Chapter 2Costs of food and groceries, and travel and transport
2.1As set out in the committee’s First Interim Report, Australians are facing almost unprecedented price pressures from the rising cost of food and groceries. The Interim Report found that:
Finding 10: The increasing cost of food and groceries are a major contributing factor to the cost of living crisis.
Finding 11: Supply chain disruptions are a primary driver of increasing food and grocery prices. However, increased input costs to the production and provision of these goods, including energy and fuel, will impact the prices paid by consumers.
2.2This chapter first updates the findings of the First Interim Report, and provides an overview of evidence received on Australians struggling with the costs of food, and the increasing burden placed on charity to meet need.
2.3It then considers increased input costs for agricultural producers and the freight sector, including Government policy interventions in the 2023-24 Budget that have increased costs for producers and the transport sector, which will inevitably be passed on to consumers.
2.4The chapter concludes by looking at travel and transport costs, which have risen over the last few years, to consider how this has pushed up costs and aggregate demand for essential products that most Australians need.
Cost pressures in food and groceries
2.5The First Interim Report noted that prices for food and groceries trended downwards to 2022, only to rise sharply over the next year–by 16 per cent on average for vegetables, 12 per cent for dairy, 10 per cent for bread and cereals, and 7 per cent for meat.
2.6This was caused by several factors, including a series of natural excess rain and flooding disasters in 2022 in major production regions, which destroyed crops and livestock, and restricted planting. Infrastructure damage made transport and supply chains more expensive. These rises in input costs were compounded by inflation, both globally and locally, including for fuel, fertilisers and other essential supplies.
2.7Evidence provided by Australia’s major supermarkets confirmed that prices had risen, in some cases dramatically. Mr Paul Harker, the Chief Commercial Officer for Woolworths Supermarkets, noted that the war in Ukraine, ongoing supply chain shocks from the pandemic, and significant weather events on Australian and global producers, had all contributed to price rises.
2.8Ms Vittoria Bon, the Government and Industry Relations Manager of Coles, also noted prices had risen, but suggested that rising producer costs were not necessarily passed through to customers. She also noted her organisation was not immune from lifting prices for its own costs, including for energy, fuel, packaging and labour, which reflects evidence discussed earlier in this report on the cost of doing business crisis.
2.9Mr Michale Coote, the CEO of AUSVEG, told the committee that producer costs had faced input cost rises of up to 200 per cent, not only from adverse weather, but also worker shortages, and supply chain disruptions.
2.10The Queensland Farmers Federation Chief Executive Officer, Ms Jo Sheppard, also noted a range of price hikes that had significantly impacted the cost of agricultural production:
The cost of production that we've seen escalate over the last three years in particular is really having an impact in terms of [farmers’] ability to produce and the cost of actually producing food. We have farmers in Queensland who have seen electricity, fertiliser and fuel costs go up over 120 per cent in the last two years. We've got a workforce crisis… So the cost of production on farm is going up significantly.
2.11Since the committee took evidence from this sector in 2023, prices have continued to rise. Although trends in the CPI have moderated somewhat, yearly growth to October 2023 was still 5.3 per cent for food and non-alcoholic beverages, with bread and cereals rising 8.5 per cent and dairy by 7.8 per cent, and vegetables having flatlined to 1 per cent.
2.12Despite this attenuation, after successive price hikes over several years, many Australians are still having difficulties filling up a basket of goods at the supermarket without worrying about prices.
2.13The committee’s survey identified food and groceries as the number one cause of cost of living pressures. Respondents frequently noted they had altered their food consumption considerably, that they were skipping meals, choosing to buy cheaper and, at times, less nutritious food for themselves and their families, and not eating out. Some representative comments were:
Some bills just aren’t being paid on time. It’s deciding which one not to pay each time. Currently receiving food hampers from charities & is the first time I have had to reach out for that kind of help.
