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Option contracts require high demand uncertainty in the supply chain in order to be effective. The perspectives of interviewees regards to the consumers’ demand were asked in the interviews. The questions attempted to highlight the demand patterns and reasons of demand fluctuations. This section describes the findings regarding consumers’ demand patterns from different angles in the supply chain, the potential reasons, and also the dependency of demand, supply and price will be discussed.

Consumers’ demand for fruits can be investigated into two time frames. The first time frame studies the demand during one season. The second time frame explores the demand patterns from season to season over the years. Since fruits are seasonal, demand for one specific fruit could vary from this season to the next season.

Consumers’ demand fluctuates during the season. This causes uncertainty into the supply chain. The fluctuations are observed in all four studied fruits; however the patterns and reasons vary from fruit to fruit.

G2:‎Demand‎is‎very‎fluctuated‎during‎one‎season,‎November‎till‎Christmas‎it’s‎a‎very‎busy‎ time. You can sell a lot of fruit but the availability is an issue. There are not many people growing in these regions, that is why usually prices are set high. Regions are northern territory and‎central‎Qld‎.‎…When‎we‎get‎to‎sunraysia‎which‎is‎75-80 % of the Australian grape are produced here usually early mid-January. From January to Easter is the pick time for selling the‎fruit.‎It’s‎a‎busy‎time‎with‎a‎lot‎growers‎and‎fruits.‎

Demand is weather sensitive. The average daily temperature of the season impacts on the consumers’ demand for summer fruits. Grape and strawberry growers and marketers report that consumers demand for more grapes and strawberries in sunny and warm days. If the summer is reasonably warm, then they observe demand increasing. The interviewees believe this is because grapes and strawberries are easily eaten fruits with people gatherings and picnics.

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fruits. A temporary jump in demand occurs as consumers demand that produce to make the recipe. The interviewees express that this sometimes make difficulties in fulfilment of consumer demand as the demand increases over supply.

Other key factors to demand are supply volume and price. Supply availability and price have reverse relationship to each other. The more supply is available, the less price is paid. Therefore, consumers are stimulated to purchase more fruit and demand increases.

Demand is price sensitive. This means the price fluctuations influence on demand. Lower prices on luxury fruits such as stone fruits and mangoes increases the demand. However, price fluctuations could not impact on essential fruits such as apples and bananas. Consumers tend to purchase these fruits despite high prices.

Fruit demands are also highly interdependent. This means demand for one fruit impacts on the other fruits demand. Consumers select limited kinds of fruits among the similar ones. Considering the diversity of varieties for each fruit, there are many options available for the consumers to choose. Competition between the produce is generated due to similarities in taste and nutrition. The demand for one produce is highly correlated to the demand for other produce.

For instance, the summer season of 2013 was a productive season for peaches in Australia. The price of peaches dropped below other similar products such as pears. Due to the price and affordability, customers were encouraged to buy peaches more than pears. The pear industry faced low demand. Then the price of pears dropped dramatically to compete with the peaches’ price, even lower than the cost of production. The growers did not pick the fruits and left them on the trees. The Victorian pear growers dumped more than half of their crop. Cross advertising also impacts on fruit demand. This means promotions on other food products could increase demand in one type of fruits which matches taste with other foods. For example, promotions and price reductions on ice-cream might increase the demand for strawberries. This is because consumers like to eat them together or make a dish with both products.

Chapter Six

Although fruit demand fluctuates during the season depending on the weather, price, quality and promotions, the demand for specific fruit from year to year follows the same pattern and is predictable, according to the interviewees. They have observed increase in demand in past decade which is mainly the result of population growth.

The interviewees believe that the demand fluctuations are a result of supply changes, and therefore is supply driven. The retail chains change the consumers demand in fruits by supplying cheaper fruits, higher qualities or even promoting new varieties using celebrity cooks’ recipes.

The finding of the demand in fruit chains and its impacts on option contract will be discussed in the next chapter where the demand uncertainty requirement is tested.

6.7 Chapter summary

This chapter described the supply chain structure and its players. Direct grower, indirect grower, marketer, supplier and Supermarket as the main players in the chain were clearly defined. The Supermarket trades directly with the direct growers and marketers in private negotiations. The supply chain is a single dyad with one grower and one supermarket when the Supermarket trades with the direct grower. The supply chain becomes a double dyad with grower, marketer and the Supermarket involved in the chain.

The chapter explored the details of the chain processes in single and double dyad relationships. These processes, which impact on the contractual relationships between the players, were identified as planning, information sharing, ordering, negotiations and pricing, in-store promotions, and quality maintenance.

All the costs involved in the supply chain were explained from grower, supplier and Supermarket perspectives. The cost parameters are crucial in this research because in order to design and implement option contracts it is necessary to understand all the relevant cost parameters to be applied in cost functions.

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Consumers’ demand was also investigated in this chapter. Demand patterns from different angles in the supply chain, the potential reasons, and the dependency of demand, supply and price were discussed.

The next chapter applies the findings of this chapter to examine the option contracts requirements in actual fruit supermarket chains. The main requirements are: being a retailer-led supply chain, having high demand uncertainty, and being able to set fixed price, fixed amount and fixed time of exercising contract. Further, the extra requirements which need to be considered in designing an option contract in fruit supply chain will be identified and discussed.