View all newsletters
Receive our newsletter - data, insights and analysis delivered to you
  1. Analysis
May 9, 2002

Mind the gap: The gulf between consumer and suppliers prices in Oz

The discrepancy between the costs facing consumers and the prices paid to farmers is continuing to grow, but the food retailers remain adamant that they are not exploiting the market. The suppliers, however, think differently. just-food.com’s David Robertson asks: Where has all the money gone?

The discrepancy between the costs facing consumers and the prices paid to farmers is continuing to grow, but the food retailers remain adamant that they are not exploiting the market. The suppliers, however, think differently. just-food.com’s David Robertson asks: Where has all the money gone?

According to research by federal Democrat Senator John Cherry consumers are paying higher prices than ever for their food but farmers are receiving less and less. But now Australian farmers are following the lead of their colleagues around the world and fighting back as supermarkets and food processors squeeze margins.

In a study of prices from 1995-96 to 2000-01, huge gaps have appeared that Cherry and farmers believe shows evidence of profiteering by retailers, distributors and wholesalers.

During this period milk increased in price by 14.6% for consumers but dairy farmers were getting 10.8% less for their milk. Bread was 17.3% more expensive but wheat was 16% less expensive. Lamb cost consumers 10% more but farmers got 16% less. Fresh vegetables were 23.5% more expensive but farmers got 9% less, while eggs were costing consumers 16.4% more but farmers were getting 13.5% less.

Real scandal

“This looks like a real scandal, a scandal that affects every household in Australia. We are all paying more than we probably should for food, and we need to know why,” the senator told reporters.

One of the main problems has been the increasing strength of the supermarkets with Woolworths and Coles Myer now controlling more than 75% of the market following the demise of the third-placed chain, Franklins, last year. Franklins outlets have largely been sold off to the highest bidders. This has already put pressure on the smaller supermarkets and independent retailers but it is also causing problems for farmers.

Questions raised

“We are seeing very large margins between the price farmers are receiving and the price consumers are being charged which raises questions about what is going on,” Mick Keogh, general manager of policy at the New South Wales (NSW) Farmers’ Association told just-food.com.

Keogh insists that a common trick within the industry is for supermarkets to reject farmers’ produce on the grounds of quality and then offer a lower price. Because of the perishable nature of the goods, and the lack of alternative buyers, farmers are then forced to accept the new price.

The Australian parliament did investigate this practice and the whole issue of supermarket power over farmers last year, in a move similar to the Office of Fair Trading investigation in the UK. But the government has rejected parliament’s recommendation of a mandatory code of practice. Instead there is only a voluntary code and an ombudsman.

Farmers’ fear

Farmers say however that as soon as they complain they are blackballed and as a result the ombudsman is investigating only a dozen complaints. Farmers claim that the voluntary code does not go far enough and are lobbying for further changes.

The NSW Farmers’ Association is keen on replicating the US system, where the Department of Agriculture can demand full disclosure of information. In Australia, most contracts between supermarkets and farmers are verbal so a requirement for full disclosure would impose written contracts on the supermarkets.

“It would help keep the b*****ds honest,” says Keogh. “Supermarkets would tend to modify their behaviour just in case they’re investigated. The way it is at the moment it is very difficult to prove anything is unfair because nothing is written down.”

Another area of concern for farmers has been the control of the dairy industry by a small handful of milk processors. Because dairy farmers cannot transport their produce long distances (a major factor in Australian farming) they are usually reliant on one local producer, who therefore has the power to control the price.

Two months ago, the Australian Competition and Consumer Commission (ACCC) agreed that farmers using one processor could coordinate their negotiations to get the best price, a move that is usually illegal according to Australian law. But earlier this month, national dairy major National Foods initiated legal proceedings to prevent collective bargaining. A protracted battle between farmers and the dairy giants seems inevitable.

Battles to be resolved

Other processing battles are yet to be resolved. Last year, Australian potato farmers effectively refused to supply the two domestic processors in a row over price. And the two major chemical distributors are currently in merger talks, which farmers believe will lead to future arguments about monopoly control and misuse of market power.

But given the large gaps appearing between retail price and supply price it is strange that supermarket margins in Australia remain comparatively low. Both Woolworths and Coles struggle to reach 4% compared with Europe’s Carrefour (4%), Tesco (6%), Ahold (5%) and Wal-Mart (8%).

This would suggest that Australian supermarkets are not unfairly profiteering. But it is hard not to find sympathy with farmers who are facing 10% cuts in the price of their produce while consumers are getting hit with at least 10% price rises – the money is going somewhere and supermarkets will remain the target of the farmers’ unions for the foreseeable future.

By David Robertson, just-food.com correspondent

 

Related Companies

Topics in this article: , , , ,
NEWSLETTER Sign up Tick the boxes of the newsletters you would like to receive. A weekly roundup of the latest news and analysis, sent every Friday. The industry's most comprehensive news and information delivered every other month.
I consent to GlobalData UK Limited collecting my details provided via this form in accordance with the Privacy Policy
SUBSCRIBED

THANK YOU

Thank you for subscribing to Just Food