Input costs and trends

Input cost increases, including wages, have remained a major concern for the Australian vegetable industry, and one of the top reasons growers are considering leaving the industry.

While the past six months have seen some drops in diesel costs and a rise in retail prices, energy costs have surged back up after declines in September and October.

July’s Minimum Award Wage increase has contributed to a 21.5 percent rise in this benchmark since 2020, meaning labour remains an expanding cost facing Australian vegetable growers.

Vegetable CPI growth from July to September was well above the moderating, overall CPI number.

Total retail value for vegetables went up 3.5 percent year-on-year, reflecting higher retail prices, while sales volume declined.

As vegetable growers know, higher retail prices do not necessarily translate to better returns for vegetable growing businesses, and lower purchase volumes may also be cause for further concern.

Amid the ongoing cost-of-living pressures facing consumers, the decline in sales volume may also reflect an ongoing drop in vegetable consumption, or consumers opting for cheaper vegetables alternatives, such as imported frozen products.

According to research undertaken by KPMG in 2022, 79 percent of consumers identify that more affordable vegetables would increase consumption. Therefore, it is reasonable to expect a correlation between rising vegetable prices and lower consumption, compounded by the current cost-of-living crisis.

Wages

The Minimum Award Wage has increased 21.5 percent since July 2020. This prolonged period of wage growth has had a significant impact on vegetable farms’ margins, as reported in our Industry Sentiment surveys.

This is likely to compound further, with the Fair Work Commission confirming that from 1 April 2025 no award will contain a minimum rate applying on an ongoing basis that is less than the C13 rate. Therefore, in the Horticultural Award the progression from Level 1 (C14) to Level 2 (C13) must occur after three months’ industry experience. Further information on this can be found on the Fair Work Commission website.

Fertiliser

Global fertiliser prices have continued to be relatively stable over the past six months, with one of the big drivers being low natural gas price volatility, particularly for nitrogen fertilisers and two of the most widely used P fertilisers, MAP and DAP, for which natural gas is a feedstock.

Urea pricing has ticked up in the past few months, but is still lower than the second half of last year and a long way from the heights seen in 2022.

Global fertiliser prices (FOB) April 2024 to October 2024 (USD) Source: Agricultural Market Information System (AMIS)

Global fertiliser prices (FOB) October 2019 to October 2024 (USD) Source: Agricultural Market Information System (AMIS)

Diesel

Diesel prices have trended steadily downward since February this year, following the decline in global oil prices and falling demand in China (China’s diesel demand fell 1.7 percent in the 12 months to July 2024).

The Singaporean market, which drives Australian diesel prices, has seen a significant drop in diesel exports in recent months due to low demand.

That trend is likely to continue in the short term. The US Energy Information Administration has recently downgraded their wholesale diesel price forecast for the fourth quarter by 11.2 percent, and have dropped their forecast for 2025 prices by 8.4 percent.

The graph below shows Australian wholesale diesel prices (National Diesel TGP) against the Singapore wholesale price (Gasoil).

Australia imports almost 70 percent of diesel, predominantly from Asia, and Gasoil sets the price benchmark for Australia. A prediction of Australian diesel prices can be found by following the Singapore Gasoil price; Australian pricing lags 1-2 weeks behind. You can follow the Australian Institute of Petroleum’s diesel price reports here.

Australian wholesale diesel price (TGP) vs Singapore diesel price (Gasoil) Nov 2022 to Nov 2024 Source: Australian Institute of Petroleum

Energy

Wholesale energy prices tumbled in September thanks to mild temperatures, low demand and abundant renewable generation capacity, but surged back up to a 2024 high in November.

The fluctuation is a sign of the times, according to the Australian Energy Regulator’s (AER) recently released State of the Energy Market 2024 report. The report outlines an increasingly volatile Australian energy market, driven by extreme weather and outages at both generator and network levels during periods of high demand.

On the upside is the introduction of a new ‘two-shifting’ strategy to ramp up and wind down its coal-fired power stations faster without damage, an approach adopted from the UK. A successful trial at the Bayswater power station demonstrated the ability to ramp up the plant in 10 minutes, and wind down in 50.

The strategy means coal plants are able to wind down production during the day and allow cheap renewables to fill the grid’s demand, and ramp back up in time for the evening peak.

National Energy Market Volume Weighted Price ($/MWh) Source: OpenNEM

Retail market data

CPI

While the all-group Consumer Price Index (CPI) has finally dipped back down into territory the RBA is more comfortable with, impacted significantly by temporary electricity rebates federally and in select states , the fruit and vegetable CPI has jumped significantly since March.

Fruit and vegetable CPI hit a high of 9.6 percent in August, a level not seen since December 2022, before slight declines to 9.1 percent in September and 8.5 percent in October

The graph below shows the Australian Bureau of Statistics (ABS) monthly CPI indicator for fruit and vegetables , which represents each month’s percentage change on the same month the year before.

The significant negative CPI for vegetables and fruits in the second half of 2023 reflects a falling price due to the high supply volumes available compared to the shorter market in 2022.

Monthly CPI Indicator – fruit & veg vs all groups 2022-2024 Source: ABS

Retail sales

The charts below show NielsenIQ Homescan data for potatoes, onions, carrots, lettuce, broccoli and celery, provided through Hort Innovation’s levy-funded Consumer purchase and retail data (MT21004) program.

The data is presented in four-week periods, with the below period ending on 6 October 2024.

Retail prices have marginally increased since February this year, and over the past 12 months have been 5.4 percent higher year-on-year. That reflects the lower supply volumes this year compared to the glut of vegetable supply in the second half of 2023, which pushed prices down.

The lower supply and higher pricing this year has been accompanied by a drop in retail sales volume of 1.6 percent year-on-year.

The higher prices have offset the drop in volume, however, and total retail sales value is up 3.5 percent year-on-year.

Lack of data around price elasticity makes it more difficult to interpret sales trends, and correlation between price and volume for the various vegetable categories. Further, it is difficult to know without more detailed data from the retailers whether lower volumes of fresh vegetables sold have been offset by higher sales volumes of imported and local frozen products.

ABS data has shown that there was a 96 percent increase in vegetable imports (prepared, including frozen and tinned) between FY23 and FY22, growing from $171.3 million to $334.9 million. Data to September 2024 also indicates that the increased volumes of 2023 are likely to be maintained for 2024, if not exceeded.

Of the major categories shown below, carrots, onions, broccoli and tomatoes have all been big drivers of increased sales value.

For more information, contact AUSVEG General Manager Public Affairs and Communications Lucy Gregg at lucy.gregg@ausveg.com.au, or 03 9882 0277.