Factors which Impact on Food Product Development. External Factors

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Beverly Stewart
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1 Factors which Impact on Food Product Development External Factors

2 Syllabus Link:

3 What does External Mean? No Control Exterior External Foreign Outside

4 What are the External Factors that Impact on FPD? External Factors: Those factors that affect food product development and are often beyond the manufacturer s control. These are also referred to as the macro-environment. External Factors that Impact on FPD include: Political Economic Ecological Technological

5 Economic Environment

6 Economic Factors impacting on FPD The state of the economy can affect food product development. A new product idea may work well when consumers have a high income and the economy is successful, however, the idea may fail in tougher economic times.

7 Economic Factors impacting on FPD All economies experience changes in the level of activity. These include; Recession Tax Rates Expansion Import and Export Tariffs Boom Wage Agreements & Salary Levels Contraction Level of Unemployment Changes in Inflation Rates Drought Changes in Interest Rates Natural Disasters Exchange Rates

8 The Economic Cycle

9 The Economic Cycle Recession Definition: Occurs when the economy of a country declines, resulting in less disposable income, lower capacity to pay for goods and services, and decreased employment. Effects: Consumers purchase less food; they may continue to eat out, however, opt for cheaper fast-food outlets. Consumers are less willing to try new food products, therefore, new product development declines. Business running costs increase and profits decline; some companies go bankrupt and close down.

10 HSC Questions For a food company, which of the following is most likely to occur during an economic recession? A. An increase in personnel numbers B. A decrease in quality assurance procedures C. A decline in new food products being released D. An expansion in the range of products available

11 Expansion Definition: Occurs when the economy grows in terms of production, employment opportunities and introduction of new products. Effects: Levels of prosperity increase and more items, including high-value foods, become available for consumers. Decreased unemployment. Consumers start to buy more products because they feel more secure financially and have more money to spend.

Boom Definition: Occurs when consumers spend more money, eat at better restaurants and try more new products. It is when a country s economy grows too fast.

12 Boom Definition: Occurs when consumers spend more money, eat at better restaurants and try more new products. It is when a country s economy grows too fast. Effects: Companies are more confident in expanding their operations and product ranges. New businesses appear. Unemployment rates are low. Governments may in turn raise interest rates and this could discourage companies to introduce new food products.

13 Contraction Definition: Occurs in the economic cycle with effects similar to, however, less severe than those during a recession. Effects: Disposable income, consumer spending, business spending and new product development are all affected.

Changes in Inflation Rates When inflation goes up, there is a decline in the purchasing power of money. For example; if inflation rates increase by 2% then a packet of gum will increase from $1.

14 Changes in Inflation Rates When inflation goes up, there is a decline in the purchasing power of money. For example; if inflation rates increase by 2% then a packet of gum will increase from $1.00 to $1.02. Inflation causes changes in cost of ingredients, equipment, wages and processing. Effects: Manufacturers will need to pass on the cost to consumers by increasing the price of their products.

15 Changes in Interest Rates Companies frequently need to borrow money to enable them to buy new equipment and technology or to upgrade existing operations in other ways. Effects: To cover these higher costs, the producer may raise the price of its products.

16 Exchange Rates Australian food manufacturers frequently import materials and technology from overseas. If the Australian dollar is stronger than foreign currencies, the imported goods cost less; if the Australian dollar is weaker, the imported goods cost more. Effects: Food manufacturers will either charge more or less for their products.

17 Tax Rates Company taxes can change; usually more often when a new government is elected. Such changes affect company profit margins and are reflected in prices paid by consumers. Import and Export Tariffs Tariff: A tax imposed on imported goods. These tariffs can affect the retail prices of food products.

18 Wage Agreements and Salary Levels If a food manufacturer has to pay its employees higher wages, these costs are usually passed on to consumers. On the other hand, as consumers earn more, they have more disposable income and may buy more food.

19 Level of Unemployment Low levels of unemployment place less strain on government social services, and taxes can remain low, so many consumers have more disposable income and may buy more food. Drought Australia is a dry continent because of its low rainfall and the arid nature of many areas of the continent. We experience periods of drought that lead to a decline in food production. This decreases the availability of many foods and ingredients. During periods of drought, food manufacturers often import these commodities for higher prices and therefore, charge consumers more for them.

