Distribution costs and efficiency for fresh fruit and vegetables

Abstract

This study concerns the economics of a particular section of the food distribution industry in New Zealand, namely that part responsible for distributing fresh fruit and vegetables. Distribution costs are measured as the difference between auction prices and retail prices for produce except where direct buying from growers is practised. Components of distribution costs include transport, handling, storage, selling and wastage. Efficiency of distribution is measured in terms of cost per unit of produce sold, sales per labour unit and sales per unit of floor space. Distribution costs and efficiency ratios are investigated and compared for supermarkets, super-fruiterers, fruiterers and grocers in the Christchurch areas. The importance of the economics of distribution has already been recognised in the United States where large sums of money have been committed to research by the National Commission on Food Marketing. Fast growth rates for the distribution sector have been noted both in the United States and New Zealand. In New Zealand gross output of the Trade, or Distribution sector has grown, in current value terms, at a rate of about 11 per cent per year between 1960 and 1965. It has also been noted that in the United States labour productivity growth rates for distribution industries are among the lowest of all sectors. Thus a disturbing situation has arisen that a low productivity sector is becoming a more dominant sector in the United States. For this reason efficiency studies in distribution are bound to assume greater significance. Interest in fruit and vegetable distribution in New Zealand arises out of the unique role of the auction system in handling the bulk of fruit and vegetable output. Under this system, supplies of imported fruit are allocated to retail firms in proportion to the value of other produce they buy through auction firms, thus ensuring the dominant place of the auctions in the distribution system. This system of distribution is defended by auction firms and decried by a number of retail firms, especially supermarkets who find that it induces a conflict between their desire to have supplies of overseas fruit and their desire to achieve economies of mass distribution by trading direct with growers. This study is thus an attempt to provide a rational base on which decisions about the future of fruit and vegetable distribution in New Zealand can be made. In particular, the objective is to indicate which sorts of retail outlets will provide the lowest cost distribution channels. Special attention is given to supermarkets because changes in the distribution system are likely to work in this direction.