Coalition Senator's Dissenting Report

Introduction

1.1The Chair’s report represents a missed opportunity to address some of the structural imbalances in our supermarket sector that are impacting Australia’s growers, farmers, small businesses, and ultimately consumers.

1.2This inquiry offered an opportunity for the Senate to examine these issues after almost 18 months of inaction from the government, who have failed to stand up for our farmers, or put in place policies that will drive inflation down.

1.3Australia’s supermarket sector remains dominated by two large players for a variety of reasons ranging from competition policy, investment settings, planning laws, transport, energy and industrial relations costs, and economies of scale. It is important that those companies do not abuse that market position and that appropriate safeguards are put in place to ensure the disincentives are substantial should they treat their producers or consumers unfairly. It is important Australia’s competition regulator be empowered to act where this occurs, and for producers to have access to reasonable, affordable, and fair dispute mechanisms without fear or the threat of reprisals.

1.4Australia’s policy settings are creating substantial disincentives for growers and farmers to remain in business, and present an intergenerational threat to our agricultural industries. The inquiry has heard of substantial discrepancies in market power between the large supermarket chains, large suppliers and processes, and the small and family businesses that make up much of our agricultural producer industry.

1.5Similarly, the inquiry has heard of the deeply traumatising impacts of high prices on all demographics, and the impact they are having on social cohesion.

1.6The Coalition believes that strong competition policy plays a crucial role in our economy to ensure our small businesses and consumers get a fair go.

1.7The Coalition implemented a number of reforms to bolster our competition framework in government—including reforming the franchising code of conduct; the automotive code of conduct; establishing the Food and Grocery Code; the Dairy Code; and the Horticultural Code; reforming our energy markets to ensure fair pricing and disincentives for market misconduct; establishing the Consumer Data Right; and taking action on unfair contract terms and small business payment times.

1.8However, Australians are let down by politicians promising silver bullets to the inflation problem and who are dragging their feet on obvious solutions.

1.9While there are persistent and entrenched competition challenges in our supermarket supply chain, Australia’s current inflation problem is the consequence of a government that has failed to put in place policies to fight inflation over almost three budgets. This has unfairly forced the burden on Australians with a mortgage, renters and small business borrowers.

1.10The best policy solution to the inflation crisis is for government to rein in spending and put in place policies that reduce costs for businesses.

1.11At the same time, the Labor government has talked a lot about competition but is yet to make substantive policy changes to support small businesses and consumers. It is clear from this inquiry that there are a number of ready-made solutions to improve competition in our supermarket sector, and to support consumers to get a better price at the checkout.

1.12Labor is failing on two fronts: to fight inflation in a way that all Australians benefit, and to take action on competition to support our small businesses and farmers.

Labor’s cost of living crisis is driving up prices

1.13Australians are struggling from entrenched and increasingly homegrown inflation, and the supermarket check-out is one of the main contact points for Australians’ to feel the impact.

1.14Inflation has now been above the Reserve Bank’s target band for 10 quarters.[1]

1.15The Employee Living Cost Index, which measures inflation for households that primarily derive their income from salaries, is currently running at 6.5percent, and has been above 3 per cent since December 21.[2]

1.16Consumer confidence has remained at recessionary levels for more than 18months,[3] and Australia is in GDP per capita recession.[4]

1.17Prior to the last election, the Labor government promised $275 off energy bills, cheaper mortgages, and that they would only increase taxes on multinational companies.

1.18Instead, mortgage rates have increased by 4 per cent eroding the purchasing powers of families and putting pressure on the 50 per cent of small businesses that secure financing against the family home, unfairly placing the impost of managing inflation on these cohorts.

1.19The cost of electricity and gas have increased by 18percent and 25percent respectively,[5] putting increasing costs on manufacturers and producers, as well as supermarkets.

1.20Income taxes have increased by 23 per cent.[6] Labor’s revised Stage 3 tax cuts will raise an extra $28 billion over the medium term,[7] entrenching bracket creep and unwinding serious tax reform. Labor’s tax changes on multinational corporations have been so badly drafted that they capture domestic industries and businesses, which are being passed on to consumers.