Prices for food, groceries, fuel, electricity and gas have increased simultaneously while interest rates have gone up substantially, causing our expenses to skyrocket in a short amount of time. As a family with 3teenagers and one younger child, we now struggle to make ends meet from week to week.
I resent the cost increases in food, but as I try to eat healthily, what other option do I have but to pay 30% or more for food?
House repairs delayed due to cost of groceries, fuel an electricity. Gone without certain food items due to the cost.
I live in a country area 120 kms from nearest city. I can’t afford to buy groceries in home town because It’s too expensive! I can’t afford to travel to city as frequently for cheaper food and other household and personal items and appointments. I have had to cut meat down to once or twice per month and other groceries l need for better health.
Nutritionally Inferior food purchase & consumption because of the increased cost.
We sit in the dark at home, we put on more layers of clothing to try to keep warm, we haven’t had take away food in months…we have cut down on fresh vegetables and shop for the cheapest options of everything grocery wise which means quality has decreased.
Have had to put off bills to buy food Have had to buy less food to buy fuel Have had to choose a doctor visit or medicine over food. go without food to ensure my son has something to eat…I spend all my money on my mortgage, bills, food and my son just to live. I have sold household items just to pay bills. I have also gone to a charity for the first time in my life and you have no idea how humiliating this was for me and almost cost me my life.
2.14Ms Brianna Casey, Chief Executive Officer of Foodbank, a charity that provides food to people in need, provided some chilling statistics to the committee:
Fifty-four—that’s the percentage of food-insecure households in Australia with someone in paid work. A job is no longer a shield against a cost-of-living crisis. Five hundred thousand—that's the number of households that will struggle to put a meal on the table tonight.
2.15Other charities confirmed that the number of people seeking assistance for food poverty was growing, and that many were seeking assistance for the first time. For example, Oz Harvest’s website in March 2024 stated:
Demand for food relief is higher than ever. The charities OzHarvest support reported a 73% increase in demand in the last 6 months. 46% of these charities cannot meet the current demand and reported that 31% of the people they support are seeking food relief for the first time.
2.16This was supported in other evidence, with some observing that they were seeing new demographics seeking help, including those who were in paid work–sometimes families with double incomes–but still struggling with the cost of living. The Reverend Stu Cameron, CEO of Wesley Mission commented that this 'reflects the changing face of financial stress and poverty in our nation'.
2.17As Ms Brianna Casey, Chief Executive Officer of Foodbank, told the committee, a 'job is no longer a shield against a cost of living crisis'.
2.18As noted in the First Interim Report, the committee considered some evidence on potential imbalance of power between suppliers and supermarkets, as well as on potential anti-competitive behaviour within the sector, which could detriment consumers by forcing them to pay higher prices.
Inflationary imposts on industry, business and agriculture
2.19The committee considered several measures introduced in the 2023-24 Budget that would potentially place a burden on industry, business and agricultural production, particularly as they could potentially inflation for goods and services.
2.20This section discusses these measures in turn, first considering the Heavy Vehicle Road User Charge (RUC), then the increase to the Biosecurity Levy.
Heavy vehicle road user charge
2.21The Government announced in the 2023–24 Budget that the RUC rate would increase per litre of diesel by 6 per cent per year over three years from 2023–24, to 32.4 cents per litre in 2025–26. It was estimated that this would decrease Government expenditure on the fuel tax credit by $1.1 billion over the forward estimates. However, it has been argued that it would add to the costs for operators in the transport industry, who would have to pass these on to consumers.
2.22Shortly after its implementation, MrYeaman of the Treasury told the committee that his department considered that the measure 'wasn’t providing any material impact on inflation at the aggregate level'. Ms Redmond, also of Treasury, added that RUC charges constitute 'a relatively small share of the total operating costs', but acknowledged that for some businesses, these cost increases could be significant.
