The Greens oppose the CPRS not because it is too weak, but because it will point Australia in the wrong direction with little prospect of turning it around in the timeframe within which emissions must peak, says Senator Christine Milne.
Grocery retail dominance is a threat to public health
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The issue of the dominance of Wesfarmers (nee Coles) and Woolworths in Australia’s retail grocery sector is often discussed as if it is a matter of purely economic importance. This is not entirely without reason — it is true that the market dominance is problematic for smaller players wanting to enter the market, and has also had marked effects at the farm and on product manufacturers. However, it is much more than just an economic issue — it also raises major public health concerns. It is becoming more and more apparent that increased market concentration results in higher prices and lowered choice — a pattern observed not just in Australia but replicated in studies from Finland, Britain and the United States. And we already know that affordability and access are the major factors affecting healthy food consumption, and that improving these does more to promote better eating habits than any public health intervention. People generally want to eat healthier, but if we do not address the issues that are making healthy foods less affordable and accessible, or restrict choice, crude efforts to increase consumption will be in vain. This is not a fringe issue — we regularly hear facts such as up to 30% of cancers may be linked to inadequate fruit and vegetable intake, or that poor nutrition now affects the health of developed nations more than smoking. Food quality may also be compromised in a concentrated retail environment. Vertical integration and the increasingly complex distribution networks of major retailers often means that perishable foods have a longer time between the farm gate and the plate (and may therefore be nutritionally compromised) than those purchased in smaller retailers such as independent greengrocers and butchers — who are often significantly cheaper as well. The British Competition Commission has recently announced that it will advise the government to add a “competition test” to all new supermarket applications. This test would stop a retailer opening a new (second) store in an area if it already controlled 60% of grocery sales within a “ten minute drive” or if there were less than three other retailers in the area. It also requires the Office of Fair Trading to be a consultant to local planning authorities on all new development applications in excess of 1000 square metres. Consultation with major retailers resulted in concessions being made on extension of existing stores, but this is limited to 300 square metres — and only if they had not previously been extended within the last five years. One of the interesting things emerging from the Commission’s report was that it acknowledged that the demise of smaller players and retailers — and the impact on high streets around Britain – was a bad thing not only for the consumer in terms of the hip-pocket, but also had broader negative social implications. However, the Australian Competition Consumer Commission (ACCC) seems to believe that competition law exists in a vacuum, and that non-economic factors — such as those pertaining to social capital or health – are not important so long as the letter of competition law is not broken. In its report last year on competition in the grocery retail sector, the ACCC actually acknowledged the potential for increased market concentration to negatively affect access to healthful foods, but suggested that such issues were not within its mandate. Whilst this is true, the issue should have been referred to an organisation with such a mandate. It is easy to bash the grocery heavies, but at the end of the day these are just companies doing what their shareholders expect them to do — use the systems available to them to maximise profit and accelerate growth. The real issue is the various upstream factors that have allowed this dominance to play out. These factors are multi-factorial and require a number of approaches. Planning policy could be used to promote the development of new retail options, and encouraging sustainable competition via these means will be far more effective than designing legislation specifically to break up the duopoly. The rebirth of the high street encourages competitive retail environments, but also requires a concerted effort to ensure these areas remain accessible, attractive and affordable. The idea of encouraging farmers’ (or even non-farmers’) markets and artisanal foods is also worthy of consideration, though efforts need to be made to ensure they are made broadly accessible rather than just trendy and overpriced. The idea of ensuring food security by promoting home gardens and urban agriculture may also have a role to play — though in cities like Brisbane this may require tweaking water restriction laws. Legislative tools may also be useful — would consumers stand for the significant rebates and fees major retailers charge producers if they were listed alongside unit pricing? They ultimately pay for them, after all. It is clear that a multi-faceted approach is required — one that looks at social and health factors as much as economic ones. Perhaps it is time to look at developing healthy policy throughout government, not just specific health policy. Jon Wardle is lead author on the article “Is lack of competition in the retail grocery sector a public health issue?” published this week in the Australian and New Zealand Journal of Public Health. |
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9 Comments
Two questions Jon:
1. “would consumers stand for the significant rebates and fees major retailers charge producers if they were listed alongside unit pricing?”
What rebates and fees?
