Food demand in Australia: Trends and food security issues

Food demand in Australia: Trends and food security issues Lindsay Hogan Research by the Australian Bureau of Agricultural and Resource Economics and Sciences Research Report 7.7 June 7

Commonwealth of Australia 7 Ownership of intellectual property rights Unless otherwise noted, copyright (and any other intellectual property rights, if any) in this publication is owned by the Commonwealth of Australia (referred to as the Commonwealth). Creative Commons licence All material in this publication is licensed under a Creative Commons Attribution 4. International Licence except content supplied by third parties, logos and the Commonwealth Coat of Arms. Inquiries about the licence and any use of this document should be emailed to copyright@agriculture.gov.au. Cataloguing data Hogan, L 7, Food demand in Australia: Trends and food security issues, Research Report 7.7, Canberra, June. CC BY 4.. ISSN 447-858 ISBN 978--74-46-7 project 4574 Internet This publication is available at agriculture.gov.au/abares/publications. Australian Bureau of Agricultural and Resource Economics and Sciences () Postal address GPO Box 858 Canberra ACT 6 Switchboard +6 67 Email info.abares@agriculture.gov.au Web agriculture.gov.au/abares Disclaimer The Australian Government acting through the Department of Agriculture and Water Resources, represented by the Australian Bureau of Agricultural and Resource Economics and Sciences, has exercised due care and skill in preparing and compiling the information and data in this publication. Notwithstanding, the Department of Agriculture and Water Resources,, its employees and advisers disclaim all liability, including for negligence and for any loss, damage, injury, expense or cost incurred by any person as a result of accessing, using or relying on information or data in this publication to the maximum extent permitted by law. Acknowledgements The author very much appreciates information and helpful comments from Nick Blong, Usha Sriram-Prasad and Lynda Hayden from the Agricultural Policy Division in the Department of Agriculture and Water Resources, and Peter Gooday, David Galeano, Sally Thorpe, Trish Gleeson, Diane Stefaniac and Peter Berry from. Thanks also to Mihir Gupta for preparing the data visualisation tool that accompanies this report. i

Contents Summary... Introduction... 7 Long-term trends in Australia s household food consumption... 9 Recent trends... 9 Indicative projections to 49-5... Household characteristics and food expenditure in Australia... 5 Recent trends... 5 Household food expenditure by income quintile: 9-... 7 Household food expenditure by net worth quintile: 9-... Household food expenditure by age category: 9-... 5 4 Trade and Australia s food market... 9 Australia s food production and processing industries... 9 International transmission of food prices... Importance of food trade... 5 Food security issues... 8 Definitions of food security and the role of government... 8 Australia s tax-transfer system... 9 Information policies: food prices and quality attributes... 44 6 Conclusion... 48 Appendix A: Food consumption and related measures... 49 Appendix B: Food types and demand elasticities... 5 Appendix C: Private risk management strategies in food markets... 5 Appendix D: Australia s consumer policy framework and food safety... 54 Appendix E: OECD classification of taxes... 55 References... 58 ii

Tables Table Household food consumption and related indicators, Australia, selected... Table Household food consumption in Australia: assumptions to 49-5... Table Household food consumption in Australia: indicative projections to 49-5... Table 4 Household food expenditure in Australia, by food category, selected... 5 Table 5 Household characteristics and food expenditure, by income quintile, 9-... 8 Table 6 Household characteristics and food expenditure, by net worth quintile, 9-... Table 7 Household characteristics and food expenditure, by age category, 9-... 6 Table 8 Value of Australia's food trade, by food category, 5-6... 4 Table 9 Taxes on goods and services and VAT coverage, by OECD country, 4... 4 Table VAT treatment of food, by OECD country, 6... 4 Table B Estimates of food demand elasticities in Australia, by category... 5 Table E OECD classification of taxes... 56 Figures Figure S Australia's household food consumption: indicative projections to 49-5... Figure S Distribution of Australia's average household food expenditure, selected... Figure S Household food expenditure per person in Australia, by category, 9-... Figure S4 Total household food expenditure in Australia, by category, 9-... 4 Figure S5 Importance of trade in Australia's food consumption and production, 989-9 to 5-6... 5 Figure Key components in Australia's household income account, 964-65 to 5-6... 9 Figure Household food consumption expenditure per person in Australia, 964-65 to 5-6... Figure Australia's household income per person and food prices, 964-65 to 5-6... Figure 4 Australia's household food consumption: indicative projections to 49-5... 4 Figure 5 Household food expenditure in Australia, selected... 6 Figure 6 Household food expenditure per person in Australia, by food type, selected... 6 Figure 7 Household food expenditure in Australia, by income quintile, 9-... 7 Figure 8 Average food expenditure per person, by food type and income quintile, 9-... 9 Figure 9 Total household food expenditure, by food type and income quintile, 9-... Figure Household food expenditure in Australia, by net worth quintile, 9-... Figure Average food expenditure per person, by food type and net worth quintile, 9-... Figure Total household food expenditure in Australia, by food type and net worth quintile, 9-. 4 Figure Household food expenditure in Australia, by age category, 9-... 5 Figure 4 Average food expenditure per person, by food type and age category, 9-... 7 Figure 5 Total household food expenditure, by food type and age category, 9-... 8 Figure 6 Agriculture and fisheries food and non-food commodities and uses... 9 Figure 7 Australia's gross value of production of food commodities, 975-76 to 5-6... 9 Figure 8 Output and employment in key food industries in Australia, 989-9 to 5-6... Figure 9 Commodity prices and exchange rates, 989-9 to 5-6... iii

