The challenges and opportunities of premium markets in agriculture

4 March 2019

Consumer trust should be a major focus for Australia’s agriculture sector as farmers increasingly target premium markets for their produce, ACCC Deputy Chair Mick Keogh told the International Farm Management Association Congress in Tasmania today.

“Most of the growth in the total value of Australian agricultural output in recent decades has come from an increase in the average value of products, rather than an increase in the volume of output,” Mr Keogh said.

“This has occurred because Australian farmers and processors have increasingly altered their production and processing systems in order to target higher value or premium markets. There are a number of implications of this change, which brings challenges for the agricultural sectors and governments alike.”

Mr Keogh said it was important for the agriculture sector to ensure there are robust checks and balances in place so that consumers are getting the premium products they are paying for.

“The integrity of premium claims needs careful consideration to ensure consumers retain their trust in premium products,” Mr Keogh said.

Mr Keogh suggested national information standards, similar to the one used for free range eggs, which outline minimum requirements when making certain premium claims could be beneficial to the industry.

“Many of the product characteristics consumers are prepared to pay premium prices for are not able to be determined just by looking at the product. For example, an organic lamb cutlet usually looks the same as a conventional lamb cutlet. Wool from unmulesed sheep looks the same as wool from mulesed sheep,” Mr Keogh said.

“There is some merit in the agriculture sector considering national information standards, as a model that could be more widely adopted in order to better protect the credibility of industry-agreed standards in domestic markets, and at the same time avoid consumer confusion and maintain consumer trust.”

Mr Keogh also explored the change that has occurred in agricultural supply chains in order to enable processors and retailers to better meet specific consumers’ requirements in the premium goods market.

“Processors and retailers are increasingly dealing directly with farmers to ensure consistent supply of higher value products, and bypassing the more traditional agricultural markets,” Mr Keogh said.

“While many farmers are benefitting from these direct dealings, price transparency is decreasing and pricing complexity is increasing. This is because processors and retailers are using more and more complex pricing systems that target very specific product qualities and characteristics.”

“This means farmers cannot easily compare offers from different processors, and are therefore in a weakened bargaining position in their price negotiations,” Mr Keogh said.

Mr Keogh said the ACCC would continue to collaborate with industry, government and consumers to get the policy settings right in response to the emerging challenges in the agriculture sector.

A copy of Mr Keogh's speech is available at: The future of global agriculture.

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