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.

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.

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.

are a very silly man

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?