Figure Real food prices and consumption in Australia, by main food type, 988-89 to 5-6... Figure Importance of trade in Australia's food consumption and production, 989-9 to 5-6... Figure Value of Australia's food trade, by food category, 989-9 to 5-6... 5 Figure Australia's food expenditure: households highly reliant on income transfers, 9-... 4 Figure 4 Revenue from taxes on goods and services, Australia and OECD, 965 to 4... 44 Figure B Growth rates in food consumption, prices and income in Australia, 999- to 5-6... 5 Boxes Box Definitions of food security... 8 Box Information market failures... 45 Box Australian Government guidelines for healthy lifestyle choices... 47 iv

Summary In recent, has undertaken research programs that focus on two key economic aspects of Australia s food exports: world food demand to 5 and implications for Australia s food exports; and the efficiency of Australia s infrastructure and food export supply chains. To complement these research programs, this report examines trends and issues in Australia s food market with a focus on domestic food demand. Long-term trends in Australia s household food consumption In Australia, total household food consumption expenditure was $9 billion in 5-6, compared with $8 billion in 9- and $49 billion in 989-9 (in 4-5 prices). Food is a necessity good overall, although food products and services may vary widely in terms of price and quality. In high income countries, the share of the household budget spent on food tends to fall as household incomes rise. In Australia, the long-term decline in the household food budget share has slowed appreciably in recent decades the share of food in household consumption expenditure has declined from 7 per cent in 964-65 to per cent in 989-9 and per cent in 5-6. The food industry has therefore been relatively successful in competing with non-food industries in the domestic market. In addition to meeting basic nutrition and energy needs, there are several factors that influence food demand such as population, income, food prices, and tastes and preferences. The real value of Australia s household food consumption per person increased marginally between 9- and 5-6, but this followed relatively strong growth in the 99s and s (Figure Sa). A key driver of increased food demand, particularly in the millennium decade, was strong growth in income per person. Food demand increased strongly in the 99s and s despite higher real food prices. Even with no further growth in food consumption per person, total household food consumption in Australia will increase with population growth (all else constant). Indicative projections of household food consumption in Australia are derived from ABS population projections and a range of assumptions for growth in household food consumption per person. For example, if household food consumption expenditure per person increases by.5 per cent a year (medium case), total household food consumption increases to between $54 billion and $88 billion in 49-5 (Figure Sb). Figure S Australia's household food consumption: indicative projections to 49-5 a) Food expenditure per person b) Total food expenditure 6 Historical data High population growth 4-5 $ 4 Historical data High case: % growth rate Medium case:.5% growth rate Low case: no change 4-5 $b Medium population growth Low population growth 969-7 979-8 989-9 999-9- 9-9- 9-4 49-5 969-7 979-8 989-9 999-9- 9-9- 9-4 49-5 Note: Values are in 4-5 prices; CPI-adjusted data. Assumptions for food expenditure per person. Total food expenditure projections are based on the medium case for food expenditure per person. Sources: ABS 6a,b, 4,

Food expenditure trends across households in Australia The Australian Bureau of Statistics (ABS) conducts a household expenditure survey (HES) every five to six. In 9-, the latest year available, the top four expenditure categories were current housing costs (8 per cent of average household expenditure), food (7 per cent), transport (6 per cent) and recreation ( per cent). In both 998-99 and 988-89, food was the highest household expenditure category, followed by transport, current housing costs and recreation. In 9-, average household food expenditure mainly comprised expenditure on meals out and fast foods ( per cent of average household food expenditure), meat, fish and seafood (5 per cent), fruit and vegetables ( per cent), condiments, confectionery, food additives and prepared meals ( per cent), bakery products, flour and cereals ( per cent), non-alcoholic beverages (8 per cent) and dairy products (7 per cent) (Figure S). Household food expenditure patterns have changed significantly since 988-89 with, most notably, strong growth in spending on meals out and fast foods (Figure S). Meals out and fast foods accounted for 5 and 6 per cent of average household food expenditure in 988-89 and 998-99, respectively. This suggests a key driver of increased food demand in the 99s and s was a change in tastes and preferences (including lifestyle factors) from home cooking toward meals out and fast foods. Figure S Distribution of Australia's average household food expenditure, selected Meals out & fast foods Meat, fish & seafood Fruit & vegetables Condiments, confectionery etc. Bakery products, flour & cereals Non-alcoholic beverages Dairy products Other 9 998 99 988 89 4 % Note: Share of average household food expenditure. Food categories are listed by share in 9-. Condiments, confectionery, food additives & prepared meals. Sources: ABS 6a, Patterns of food expenditure vary widely across households in Australia. This study highlights the importance of considering income, net assets and the age profile of the household reference person (main person in the household who is responsible for the dwelling) in assessing trends in food expenditure see Figure S for household food expenditure per person and Figure S4 for total household food expenditure across each of these categories. For example, older households (reference person is 65 or older) may have relatively low income but significant wealth (net assets) that supports a significantly different pattern of food demand compared with other low income households. On a per person basis, average expenditure on fresh food is relatively high in older households, and comparable with (or higher than) average expenditure on fresh food in high income households; the main difference between these groups is expenditure on meals out and fast foods.

