Following the release of its 12-month Supermarket Inquiry interim report, and with hearings due to start this week, the ACCC has released the latest submissions from a range of industry bodies, which highlight unaddressed concerns.
One issue raised in multiple submissions, with strong input from the Australian Food & Grocery Council (AFGC), was the impact of rising costs eroding industry profits and placing the food sector in a high-pressure situation.
Although some costs, including a range of commodities, energy, and shipping have slightly moderated, they continue to be above pre-COVID levels with other costs increasing.
In its submission, the AFGC highlighted that over the past three years, energy and gas costs have gone up by more than 50 per cent, sugar is up 46 per cent and packaging is up to 30 per cent more expensive. Since late 2023, cocoa prices have spiked about 200 per cent. These vital expenses are affecting manufacturers, as wholesale price increases to supermarkets do not fully reflect manufacturing costs, the council said.
The current inflationary environment was preceded by years of costs rising faster than wholesale prices, meaning manufacturers had already “trimmed the fat”. While they continue to adopt efficiencies where they can, they now risk “cutting into the bone”.
“Faced with ongoing cost pressures, manufacturers offset where possible but are often left with the difficult decision of whether to increase prices, reduce pack size, reduce quality, or cease local production completely.
“The reality is that it’s tougher than ever for manufacturers in Australia,” said AFGC CEO Tanya Barden.
“The hard truth is that manufacturing costs have soared, creating a supply-side inflation issue that calls for supply-side solutions.”
With profits not high enough to re-invest into business expenses, such as upgraded equipment and technology, Australian manufacturers are struggling to keep costs competitive with imports.
The AFGC aims to combat this issue, encouraging the government to adopt a cost of doing business agenda and develop a long-term strategic focus to boost productivity and global competitiveness of Australian manufacturing.
The council stated a move to increased automation and digitisation through government tax incentives and other policies would bolster productivity and help keep Australia’s largest manufacturing sector globally competitive.
The submission from the Australian Fresh Produce Alliance (AFPA) explicitly addressed the rising cost of energy and labour as key drivers of production costs rising. Its recommendation was also government-focused, suggesting a study to quantify the impact of key cost drivers on the food production sector, and to develop projects and investments to mitigate these issues.
Although these policy initiatives would take some time to put in place, both the AFGC and AFPA recommend government-led reform and support for the food and beverage production industry to tackle the discrepancy between cost and profit.
FGCC under scrutiny
Stronger changes to the Food and Grocery Code of Conduct (FGCC) were also a focus of the AFGC submission, aiming to improve commercial relationships between retailers and suppliers through more specific terminology.
The organisation stated it was disappointed that the review of the code did not consider improvements for specific and targeted provisions used by industry with their trading partners, particularly highlighting range reviews, delisting, or price increases, despite being in the Terms of Reference.
From the AFGC submission: “While the price increase process determines the wholesale price, suppliers do not ultimately receive the full wholesale price for the goods they sell to supermarkets. This is because the grocery supply agreements between suppliers and supermarkets typically contain a wide range of deductions made by the latter.”
The AFGC stated more work needs to be done to ensure real improvements to these clauses that could strengthen their use and make a tangible difference to supplier protections. As the next opportunity for a code review is not for five years, it seems unwise to settle it before the results of the ACCC Inquiry are revealed.
Next steps
On 7-8 November, the ACCC will livestream its hearing with consumer advocacy groups, supplier industry representative bodies and suppliers. That will be followed by hearings with senior executives from Aldi on 11-12 November, Metcash on 14-15 November, Woolworths on 18-19 November, and Coles on 21-22 November.
The final report is due to the treasurer by 28 February 2025, in which the ACCC will settle its views and make findings on issues and any recommendations to address any harms, if required.
All industry submissions following the Interim Report released so far are available on the ACCC website here.
