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Our Supermarket Serfs
By John Rich
(This article was written in 2008. Since then the situation has continued to intensify. We retain this article on the website in the hope that consumers will give some consideration to the sponsoring of the corporate monopoly on food distribution in this country.)
Viewers of ABC TV’s Four Corners program, aired on the 1st September, would have seen an excellent presentation hosted by Stephen Long titled “The Price We Pay”.
The focus of the story was about the domination of the Australian food market by two retail giants, Woolworths and Coles, noting that this is amongst the highest concentration of retail power in the developed world.
I thought there were a number of issues raised which should be cause for concern to agricultural producers in Tasmania who have a linkage to the influence of the enormous buying power and price manipulation in the market place by Coles or Woolworths.
A few years ago it was claimed that Tasmania produces about 70% of Australia’s frozen processed vegetables. That is a big number and even if it is not quite right these days, due to increasing imports, we can take it that we are still the major supplier of frozen processed vegetables to Australian consumers.
Coles and Woolworths are reported by Stephen Long to collectively have about 70% of the Australian grocery market, 60% of the dairy market and about 50% of the fresh food market. It does not stop there. These giants also now dominate retail fuel and liquor outlets.
I was surprised to hear Graeme Samuel, the Chairman of the Australian Consumer and Competition Commission (ACCC) indicate that he sees this domination of the food trade by Woolworths and Coles as being “workably competitive”.
I have been around long enough to know, from first hand experience, that farmers are generally in the weakest of bargaining positions when it comes to the prices they want (or need) to receive for their products. Farmers who have a contract to supply Coles or Woolworths will never ever speak out about their perception of any misuse of market power being exerted by the buyers, unless of course, they have decided that enough is enough and they will choose to no longer supply either of these companies. In many cases the farmers are locked into the system through on-farm investment and have difficulty in opting out.
Four Corners highlighted the fact that farmers receive about 10% of the retail value of fresh produce from Coles and Woolworths. From past experience, this fits with my understanding of the situation. The program tracked pumpkins through the Woolworths system to prove this point. Mr Michael Luscombe the Woolworth’s CEO tried to explain there is a big cost in handling, cutting, weighing, wrapping and pricing pumpkins. As John McEnroe might have said, “Mr Luscombe, you cannot be serious”.
It seems the ACCC does not see any issue with what is surely a continuing widening of the gap between what the grower receives and what the consumer pays, not forgetting the pre-determined margin always able to be obtained by the retail supermarket giants.
The indication from the Four Corners report is that the Coles and Woolworths margin is 40%. How many growers would like to get that type of margin on top of their cost of production?
The supplier pricing mechanism also has to account for specials. When the Supermarkets provide a special price, who pays? The grower does, that’s who. The grower is told that his product is to be specialled during the next week and he WILL reduce his price by an amount to cover the special. One grower interviewed by Four Corners indicated that this can be 20% below the current market price. This is savage treatment and if the grower resists he can be assured his supply will be reduced or terminated altogether. Remember, Graeme Samuel of the ACCC sees the supermarket giants as being “workably competitive”. I don’t think so, Mr Samuel.
One former grower has informed me that Coles and Woolworths can invite their contracted suppliers to nominate the price they will be prepared to receive for supply during the next week. They then play one grower off against the other (because the buyers are skilled and because they can) and if one grower’s price is higher, he can expect to supply less or even nothing against the other lower priced grower in the week ahead. This has nothing to do with supply and demand, just the power of the buyer having influence and dominance over the supplier price.
The price issue does not stop there. The suppliers, if they want to get paid in a reasonable time, can offer to give a rebate to the supermarket for the payment to be made. What a performance, a further example of market power. I remember, from some years ago, the then Edgell management people talking about the high cost of doing business with Coles and Woolworths and the erosion of the Edgell margins just to stay on the supermarket shelves, etc. I reckon the situation would be much more severe now and I have a great deal of sympathy with Australian manufacturers trying to keep their share of the supermarket trade through Coles and Woolworths.
I want to get back to the frozen processed industry in Tasmania . The supermarkets are moving away from what was once known as “house brands” into what is now called “private label”. This means that the identity of what is probably an iconic Australian brand name, established over many years will disappear and will be replaced by Coles or Woolworths private labels. Reg Clairs, former CEO of Woolworths is concerned that too much emphasis on private labels could put brand names in some peril. I think he’s right. Private label does not identify who produces the product and certainly gives the buyer the opportunity to source the product from anywhere in the world. The tiny print which states “product of wherever” is often hard to find.
Reg Clairs also said he was worried about the ultimate destiny of food manufacturers in Australia. He indicates that global manufacturers will take the power base. Yes, this should be cause for concern in this country.
This Four Corners presentation has highlighted an opinion I have had for some time, that Tasmanian producers of vegetables for the frozen processed trade need to rapidly obtain information about where their industry is headed. They need to understand the pressures being placed on their buyers, Simplot and McCain, in dealing with these supermarket giants.
Growers, you can be assured the neither Coles nor Woolworths will show you any loyalty for your many years of solid and dedicated supply in the past. If they cannot maintain their pre-determined profit margin, your price will be further squeezed and you will probably be dumped altogether in favour of imported frozen products. That situation is happening right now.
The Supermarkets will not be interested in the fact that the playing field is far from level. Growers and processors in have to comply with a host of rules and regulations not necessarily applying to producers in other countries. Things such as minimum wages, health and food safety standards, occupational health and safety, workplace standards, pesticide regimes, increasing input costs for items such as fuel, fertiliser, electricity and council rates to name just a few. We cannot escape the fact that for a variety of reasons we are high cost producers.
Tasmanian vegetable industry leaders and the Tasmanian Government should be concerned for the future of vegetables production in this State. I have not yet seen anything to tell me that proper attention is being given to this issue.
We do know that in Tasmania , we produce some of the best, safest and highest quality food in the world. That should count for something , but, does it, in the eyes of the supermarket buyers?
Written by:
John Rich
for Tasmanian Country
19th September 2008
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