Figure S Household food expenditure per person in Australia, by category, 9- a) By income quintile quintile 5 quintile 4 quintile quintile quintile Other Dairy products Non-alcoholic beverages Bakery products, flour & cereals Condiments, confectionery etc. Fruit & vegetables Meat, fish & seafood Meals out & fast foods 5 5 4-5 $ b) By net worth quintile quintile 5 quintile 4 quintile quintile quintile 5 5 4-5 $ Other Dairy products Non-alcoholic beverages Bakery products, flour & cereals Condiments, confectionery etc. Fruit & vegetables Meat, fish & seafood Meals out & fast foods c) By age category for household reference person 65 & over 55 64 45 54 5 44 5 4 5 4 Other Dairy products Non-alcoholic beverages Bakery products, flour & cereals Condiments, confectionery etc. Fruit & vegetables Meat, fish & seafood Meals out & fast foods 5 5 4-5 $ Note: Average annual food expenditure per person in the corresponding category; CPI-adjusted data, in 4-5 prices. Each quintile comprises % of the estimated population based on gross household income (income quintiles) or household net worth (net worth quintiles) where quintile is the lowest % and quintile 5 is the highest % of households. The reference person for each household is chosen by applying, to all household members aged 5 and over, a number of selection criteria until a single appropriate reference person is identified; e.g. the person with the highest tenure when ranked as follows: owner without a mortgage, owner with a mortgage, renter, other tenure. Sources: ABS 6a,

Figure S4 Total household food expenditure in Australia, by category, 9- a) By income quintile quintile 5 quintile 4 quintile quintile quintile 4 6 8 4-5 $b b) By net worth quintile quintile 5 quintile 4 quintile quintile quintile 4 6 8 4-5 $b c) By age category for household reference person Other Dairy products Non-alcoholic beverages Bakery products, flour & cereals Condiments, confectionery etc. Fruit & vegetables Meat, fish & seafood Meals out & fast foods Other Dairy products Non-alcoholic beverages Bakery products, flour & cereals Condiments, confectionery etc. Fruit & vegetables Meat, fish & seafood Meals out & fast foods 65 & over 55 64 45 54 5 44 Other Dairy products Non-alcoholic beverages Bakery products, flour & cereals Condiments, confectionery etc. 5 4 5 4 4 6 8 4-5 $b Fruit & vegetables Meat, fish & seafood Meals out & fast foods Note: Average annual food expenditure in the corresponding category; CPI-adjusted data, in 4-5 prices. Each quintile comprises % of the estimated population based on gross household income (income quintiles) or household net worth (net worth quintiles) where quintile is the lowest % and quintile 5 is the highest % of households. The reference person for each household is chosen by applying, to all household members aged 5 and over, a number of selection criteria until a single appropriate reference person is identified; e.g. the person with the highest tenure when ranked as follows: owner without a mortgage, owner with a mortgage, renter, other tenure. Sources: ABS 6a, 4

Importance of trade in Australia s food market Food production and processing activities are typically an important part of Australia s traded goods sector that includes both export and import-competing industries. The share of food commodities in Australia s gross value of agricultural production has increased over the past four decades from 8 per cent in 974-75 to 9 per cent in 5-6 (excludes wool and raw cotton, the two main non-food commodities). Over the past 5, imports have become a progressively more significant source of food for the household sector, although most food consumed in Australia is produced in Australia. Food imports increased from $4 billion in 989-9 to $4 billion in 5-6. Overall, the share of imports in household food consumption increased from 8 per cent in 989-9 to 5 per cent in 5-6 (Figure S5). Food imports mainly comprise processed food products processed food imports increased from $ billion (9 per cent of total food imports) in 989-9 to $ billion (9 per cent) in 5-6. Figure S5 Importance of trade in Australia's food consumption and production, 989-9 to 5-6 a) Food consumption and imports b) Food production and exports 6 6 5 5 4-5 $b 8 6 4 4 % 4-5 $b 8 6 4 4 989-9 994-95 999-4-5 9-4-5 989-9 994-95 999-4-5 9- % 4-5 Household food consumption expenditure Food imports Imports/consumption ratio (right axis) Indicative food production Food exports Exports/production ratio (right axis) Note: In 4-5 prices; CPI-adjusted measures. Excludes alcoholic beverages. Indicative food production is calculated as household food consumption minus food imports plus food exports. Sources: ABS 6a,b; 6 An indicative value of Australia s food production calculated by adjusting household food consumption for net food trade increased from $66 billion in 989-9 to $4 billion in 5-6 (Figure S5b). The value of Australia s food exports also increased, from $ billion in 989-9 to $7 billion in 5-6. However, there have been three distinct phases in the relative importance of Australia s food export market, broadly corresponding to the phases in Australia s real exchange rate (international competitiveness): strong growth in the 99s the share of exports in food production increased from 9 per cent in 99-9 to a peak of 7 per cent in - and - reduced exports in the s as food was diverted to the strongly growing domestic market, largely resulting from strong income growth associated with the resources boom the food export share fell to 5 per cent in 9-5

