The nation’s competition regulator says fruit and vegetable growers are wearing almost all the downside in the sales agreements they strike with the supermarket giants, with major farming groups warning of long-term consequences for food production if the imbalance is not fixed.
In a 441-page report issued on Friday, the Australian Competition and Consumer Commission described the relationship between food growers and the two biggest supermarket chains, Woolworths and Coles, as one of “one-way accountability” and marked by fears of retribution.
The findings about how supermarkets deal with food growers are the most damning in the report. The ACCC has recommended that Coles, Woolworths and discount supermarket rival Aldi be forced to provide fresh produce suppliers with transparency about their weekly price negotiations, and be given earlier certainty about how much produce will be ordered.
“The ACCC’s conclusion … underscores the urgency of action,” said National Farmers’ Federation president David Jochinke.
“While not all agricultural commodities are affected, fresh produce suppliers have been particularly vulnerable to market imbalances, information asymmetries, unclear supply and demand forecasts, and buyer incentives that undermine competition.”
The regulator’s investigation noted that food producers were often given long-term forecasts about supply, but these were not binding. While they used those forecasts to plan what to plant, Woolworths and Coles would only enter binding sales agreements weeks in advance.
But growers felt the need to grow the maximum amount, despite a sale not being guaranteed.
“We consider that a supplier not meeting their volume requirements can directly impact their business with the supermarket in subsequent years, whereas there are no commercial impacts on supermarkets for not meeting their forecasted volumes,” the ACCC investigation concluded.
“It is our view that this one-way accountability is the result of a bargaining power imbalance between the parties which is exacerbated by the information asymmetry and lack of certainty for suppliers.”
The imbalance was exacerbated by the dominance of Coles and Woolworths, which was unlikely to change. They control 77 per cent of the market.
The ACCC wants Woolworths, Coles and Aldi to provide detailed information about how long-term forecasts are made and reports at the end of each season with actual volumes purchased compared to forecasts. This, the regulator said in the report published on Friday, would “help to restore trust and support more efficient production decisions by growers”.
Woolworths and Coles told the inquiry that some of the issues raised by growers reflected “the inherent volatility” of fresh food – everything from weather to pests and disease and different levels of demand.
Michael Coote, the chief executive of AusVeg, which represents thousands of fresh produce growers, said: “While a range of measures recommended by the ACCC have the potential to provide growers with greater certainty and transparency, and improve their bargaining position, more detail still needs to be fleshed out about how these will work in practice.
“As always, whether or not these recommendations will improve business conditions for grower-suppliers to the retailers will be seen in their implementation, which also must include consideration of avoiding additional red tape and compliance consequences.”
Australian Dairy Farmers president Ben Bennett said the supermarkets had increased their margins at the cost of suppliers.
“With the exception of home-brand milk, which the big supermarkets use as a loss-leader, we consistently see the retail price of dairy products rise. Yet, right now, dairy farmers are struggling to juggle high input costs with declining farmgate prices,” he said.
“The big supermarkets directly sourcing milk from farmers is further eroding market competition, compounding the issues our industry faces.”
Both Coles and Woolworths said on Friday they valued their supplier partnerships.
“We support improved transparency for suppliers, particularly fresh produce suppliers, and we stand by our previous commitment to the horticultural industry on this issue,” said Woolworths boss Amanda Bardwell.
Coles said it would work “even more closely with our suppliers, including fresh produce producers, to improve transparency”.
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