagrams indica ted t h a t t h e r e w a s no consis tent timing re la t ionship between these p a i r s o f s e r i e s .

Hence, it appeared t h a t tomato p r i ces i n Sydney and Brisbane were r e l a t i v e l y s t rongly r e l a t ed l inea r ly and tha t p r i ce movements i n these c i t i e s occurred simultaneously over a l l periods. Melbourne tomato p r i ces d id not appear t o be r e l a t ed ( in e i t h e r a l i nea r o r timing sense) t o those i n Sydney and Brisbane.

f v i l Green Peas

Coherence between pea pr ices i n Sydney and Brisbane was generally low p a r t i c u l a r l y i n t he shor t run but these pr ice s e r i e s appeared t o be approximately i n phase over periods of 4 t o 13 weeks.

The coherence between pea pr ices i n Melbourne and Brisbane was generally low i n t h e medium t o long run, although t h e 104 week period of these two s e r i e s exhibi ted moderate coherence. The two s e r i e s exhibited moderate coherence i n t he shor t run, over which periods the s e r i e s appeared t o be i n phase.

The coherence between pea pr ices i n Sydney and Melbourne w a s generally low, although the annual (52-week) component of t h e two s e r i e s was more highly re la ted . The two s e r i e s were generally out o f phase although they appeared t o b e roughly i n phase over periods of 3 t o 4 weeks.

The overa l l p i c tu re gained from these r e s u l t s i s tha t t he re was l i t t l e re la t ionsh ip ( i n e i t h e r a l i n e a r o r timing sense) between t h e pea markets i n t he t h r e e c i t i e s considered.

f v i i l Green Beans

Coherence between Melbourne and Brisbane bean pr ices was generally low i n t h e medium t o long run and moderate i n t h e sho r t run. These p r i ce s e r i e s appeared t o be out of phase i n t he long' run, but were roughly i n phase i n t he sho r t run.

The coherence between Sydney and Brisbane pr ices was low t o moderate over a l l periods. The coherence between Brisbane and Melbourne pr ices was generally low over a l l periods.

These r e s u l t s ind ica ted t h a t there was generally no s t rong l i n e a r re la t ionsh ip over any per iods f o r any p a i r of bean p r i ce s e r i e s . However, t h e phase diagram f o r each p a i r of s e r i e s indicated .some consis tent out of phase behaviour over periods of 3 t o 6% weeks.

A possible i n t e rp re t a t i on of t h e behaviour being exhibited i s t h a t Sydney pr ices l ag Brisbane p r i ce s by only about 2 days, Melbourne p r i ce s l a g Sydney p r i c e s by about 2 days and Melbourne pr ices l ag Brisbane pr ices by about 4 days over t hese periods. However, t h i s suggested in t e rp re t a t i on i s by no means well defined and should be viewed as ind ica t ing an area which deserves c lo se r examination.

Results of Cross Spectral AnaZysis o f Pea and Bean Prices i n Each Market

Since peas and beans a r e viewed by some consumers as subs t i t u t e s t o some degree, it was decided t o carry out an invest igat ion of cross product e f f e c t s by analysing movements of pea and bean p r i ce s i n each market.

The coherence between pea and bean p r i ces i n Melbourne was general ly very low over a l l but t he very long-run periods. The two s e r i e s appeared t o be roughly i n phase over these periods with no consistent timing re l a t ionsh ip evident over t h e shor t run. Similar r e s u l t s were obtained f o r Sydney, although i n cont ras t t o t h e Melbourne r e s u l t s , t he coherence was r e l a t i v e l y high in t h e long-run periods.

Coherence between the pea and bean p r i ces i n Brisbane was general ly moderate i n the short t o medium-run periods but was high i n the long-run period. The s e r i e s appeared t o be i n phase over a l l periods. Hence, i t appeared as though there was a s t rong degree of l i nea r associat ion over a l l periods between pea and bean p r i ces i n Brisbane, with p r i c e movements a l s o being generally i n phase. In cont ras t , there was l i t t l e r e l a t ionsh ip i n p r i ce s e r i e s i n the Sydney and Melbourne markets, although the re was some (but generally weak) degree of l i nea r and timing assoc ia t ion between s e r i e s over t h e medium t o long-run periods.

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