Public hearings for the Senate Select Committee on Supermarket Prices get underway in Hobart today (7 March). There have been 111 submissions to the committee since it was launched in December to investigate the price setting practices and market power of major supermarkets.
As the Australian Competition and Consumer Commission undertakes its 12-month review into the country’s retailers, and former ALP federal minister Dr Craig Emerson’s review of the voluntary Food and Grocery Code of Conduct, Greens senator Nick McKim instigated this forum.
Senate committee members are:
- Nick McKim - Greens, Tasmania
- Glenn Sterle Labor, Western Australia
- Ross Cadell Nationals, New South Wales
- Maria Kovacic, Liberal, New South Wales
- Louise Pratt, Labor, Watern Australia
- Tammy Tyrrell, Jacqui Lambie Network, Tasmania
In its latest Retail Sales forecast, Roy Morgan said spending on the Food category, which accounts for 40 per cent of total monthly retail sales, is set to grow at twice the rate of Non-Food categories.
In its submission, the ACCC, which last conducted an inquiry in 2008, recommended the introduction of an unfair trading practices prohibition, reform of current merger laws, and making the Food and Grocery Code of Conduct mandatory.
The commission said an economy-wide prohibition on unfair trading practices would, “set an improved standard of business behaviour and conduct across all markets and empower it to address unfair practices in the supermarket sector that are not currently captured by existing laws”.
A key concern for the commission was the opt out provision within the required grocery supply agreements between supermarkets and suppliers. While there are provisions to protect suppliers, the code allows a signatory to opt out of these obligations by adding terms to the agreement that undermine the protections the code is meant to provide.
“While the opt-outs are only allowed where the conduct is ‘reasonable’, our concerns remain as signatories may be able to use their superior bargaining power to get suppliers to agree to something they would otherwise not. Secondly, the opt-out provisions may impact on suppliers’ protections against unfair contract terms under the Competition and Consumer Act because terms required, or expressly permitted by a law of the Commonwealth are excluded from the UCT regime,” it said.
What this means is that fruit and vegetable growers have great protections and price information when supplying a wholesale than when they supply a major retailer.
The Food and Grocery Code requires retailers to enter into grocery supply agreements with their suppliers, but the agreement specifically excludes the relationship between a retailer a wholesale supplier.
As the ACCC said, that can be problematic.
Peak industry body, AusVeg, representing the vegetable, potato, and onion industry said there were fundamental problems that needed to be fixed before a discussion on supermarket pricing.
It said the fresh produce supply chain was at a tipping point and the industry in serious jeopardy due to a lack of profitability and compounding year-on-year losses for farmers.
It put forward 20 recommendations, the mechanisms for each reform, and actions needed.
“In many instances, the prices being paid by supermarket retailers for Australian grown vegetables are not fair or sustainable and this is making it increasingly unviable for some farming businesses to continue operating.
“The situation is so dire that 34 percent of growers have indicated to AUSVEG they are considering walking away from their farming businesses. Meanwhile, recent quarterly profit results show Australia’s grocery retail sitting in the top 10 percent globally.
“Furthermore, many of the tactics that supermarkets employ when they deal with suppliers may be considered manipulative and unconscionable, often resulting in significant additional costs to suppliers who already carry the vast majority of risk associated with growing and supplying produce.
“This includes growers having to: repack, dump, or donate cancelled orders; plough in crops grown to retailer estimated supply requirements but where significant volume is not required; dump or donate product that has been questionably rejected; and contend with what is akin to third line forcing across the supply chain,” Aus Veg’s submission said.
AusVeg provided some sobering figures, pointing out that the price they get for the produce is only part of the equation. Since 2020, the national minimum wage has increased 17 per cent, while input costs have risen – on average – 37 per cent and key inputs like fertiliser rising 107 per cent.
“Despite these major increases in the cost of production, many growers can produce evidence that prices they are currently receiving from retailers are equal to, or less than, prices they were receiving five, 10, or even more, years ago.
Although Coles and Woolworths are quick to outline that their profit margins are small (Woolworths/Australian Food Group 3.6c in every dollar, and Coles 2.57c in every dollar) based on high volume and low margins, what is not clear is the distribution of income/profits across the store categories,” its submission said.
Sidenote: A year ago, Woolworths and Coles were voted first and second in Roy Morgan’s Most Trusted Brand Awards.
For all the submissions and committee details, click here.
