Zali Steggall calls on government to keep the grocery market competitive

28 February, 2024

The cost-of-living crisis is very real for many Australians. Many people are feeling this with their power bills, with their insurance premiums and, of course, with their grocery bills at the supermarket. There is no doubt that we have a high concentration of market control in relation to supermarket chains, with Woolies taking 37 per cent of the market share and Coles 28 per cent.

Research from the Grattan Institute in 2017 concluded that 'a few large sectors, such as banking, have become more concentrated, while others, such as supermarkets, have become less concentrated' over a period of time, and they used in that case the example of the expansion of Aldi over two decades to a 10 per cent market share. Other measures of competitive pressure have not changed much, and the Grattan Institute concluded, 'The profitability of firms in Australia has not risen much since 2000 or become more dispersed.'

But competition in our retail industries is good for consumers, and what we have at the moment is really a situation with insufficient competition, so we must look at what the drivers are and what has brought us to that place. It is basic market economics: competition protects consumers from price gouging and colluding. Still, it's vital that the ACCC be empowered to do its job to ensure that there is no market collusion, anticompetitive conduct, price gouging or third-line forcing.

So here we are. Food prices have risen sharply in the last three years, fuelling cost-of-living pressures and food insecurity. Analysis by UBS in late 2023 found that food prices at Coles and Woolies increased by some 9.6 per cent over the previous 12 months. That is considerable. Some 3.7 million Australian households experienced food insecurity in 2023—10 per cent more than in 2022. It is quite outstanding to think that, in Australia—a developed nation and a wealthy nation, by most standards—so many households are feeling food insecurity.

The supermarket chains claim that such prices are due to factors beyond their control like inflation and higher wholesale prices—that is, the cost of a product from the manufacturer to the retailer. We have six inquiries running simultaneously right now to look at this. In particular, the ACCC inquiry is focusing on the assessment of competition and how items are priced and, importantly, is also reviewing the practice of specials, which are often misleading in how they induce consumers into thinking they are getting a deal when, in fact, are proposing a higher individual price.

The Competition Review by Treasury is also looking at several retail sectors, including the supermarkets, so we have a lot of inquiries going on. I know the Treasury is also looking at the Food and Grocery Code of Conduct, with the key question being whether to make the code of conduct mandatory. I think that is an important aspect that the government must grapple with and be courageous enough, once we have all these inquiries, to actually take action on to ensure a much better Food and Grocery Code of Conduct. Ultimately, it would result in the ACCC having stronger powers of enforcement and include financial penalties for noncompliance. That would go some way to addressing the power imbalance between producers and supermarkets and ensure producers are getting a competitive wholesale price for their stock and produce.

I welcome the announcements today that came from, I think, pressure from this debate and from the discussions with, for example, Woolies in relation to now reducing the price of over 400 items. But it begs the question: why has it taken so long, and is it the public pressure that is now forcing that? It's clear that accountability and visibility on this matters, and it's so important for the government to play its role and for the ACCC to play its role.

We have to look at where this is all heading: food prices, insurance costs and climate impacts. These are all disruptive, and we know they are only going to make the cost of living more and more expensive. We know of the impacts on food prices through bushfires, record-high temperatures and floods. A 2022 report by Farmers for Climate Action concluded that drought is becoming more frequent and production is affected by lower crop yields, livestock stress and higher operational costs. We know that there are many drivers that impact these products, so, whilst there is an argument that operational costs may have risen for the supermarket chains, there also must be analysis of recent record profits delivered by supermarket giants. So we know we must have that accountability and ability to be scrutable.

Competition works if there is a balance in companies returning a profit—it is a free market—but not at the expense of consumers being gouged due to lack of alternative options. So maintaining competition is vitally important, and I urge the government to act.