2. “the Australian Competition Consumer Commission (ACCC) seems to believe that competition law exists in a vacuum”
Are there not rampant anti-competitive practices prohibited in the TPA which the small business community don’t know about so ACCC never receives a complaint?
You Sir,
are a very silly man
You’re welcome sir. Something to add?
Sorry James,
my post was meant for the writer of the article and the strange conclusions he makes based on seemingly unrelated research.
Unfortunately i sent early by mistake and on reflection decided my extra comments were probably wasted anyway.
My questions maybe weren’t clear, and hopefully anyone might answer them, not just Jon. Even you, Mr Bennett.
1. Rebates and fees being charged to producers by retailers is news to me, so yes consumers ought to know.
2. There seem to be a lot of examples of anti-competition laws not just loopholed around but outright flouted as a matter of routine in Australian business — why? Is it because the laws make it impractical to prove violations, or because the ACCC has no resources, or because the small business community is too fragmented to have any clout, or what?
Sorry James, in that case no offence, I take back my retort, and let’s be friends. Someone with a similar name to yours took an extraordinary exception to me in another thread last month.
Looks like no discussion here, so Jon if you read this at any stage …
- I thought it was a great article, please write more
- Some of the points in it assume some knowledge which I don’t have, so left me a bit confused
- The effects of market oligopoly and vertical integration on food prices, food quality, and farmers’ control of their own business, is of great concern. I’d like to know a lot more than I do. Primary production barely gets a mention in metropolitan current affairs.
- The rumours I’ve heard, but not got any detail on, are that independent farmers find it hard to sell produce to Coles or Woolworths, who prefer to buy their land, employ them as production managers, and then marginalize other independent farmers until they sell their land too. Food quality and affordability goes downhill as a result.
Jon Wardle asked me to post these responses to the readers’ questions on his behalf:
Q: What are these rebates and fees? Rebates and fees being charged to producers by retailers is news to me, so yes consumers ought to know.
Slotting fees, listing fees and other fees are charged by most major retailers for the privilege of having your product present on their shelves (http://en.wikipedia.org/wiki/Slotting_fee). In fact the major retailers nearly do as well from selling their shelf space as they do from selling product – the ACCC report estimated that perhaps as much as 30% of the major’s turnover came from such fees. This is concerning for a number of reasons. Firstly, it is a source of income simply not available to smaller retailers and makes it even harder to compete. It also unfairly advantages private label foods who do not have to pay such fees. Lastly, it artificially inflates the price of foods and this is passed on to the customer, or it artificially provides an increased (though hidden) ‘profit margin’ for the majors, allowing them to undercut other retailers when required (without incurring costs). This is all of course perfectly legal, but should be transparent if the customer is ultimately affected in terms of both choice and price. Interestingly, the only major retailer of note that doesn’t charge such fees is Walmart, so surely you must be able to do alright even without them.
Rebates are another issue – and by and large they remain a trade secret. Producers are often forced to pay various rebates – including one for being paid on time – for the privilege of doing business with the majors. The majors also dictate the weekly specials and producers – not retailers – are often forced to absorb the costs of these promotions through other various rebates – the majors usually enjoy the same profit margin regardless of the end price of the product. The major’s control of market shelves also allows it to squeeze even more discounts and rebates from suppliers – who really have nowhere else to go (unless they’re willing to forego 80% of the market). The other issue that is also understated is what is known as the waterbed effect – whereby the market power of the majors, and the rebates and discounts that forces the wholesale price down for them, but raises it for competitors. The end result is that whilst the majors do often have the cheapest prices, the reduced competition actually raises prices overall. In other countries there is legislation to curtail this behaviour when it reduces competition – like the Robertson-Patman Act in the US.
Q. The effects of market oligopoly and vertical integration on food prices, food quality, and farmers’ control of their own business, is of great concern. I’d like to know a lot more than I do. Primary production barely gets a mention in metropolitan current affairs.
