Selling power (Duopoly) and buying power (Duopsony)
The national supermarkets’ growing ability to dictate the price of goods sold affects consumers and food market pricing within communities. Concerns over the competitiveness of grocery prices in the concentrated supermarket sector were formally outlined in a 2008 public inquiry by the ACCC, which proposed that “Australian consumers would significantly benefit if Coles and Woolworths faced more competitive threats that encouraged more aggressive pricing strategies”. Mills argues that although competition between Coles and Woolworths may once have served to keep prices low for the consumer, the food retail market is now so concentrated that the competitive pressures to keep prices lower is diminishing.
Following the 2008 ACCC inquiry, in 2010 the Federal Government amended the Trade Practices Act 1974 (now the Competition and Consumer Act 2010) to guard against ‘creeping acquisitions’—substantial mergers that have a negative effect on market competition (Palmer, 2010). This amendment has however been criticised by both large retailers (Mara, 2008) and legislators (Xenophon, 2010) for failing to define terms such as ‘unconscionable conduct’ and ‘substantial market power’. Woolworths has also been criticised for apparently pricing fresh produce at significantly more (e.g.250%) than wholesale cost (Passmore, 2008), although Woolworths contends that cost of goods make up 77% of the final retail price. The duopolistic nature of Australian food retail market is a result of diminishing food retail options, and therefore a loss of local variety.
Coles and Woolworths have also been defined as a duopsony, a ‘buyer’s duopoly’, meaning that their buying power is capable of shaping the price and conditions of sale of producers. Wardle and Baranovic write that both wholesale purchases and retail sales of groceries in Australia are “dominated by few players—effectively creating a combined duopsony and duopoly”, which may result in “lower prices paid to producers and higher prices for consumers”. Practices in this area directly affect suppliers, including farmers, processors, manufacturers and wholesalers.
In the wholesale market, the ‘big two’ have been reputed to artificially lower the price of produce by withholding purchasing for one or two days, creating an oversupply and therefore a decline in price, although this practice is formally denied by Woolworths’ CEO. The price concessions asked by these major retailers has been colourfully likened to “beating up” suppliers and “ripping off Australian farmers”. Industries as a whole can be affected, such as the Australian meat and livestock industry; because Coles and Woolworths purchase over 50% of the total young cattle market, their influence is able to keep prices low (Carter, 2008a).
Additionally, the supermarkets’ move to a ‘vertically integrated’ structure, including both wholesale and retail, has diminished the role of third-party wholesalers, and allows Coles and Woolworths to deal directly with producers. Woolworths is increasingly using the direct supply model and in 2002 reduced wholesale purchases of fresh fruit and vegetables to less than 50%, while over 95% of Coles’ beef is sourced directly from producers. This bypassing of wholesalers to deal directly with growers achieves lower costs, however smaller competing retailers using produce wholesalers are unable to achieve similar low costs. Growers may find avoiding wholesalers advantageous, as agents’ commissions and an opaque chain of supply can be avoided, however higher prices are not guaranteed.
Bigger producers are favoured by these retailers, as large volumes are required over long periods, and economies of scale can be leveraged. These practices have been blamed for reducing the viability of small fruit and vegetable growers, forcing farmers to “get bigger or get out” (Wade, 2002), as complex accreditation, quality assurance schemes, and contracts can make providing directly to supermarkets unfeasible for smaller producers (Bradley, 2002c).
A 2010 study specifically lists “duopoly of supermarkets—farmers getting low prices” as a motivation for farm diversification. Issues of unsustainability and unfairness are repeatedly raised in submissions to the 2008 ACCC inquiry into grocery prices lodged by many producers’ associations, including Bundaberg Fruit and Vegetable Growers, Western Australian Fruit Growers’ Association, the Northern Territory Horticultural Association, AUSVEG, Growcom (QLD) as well as individual producers.
These expressed concern about the lack of pricing transparency and the tendency towards “retailers using their market power to push costs, risks and responsibilities back down the supply chain”. This structure furthermore implies that producers will often deal with only one supermarket buyer, meaning that the ‘de-listing’ of products (i.e. ceasing selling them) can be catastrophic for suppliers. Evidence of corruption in dealing with suppliers is also apparent; in 2009, Woolworths terminated three executive fresh food purchasers over “irregular” dealings with suppliers, in breach of Woolworths’ policy.
In 2010, a report by the National Association of Retail Grocers of Australia (NARGA) raised concerns over “the unparalleled hyper-concentration of the grocery retailing sector” leading to more imported food products, at the expense of Australian farmers. NARGA cites decreasing food production and simultaneous increase in food values as evidence of an unsustainable retail sector. These combined factors have linked the concentrated grocery retail market with lowered profitability for farmers. The report also outlines trends in increased food consumption, declining domestic food production, and a rise in imported food, concluding that “the way forward, if the current patterns hold true, indicates further dilution of local capacity at both primary and secondary level”. Marsden et al. identify that strengthening local and regional capacity in food production is both an economic concern and necessary for sustainable economic growth and employment.
The buying power of Coles and Woolworths has been key in reshaping how fresh produce is sold, and they now exert significant influence over suppliers. This situation has come under particular scrutiny with the ‘milk war’ of early 2011 and the rise of private label goods, which reinforce the retailer’s brand rather than that of the actual producer. Aside from these factors, the influence of Coles and Woolworths in local decision-making and town planning has also generated acrimony in several communities. This has been addressed partly by a superficial ‘decorporatisation’ of the shopping experience by both Woolworths and Coles; however it should also be noted that both Coles and Woolworths have recently made material progress toward supplying and labelling locally-sourced produce with identifiable geographical provenance. This research has attempted to survey the main effects of large-scale food retailing on smaller food communities and producers. While ‘gastronomic’ or historical perspectives on food reveal a great deal of regional variation, the daily experience of food in contemporary Australia is increasingly shaped by the power and market penetration of national retailers such as Coles and Woolworths. The powerful retail sector thus problematises the discussion of ‘everyday’ food culture in Australia. The issues raised here are diverse; in particular, the adaptation of national food retailers to changing consumer awareness is a topic for future investigation. The dominance of the ‘big two’ remains a dynamic issue with far-reaching consequences for producers, communities, and consumers.
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