The Costs of Remoteness

Geoff Frost, Lucy Williams, Adam Malarz & Dennis Byles

1

Trying to understand what costs vary and why

The real costs of living in different areas:

1. Groceries, housing, petrol, clothing & other common goods & services

2. Cost of accessing education & health services

3. Housing

Drivers & responses of consumers to price differentials

2

Why do this?

• Effects of space not just time

• Testing accepted wisdom (freight cost?)

• Well being - complements incomes and wealth work

3

Prices may vary because of: • Distance/cost of transport

• Competition

• Population/demography

• State

• Income

• Industry (structure)

• Local produce

• Tourism/seasonality

4

Locations where data was collected

5

Constructing indices

•Overall Index

•Indices for product groups

•Weighting according to the ABS’s Household Expenditure Survey

•Index compared to capitals

6

Cost is more than just price

•$ Price

•Availability & choice

•Quality differences

7

Poor grocery availability in small towns

0%

10%

20%

30%

40%

50%

60%

70%

80%

90%

100%

- 5,000 10,000 15,000 20,000 25,000 30,000

Population of analysed locations (2006)

ava

ila

bil

ity

of

gro

cery

ite

ms

8

Grocery prices higher in small towns

9

80

90

100

110

120

130

140

150

160

170

180

10 100 1 000 10 000 100 000 1 000 000 10 000 000

Population (2006)

Gro

ce

ry i

nd

ex

(2

00

6)

Individual stores: prices and threshold populations

8 19

80

90

100

110

120

130

140

150

160

170

180

- 10 000 20 000 30 000 40 000 50 000 60 000 70 000 80 000 90 000 100 000

Population (2006)

Gro

cer

y i

nd

ex

(20

06

)

10

Individual stores: major retailers have consistent price structures

8 20

80

90

100

110

120

130

140

150

160

170

180

- 10 000 20 000 30 000 40 000 50 000 60 000 70 000 80 000 90 000 100 000

Population (2006)

Gro

cery

ind

ex (

200

6)

Independent stores Major chain stores

11

Majors & independents compete on price and service

8 21

80

90

100

110

120

130

140

150

160

NT

(vr

)

NT

(r)

QLD

(or

)

NT

(r)

AC

T (

mc)

NT

(or

)

SA

(or

)

TA

S (

ir)

WA

(vr

)

QL

D (

mc)

QLD

(or

)

WA

(or

)

WA

(or

)

TA

S (

or)

TA

S (

or)

WA

(or

)

SA

(or

)

TA

S (

ir)

VIC

(ir)

VIC

(ir)

QLD

(vr

)

WA

(or

)

WA

(or

)

QLD

(or

)

QLD

(ir

)

QLD

(ir

)

WA

(ir)

VIC

(ir)

QLD

(or

)

WA

(r)

NS

W (

or)

NS

W (

mc)

WA

(ir)

NS

W (

or)

VIC

(m

c)

WA

(or

)

NS

W (

ir)

WA

(m

c)

SA

(m

c)

NS

W (

ir)

SA

(or

)

NS

W (

ir)

QLD

(ir

)

State / Territory and remoteness class (2006)

Gro

cer

y i

nd

ex

(200

6)

Independent stores Major chain stores

12

Some groups show similar patterns

13

Hardware

60

80

100

120

140

160

180

200

10 100 1,000 10,000 100,000 1,000,000 10,000,000

Population (2006)

Hard

ware

in

dex

Correlation coefficient = -0.26

Household items

50

100

150

200

250

300

10 100 1,000 10,000 100,000 1,000,000 10,000,000

Population (2006)

Ho

us

eh

old

ite

ms

in

de

x

Correlation coefficient = -0.21

Electricals

50

70

90

110

130

150

170

190

210

230

250

10 100 1,000 10,000 100,000 1,000,000 10,000,000

Population (2006)

Ele

ctr

ica

l it

em

s i

nd

ex

Correlation coefficient = -0.21

80

90

100

110

120

130

140

150

160

170

180

10 100 1 000 10 000 100 000 1 000 000 10 000 000

Population (2006)

Gro

cery

in

dex

Correlation coefficient = -0.20

Groceries

Others behave in different ways

14

Housing

0

20

40

60

80

100

120

140

160

180

200

220

240

260

10 100 1,000 10,000 100,000 1,000,000 10,000,000

Population (2006)

Ho

usin

g c

osts

in

dex

Correlation coefficient = 0.29

Unleaded petrol

90.0

100.0

110.0

120.0

130.0

140.0

150.0

160.0

10 100 1 000 10 000 100 000 1 000 000 10 000 000

Population (2006)

Ind

ex

va

lue

60

70

80

90

100

110

120

130

140

150

10 100 1,000 10,000 100,000 1,000,000 10,000,000

Population (2006)

