Australia’s vegetable industry in serious jeopardy, suppliers warn

Australian fresh produce suppliers have warned that the future of the country’s vegetable industry is in serious jeopardy and supermarkets’ “manipulative and unconscionable tactics” are sending farmers who are already at tipping point over the edge.

The situation is so dire that more than a third of vegetable growers told their peak industry representative, AUSVEG, they are considering walking away from their farming business, according to the group’s 38-page submission to the Senate supermarket pricing inquiry.

Coles and Woolworths together control 65 per cent of the Australian grocery market.Credit: Louie Douvis

“The prices being paid by supermarket retailers for Australian grown vegetables are not fair or sustainable and this is making it increasingly unviable for some farming businesses to continue operating,” AUSVEG stated in its submission.

“Furthermore, many of the tactics that supermarkets employ when they deal with suppliers may be considered manipulative and unconscionable, often resulting in significant additional costs to suppliers who already carry the vast majority of risk associated with growing and supplying produce.”

Australia’s big supermarkets are facing a fresh Senate inquiry over their market power and pricing decisions amid claims they are profiteering from rising inflation.

Coles and Woolworths, which together make up 65 per cent of the market share, have come under increased scrutiny after reporting a lift in profit margins above pre-pandemic levels as well as above their counterparts in more competitive markets, such as the United Kingdom and United States.

Woolworths’ earnings before interest and tax increased from 4.4 per cent in 2022 to 4.8 per cent in 2023, while Coles’ earnings before interest and tax decreased from 5 per cent in 2022 to 4.8 per cent in 2023.

In the UK, Tesco’s food margins have been between 3.3 per cent and 4.2 per cent in the past two years, Sainsbury’s between 1.8 per cent and 3.8 per cent, and Morrisons’ between 1.4 per cent and 2.6 per cent, according to the Institute of Grocery Distribution. In the US, Kroger makes about 2.8 per cent, and Walmart 3.3 to 4.5 per cent.

The Senate probe has received more than 100 submissions, including from a range of industry peak bodies, regulators and politicians.

The Australian Consumer and Competition Commission (ACCC), which is investigating supermarket pricing including the difference between the prices received by producers at the farm gate and paid by consumers at the checkout, in its submission called for economy-wide prohibition on unfair trading practices and a mandatory food and grocery code.

Unfair trading practices are particular types of commercial conduct that are not prohibited but can distort competition, such as member-only pricing that pushes consumers to sign up to rewards programs.

“The ACCC considers [banning those practices] will set an improved standard for business behaviour and promote better conduct across all markets,” the regulator stated. “It will give increased confidence to consumers and small businesses, which in turn will promote well-functioning markets and economic dynamism.”

Several peak bodies highlighted the imbalance of the negotiating power between the major supermarkets and their suppliers.

NSW Farmers said supermarkets were offering contract terms on a take-it-or-leave-it basis, changing supply volumes for perishable products at very short notice, forcing suppliers to disclose confidential information during negotiations and requiring producers to change packaging with little to no consultations.

NSW Farmers also said Australian farmers were increasingly required to “carry the burden” of emissions reduction targets without being compensated.

Ritchies, also known as Ritchies Supa IGA, has supported the ACCC’s position to overhaul merger and acquisition laws. In its submission, Ritchies said that when Coles bought Milton Village Shopping Centre in inner-Brisbane three years ago, Coles lodged an application to replace the IGA supermarket with one of its stores.

Last month, IGA closed at the shopping centre because Coles did not offer the IGA owners a new lease. Ritchies said the move effectively further reduced competition for consumers.

“Ritchies has been outbid by the major chains on many new supermarket sites over the years,” the submission states. “Having secured the loan, the dominance of the major chains is cemented by a planning system that ignores competition issues as a relevant consideration in the planning approvals process.”

“The bananus 1 per cent to the farmer”: Bob Katter’s “banana” graphic attached to his submission. Credit: Bob Katter

Greater Shepparton Mayor Shane Sali cited the case of one of his constituents, zucchini farmer Ross Marsolino, who highlighted the “detrimental effects of excessively high” profit margins of the major supermarkets.

Marsolino sells his zucchinis at $2.20 per kilogram to supermarkets for a profit of 20¢, but the retailers sell the produce to consumers for $6.50 per kilogram, according to Sali’s submission.

Federal independent MP Bob Katter wants each corporation’s market share restricted to 23 per cent, blanket tariffs on imports and the Food and Grocery Code, which requires retailers and wholesalers to act in good faith towards suppliers, scrapped.

However, the Business Council of Australia warned senators to avoid broad-brushed anti-corporate rhetoric and, instead take an evidence-based approach recognising the significant contribution supermarkets make to the community.

The council said high energy prices, increased shipping costs, a tight labour market, rising wages and climbing insurance costs had led to supermarkets lifting their prices.

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