2.23However, the committee also considered evidence setting out a very different point of view from some stakeholders from the transport and farming industries. For example, Mr Steve Shearer from the South Australian Road Transport Association told the committee that the low profit margins in the trucking sector (of two to three per cent) meant the industry could not absorb such cost increases. As such, Mr Shearer claimed any fuel, wage, or tax increases would be passed on to customers, thereby adding to prices and the cost of living: ' [a]ny and every cost increase on trucking will flow through to the community'.
2.24Mr Shearer claimed the RUC would lead to the passing on of over $2 billion in additional costs, with 'every fraction of every cent of the increasing road user charge… has to be passed on. We have zero capacity to absorb it'. In this, he cautioned that regional and rural areas would be particularly affected by such charges, including that trucking goods into remote regions would cost four-to-five times more than to urban areas.
2.25The committee also considered evidence on how this would affect agricultural producers negatively. The NAB Budget Analysis stated that ' [w]ith much agricultural produce moved by road, this change will have implications for transport costs'.
2.26AgForce Queensland issued a statement on the 2023-24 Budget, which it considered 'missed' some 'real opportunities' and 'will ultimately hit shoppers in the pocket when they go to the shops'. It expressed great disappointment regarding several measures that would impact agricultural producers negatively and pass costs onto consumers, including the RUC and biosecurity increases. On the RUC, it commented:
The budget also fell short in delivering the sought after funding injection into road infrastructure, critical to lift productivity and reduce the cost of production in our de-centralised state, and also raised the heavy vehicle road user charge by six per cent per year over 3 years–a move that has significant implications for our supply chain and rural communities.
Biosecurity levy on primary agricultural producers
2.27The committee was interested in the potential effects of the recent changes to the Government’s package of biosecurity policies announced in the 2023–24 Budget. This suite of measures was designed to strengthen Australia’s biosecurity system. However, it also increased by 10 per cent the biosecurity levy on Australian agricultural, fishery and forestry producers, from 1 July 2024.
2.28While many have been supportive of moves to strengthen our biosecurity framework, producers have overwhelmingly expressed great disappointment at the increase of costs to producers, as it would increase compliance burden, as well as the risk that costs are passed on to consumers in the middle of a cost of living crisis.
2.29For example, the committee is aware that the agricultural sector has almost unanimously opposed this measure. The National Farmers Federation commented in December 2023 that the proposed levy has 'a number of design faults…including equity, accountability, efficient and a lack of clear links to outcomes valued by industry'.
2.30Others commented that it was a tax on domestic primary production. Citrus Australia stated that '[t]o call the Biosecurity Protection Levy a levy as it is proposed is a misnomer–it is simply a grower-funded tax on food security'.
More expensive travel and fuel
2.31The committee also considered evidence on the rising cost of travel, particularly by air. Price fluctuations not only have made the price of flights unpredictable for Australians to travel for leisure, work or family responsibilities, but have also added to freight and transport costs for businesses, forcing costs to be passed on to consumers.
2.32This section first discusses air travel, before turning to the fuel prices for domestic drivers.
Air travel
2.33Mr Alan Joyce AC, then-Chief Executive Officer and Managing Director of Qantas Group, told the committee that the long-term trend for airfares in Australia had been downward, with prices falling by around 50 per cent from the 1990s, adjusted for inflation. However, this long term trend appears to be reversing, according to evidence from Virgin Australia, which told the committee in mid-2023 that airfares were close to 50percent higher than prior to the COVID-19 pandemic.
2.34Virgin Australia described how the airline industry had from mid-2022 experienced a 'very sharp increase in demand' following the end of public health measures associated with the COVID-19 pandemic, leading to fare increases that peaked in late 2022. Nevertheless, Virgin Australia reported that its prices had increased by only 10 per cent from mid-2019, in contrast to inflation that reached 16.5 per cent over the same period.
2.35Virgin Australia claimed to be profitable, seeing 'single digit' profit margins. However, it argued that its main competitor, Qantas Group, had realised much higher profit margins due to 'elevated' international long-haul airfares made possible by 'the glaring shortage of international capacity'.