Lo

cal

se

rvic

es i

nd

ex

Correlation co-efficient = 0.08

Local services

60.00

70.00

80.00

90.00

100.00

110.00

120.00

130.00

140.00

10 100 1,000 10,000 100,000 1,000,000 10,000,000

Population (2006)

En

tert

ain

me

nt

ind

ex

Correlation coefficient = 0.01

Entertainment

Housing costs increase with population

8

0

20

40

60

80

100

120

140

160

180

200

220

240

260

10 100 1,000 10,000 100,000 1,000,000 10,000,000

Population (2006)

Ho

usi

ng

co

sts

ind

ex

Correlation coefficient = 0.29

15

Fuel retail prices may be affected by :

• The cost of the fuel to be sold (delivered wholesale price)

• The number of litres sold (turnover)

• The size of the service station’s overheads

• Competition from other service stations

16

Location affects demand and supply

17

Diesel

Variable

ULP

1.0 Population -0.4

1.0 Remoteness (ARIA+) 0.7

-2.0

On a Freeway Not

significant

18.6 On a Minor Road 16.6

Not significant Distance from Terminal Gate (km) 0.0037

Not significant Nearest Terminal Gate Price 0.8

-1.18 State Fuel Rebates -1.17

0.70 R-squared 0.71

Significant coefficients of variables affecting fuel prices

18

Diesel

Variable

ULP

1.0 Population -0.4

1.0 Remoteness (ARIA+) 0.7

-2.0

On a Freeway Not

significant

18.6 On a Minor Road 16.6

Not significant Distance from Terminal Gate (km) 0.0037

Not significant Nearest Terminal Gate Price 0.8

-1.18 State Fuel Rebates -1.17

0.70 R-squared 0.71

Significant coefficients of variables affecting fuel prices

19

Diesel

Variable

ULP

1.0 Population -0.4

1.0 Remoteness (ARIA+) 0.7

-2.0

On a Freeway Not

significant

18.6 On a Minor Road 16.6

Not significant Distance from Terminal Gate (km) 0.0037

Not significant Nearest Terminal Gate Price 0.8

-1.18 State Fuel Rebates -1.17

0.70 R-squared 0.71

Significant coefficients of variables affecting fuel prices

20

Diesel

Variable

ULP

1.0 Population -0.4

1.0 Remoteness (ARIA+) 0.7

-2.0 On a Freeway

Not significant

18.6 On a Minor Road 16.6

Not significant Distance from Terminal Gate (km) 0.0037

Not significant Nearest Terminal Gate Price 0.8

-1.18 State Fuel Rebates -1.17

0.70 R-squared 0.71

Significant coefficients of variables affecting fuel prices

21

Diesel

Variable

ULP

1.0 Population -0.4

1.0 Remoteness (ARIA+) 0.7

-2.0 On a Freeway Not significant

18.6 On a Minor Road 16.6

Not significant

Distance from Terminal Gate (km)

0.0037

Not significant

Nearest Terminal Gate Price

0.8

-1.18 State Fuel Rebates -1.17

0.70 R-squared 0.71

Significant coefficients of variables affecting fuel prices

22

Diesel

Variable

ULP

1.0 Population -0.4

1.0 Remoteness (ARIA+) 0.7

-2.0

On a Freeway Not

significant

18.6 On a Minor Road 16.6

Not significant Distance from Terminal Gate (km) 0.0037

Not significant Nearest Terminal Gate Price 0.8

-1.18 State Fuel Rebates -1.17

0.70 R-squared 0.71

ULP Price (June 2006) & Urban Centre Population

8 10

120

130

140

150

160

170

180

190

200

0 10 000 20 000 30 000 40 000 50 000 60 000 70 000 80 000

Urban centre population (2006)

Un

lead

ed

pet

rol

pri

ce (

cen

ts/l

itre

) (2

006)

23

ULP Price (June 2006) & Urban Centre Population

120

130

140

150

160

170

180

190

200

0 10 000 20 000 30 000 40 000 50 000 60 000 70 000 80 000

Urban centre population (2006)

Un

lead

ed

pet

rol

pri

ce (

cen

ts/l

itre

) (2

006)

Less remote towns in sample Most remote towns in sample

24

Overall Cost of Living

80

90

100

110

120

130

140

10 100 1,000 10,000 100,000 1,000,000 10,000,000

Population (2006)

Co

st o

f li

vin

g i

nd

ex

25

Location is a key driver of prices

1. Demand side factors (population, passing trade) impact heavily

2. The cost of transporting goods is less important than is commonly assumed

3. Competition (the ability of customers to access other stores) caps prices

4. The overall cheapest place to live may be medium to large towns and regional cities

26

The Costs of Remoteness

Geoff Frost, Lucy Williams, Adam Malarz & Dennis Byles

27