Stroll into your local Coles and you’ll find lamb cutlets at $29 a kilo. If Woolworths is your preference, you’ll fork out $34 a kilo.
For livestock producer and National Farmers Federation president David Jochinke, these numbers don’t add up as he’s sold lamb at the sale yard for less than $4 a kilo in some instances.
“The price of the animal halved. Why didn’t that follow through?” he said.
“If prices are reflective of what farmers get, the price should reduce. Consumers should benefit from that,” Jochinke added. “Why’s there no fluctuation? How are they doing pricing?”
The grocery checkout bill has become one of the most contested issues shaping Australian politics this year. After two years of cost-of-living pressures – sparked by pandemic-induced supply chain knots and Russia’s war on Ukraine – led to higher inflation, Australians have watched their interest rates, mortgages, rent and grocery prices climb, with mounting frustration.
Shoppers have found rising food prices difficult to reconcile with the supermarket giants’ billion-dollar profits, while farmers such as Jochinke, grappling with soaring fertiliser and fuel prices, are mystified about the gap between what they’re paid for their produce and how much they’re buying it back at the checkout.
Parties on all sides of the political spectrum are keen to show Australians they are acting on the issue. A Senate inquiry, led by the Greens and supported by Labor, will examine whether supermarkets are price gouging and profiteering from high inflation. Prime Minister Anthony Albanese has warned supermarkets to pass on savings and has directed Treasury and the finance department to look at cost of living measures in his next budget. Queensland premier Steven Miles last week penned a letter to the bosses of Coles, Woolworths, IGA and Aldi outlining his concern about the gap between farmgate and checkout prices.
Nationals leader and shadow agriculture minister David Littleproud has accused the government of not doing enough by taking the wrong route in holding supermarket giants to account, arguing that an inquiry led by the competition and consumer watchdog would be faster, have more power, be more targeted, and be led by competition professionals rather than by politicians.
Experts have expressed doubts about some of Littleproud’s claims. University of NSW Faculty of Law and Justice associate professor Katharine Kemp said an ACCC price inquiry would indeed examine market power, uncover any obstacles to competition, and bring clarity to factors behind pricing.
“Given the complaints currently raised, inevitably there’d be a significant focus on Woolworths and Coles, [and] nowadays Aldi’s impact as well,” Kemp said. “But if anyone is expecting that an ACCC price inquiry would lead to the ACCC deciding that Woolworths and Coles have substantial market power and should be forced to pay farmers more or charge consumers less, they’d be disappointed.”
An ACCC inquiry would not mean the government would be able to set how much farmers get paid by wholesalers or retailers, but the watchdog could make findings on competition, market power, and recommendations to government about whether current legislation or codes of conduct were working as intended, she added.
UNSW professor and Clayton Utz competition partner Kirsten Webb batted away Littleproud’s assertions that an ACCC inquiry “could have given feedback and recommendations before Christmas”.
“ACCC inquiries of this kind generally take time,” Webb said. “[It doesn’t] give the ACCC any special powers to take any actions against any businesses that are the subject of the inquiry.”
Meanwhile, former Labor competition policy and consumer affairs minister Craig Emerson has been appointed to review the food and grocery code of conduct, a non-legislated commitment established in 2015 to improve business behaviour standards in the sector. The economist will assess whether the code, currently voluntary, should be made mandatory, and whether there should be an independent consumer complaints handling body.
These are measures that farmers have wanted to see for a long time.
“Farmers want to have transparency and fairness when they’re negotiating prices for products,” said Jochinke, who added that the concentrated market meant there were “very few” opportunities for farmers being treated unfairly to have their claims dealt with.
The Australian Competition and Consumer Commission enforces the code and provides guidance for supermarkets about their obligations, but doesn’t resolve disputes, provide legal advice or investigate individual supplier complaints about a retailer or wholesaler.
“If you do speak up and identify yourself, the chances of getting a contract in the future reduces.”
Are supermarkets really price gouging?
Supermarket giants Woolworths and Coles, which hold at least 64 per cent of combined market share, have born the brunt of the criticism about food prices. Meanwhile, discount supermarket Aldi is gaining new customers and has observed a steady uptick in foot traffic.