2.36Virgin Australia, a strategic partner to Qatar Airways, described the decision to the committee as 'deeply regrettable' and told the committee that the additional flights would have led to 'economy-wide benefit'. The Tourism and Transport Forum stated in relation to the Qatar Airways decision that additional airline capacity was 'desperately' needed in Australia, and argued that increased capacity would reduce airline ticket prices.
2.37Qantas suggested that the Commonwealth could adopt two measures to put downward pressure on airline costs and, by extension, lower prices for consumers: a reduction in airport pricing; and the right policy settings to encourage 'a local and sustainable aviation fuel industry'.
2.38This lack of competition across the airline industry was at the heart of a recent Senate inquiry into the Labor Government’s decision to refuse a request in August 2022 by Qatar Airways to expand its operations in Australia. The Senate Select Committee formed the view that the relevant minister had 'not provided a persuasive reason for the Government's decision'. It further concluded that the weight of evidence suggested the additional flights requested by Qatar Airways would have placed downward pressure on airfares and would have served the national interest.
Cost of fuel for domestic vehicles
2.39As noted in the First Interim Report, rises in the cost of fuel feed into higher prices of food and groceries, alongside other significant input costs such as labour, transport and packaging.
2.40Concerningly, petrol prices reached a new high in October 2023 of 211.2 cents per litre (c/L). This is well above the average from the previous year, which fluctuated between 175 and 190 c/L. Analysts suggests that these highs are likely to continue, caused by a combination of a weak Australian dollar, a reliance on imported product, and the Russian invasion of Ukraine in 2022.
2.41The ABS Head of Prices Statistics, Michelle Marquardt, commented in November last year that fuel costs represented a significant driver for the cost pressures endured by everyday Australians:
Higher global oil prices for automotive fuel and increased insurance premiums across house, home contents and motor vehicles contributed to greater living costs for all household type.
2.42Many participants in the committee’s cost of living survey noted the high price of petrol and observed that this had made them limit activities that they had formerly undertaken. In some cases, these were activities that connected them with family, friends, and volunteering to help with their local community. Some representatives comments include:
The increases in interest rates and the cost of petrol. Running a business that has continued increases in expenses due to cost of goods and increase in staff wages.
We no longer go out on weekends due to the cost of petrol and admission prices.
Although I have a car there are weeks where I can't afford much petrol and can only drive us to our local shops.
The fact that I can't even get a washing machine or fill my car with petrol is something I would never thought I'd have to face. My daughter already has health and depression issues which are getting worse as we slowly can't afford the already basic life we were living.
Cannot afford food. Cannot pay bills or mortgage. Do not see family. Cannot afford to leave home, petrol.
Trips in the car are limited to when absolutely necessary due to the cost of petrol.
Had to go without with food at dinner as haven’t had the money due to the high price of petrol as needing that to get to work.
We hardly ever fill up our car with petrol and only try to do that when the price dips. We try to do all our tasks with one trip in the car instead of spreading it over a few days.
My children have to go without parental financial support due to demands of my finances. They have trouble keeping up with costs of petrol, work clothes etc. I have had to have days off work because I have no petrol or money for lunch.
We live 7-14 hours from our adult children. Instead of being able to see them every few months, airfares and petrol have made this a luxury and we are lucky to see them every 6 months.
2.43It was not only individuals that provided evidence to the committee on this matter. For example, Ms Alison Smith, the Chief Executive Officer of the Local Government Association of Queensland, noted that local government felt cost of living pressures acutely, citing increases in fuel as a contributor to budget constraints. This, she said, could in turn effect the ability of councils to address community need and priorities.
2.44The committee also heard some concerns from the charity sector, who were also facing cost pressures on a number of fronts, including transport. Ms Kate O’Hara, Chief Executive Officer, Foodbank WA, said:
Transport costs are significant. We know just for our business that to move product for us has increased 110 per cent on petrol and actual freight, to move things around. That's since the interest rate increases and the fuel prices changing.