a resumption of strong export growth in the first half of the s associated with the fall in the real exchange rate and slower growth in domestic food demand the food export share increased to per cent in 5-6. Overall, net food exports were $ billion in 5-6, indicating Australia continues to have an important international competitive advantage in food trade. In 5-6, Australia was a significant net importer in six categories: seafood; processed fruit and vegetables; soft drink, cordials and syrups; confectionary; bakery products; and oils and fats. Issues This report briefly examines key factors in Australia s policy approach that underpin Australia s high level of food security. One of the most important roles of government is to ensure the food security of the population. In general terms, food security refers to the adequate and reliable provision of food that is safe, nutritious and affordable. In aggregate, as a net food exporter, Australia produces food in excess of domestic requirements. Key domestic food security concerns relate to food access and use for low income people, particularly in regional and remote areas. Governments also have an important role in ensuring people have access to adequate food in emergency situations following natural disasters such as floods and bushfires. From an economic perspective, governments aim to address market failures and achieve distributional goals. The tax-transfer system is a key component of the overarching policy framework that contributes to Australia s high level of food security. Two mechanisms that are significant contributors to food security are: income support to low-income households through transfer payments, and exemption of fresh food in the goods and services tax (GST). The economic justification for transfer payments to low-income households is based on equity considerations. In 9-, government pensions and allowances were the main source of income in 5 per cent of total households covering per cent of the total population. support enabled people in these households, on average, to purchase food close to Australia s average in all categories except for meals out and fast food. In aggregate, food expenditure by these households was $5 billion, accounting for 5 per cent of total food expenditure in 9-. This group of households is most important for dairy products (9 per cent of total expenditure on dairy products) and least important for meals out and fast foods (8 per cent of total expenditure in this category). Fresh food is exempt in Australia s goods and services tax (GST), reducing the consumer price of fresh food (all else constant). There are two economic implications of exempting fresh food in the GST relating to key food security concerns across households. Equity implications complementing the transfer system by reducing the tax burden in low-income households; meat, fish and seafood, and fruit and vegetables are major food expenditure categories, on average, for people in households that are highly reliant on income transfers. Encouraging the consumption of fresh food consumption of nutritious fresh food has important positive health benefits for people (positive externalities), reducing future health costs to the individual and society overall (all else constant). Broad-based consumption taxes referred to as a value added tax (VAT) or a goods and services tax (GST) apply in 4 of 5 OECD countries. A wide range of VAT rates and coverage apply across OECD countries, but exemptions or reduced rates for food apply in 8 OECD countries. For example, VAT exemptions for food apply in the United Kingdom where the standard VAT 6

rate is per cent, and in Canada (for basic groceries) where the standard VAT rate is 5 per cent. By contrast, New Zealand applies a broad-based consumption tax to nearly all goods and services, including food, at a rate of 5 per cent. In addition to income and food prices, the tastes and preferences of individuals are important economic influences on consumer food choices. An important aspect of information market failure occurs when consumers are not fully informed about the quality attributes of a product or the health implications of food choices. Australian governments have had a major role in developing two important food labels that provide consumers with information about food nutrition. Nutrition label a relatively detailed guide to the nutrition content of a food product; a nutrition information panel is included on most food products. Health star rating label a summary guide to the nutrition content of a food product, implemented since June 4 on a voluntary basis by the food industry; the health star rating is a front-of-pack labelling system that rates the overall nutritional profile of packaged food and assigns it a rating from ½ a star to 5 stars where a higher star rating indicates a healthier food option. The education system also contributes to consumer understanding of healthy food choices over the longer term in two ways by teaching nutrition as part of the school curriculum, and by providing a range of healthy food options in school canteens. For example, in February 7, the NSW Government released a new healthy schools canteen strategy whereby 75 per cent of canteen menus must comprise healthy food options (such as fruits, vegetables, sandwiches, pastas and stir fries), while the remaining food options require a health star rating of.5 stars or higher. Conclusion The domestic market is important for Australia s food producers including farmers, food processors and food service providers. Food expenditure per person tends to be higher, on average, in households with higher incomes notably, the share of total food expenditure spent on meals out and fast foods is significantly higher for households with higher incomes. By contrast, the distribution of food expenditure is broadly similar across household groups based on net worth that is, households with high net worth spend relatively more on food in aggregate, but the shares spent on the main food categories are broadly similar. The food industry supplies a broad range of food products and services in response to food demand in different segments of the domestic market. There is ongoing innovation by the food industry to increase the efficiency and effectiveness of the food supply chain, including to enhance further Australia s high level of food security. For example, major food retailers have developed product lines to sell imperfect fruit and vegetables at lower prices. Patterns of food expenditure indicate there are also likely to be ongoing economic opportunities to obtain a price premium for reliable food quality attributes. 7

Introduction In recent, has undertaken research programs that focus on two key economic aspects of Australia s food exports. World food demand to 5 and implications for Australia s food exports the world s long-term food requirements are likely to be substantial, particularly as the world population is projected to increase from around 7 billion in to 9. billion in 5 and. billion in (UN ; medium variant; HLPE ). projections indicate that world agrifood consumption and imports are likely to increase markedly to 5, with relatively strong growth in food demand in the Asian region (see, for example, Gunning- Trant et al. 5; Hamshere et al. 4 a,b; ; Linehan et al., a,b). Efficiency of Australia s infrastructure and food export supply chains ensuring Australia s infrastructure and biosecurity systems allow food producers, processors and exporters to move food cost-effectively and efficiently to destination markets is a key to realising potential new and expanded export market opportunities. A preliminary economic assessment was released in November (Nguyen et al. ), followed by studies on Australia s airfreight food exports (Hogan and Morey 4), Australia s wheat industry (Nguyen et al. 5) and Australia s beef industry (Goesch et al. 5). Some background information on the farm-to-retail price spread and farm share in food supply chains in Australia is provided in Nguyen et al. (6). To complement these research programs, this report examines trends and issues in Australia s food demand. Food is a necessity good overall, although food products may vary widely in terms of price and quality. In 5-6, household food consumption expenditure in Australia was $9 billion, accounting for per cent of total household consumption expenditure (in 4-5 prices; ABS 6a,b). In this report, unless otherwise specified, food excludes alcoholic beverages and, for consistency with ABS national accounts data, all real values are given in 4-5 prices. Definitions of household food consumption expenditure and related measures are given in appendix A. The structure of the report is as follows. Trends (chapters -4) chapter briefly examines long-term trends in household food consumption expenditure, including indicative projections to 49-5; chapter examines household food consumption in more detail using household expenditure survey data; and chapter 4 examines the importance of trade in Australia s food market. Issues (chapter 5) chapter 5 briefly examines economic issues relevant to food demand in Australia with a focus on key factors in the policy approach that underpin Australia s high level of food security. Some concluding comments are provided in chapter 6. 8