20 Natural Disasters Crop and animal production in Australia are sometimes disrupted by natural disasters, including floods, hail storms and cyclones, which devastate the production of specific commodities.

21 HSC Questions Question 26: How does the food industry adjust its pricing structures in response to changes in the economy? (6 marks)

23 Marker s Comments: In better responses, candidates clearly showed how the food industry responds to changes in the economy in terms of pricing structures. A range of pricing structures, such as penetration pricing, price skimming, competitive pricing or status-quo pricing, was used by these candidates to highlight the relationship between pricing structures and the economy. Mid-range responses provided characteristics and features of the economy and the way(s) the food industry adjusts its pricing structure(s). The link between the economy and pricing structure(s) was often limited to prices go up or prices go down. These candidates also stated how consumers respond to changes in the economy and not the food industry. Weaker responses provided only general information on pricing structure(s) or the economy, rather than making evident the link between them.

25 Political Environment

26 Syllabus Link:

27 Political Factors impacting on FPD Australian manufacturers, producers and distributors of food are all subject to regulations made by federal, state and local governments. At a federal level, the most prominent regulatory body is Food Standards Australia and New Zealand (FSANZ), which, in principle, coordinates and oversees food regulation throughout Australia and NZ. In NSW, regulation is at a state government level and the food industry is controlled by the NSW Food Authority (part of Food Act 2003). Local Government in NSW is in partnership with the NSW Food Authority on food regulation. Local Government deals specifically with local issues, including; health inspection matters and zoning laws.

29 Political Factors impacting on FPD Similar pressure from overseas countries can also affect domestic food manufacturers. For instance; tariff barriers, trade restrictions, and factors relating to food inspection, quality and safety can restrict the ability of local manufacturers to trade in some export markets. Non-Government Organisations Other political influences arise from non-government sources such as lobby groups. For example; The Australian Consumers Association and the National Farmers Federation (NFF). Recently, the NFF worked closely with farmers to deal with the drought and adopt strategies to ensure enough water for their crops in the future.

30 Ecological Environment

Ecological Factors impacting on FPD Today there is a concern about endangerment of species and environmental damage because of issues such as; pollution, land degradation and

These issues affect consumer attitudes to such things as recycling, biodegradability of packaging, pollution of the atmosphere and waterways, use of pesticides and waste

31 Ecological Factors impacting on FPD Today there is a concern about endangerment of species and environmental damage because of issues such as; pollution, land degradation and inadequate waste disposal. These issues affect consumer attitudes to such things as recycling, biodegradability of packaging, pollution of the atmosphere and waterways, use of pesticides and waste disposal. Companies have developed a range of strategies to address consumer concerns and enhance the marketability of their products. These strategies include; use of recyclable and biodegradable packaging, better air pollution control, environmentally friendly processing and transport, more efficient energy use and waste disposal.

32 Technological Environment

33 Technological Factors impacting on FPD Changes in science and technology affect the development of new food products. These include Extrusion, Ultra High Treatment (UHT), Modified Atmosphere Packaging and Genetic Engineering. One of the biggest technological issues in the food industry is GM Foods. It is also the most controversial. Food Additives as well as fat and sugar replacements offer specific opportunities for new foods such as; reduced energy content, better storage life and superior quality.

Technological Factors impacting on FPD New technology offers manufacturers the benefits of improved production efficiency, expanded product range and increased market share, as well as lower costs

34 Technological Factors impacting on FPD New technology offers manufacturers the benefits of improved production efficiency, expanded product range and increased market share, as well as lower costs and labour requirements. Therefore, GREATER PROFITS! Greater automation in the food industry may have some disadvantages such as decreased employment opportunities and the need for staff to be retrained.

Economics Challenge Online State Qualification Practice Test. 1. An increase in aggregate demand would tend to result from

Economics Challenge Online State Qualification Practice Test. 1. An increase in aggregate demand would tend to result from 1. An increase in aggregate demand would tend to result from A. an increase in tax rates. B. a decrease in consumer spending. C. a decrease in net export spending. D. an increase in business investment.