Committee view
2.45Australians are struggling with the cost of living, including the cost of a basket of groceries, which has increased significantly beyond the target inflationary levels in the last two years. The committee heard evidence from everyday Australians in its community forum and cost of living survey, that people are generally spending more money at the till, but ending up with smaller and smaller amounts of food in their kitchen cupboard when they get home.
2.46This is backed up by evidence presented to the committee, including so many personal testimonies in the survey, which identified the price of food and groceries as the number one concern of respondents.
2.47More broadly, compelling data from the food charity sector shows a marked increase in people presenting for assistance, particularly for food. It is concerning that many Australians have been forced to seek assistance for the first time, even those in steady jobs and families with dual incomes.
2.48As the Reverend Stu Cameron, the CEO of Wesley Mission, commented, this ‘reflects the changing face of financial stress and poverty in our nation’.
2.49Labor’s ‘cost of living budget’ failed to move the dial, with many feeling no alleviation of inflationary pressures. Moreover, it did nothing to address the source of cost pressures for the people Australians count on to produce and supply their food, as discussed below.
Prices of food and groceries
2.50At the time of writing, the Government’s Food and Grocery Code of Conduct Review 2023–24 has not been fully completed.
2.51The Review released an Interim Report on 8 April 2024, which recommends that the existing voluntary code of conduct be made mandatory, to enforce standards for wholesalers, retailers and suppliers, and ensure fair negotiations for product prices. In addition, it recommends a complaints mechanism, guardrails for retribution against suppliers, good faith obligations for supermarkets, and penalties for non-compliance.
2.52The final report is due to be handed to Government by 30June2024. The committee may consider this matter further following the public release of this report, to give it opportunity to consider its recommendations.
Imposts on agricultural producers and transport
2.53Stakeholders in road transport and agriculture have felt that the 2023-24 Budget measures would load their sectors up with added costs, and that the burden of this would fall disproportionally on regional and rural communities and businesses.
2.54Most importantly, it was broadly recognised that the RUC and Biosecurity Levy measures handed down in the 2023-24 Budget would increase costs in production and freight of goods, which would be passed on to Australians at the till when they did their weekly shop.
2.55At a time where the cost of living is hurting many Australians incredibly hard, now is not the time to disadvantage those who grow, process and transport our food.
2.56The Government should wind both these measures back, which would create the chance for some cost of living relief for all Australians buying the necessary food to provide for themselves and their families.
Transport and aviation
2.57In evidence received on potential cost increases and anti-competitive behaviour in the Australian aviation sector, the committee notes the work of the Senate Select Committee on Commonwealth Bilateral Air Service Agreements.
2.58Its final report of October 2023 made a number of recommendations, including that the Government consider reform options to strengthen competition in domestic aviation, that legislation be passed to reinstate monitoring of the industry by the Australian Competition and Consumer Commission (ACCC), and that the ACCC conduct an inquiry into potential anti-competitive behaviour.
2.59The committee notes that this report set out evidence suggesting that Minister Catherine King, Minister for Infrastructure, Transport, Regional Affairs and Local Government, has never clearly articulated reasons for blocking more Qatar Airways flights into Australia in July 2023. This move may have cost the Australian economy up to $1 billion in missed tourism, trade, and other opportunities, including lifting the price of flights for everyday Australians travelling for family responsibilities or leisure.
2.60The committee also notes that the Senate is currently considering the following private senators’ bills looking to protect consumers: the Competition and Consumer Amendment (Continuing ACCC Monitoring of Domestic Airline Competition) Bill 2023; and the Airline Passenger Protections (Pay on Delay) Bill 2024.
2.61This committee makes no further recommendations, but notes its support for the findings and recommendations of the Air Services Select Committee, which examined the issues discussed above in greater depth.
Recommendation 5
2.62The committee recommends that the Australian Government remove the heavy vehicle charge increases introduced in the 2023–24 Budget.
2.63The committee recommends that the Australian Government remove the Biosecurity Levy increases introduced in the 2023–24 Budget.