CHARTS: How An Influx Of 'Dumped' Italian Tomatoes Is Pulping SPC Ardmona's Profits

These tomatoes were free. Photo: Getty / David Ramos

Australia’s Anti-Dumping Commission (ADC) recently released the interim report of its investigation into the dumping of imported Italian canned tomatoes on the Australian market.

SPC Ardmona, currently fighting to keep its Shepparton canning factory alive and seeking $25 million from the federal government, appealed to the trade umpire in June last year saying that Australia’s canned tomato market was being flooded with Italian product – “dumped” here at prices below normal market value.

SPC Ardmona says the imports reduced its market share, profitability and cash flow and following an analysis of imports between July 2012 and June 2013, the ADC agreed . It has asked the government to introduce dumping duties of up to 26.35% for some Italian exporters in a bid to once again level the playing field.

The ADC’s finding in part counters claims by the Prime Minister and some of his Cabinet that conditions at the plant were too generous, a point SPC Ardmona made itself when it released details of its employment conditions last week.

Below are a series of charts from the Anti-Dumping Commission’s report which explain what’s happened to SPC Ardmona as a result of dumping practices by Italian competitors. The explanations also come directly from the 63-page report.

It’s worth noting that the ADC concluded that around 82% of tinned tomatoes are sold by supermarkets and that Aldi and Victorian-based Leo’s Imports, who supply Annalisa tomatoes, refused to co-operate with the ADC’s investigation.

The Commission also noted arguments that supermarket private label strategies were in direct competition to SPC, had pushed prices down and, in part, encouraged the flood of Italian products. It said:

The Commission has also been advised that one particular supplier ceased price negotiations for the supply of a fixed volume contract as prices had fallen below the cost of production.

The Commission agrees with the view that the private label strategy of the supermarkets has contributed to the competitive environment in the Australian market. This in turn has contributed to suppliers of Italian imports seeking to secure the fixed volume contracts at prices less than the normal value.

Here’s what else they found

The cheaper tomatoes get, the more we buy

This first chart shows the high and low range retail shelf prices of 400g chopped/diced tomatoes during the 12-month investigation period. The ACD found similar pricing patterns were for 800g cans too.

Here’s what the Commission says:

Within each of the label categories, further price differentiation was evident which largely reflected differences in the recipes or quality of tomatoes. Whole, chopped or diced cans were generally evenly priced on a per kilo basis, followed by organic and value added goods.

To examine these prices the Commission requested point of sale selling prices from the retailers. This included sales from the major retailers except Aldi Partnership. The available data confirmed the tiers of pricing discussed above.

The Commission found that for the goods under investigation, in particular SPCA’s goods, proprietary Italian labels and the premium private labels, sales volumes notably increased in response to price discounting. The Commission examined the impacts of price discounting and volume impacts from the information supplied by retailers and found a strong correlation between price reductions and increase sales volumes.

When Coles introduced its ‘Down Down’ campaign, it pushed down prices for everyone

It looks like people stock up the pantry when premium canned tomatoes are on sale. This chart shows the impact on sales for premium private or proprietary labelled tomatoes in response to retail discounting and demonstrates how highly responsive consumers are to cheaper prices.

The Commission says:

The Commission also examined the generic or value end of prepared or preserved tomatoes with regard to price elasticity of demand and found that pricing was static in this category and the volume sold moved more in line with seasonal trends — a slight tapering of sales volumes in the warmer months.

In April 2011, Coles extended the ‘down down’ promotional strategy to its premium private label reducing a 400g (net) can from $1.19 to $0.80 (retail price). This dramatically changed the retail pricing of Italian prepared or preserved tomatoes.

The relevance of the ‘down down’ program is that Coles indicated that price will remain low.

Later on, the Commission explains what happened as a result – and it includes SPCA losing shelf space:

For suppliers of proprietary label products, a promotional plan is required to be submitted to the retailer in advance of sales being made. This plan sets out the marketing and promotional strategies being put forward by the supplier. A promotional plan may translate into price discounting off the standard shelf price which is funded by the vendor.

The Commission was informed that because of the high price elasticity of the goods, higher promotional spending results in greater sales volumes.

SPCA indicated that maintaining sales volume in the major supermarkets is important. Products that continue to underperform will at some point be replaced with alternative products. Consequently SPCA has to promote its goods to maintain sales volumes; however, SPCA supplied the shelf layout plans for Coles and Woolworths shelf space being offered for their prepared or preserved tomatoes was shows the this space offered to SPCA has been declining.

