Talk is cheap but food isn’t and that won’t change

Former federal competition and small business minister Craig Emerson. Illustration: Sturt Krygsman

The federal government’s focus on the food and grocery code smacks of politicians wanting to be seen to be doing something while avoiding the real issues.

Treasurer Jim Chalmers’ track record on competition policy is like former treasurer Scott Morrison’s, strong on talk but weak on action.

A case in point was his response to ACCC requests for new powers to combat digital platforms, which sat on his desk for 18 months before in-principle support was declared in November last year, subject to another 12 months of consultation.

Former ACCC boss and competition review co-leader Rod Sims was scathing in his response, attacking the delay and underwhelming support.

Next week is the deadline for responses to the ACCC requests for increased merger powers, including mandatory notification and a reversal of the onus of proof, so the applicant must show the deal doesn’t lessen competition.

The ACCC wants to minimise court involvement in its decisions, and its reforms are universally opposed by the big business lawyers.

But just to show he means business on competition, Chalmers may well give the ACCC a free kick, since more competitors means more control on prices.

Big business will be un­impressed.

This week’s focus on the food and grocery code is overdue but has precious little to do with food prices. It’s a smoke and mirrors exercise by a government pretending to be doing something about cost of living increases.

The code’s role is to govern relations between the big supermarkets and suppliers – nothing directly to do with prices.

Another furphy is the push for a mandatory code, which would have little impact.

The big supermarkets take turns with the banks in being political footballs, and the danger is the politicians could overreact for an easy win rather than taking the time on issues that count.

This is the danger for Coles and Woolworths, which next month must also face a Senate hearing on food and grocery prices.

Fresh food prices fluctuate with the weather, which is demonstrably reacting badly to climate warming.

Meat prices are low margin for the supermarkets and there are a host of intervening factors – domestic freight, processor costs and global prices – given 60 per cent of Australian lamb is exported and 70 per cent of beef.

Coles’s attempt to differentiate itself from Woolworths by slashing lamb prices by 20 per cent makes you wonder why they weren’t cut previously.

Meanwhile, long-life packaged goods like dishwashing tablets are a real concern, with one tablet costing $1.60, and the market controlled by two or three global giants. Big supermarkets can exercise power – as shown by France’s Carrefour, which this week told customers it was pulling all PepsiCo products, including Doritos, Lipton teas and Lay’s chips, because of excessive price demands.

Opposition Leader Peter Dutton’s thought bubbles underline the pitfalls of any campaign, not to mention customer backlash.

Woolworths has 37 per cent supermarket share, followed by Coles at 28 per cent, others (including Amazon, convenience stores and Costco) 18 per cent, Aldi 10 per cent and Metcash 7 per cent.

The top two control 65 per cent, which provides real clout that they regularly use against the smaller suppliers.

But competition is coming through more retail choice.

In terms of supplier ratings, the Food and Grocery Reviewer puts Aldi No.1, ahead of Metcash, Coles and Woolworths. The reviewer website serves as a welcome window into supermarket behaviour, but if the supermarkets want to avoid too much regulation then more transparency on their pricing would support their claim that they are but one factor in the price supply chain.

Unfinished reform is a big issue. It explains why Bunnings can sell pet food everywhere but WA where restrictions remain, robbing the state of a competitive force.

On November 6 Competition Minister Andrew Leigh reappointed company director Chris Leptos to the role of independent reviewer of the code and formally advised that “the government has also commenced the 2023-24 review of the code provisions to ensure that they remain effective in fostering a vibrant and competitive food and grocery sector in Australia”.

The government has added some heavyweight talent to the Treasury review, this week naming former minister Craig Emerson to head a review that is already under way.

A welcome step up in focus, but it’s a review that has been going since October.

Emerson is an ideal person to head the review, but it’s focused on relationships with suppliers – not prices.

In his annual report last November, Leptos laid out necessary reforms, including some obligation on the ACCC to take his reports seriously and give them due consideration.

Since 2015 there have been just five complaints under the code, all against Coles and primarily focused on its independent arbiter, former Victorian premier Jeff Kennett.

When a supplier goes to Kennett he is meant to look for a solution, but the problem is if the dispute remains Kennett can simply refuse to hand over the relevant documents to either Leptos or Coles and neither has the power to compel him.

Last year no complaints were made.

Woolworths arbiter Helen McKenzie noted this may be due to fear from small suppliers that the supermarkets will wreak revenge.

Leptos said in his recent annual report that “fear of retribution or adverse consequences” remains the consistent “reason why they (suppliers) will not make a formal complaint or permit an informal complaint to be raised with Woolworths”, and that this “remains the biggest obstacle to the effective operation of the dispute resolution processes”.

A mandatory code is another smokescreen, but penalties are crucial and advocated by the ACCC.

The code now gives the independent arbiters the right to impose $5m fines to help offset the damage done but none have done so.

The code is prescribed under the competition laws and was set up with the help of former chair Graeme Samuel to foster equal bargaining, not lengthy court ­battles.

That works if the supermarkets take it seriously, which they don’t.

Meanwhile, this year is the 50th anniversary of competition law in Australia and a landmark year for Chalmers to actually make some changes.

Quay Law Partners note: “If the government does not move quickly to implement appropriate digital platform regulation, including to address developments in tech such as generative AI, it will be very difficult to take action at a later point.

“Global digital services platforms have entrenched their market positions in Australia, including those arising through the vast data holdings that these platforms continue to accrue.”

The Productivity Commission estimated that the 1993 Hilmer reforms boosted Australian productivity by billions of dollars, which minister Andrew Leigh estimated works out at around $5000 per Australian household.

The 50th anniversary of the Act provides an opportunity for the government to move forward expeditiously to implement reforms that will provide equivalent benefits for the digital economy. It must seize that opportunity with both hands.

This takes more work than adding a big name to an existing review of a troubled industry code.