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Issue #1592      May 8, 2013

Supermarkets retreat in dispute with farmers

Australian farmers have had a victory, albeit minor and momentary, in their long-running dispute with the nation’s two biggest food and grocery retailers.

Coles and Woolworths, now under investigation by the Australian Competition and Consumer Commission (ACCC) for misuse of market power, have agreed to buy direct from farmers or cooperatives, and to then pay the dairy supply companies to process the milk, a cost formerly borne by the farmers. Retailers claim this will achieve cost savings, which can then be passed on to farmers and consumers. At least, that’s the theory.

Meanwhile, the National Farmers Federation (NFF) and the Australian Food and Grocery Council (AFGC), the peak body of suppliers to the major retailers, are campaigning for introduction of a national code to govern the major retailers’ trade practices. Both organisations have negotiated with the retailers over a voluntary code, but last month the NFF withdrew, saying the process would not result in an adequate level of support for primary producers.

The retailers have ruthlessly squeezed the dairy, food and grocery suppliers. Fifty complaints have been made to the ACCC, but only in confidence, to prevent reprisal from the retailers. One former supplier testified that when Coles offered customers special deals it would charge him more per item than the price savings for consumers.

He said: “They were constantly putting forward requests for additional trading terms, they would find avenues to either squeeze more margins out of you or request more money to be spent on the product to keep them on the shelf.” Another supplier said both companies would demand special fees for keeping products on the shelves, and would cancel promotions at will.

Manufacturing under threat

These practices savagely cut the income of dairy farmers, forcing many of them out of business. However, other industries are also affected. For example, under “parallel importing” a retail firm that wants to buy a multinational corporation’s product can bypass the corporation’s Australian branch by getting an agent to purchase it on their behalf from a branch in a developing nation, thus threatening the viability of the corporations’ local manufacturing branch.

Multinationals have expressed opposition to this practice, but they may be forced to accept it and downsize or even close their Australian branches, with a catastrophic loss of jobs.

Coles and Woolworths have defended parallel importing on the basis that multinational suppliers “profit gouge” by purchasing products made in cheap labour developing nations. In reality, they want to do exactly the same thing, walking away with the profits, leaving consumers with little or no advantage, and wreaking havoc with local manufacturing industries that have until now supplied the retailers.

Moreover, a report by firms Macquarie Equities and EBS found that between 2006 and 2011 the gross profit margins of more than 40 percent of Australia’s packaged grocery suppliers fell on average by 6.3 percentage points to 37 percent.

Gary Dawson, Chairman of the Australian Food and Grocery Council stated: “… over the last few years … there’s been a 6 percent margin transfer from suppliers to retailers. Supplier margins are well below their international peers.”

Coles and Woolworths deny this and want a voluntary arrangement, like the media code, which has been a near total failure in controlling the mass media barons.

Huffing and puffing from parliament

The federal government has threatened to enforce a mandatory code similar to the British groceries code, which prevents supermarkets from making retrospective adjustments to supply arrangements, and limits their ability to make suppliers pay for stocking or promoting products.

Nevertheless, the government is divided over making the code mandatory and now says it will only do so if the AFGC and retailers fail to agree on a voluntary code. It is undoubtedly nervous about having another propaganda war with retailers, like the one it had with the mining industry over the Mineral Resources Rent Tax.

The Liberal-led coalition has issued dire warnings about penalties for non-compliance, but nevertheless favours a voluntary code. Opposition small business spokesman Bruce Billson declared that previous discussions on a mandatory code “derailed collaborative industry efforts [and] forced stakeholders to retreat to their corners and declare a position.”

Coles and Woolworths hold about 80 percent of Australia’s food and grocery market, offering a clear temptation to the big retailers to collude over price fixing and supply arrangements.

To avoid breaching competition laws the two firms have had to hold separate negotiations with the AFGC over the voluntary code. That does not, however, prevent them from holding discussions beforehand in order to reach a mutually agreed negotiating position.

Nor is it likely that they will pass on much, if any, of the savings from dealing directly with the dairy farmers. Given their performance to date they are far more likely to set the cooperatives in competition with individual dairy farmers, They might even try to eliminate the cooperatives, leaving them free to deal with farmers individually, a perfect recipe for squeezing them for the last drop of profit.

Saving the farm

Farmers face many other problems. Banks are foreclosing on loans, refusing to acknowledge that farms are still viable, but that growing good crops is now likely to occur much less frequently because of climate change. If grain handling company CBH collapses because of low yields, and if a US corporation’s bid for grain company GrainCorp is successful, the entire Australian grain-handling industry will become overseas-owned.

Apple orchardists now face loss of their status as free of fire blight disease, after a court ruled that under international trade agreements quarantine regulations banning imports of New Zealand apples must be overthrown. Other orchardists are ripping out thousands of mature fruit-bearing trees because of the import of canned fruit from low labour-cost countries.

Much of Australia’s most fertile agricultural land is now threatened by the aggressive inroads of the coal and coal seam gas industry.

And now Australian agriculture is being further threatened by the policies of the two supermarket giants. Introduction of a mandatory conduct code overseen by an ombudsman is essential, but that won’t happen if the Liberal/National coalition is elected, nor is it likely under Labor. A combination of immense public pressure and the election of left and progressive political forces is the way forward.   

Next article – Queensland’s fire-sale

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