The ASX-listed Coles reported $1.1 billion in net profits, while its larger rival Woolworths posted $1.6 billion for the 2023 financial year. Neither of those figures represent a marked increase on previous years. Their profit margins sit at 5 to 6 per cent, which is comparable with international peers and “slightly higher” than pre-COVID levels.
IGA operator Metcash, with just 7 per cent of market share, is a minnow compared to the market dominants, posting profits of $259 million in the 12 months to April 30 last year.
“The reason for [higher prices at the checkout] is not purely around profitability,” MST Marquee senior retail analyst Craig Woolford said. “A lot of that is higher costs right across the value chain whether it be transport, freight costs, raw materials, shortages of labour. They’ve all gone up a lot in the last three years. That explains the increase in prices, largely.”
“About 70 per cent of [the price of items sold in supermarkets] is the product cost that the supermarket’s buying that product for from a supplier. So a lot of it reflects the costs that they’re incurring in the first place.”
The scale of their operations can help keep costs down, but Woolford said whether this was advantageous or detrimental to consumers wasn’t clear-cut.
“There is naturally a lot of scrutiny on the supermarkets to ensure they’re treating their suppliers fairly. But it’s a vague term,” he said. “What is fair?”
According to figures compiled by investment banking firm Barrenjoey, reported in the Australian Financial Review, the various costs involved in running a supermarket have increased by double digits since COVID. The wage bill has risen 19 per cent, rent is 16 per cent higher, electricity has lifted 10 per cent and insurance is up 26 per cent.
In the current climate, Coles and Woolworths have been eager to demonstrate they are lowering prices, pointing to 12 to 14.5 per cent declines in fresh produce prices in their most recent quarterly results.
Overall inflation is starting to show promising signs of cooling. The most recent CPI data fell to its lowest level in two years in a better-than-expected result that saw fuel prices come down by 0.5 per cent in November. Rent, insurance, financial services, alcohol and tobacco prices remain at higher than comfortable levels, but fresh produce like seafood, fruit and vegetables have come down thanks to favourable weather conditions.
Though fresh produce is in the spotlight, it’s not the area that has retained the most “sticky” inflation: commodity-sensitive products like cereal, dairy, cocoa and sugar have remained more expensive for longer. “This does keep pressure on certain processed foods such as chocolate,” said Rabobank senior retail analyst Michael Harvey.
On the day Emerson was appointed, Coles moved to slash prices on 300 products in a savings program that will end on January 23. Woolworths, meanwhile, has extended its Christmas price saving program across 400 products to the end of February.
But the pair doesn’t have a spotless track record when it comes to pricing. Last September, Coles blamed a ticketing error after this masthead inquired about items “on special” that were actually more expensive than the original listed price. In December, it was forced to apologise after prematurely raising prices on “locked” items. This masthead also found that the same common pantry items were priced more highly at Woolworths Metro stores.
Small-scale grocers are frustrated by the struggle of contending with the supermarket duopoly.
“Master Grocers Australia is concerned about the concentration of market power amongst dominant operators within the grocery retailing sector,” said Martin Stirling, head of legal at the association, which represents independent business owners including some IGA operators.
“The independent grocery retailing sector does not have the substantial market power of the dominant grocery retail operators, and rather than seeking to dominate supply chain relationships, is instead focussed on fostering collaborative relationships with its suppliers.”
Smaller grocers face the same business pressures common to all industries – including rising costs across energy, insurance, transport and complex industrial relations rules – but without any of the resources of their larger-scale competitors, Stirling added.
Exposing Coles and Woolworths’ pricing strategies will be at the heart of the Senate inquiry expected to start next month, which chief executives Brad Banducci and Leah Weckert have committed to fronting.
Jochinke says the goal isn’t to target the supermarkets specifically, but to look at the supply chain as a whole.
“If the supermarkets have clean sheets, let’s find out where they sit and find out where the issues lie,” he said.
“There are a few other players that need to face up and answer questions: processors, road, rail, air, people who operate them. How efficient are they?”
“If the processors are gouging, let’s look at them.”
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