SPC’s market share got hammered over three years from dumping

Italy kept pushing more and more tomatoes onto the Australian market – more than half of them were dumped – and SPC went backwards, along with other rival importers, as a result.

Here’s what the Commission says:

It highlights that SPCA’s market share decreased from June 2010 until June 2012 before improving slightly in the investigation period reflecting SPCA’s sales volumes trend. Since June 2010 to June 2013 SPCA’s market share has decreased approximately 34%.

In contrast, the market share of Italian prepared or preserved tomatoes increased by approximately 27%, whilst the market share for countries other than Italy decreased by approximately 83%.

Of note, the market share for the Italian goods has been increasing in a declining market putting greater pressure on the Australian industry to maintain sales volumes and market share.

The volume for the Italian goods has increased during the injury analysis period by 16% to June 2013 whilst SPCA’s volume has fallen by 39% in the same corresponding period.

To assess the impact of dumped imports, the Commission estimated the volume of Italian dumped goods to be approximately 56% of the total Italian goods exported to Australia during the investigation period.

The Commission has found that dumped imports of prepared or preserved tomatoes from Italy have been a contributing factor to the Australian industry suffering injury in the form of lost sales and reduced market share during the investigation period.

Four years ago, it was a pretty fair fight before undercutting by the Italians increased dramatically

Coles cut prices using Italian imports, but denied that it had any impact on SPC.

Here’s what the Commission says:

On a product specific basis, a comparison of weighted average selling prices over the investigation period shows that Italian prepared or preserved tomato retail prices for chopped, diced and whole peeled tomatoes were between 16% and 55% below SPCA’s prices. For value added products, the Italian retail prices were below SPCA’s prices by approximately 30% to 35%.

Evidence provided by SPCA indicated that as soon as the ‘down down’ program commenced the volume of the Coles brand Italian 400g diced tomatoes rose dramatically and was sustained.

This decrease coupled with the demand elasticity of the goods meant SPCA needed to react to these retail price demands. SPCA considered that the ‘down down’ program made other retailers change their pricing policies.

Coles stated that the Australian industry’s products do not compete head to head with Italian imports as there is specific demand for the Italian goods. However Coles did indicate that customers will readily switch between labels depending on price and other promotions. Coles submitted that the tendency for customers to switch was less likely at the value end of the pricing tiers.

The Commission examined the price sensitivity of the goods and considers that the goods priced in the upper three tiers of the supermarket pricing strategy are very price sensitive.

The Commission considers that purchases of Italian imports at dumped prices have allowed retailers to maintain their reduced shelf prices for generic private label products

While SPCA cut costs 2 years ago and increased productivity 2 years ago, revenue dropped even faster from discounting

As SPCA tried to adjust to new lower priced market, the prices of dumped tomatoes put any options beyond the reach of the company staying viable and hurt the local production and actually increased production costs as they were forced to increase marketing spend while at the same time increasing discounts.

Here’s what the ACD said:

The Commission considers that purchases of Italian imports at dumped prices have allowed retailers to maintain their reduced shelf prices for generic private label products and provide for a margin of undercutting that is greater than what it otherwise would have been in the absence of dumping.

The retailer pricing strategies, the degree of undercutting evident at both the wholesale and retail level and the consumers’ propensity to change brands depending on price, has placed SPCA under pressure to react with a promotional and marketing campaigns aimed at discounting its prices in an attempt to maintain sales volume and market share. SPCA’s promotional activities during the investigation period have directly impacted on its net unit revenue. Of particular note, is the decrease in SPCA’s unit cost to make and sell (CTMS) which stems from a reduction in the number of employees and other efficiency gains implemented in its operations.

Notwithstanding the fall in its costs, SPCA’s net unit revenue fell at a greater rate in the investigation period, as the company attempted to minimise falling sales volumes from aggressive price competition from dumped imports on retail shelves. This ultimately resulted in SPCA incurring greater unit losses in the investigation period than at any other time during the injury analysis period.

The Commission has found that dumped imports of prepared or preserved tomatoes from Italy have been a contributing factor to the Australian industry suffering injury in the form of price depression and price depression.

And here’s what happened to SPCA’s profitability during the dumping period.

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