Thursday, July 30, 2009

What's cheaper? Milk and chocolate.

If you've felt more change in your pocket after going down to the shop to buy a bottle of milk, there's a good reason. The Melbourne price of milk is falling.

In March the Bureau of Statistics priced a two litre bottle at $3.68. By June it was $3.61. The Bureau cautions that the list of average prices it releases each quarter can be misleading where the quality or size of the product has changes, and that is what's happened in the case of chocolate.

But neither the quality nor the quantity of milk in two litre bottles has changed, and oddly the price of other dairy products such as butter and cheese has kept climbing.

The answer lies a good distance away from the supermarket in the federal Parliament...

Late last year it quietly abolished a special tax that has added 11 cents per litre to the price of every bottle sold since the start of the decade.

Called a "levy" rather than a tax when introduced by the former Prime Minister Howard, it only ever applied to the price of drinking or "pouring" milk and was designed to slowly raise the $2 billion paid to help dairy farmers adjust to deregulation.

By February this year it had reached the total and the legislation to remove it took effect.

But but Melbourne residents appear not to have got the full benefit. We're paying just 4 cents per litre less, whereas in Sydney they are saving 10 cents per litre and in Perth, 16 cents.

The Bureau finds that across a range of groceries Melbourne's prices are more expensive than those in other state capitals.

Melbourne has the most expensive bread, at $3.87 for an sliced white loaf compared to as little as $3.18 in the lowest-priced city Hobart.

Melbourne's meat gets the poll position as well with forequarter lamb chops and pork chops more expensive than any other state capital.

In the last six months Melbourne's price rises have been substantial but price cuts limited. Except for chocolate.

The "average" price the Bureau quotes for a large block of milk chocolate has slipped from $4.40 to $3.84.

The fine print in the speadsheets explains why. Until March the Bureau priced a 250 gram block. In June it priced 200 grams.

That's probably because Cadbury cut the size of its 250g block to 200g in April and cut the wholesale price of the block at the same time.

Consumers saw a packet that looked about as big (thanks to clever work with cardboard packaging) and paid less for it.

The Bureau isn't tricked when compiling the Consumer Price Index (it converts the prices into cents per gram) but chocolate lovers might well feel they are paying less, at least until they discover that they feel less full.

"It's a move towards responsible consumption," says Trish Hyde, chief executive of the Confectionery Manufacturers Association, pointing out that Nestle and Mars have also cut the sizes of their differently-sized bars.

"We are reverse-engineering our portion sizes in order to better align them with what it's responsible to eat."

Along with the end of the milk tax it's one of the few things holding grocery prices back.

The ups and downs of grocery shopping:

Price changes since December

Sugar, white 2kg
UP: $2.33 to $2.44
Baked Beans, 240g
UP: $1.47 to $1.52
Margarine, 500g
UP: $3.05 to $3.24
Coffee, instant 150g
UP: $7.71 to $7.80
Soap, two bars
UP: $3.99 to $4.35

Milk, 2 litre
DOWN: $3.69 to $3.61
Chocolate, block
DOWN: $4.20 to $3.84
Flour, 2kg
DOWN: $3.29 to $3.27 **
Chicken, 1kg
DOWN: $5.53 to $5.50
Detergent, 450ml
DOWN: $3.95 to $3.54

Melbourne prices, ABS 6403.0.55.001

Published in today's SMH and Age

A consumer's report:

Hi Peter,

As discussed earlier this afternoon, please find a response from Cadbury. Also attached is the media release from April in which we announced the weight and wholesale price reduction of our moulded chocolate block range. Our moulded chocolate block range is the largest part of our business.

Chocolate Blocks - April Wholesale Price Reduction

The changes we have made to size and weight of the Cadbury Dairy Milk milk chocolate have been driven by one simple reason – consumer value.

We have found that consumers, particularly in the current economic climate, are looking for great value when purchasing chocolate.

Over a number of years, we have seen the price of our blocks creep up due to a range of factors [ingredient costs, labour costs, inflation etc] and this has meant that Cadbury Dairy Milk milk chocolate blocks had become out of reach for many consumers.

In particular, the cost of raw commodities such as cocoa and sugar has been increasing significantly. Cocoa has doubled in price over the last two years and for some time we have been absorbing these commodity cost increases.

Whilst we know people love the previous block sizes, keeping our blocks at those sizes was not a viable way to provide consumers with affordable Cadbury chocolate whilst managing the skyrocketing costs of cocoa and sugar.

In April this year, we reduced the weight and the wholesale price of our chocolate blocks (150g to 100g, 250g to 200g and 400g to 350g). We did this to enable retailers to price our blocks more competitively within a highly competitive market. In the overwhelming majority of cases, retailers have reduced the full recommended retail price accordingly.

It is important to note that as a manufacturer, by law, Cadbury does not set the retail price consumer pay in the shop. This is done by the retailer where they purchase the product.

Pre – April Wholesale Price Reduction

In September last year we reduced the weight and wholesale price of a number of our sharepacks (multi bags of Freddo, Crunchie, etc). We have not reduced the weight or wholesale price of other products between this time and when we reduced the wholesale price of our moulded chocolate block range in April this year.