AUSTRALIA’S peak farmer body has said concentration of market power in the supermarket sector is causing problems for farmers, but it did not support divestiture of asset powers, and trust in the big retailers is not the issue.

The National Farmers Federation general manager trade and economics Chris Young told the Senate Select Committee on Supermarket Prices in Melbourne today that competition policy is the key.

“We get the settings right … that will allow our businesses from the checkout to the farm gate to compete, win or lose on their merit, their ability to manage capital to manage risk and not by their use or the receipt of the use of others of undue market power.”

However, Mr Young said there are issues of market concentration in some supply chains and this was supported by producers and the Australian Competition and Consumer Commission.

But Mr Young told the committee chairman Greens Senator Nick McKim it is not NFF policy to support the ACCC getting divestiture powers to bring more competition to certain market sectors.

“It is not NFF policy to support divestiture of retail assets.

“As I mentioned, we have argued for decades that if the competition policy settings right then we think the market will then function properly.

“So no, it is not our policy and I know that differs from some of our members, which is fine, we are a federation, a membership body, but that is not our policy.”

However, the NFF’s general manager rural affairs Charlotte Wundersitz said the organisatioon did support stronger merger powers.

She said there are “several levers” the NFF would like to see pulled before moving to discuss divestiture of asset powers she referred to as “reasonable but extreme measure.”

These “levers” included making the Food and Grocery Code mandatory, attaching significant civil penalties with a truly independent arbiter and greater market price transparency, she said.

“We’re here to try and advocate for a competition policy environment that allows businesses of any shape and form to compete, find their niche, find their ability to win or lose in negotiations from their own merit – whatever their structures may or may not be.

“Because when they can do that then the supply chain is resilient, it’s dynamic, it’s diversified and we think that that is the way that we ensure proper outcomes from the farm gate to the consumer,” Mr Young said.

When asked why yet another inquiry into supermarkets was being held and what has gone wrong in competition policy settings and the regulatory framework, putting family farmers and farms at risk, Mr Young said there is an evidence base of a number of recommendations for years from previous inquiries that should be implemented.

He accepted Senator McKim’s contention that many inquiries had made decent recommendations on competition policy that should “taken up with haste”, but governments had not applied them all.

“Yes, we’ve seen a number of inquiries that we don’t think the full suite of recommendations have been put into place.”

Farmers need to understand how their price is determined

Ms Wundersitz said if Australia’s competition policy was doing its job the reality is that the issues would not have continued for decades, including several from the ACCC’s Perishable Agricultural Goods Inquiry “that should have been seamless to implement and we are now sitting here four years later in the same situation reporting the same extremely concerning instances of behavior by people upwards in the supply chain.”

On transparency, and the issues of markets passing on costs quickly and savings slowly, and farmers’ increasing costs while farmgate prices reduce, Ms Wundersitz said for some products price changes in supermarkets are not reflected in the price changes growers or wholesalers are offered.

She said “to a degree” supermarkets are businesses and free to pick the price consumers pay, and it is their prerogative to do ‘specials’ or to lift other prices to even out profit.

“I think when it becomes an issue is when supermarkets point to prices in store as a justification for them why the producer might be getting less when they may not be the case.

“I think this where we talk the information asymmetry being a grave concern in those industries,” she said.

“Farmers need to understand how the price they are being paid is determined and with greater oversight and greater data and information about how supermarkets or the intermediaries in that supply chain are determining that price that they are being offered.

“That then gives the grower more power to be able to understand and make a decision on whether that is the best option for them and also have more faith in the process and in that negotiation.

Mr Young said the risk profile for some producers “is out of whack”, and information about market supply and data enabled farmers to manage their risk and not have an unfair risk burden.

“We think being able to do that, that is central to the resiliency of the supply chain which benefits them through the consumer.”

Trust versus a good competition framework

When asked if the NFF representatives trusted “the honesty of the supermarkets to do the right thing” on price transparency, Mr Young said characterizing the issue as trust “is probably not useful.”

“If we have the right regulatory settings, I don’t need to sit here and say whether I trust or not.”

The right regulatory settings will allow the appropriate flow of information and the enforcement of required contract negotiation outcomes,” he said.

“And that’s the point, that we want that framework to allow producers to make their decisions and engage in commerce and trade with the confidence that the regulatory system allows them to do that free of the misuse or otherwise of market power.”

Ms Wunderlitz said the NFF also wanted to growers to understand that they had collective bargaining powers available to them and Mr Young they needed to be able to feel they could bring their case forward free of commercial retribution.

On cost recovery plus

Labor Senator Glenn Sterle said he had spent decades fighting for cost recovery-plus in another industry and wanted to know whether the NFF’s recommendation could supply this to producers.

“We don’t talk about cost recovery-plus specifically I suppose Senator, because we believe that if the recommendations that we’ve outlined are in place, that should occur naturally,” Ms Wunderlitz said.

“We don’t necessarily believe or it’s certainly not NFF policy to stipulate that model verbatim, but what we want to see is all these factors which give growers more power in their negotiations which ensure a truly competitive market place on a fairer negotiating platform, that then that becomes a possibility.

“All commodities, in all their supply chains, the prices ebb and flow, that’s a competitive market, to a degree that’s what happens,” she said.

“What we want to see is these recommendations so supermarkets can stop using their highly concentrated and significant market power to the detriment of famers through unfair practices.”

Mr Young said a number of NFF members had raised the issue of cost recovery-plus for their specific industries.

“But the NFF’s position has always been at that competition policy principle level, that is where we engage, in that we need to make sure that we don’t have a market player, that because of their asymmetry of information, understands that cost of production and they seek to use that in their negotiations for their advantage.

“We, the NFF wants a situation whereby the producers have access to the purchasing information so that they know that they can take their capital away if they want, if they’re not keen in engaging in an exchange that allows them to sell for greater than their cost of production that they’re free to do what they want,” he said.

“Whereas now we have a marketplace that does not reflect that and we think that is advantaging the retailers, but no, we haven’t gone as far as to call for cost of production-plus.”

Senator Sterle characterised the NFF recommendations as “fluffy” and interpreted the federation’s message that if a few of its suggestions were implemented “that the big retailers will just play fair.”

He asked how the NFF’s recommendations would help farmers who knew the production costs of their short shelf life commodities when “the gorillas at the top of the supply chain say here’s our price take it or leave it?”

“I suppose the challenge we face is that if these are fluffy recommendations, why aren’t they in place,” Mr Young said.

“We  think some of the recommendations around the ACCC having greater powers … we think they will make a difference, we want that, we want them to be armed with the regulatory powers to make clear that that action is not appropriate.”

Mr Young said the NFF’s recommendations should not be ignored because of the difficulty dispute resolution represented to farmers.

Mr Young disagreed with Senator Sterle’s description of the current producer-supermarket situation as “the free marketeers just letting the market rip.”

“I think what we are seeing is not the free market being let rip,” Mr Young said.

“I think the free market is not playing out in this situation.

“If the free market was playing out perhaps some of these issues would not exist on the systemic level they are,” he said.

“We are calling for the appropriate frameworks so that the free market can …play out free of people whose commercial outcomes are being determined by supply chain participants wielding market power unfairly towards them.”

Click here to read the full NFF submission to the inquiry and here for more information on the inquiry and other submissions.