Long-term trends in Australia s household food consumption This chapter briefly examines historical trends in Australia s household food consumption and three important influences on food demand: population, food prices and household incomes. Indicative projections to 49-5 are also provided. Recent trends Australia s household income account Australia s household income account provides a summary of sources and uses of income in the household sector. Household income account data are published in current prices; the data in Figure and Table are adjusted for inflation using the consumer price index (this approach is used throughout this report unless otherwise specified). In 5-6, Australia s gross household income after income tax was $59 billion of which $94 billion, or 75 per cent, was spent on consumer goods and services (in 4-5 prices). Australia s household food expenditure was $9 billion in 5-6, accounting for 7 per cent of gross household income after income tax. In aggregate, households appear to have made saving and borrowing decisions to smooth consumption expenditure over time this is consistent with economic theories of consumer behaviour such as the life cycle hypothesis whereby people tend to save and invest during their working and draw on those savings and investments in retirement. In recent decades, average annual growth rates have been more variable for household income than for household consumption, with particularly strong growth in household income in the s associated with the resources boom. Gross household income after income tax increased, on average, by.7 per cent a year in the 98s,. per cent in the 99s, 4.4 per cent in the s and. per cent in the first half of the s (Table ; in real terms). By contrast, household consumption expenditure increased, on average, by between. and. per cent a year in the 98s, 99s and s, and.5 per cent in the first half of the s. Figure Key components in Australia's household income account, 964-65 to 5-6 6 Gross income 4-5 $b 8 4 5 5 % Gross income after income tax Total consumption expenditure Food consumption expenditure 964-65 969-7 974-75 979-8 984-85 989-9 994-95 999-4-5 9-4-5 Food consumption, % of income after income tax (right axis) Food consumption, % of total consumption (right axis) Note: In 4-5 prices; variables in current prices are adjusted for inflation using the consumer price index (CPI-adjusted data). Food excludes alcoholic beverages. Sources: ABS 6a,b 9

Australia s food industry, including food products and services, has been relatively successful in competing with non-food industries in recent decades. Food is an essential household good and, in high income countries, the share of household expenditure spent on food tends to fall as household incomes rise. In Australia, the long-term decline in the share of food in total household consumption expenditure has slowed appreciably in recent decades, from 6.6 per cent in 964-65 to.5 per cent in 989-9,.4 per cent in 999- and 9.8 per cent in 5-6 (Figure, Table ). Table Household food consumption and related indicators, Australia, selected Variable Unit 979-8 989-9 999-9- 5-6 Level Population million 4.7 7. 9.. 4.4 Real food price index no. 96.9 9. 96.6.9 98.8 Household income Gross income $b 5 686 864 6 45 Gross income after income tax $b 449 587 76 59 Per person $ 575 447 846 55 567 Household consumption expenditure Food expenditure $b 4 49 6 8 9 Per person $ 885 877 5 77 788 % gross income after income tax % 9.4 8.4 8.5 7.5 7. % total consumption expenditure %.4.5.4. 9.8 Non-food expenditure $b 74 78 59 77 849 Total expenditure $b 7 47 59 8 94 979-8 989-9 999-9- to 989-9 to 999- to 9- to 5-6 Annual average growth rate Population % -.5..5.7 Real food price index % - -.4..7 -.8 Household income Gross income % -...8.4 Gross income after income tax % -.7. 4.4. Per person % -...8.4 Household consumption expenditure Food expenditure % -.5...8 Per person % -...6. Non-food expenditure % -..4..6 Total expenditure % -....5 Note: Values are in 4-5 prices; CPI-adjusted data. Food excludes alcoholic beverages. Population is end of financial year. The real food price index is the CPI for food and non-alcoholic beverages divided by the CPI for all groups multiplied by ; Base: 4-5=. Sources: ABS 6a,b, 4,

