Domestic Lamb

Price gouging inquiry prompts calls for competition reform

Sheep Central, February 7, 2024

NSW Farmers president Xavier Martin.

NSW Farmers has called for meaningful competition reform after a supermarket price gouging report confirmed supermarkets are failing to treat farmers and families fairly.

The Australian Council of Trade Union’s ‘Inquiry into price gouging and unfair pricing practices’ led by former Australian Competition and Consumer Commission chair Allan Fels has made several recommendations to improve price transparency and equity for consumers and farmers.

The inquiry has recommended:

  • that there be a comprehensive ACCC inquiry into competition and prices in the retail food and grocery industry.
  • that the Food and Grocery Code Review be fully mandatory and;
  • that the review investigate creating a price register for farmers to assist them in understanding market prices across primary industries.

The Albanese Government bowed to industry and political pressure to announce an ACCC inquiry into supermarket food pricing last month, including examining the difference between farmgate and retail pricing.

The inquiry found that supermarkets and food processors have disproportionate market power to farmers and because of their size and customer reach, wield considerable influence over the pricing and marketing of agricultural products.

“They are often the primary, if not the sole, buyers for many farmers’ produce, giving them substantial bargaining power.

“While both Coles and Woolworths contend they are not price setters in the market, due to Australia’s ability to export its produce globally they often hold exclusive relationships with producers,” the inquiry found.

“This power imbalance allows these large entities to dictate terms and prices to farmers, who, due to the perishable nature of their products and lack of alternative market avenues, often have little choice but to comply.

“Consequently, farmers are frequently caught in a position where they must accept prices that may not adequately cover their production costs or reflect the fair value of their labour and investment,” the inquiry found.

“When input costs for farmers have risen (such as feed, fertilizer, or labour), or when there is a supply shortage leading to increased farmgate prices, supermarkets are quick to pass these costs onto consumers.

“However, the reverse is not always true,” the inquiry’s report said.

“When farmgate prices fall due to increased supply or reduced input costs, these reductions are not always promptly or fully reflected in retail prices.

“This asymmetry benefits retailers and processors, who can maintain or even increase their profit margins, while farmers and consumers see less of these benefits.”

Serious and intensive reform needed – NSW Farmers

NSW Farmers president Xavier Martin said the findings of the inquiry only strengthen the NSW Farmers’ case that serious and intensive reform is necessary within our nation’s supermarket sector if fair prices for farmers and families are to be achieved.

“For too long this staggering lack of competition in the sector has enabled the major supermarkets to exercise unfair market power over farmers and suppliers, leaving them with pitiful prices as profit margins increase.

“It’s not fair on farmers and it’s hurting families – and action to bring this behavior to account is long overdue,” he said.

NSW Farmers said the inquiry found government had failed to pay enough attention to pricing practices by supermarkets, who used ‘profit push’ pricing systems to extract huge margins from farmers and consumers.

“Professor Fels’ report clearly states that supermarkets have continued to drive their own profits up while failing to increase the prices farmers receive for their product at the farm gate,” Mr Martin said.

“The sector has also taken advantage of the lack of competition to exercise their power over consumers in a way that has added even more undue pressure on Australian households, as they face a cost-of-living crisis and significant inflation.

“All of this shows that meaningful competition reform must be set in motion – and now – before farmers are forced out of business and families can’t afford to pay their grocery bill.”

‘Rockets and feathers’ pricing

The inquiry report said ‘rockets and feathers pricing’ occurred when those at the top of a supply chain experience an upward price shock, they raise the prices like rockets, but when the reverse occurs, they fall like feathers.

“The upshot of this dynamic is that consumer surplus is eroded, prices stay higher for longer and the task of monetary and fiscal policy makers to control inflation is that much harder.

“A recent example that drew much media attention concerned the price of meat,” the inquiry report said.

“Lamb prices for farmers fell heavily many months before this was passed on in prices. On the other hand, there is some evidence that when lamb prices rose retail prices rose more quickly.”

Prompting comparisons to saleyard livestock purchasing behaviour, Professor Fels said in the report’s foreword that the ACCC, “worthy though it is, is restricted to looking at unlawful anti-competitive agreements – for example, when competitors agree on prices.”

“If two firms, for example, coordinate their prices without any illegal communication, that behaviour is outside the scope of the Act.

“If governments take actions which have the effect of raising prices, that is also outside the scope of the Australian Competition and Consumer Act,” he said.

The inquiry’s report said enhancing transparency across the supply chain is crucial.

“This could be achieved through initiatives like mandatory reporting of pricing structures and margins by supermarkets and processors (subject to any competition concerns) and the development of platforms that provide farmers with more information on market trends and pricing.

“Finally, supporting farmers in forming cooperatives or collective bargaining groups could empower them to negotiate more effectively with large buyers. Such measures would contribute to a more balanced and equitable agricultural sector, benefiting both producers and consumers.”

Labor too slow to act on supermarkets – Nationals

Nationals leader David Littleproud said inquiry reinforced that the Federal Labor Government was too slow to act on supermarkets.

Mr Littleproud said Professor Allan Fels’ recommendations,indicating supermarkets are taking advantage of shoppers, come after The Nationals called for ACCC to be directed to investigate the clear evidence of meat and fresh produce price disparity between the farmgate and the checkout prices since November 2023.

The Nationals also offered the government support to introduce big stick legislation as early as December 2022.

“The latest report into supermarket price gouging confirms what we already know – government policy, or Labor, is not paying sufficient attention to high prices and it needs to,” Mr Littleproud said.

“Labor could have started the ACCC investigation before Christmas, but didn’t understand the scale nor severity of their cost-of-living crisis.”


Your email address will not be published. Required fields are marked *

Your comment will not appear until it has been moderated.
Contributions that contravene our Comments Policy will not be published.


Get Sheep Central's news headlines emailed to you -