I discussed these a little in the original article, which can be found at http://www.ncbi.nlm.nih.gov/pubmed/19811487 - please email me on the details provided there if you are having difficulties accessing the full-text. What it highlights is the growing divide between farm-gate prices and retail prices. Further to this are the increasing restrictions and rebates placed on many farmers who supply the majors. Stephen Long’s report on Four Corners from last year (http://www.abc.net.au/4corners/content/2008/20080901_woolies/interviews.htm) and the submissions site of the original ACCC report (http://www.accc.gov.au/content/index.phtml/itemId/809228) are excellent information sources to begin with. The issue is also undergoing investigation in Britain, though the Competition Commission there seemed far more proactive despite lower levels of concentration (http://www.competition-commission.org.uk/inquiries/ref2006/grocery/)
Q. The rumours I’ve heard, but not got any detail on, are that independent farmers find it hard to sell produce to Coles or Woolworths, who prefer to buy their land, employ them as production managers, and then marginalize other independent farmers until they sell their land too. Food quality and affordability goes downhill as a result.
Contract farming is not just a major retailer issue, it is also increasing due to other food manufacturers (such as canned or frozen food producers) and other food retailers (like major fast-food chains). Numerous studies highlight the nutritional benefits over smaller farms than larger ones, and the viability of many rural communities is dependent on a healthy small and medium farming sector. The only retailers who consistently support local and smaller producers are the smaller, independent and often specialised retailers like butchers and greengrocers. Even in metropolitan areas the foods are usually sourced fresh from the markets as opposed to contracted arrangements. Also, the bulk of research shows that decreased retail (and wholesale) competition results in both lower prices for producers as well as higher prices for consumers. Many of my comments supporting the local greengrocer and butcher have a lot more to do with the health aspects of delivering fresher food to the broader community and supporting local producers than any anti-corporate stance. This is the thrust behind highlighting this as a health issue as much as an economic one, as food retailers do have a gatekeeper role in providing healthy nutrition to the populace.
Q. There seem to be a lot of examples of anti-competition laws not just loopholed around but outright flouted as a matter of routine in Australian business — why? Is it because the laws make it impractical to prove violations, or because the ACCC has no resources, or because the small business community is too fragmented to have any clout, or what?
The “competition law exists in a vacuum” comment stems from the fact that the ACCC has quite a narrow mandate. Essentially it is forced to take a lawyer’s view of issues. In many cases the ‘letter of the law’ is not actually broken and therefore the ACCC is powerless to stop it. This is why we suggested that mandate expansion needs to be considered that takes into account social and health impacts on the community and consumers. This makes sense considering that these often form the bulk of community concerns it investigates.
The other issue is that the ACCC also requires complaints to be made before acting – in many cases it is not fragmentation but rather fear that stops many legitimate complaints being made. This is certainly true in the case of farmer’s in this situation, who are often happy to discuss this privately but often do not discuss details of their dealings with the major retailers for fear of reprisal. The ACCC needs to work on evidence – though the major problem so far seems to be the absence of evidence, rather than evidence of absence of anti-competitive behaviour. This is a view shared by former ACCC chairman Alan Fels and even acknowledged in the ACCC report – which suggested that some suppliers feared genuine retribution if the ACCC supplied or investigated their concerns and therefore remained silent.
Q. You Sir, are a very silly man
Thank you, but surely we could all do with a little silliness now and then. I would be more than happy to comment on something more specific.
Thank you Jon for taking the time to answer questions so thoroughly.
I’m gobsmacked. I knew the large retailers were enjoying anticompetitive advantages but I had no idea of the extent, and of the
You’re right about the health issue. As late as the early 90s I used to buy whole lunches of high quality fresh fruit very cheaply; it’s now a luxury item and a whole lunch of fresh fruit costs as much as a restaurant lunch. And the quality has gone down. Vertical integration should at the very least result in faster gate-to-shelf time but the reality of the tasteless tomatos and bananas in the major supermarkets, which go from unripe to rotten without ever actually ripening, shows the opposite.
I’m also gobsmacked that Kevin Rudd thought the answer to all this was to post prices on the internet. Talk about “neoliberalism”. From the information you provide, I can now see that GroceryWatch would, if anything, have made it worse.
It seems that outlawing one or another anti-competitive practice is like cutting off hydra heads. Someone can always think up a new one. Is the answer to simply legislate de-integration and force all retailers to source produce in straightforward purchases from farmers’ markets within a certain radius? (The radius to be based on the type of district and the required volume of turnover.) Or have things gone so far as to make that politically impossible.