Food demand and consumption The terms food demand and food consumption are often used interchangeably but, from an economic perspective, it can be useful to distinguish between these terms. Food consumption is the market outcome based on demand and supply conditions, including international trade. The food demand curve, also referred to as the marginal benefit curve, indicates the willingness of consumers to pay for an additional quantity of food. Consumers are assumed to demand food provided the price does not exceed the marginal benefit of purchasing the food. At a minimum, food is required to meet the basic nutrition and energy needs of people. Food demand is influenced by factors such as the population, household income, food prices, food quality, and consumer tastes and preferences (including lifestyle choices). Estimates of the responsiveness of food demand in Australia to changes in price, income and expenditure referred to as food demand elasticities are presented in appendix B. For example, a USDA study provides food demand elasticity estimates for Australia (Muhammad et al. ). Price elasticity of demand measures the percentage change in demand for a good when the real price of the good increases by per cent (all else constant); for example, demand for food, beverages and tobacco in Australia is estimated to fall (rise) by. per cent if the real price increases (decreases) by per cent. elasticity of demand measures the percentage change in demand for a good when real consumer income increases by per cent (all else constant); for example, demand for food, beverages and tobacco in Australia is estimated to increase by.5 per cent if real income increases by per cent. Household food consumption per person Household food consumption expenditure per person is a useful indicator for considering economic influences on food demand other than population growth. Figure presents information on two measures of household food consumption per person in Australia. CPI-adjusted measure household food consumption expenditure is adjusted for inflation using the consumer price index (CPI), consistent with data in Figure and Table. Chain volume measure this measure provides an estimate of the quantity of household food consumption in Australia (defined in appendix A). Given data availability, the main focus in this report is on trends in the CPI-adjusted measure of household food consumption over time (chapter ) and between household groups (chapter ). However, to examine economic influences on household food consumption, it is useful to compare recent trends in the chain volume measure of household food consumption, real household income and real food prices. Household food consumption expenditure per person in Australia was $788 in 5-6, slightly higher than in 9-, but this followed relatively strong growth in the 99s and s average annual growth rates were. per cent in the 98s,. per cent in the 99s,.6 per cent in the s and. per cent in the first half of the s (in 4-5 prices, CPI-adjusted measure; Table, Figure ). There has been less variable growth in the chain volume measure of household food consumption per person in recent decades average annual growth rates were. per cent in the 98s,.8 per cent in the 99s,.5 per cent in the s and. per cent in the first half of the s.

Figure Household food consumption expenditure per person in Australia, 964-65 to 5-6 4 964-65 969-7 974-75 979-8 984-85 989-9 994-95 999-4-5 9-4-5 4-5 $ CPI-adjusted measure Chain volume measure Note: In 4-5 prices. Chain volume measure reference year is 4-5, Sources: ABS 6a,b A key driver of increased food demand in the 99s and s was relatively strong growth in household income per person (Figure ). Notably, in the 99s and s, the chain volume measure of household food consumption per person increased strongly despite higher real consumer food prices. There may also have been a change in food consumption patterns such as a shift toward higher-priced food goods and services compositional changes in household food consumption are considered in chapter. In the first half of the s, a key driver of increased food demand was a fall in real consumer food prices; household income per person also increased slightly, by.4 per cent a year on average, during this period (Table ). Figure Australia's household income per person and food prices, 964-65 to 5-6 4-5 $ 6 5 4 4 9 index no. Gross income after income tax per person Real food consumer price index (right axis) 8 964-65 969-7 974-75 979-8 984-85 989-9 994-95 999-4-5 9-4-5 Note: Values are in 4-5 prices; CPI-adjusted data. Base year for price indexes: 4-5=. Real food price index is the CPI for food and non-alcoholic beverages divided by the all groups CPI multiplied by. Sources: ABS 6a,b

Indicative projections to 49-5 Assumptions Indicative projections of household food consumption expenditure in Australia are derived from a range of assumptions for growth in Australia s population and household food consumption expenditure per person. Population projections are from the Australian Bureau of Statistics (ABS) between 5-6 and 49-5, Australia s population is projected to increase, on average, by. per cent a year in the low case,. per cent in the medium case and.6 per cent in the high case (Table ). Food consumption expenditure per person is assumed to increase, on average, by.,.5 and. per cent a year in low, medium and high cases, respectively (Figure 4a). This range is broadly representative of the range of outcomes in the 98s, 99s and first half of the s. It is assumed the strong growth rates of the s are not sustainable over several decades. Table Household food consumption in Australia: assumptions to 49-5 Variable Unit 5-6 49-5 Low case Medium case High case ABS population projections million.5 4. 7.6 4.9 Growth rate % -.5.8. Food consumption expenditure per person $ 788 8 45 5 Growth rate % -..5. Note: Values are in 4-5 prices; CPI-adjusted data. Average annual growth rate between 5-6 and 49-5. Projections for household food consumption expenditure per person are rounded to the closest $. Sources: ABS 6a,b, 4, Australia s household food consumption to 49-5 Indicative projections of Australia s household food consumption expenditure to 49-5 are presented in Table, based on the assumptions in Table. Even with no further growth in food consumption per person, total household food consumption will increase as Australia s population increases (all else constant). If household food consumption expenditure per person is assumed to increase by.5 per cent a year (medium case), total household food consumption expenditure in Australia is projected to increase from $9 billion in 5-6 to between $54 billion and $88 billion in 49-5 (in 4-5 prices; Figure 4b). Table Household food consumption in Australia: indicative projections to 49-5 Assumption Unit 5-6 ABS population projections, 49-5 Low case Medium case High case Low case: no change Total food expenditure $b 9 4 59 Growth rate % -...6 Medium case:.5% growth rate Total food expenditure $b 9 54 69 88 Growth rate % -.5.8. High case: % growth rate Total food expenditure $b 9 8 Growth rate % -...6 Note: Values are in 4-5 prices; CPI-adjusted data. Average annual growth rate between 5-6 and 49-5. Sources: ABS 6a,b, 4,

