Illustration: Greg Bakes with apologies to Magritte
One cannot expect much from the ACCC, the toothless consumer protection agency in Australia – in particular because Graeme Samuel had been handpicked by the previous PM John Howard for his conservative credentials and re-appointed by Howard 2.0 PM Kevin Rudd this year for the same reasons one could safely assume. Nevertheless, the government commissioned 642-page report into grocery and food prices is an “insult to the intelligence of Australian consumers” (Prof. Frank Zumbo, Australian School of Business, Uni NSW).
Paul Sheehan in today’s Herald did just a small background check on Samuel’s assertion that high prices were not caused by unreasonable profit margins and a lack of competition in the Australian grocery marketplace. Sheehan found that farmers currently receive 55 cents for a kilo of potatoes, while the duopoly Coles/Woolworths sells it for $1.99 – a margin of more than 300 percent (Aldi by the way sells it at $1.99 for 2 kilos, half the price of that of the two retail giants). To explain away these differences between farm gate and consumer prices by pointing to higher oil prices (especially since truck drivers complain that they don’t get compensated properly for higher fuel costs by the two supermarket chains) or the world financial crisis has to be either bad research or ideological distortion.
Sheehan asks correctly why Woolworths for example has been able to maintain the momentum of 12 per cent profit growth for sustained periods, as its share price has grown fivefold over the past 10 years? Why has the share price in Wesfarmers, which took over Coles last year, grown from $10 to $34 over the past decade, during a period of sustained drought? Why has the combined market value of these two giants, which have the highest market concentration in the developed world, doubled to $60 billion during the past decade? Why over the same period have one in four of those employed in the farming sector walked away from farming? We won’t find any answers in Samuel’s report.
And Coles and Woolworth know how to play the game with a tame consumer protection authority. Not only have they kept prices in check during the enquiry, they also have a range of strategies that are hard to scrutinise (which should not let the ACCC off the hook). This is Sheehan’s interesting list of them, and I certainly can see some implemented at our local Coles supermarket:
Brand grinding: the big chains ask suppliers to “support their brand”. If a company wants prime shelf space, or any space at all, they have to do deals. Hence products disappear to be replaced with foreign or inferior brands, not because of consumer buying habits, but because of deals the giants extract.
Supplier grinding: the Woolworths and Coles house brands are taking growing shelf space because they can extract more money from the supply chain that way. They do so by grinding down the subcontractors who produce the products.
Choice reduction: the growth of generic brands is crowding out prime shelf space for other brands.
Animal cruelty: the factory farms supplying the big chains engage in grotesque animal husbandry, especially of chickens and pigs. It takes three months for a free-range chicken to reach maturity, but a factory-farmed chicken lives for 40 days in dark, claustrophobic, additive-riddled conditions before being slaughtered for market.
Restrictive leases: the ACCC identified the problem of restrictive leases, where big retailers receive reduced rents if another supermarket is allowed to open in a shopping centre. Aldi, which represents a real threat to the duopoly, told the ACCC inquiry its growth had been restricted by “hundreds” of such leases.
Land hoarding: the two giants hold banks of undeveloped sites, thus preventing potential rivals from developing them.
Lobbying: the big two operate an aggressive political lobbying operation and are trying to have the Trade Practices Act watered down.
The cumulative impact of the status quo is some breathtaking disparities in fairness, disparities the ACCC report barely began to acknowledge.