Figure 4 Australia's household food consumption: indicative projections to 49-5 a) Food expenditure per person b) Total food expenditure 6 Historical data High population growth 4-5 $ 4 Historical data High case: % growth rate Medium case:.5% growth rate Low case: no change 4-5 $b Medium population growth Low population growth 969-7 979-8 989-9 999-9- 9-9- 9-4 49-5 969-7 979-8 989-9 999-9- 9-9- 9-4 49-5 Note: Values are in 4-5 prices; CPI-adjusted data. Assumptions for food expenditure per person. Total food expenditure projections are based on the medium case for food expenditure per person. Sources: ABS 6a,b, 4, 4

Household characteristics and food expenditure in Australia This chapter uses ABS household expenditure survey (HES) data to briefly examine trends in Australia s household food expenditure both over time and in more detail in 9-. Three influences on food demand in 9- are considered: household income, household net worth and age of household reference person. Recent trends The ABS regularly conducts a survey of individual households in Australia to collect detailed information about the expenditure, income, assets, liabilities and household characteristics of households resident in private dwellings throughout Australia (ABS, p.6). HES data may be used to compare expenditure patterns and household characteristics between population subgroups such as low and high income earners. HES expenditure data are typically published as average weekly expenditure per household, although household size may vary widely across population subgroups. Since the focus of this chapter is on food demand trends across population subgroups, HES food expenditure data are presented for eight major food groups, mainly as average expenditure per person and total expenditure (Table 4). Table 4 Household food expenditure in Australia, by food category, selected Level Growth rate, % Food category Unit 988 89 998 99 9 988 89 998 99 988 89 to 998 99 to 9 to 9 Average food expenditure per person Meals out & fast foods $ 9 57 45.5.8. Meat, fish & seafood $ 74 59 678 -.. -. Fruit & vegetables $ 5 5 596...7 Condiments, confectionery etc. $ 54 475 58..8.8 Bakery products, flour & cereals $ 4 477 465. -..5 Non-alcoholic beverages $ 64 98 65.9 -.8. Dairy products $ 98 44...7 Other $ 5 54.4 4.8. Total food $ 76 4 4655.7.4. Total household food expenditure Meals out & fast foods $b.7 9.6..6 4. 4. Meat, fish & seafood $b.9.9 4.6..7.4 Fruit & vegetables $b 7.7 9.7.9..7.5 Condiments, confectionery etc. $b 5. 8.8. 5...6 Bakery products, flour & cereals $b 6.4 8.8.... Non-alcoholic beverages $b 5.5 7.4 7.9..6.7 Dairy products $b 4.5 6. 7.4..8.4 Other $b..8 5.5.5 6. 4.9 Total food $b 56. 74..5.8.8.8 Note: In 4-5 prices; CPI-adjusted annual data. Average annual growth rates. Expenditure groups are listed in order of ranking in 9-. Condiments, confectionery, food additives & prepared meals. Sources: ABS 6a, 5

In 9-, the latest year for which HES data are available, total household food expenditure in Australia was $ billion; this is higher than the national accounts estimate of $8 billion mainly because of differences in definitions and methods used to collect the data (ABS ). Recent trends in household food expenditure are broadly consistent between the two datasets (Figure 5, Table 4 and Table ). Figure 5 Household food expenditure in Australia, selected a) Average food expenditure b) Total food expenditure 5 Average food expenditure per person Average food expenditure per household 8 6 4-5 $ 5 4-5 $b 4 988 89 99 94 998 99 4 9 988 89 99 94 998 99 4 9 Note: Note: In 4-5 prices; CPI-adjusted annual data. Food includes non-alcoholic beverages. a) Total food expenditure/population. b) Average household food expenditure number of households. Sources: ABS 6a, Average food expenditure per person in Australia was $4655 in 9- expenditure was highest for meals out and fast foods, accounting for per cent of total food expenditure, followed by meat, fish and seafood (5 per cent), fruit and vegetables ( per cent), condiments, confectionery, food additives and prepared meals ( per cent), bakery products, flour and cereals ( per cent), non-alcoholic beverages (8 per cent), dairy products (7 per cent) and other food (5 per cent) (Figure 6). The main change in household food expenditure patterns since 988-89 is increased expenditure on meals out and fast foods from $4 billion in 988-89 to $ billion in 998-99 and $ billion in 9- (Table 4). The ranking for condiments, confectionery, food additives and prepared meals also increased from six in 988-89 to four in 9-. Figure 6 Household food expenditure per person in Australia, by food type, selected Other food Dairy products Non-alcoholic beverages Bakery products, flour & cereals Condiments, confectionery etc. Fruit & vegetables Meat, fish & seafood Meals out & fast foods 988 89 998 99 9 5 5 4-5 $ Note: In 4-5 prices; CPI-adjusted annual data. Condiments, confectionery, food additives & prepared meals. Sources: ABS 6a, 6

Household food expenditure by income quintile: 9- Information on food expenditure and selected household characteristics in 9- is presented in Figure 7 and Table 5 where households are divided into five groups based on gross household income. These groups are referred to as quintiles where, for example, quintile includes the per cent of households with the lowest gross household income. In 9-, average food expenditure per household ranged from $65 in the lowest income group (quintile ) to $9 in the highest income group (quintile 5; in 4-5 prices). The average household size increases with income quintile, from.5 people in the lowest income group to.4 people in the highest income group. Adjusting for household size reduces the expenditure difference between the lowest and highest income groups in 9-, average food expenditure per person ranged from $4 in quintile and $84 in quintile to $575 in quintile 5 (Figure 7a). Of the eight food groups, the main difference between income groups is expenditure on meals out and fast foods average expenditure per person ranged from $785 in the lowest income group to $55 in the highest income group (Table 5, Figure 8). Based on food expenditure patterns and other information for the lowest income group, there is likely to be a significant number of people in this group who are older, more likely to purchase food for cooking at home, and who are drawing on net assets accumulated through their working lives to maintain living standards. For five of the eight food groups, average expenditure per person was higher in the lowest income group than in the second lowest income group. Average expenditure per person in the lowest income group was the highest of all income groups for dairy products, and the second highest for meat, fish and seafood, fruit and vegetables, and bakery products, flour and cereals. Food expenditure patterns across household net wealth groups are considered in the next section. As a result of higher food expenditure per person and/or larger household size, total food expenditure increased consistently across income groups in aggregate (Figure 7b) and for each of the eight food groups (Figure 9). Total food expenditure ranged from $ billion in the lowest income group to $ billion in the highest income group (Table 4). Figure 7 Household food expenditure in Australia, by income quintile, 9- a) Average food expenditure b) Total food expenditure 6 Per person Per household (right axis) 4-5 $ 4 4-5 $ 4-5 $b quintile quintile quintile quintile 4 quintile 5 Note: In 4-5 prices; CPI-adjusted annual data. Each quintile comprises % of households based on gross household income where quintile is the lowest % and quintile 5 is the highest % of households. Sources: ABS 6a, quintile quintile quintile quintile 4 quintile 5 7

Table 5 Household characteristics and food expenditure, by income quintile, 9- Variable Unit Gross household income quintile Total 4 5 Selected indicators Demographic indicators No. households million.7.7.7.7.7 8.4 No. persons million.5.8 4.5 5. 5.7.6 Average no. of persons in household no..5..7..4.6 Average age of reference person 6 5 46 4 45 5 Gross household income and net assets Average household income $,5 46, 77,777 8,6,75 98,96 Average income per person $ 4,98, 9,7 8,949 68,459 8,478 Total household income $b 6. 77..6 99. 87.6 8.9 Average household net worth $ 55, 58,55 66,78 7,45,79,9 8,86 Household expenditure on goods and services Average household expenditure $,766 47,765 68,544 86,7 6,585 7,475 Average expenditure per person $,9,87 5,795 8,47 7,555 6,95 Total expenditure on goods & services $b 55. 79.9 5. 45.7.6 68.7 Food expenditure Average household food expenditure $ 6,5 8,78,48 4,4 9,9,97 % of expenditure on goods & services % 8. 8. 6.8 6.6 5. 6.5 Average food expenditure per person Meals out & fast foods $ 785 87,6,5,55,45 Meals out $ 48 4 58 78, 79 Fast foods $ 6 46 664 784 947 695 Meat, fish & seafood $ 7 6 644 659 757 678 Fruit & vegetables $ 65 5 546 58 669 596 Condiments, confectionery etc. $ 49 474 496 58 558 58 Bakery products, flour & cereals $ 49 46 4 467 5 465 Non-alcoholic beverages $ 49 85 4 65 Dairy products $ 65 9 64 44 Other food $ 58 6 9 78 54 Total food $ 4,,84 4, 4,7 5,75 4,655 Total food expenditure Meals out & fast foods $b.. 5.6 7.8.. Meals out $b..5.6.8 6.8 5.7 Fast foods $b.9.8. 4. 5.4 5. Meat, fish & seafood $b.8..9.4 4. 4.6 Fruit & vegetables $b.6..4..8.9 Condiments, confectionery etc. $b..8..8.. Bakery products, flour & cereals $b..7.9.4.8. Non-alcoholic beverages $b.8..6..4 7.9 Dairy products $b.9..5.7. 7.4 Other food $b.6....6 5.5 Total food $b. 4.6 9. 4...5 Note: In 4-5 prices; CPI-adjusted annual data. Food includes non-alcoholic beverages; fruit includes nuts; dairy products includes milk; condiments, confectionary etc. includes food additives and prepared meals. Each quintile comprises % of households based on gross household income where quintile is the lowest % and quintile 5 is the highest % of households. Sources: ABS 6a, 8

Figure 8 Average food expenditure per person, by food type and income quintile, 9- a) Meals out & fast foods e) Bakery products, flour & cereals 4-5 $,,5, 5 Fast foods Meals out 4-5 $ 8 6 4 quintile quintile quintile quintile 4 quintile 5 b) Meat, fish & seafood f) Non-alcoholic beverages quintile quintile quintile quintile 4 quintile 5 8 8 6 6 4-5 $ 4 4-5 $ 4 quintile quintile quintile quintile 4 quintile 5 quintile quintile quintile quintile 4 quintile 5 c) Fruit & vegetables g) Dairy products 8 8 6 6 4-5 $ 4 4-5 $ 4 quintile quintile quintile quintile 4 quintile 5 quintile quintile quintile quintile 4 quintile 5 d) Condiments, confectionery etc. h) Other food 8 8 6 6 4-5 $ 4 4-5 $ 4 quintile quintile quintile quintile 4 quintile 5 quintile quintile quintile quintile 4 quintile 5 Note: In 4-5 price, CPI-adjusted data. Each quintile comprises % of the estimated population based on gross household income where quintile is the lowest % and quintile 5 is the highest % of households. Sources: ABS 6a, 9