1.21This is having profound and distressing impacts on families, some of which have been articulated in evidence to this committee:

Dumpster diving for food;[8]

Reducing meals to one a day to afford their bills;[9]

Increasing reliance on credit cards and other debt products.[10]

1.22While this inquiry has highlighted competition issues that ought to be addressed, the price at the checkout is just one pain point in a broader problem. It is important the government address homegrown inflation at its source, not just the symptoms.

1.23The Labor government should deliver a budget that fights homegrown inflation and addresses Australians' falling standard of living.

1.24The Labor government should accept responsibility for the impact of its failing economic policies on driving up inflation. Labor should stop putting all the costs of bringing down inflation on mortgage holders.

1.25The government should explore incentive-based policies to support better use of food waste.

Labor’s failure to stand up for small business, growers and farmers

1.26The Coalition first called for the statutory review of the Food and Grocery Code of Conduct to be brought forward in late 2022.

1.27The government failed to act until January 2024.

1.28The statutory review of the Food and Grocery Code was scheduled to commence in October 2023, three years after the commencement of the previous reforms to the Code, but it took the government almost 100 days to appoint a Reviewer in January 2024.

1.29The Coalition also called for the ACCC to undertake a price inquiry into meat and fresh produce armed with tough powers in November 2023, to investigate the supermarkets, to deal with the spiralling cost-of-living crisis that was being felt by Australians at the supermarket checkouts.

1.30Under section 95 of the Competition and Consumer Act 2010 the Treasurer has the legislated power to direct the ACCC and give it strong powers to compel information. It wasn’t until 25 January 2024 that the Government directed the ACCC to conduct an inquiry into Australia’s supermarket sector, including the pricing practices of the supermarkets and the relationship between wholesale, including farmgate, and retail prices.

1.31Again, the Government was slow to act.

1.32This committee has heard substantial evidence about the disparity of the relationships between growers, suppliers, and the supermarkets and its harmful impact, particularly on the horticultural sector:

“Dutch auctions” with no capacity to bargain on price;

Inconsistent and non-uniform product standards being used as a justification to reduce contracts;

Risk and costs being passed down the supply chain;

Extended payment timeframes of up to 184 days;

Informal contracting arrangements that leave producers with excess product and supermarkets an ability to set price;

The lack of alternative markets, particularly for fresh produce, to sell surplus product to.

1.33Wholesale price transparency is crucial to closing this disparity and to reduce the impacts of asymmetric information on competition. However, price transparency measures should not be confused or conflated with price caps or price setting.

1.34Further, measures to support price transparency are best delivered through existing mechanisms and agencies—noting the ACCC already has significant resources and capabilities to monitor pricing.

1.35The government delivered an interim report of the Review of the Grocery Code of Conduct in the middle of this inquiry. Despite making clear recommendations, there is no indication from witnesses including the ACCC that there is an urgency to act.

1.36The government needs to act faster to strengthen the Food and Grocery Code and respond to the serious concerns of our horticultural sector. As delegated legislation, making the code mandatory does not require legislation to pass parliament but rather the political will of the Treasurer to make it a priority.

1.37To ensure complete supply chain protection the Food and Grocery Code of Conduct must seamlessly intersect with the horticulture and dairy codes of conduct. This could occur by having the horticulture and dairy codes as schedules of the Food and Grocery Code of Conduct.

1.38The Coalition reaffirms the recommendation that the Food and Grocery Code of Conduct be made mandatory with increased penalties and improved access to dispute resolution. As part of this reform, the supermarket appointed arbiter be replaced with an independent arbiter.

1.39The ACCC should be empowered to collect, investigate and publish long term data on prices in the food and grocery sector. The ACCC should publish regular data on horticultural and vegetable pricing from the major supermarkets to enhance price transparency and support better bargaining power for horticultural producers.

1.40Price transparency policies should be carefully designed to ensure maximum benefit to consumers with minimum compliance burden to companies and delivered through the Australian Competition and Consumer Commission, rather than new bodies.

1.41The government should create clearer pathways for small producers and growers to apply for ACCC exemptions to share information.

1.42The government should explore policies to strengthen protection for mutuals and cooperatives from creeping acquisitions.

1.43Bring the horticulture and dairy codes in as schedules of the Food and Grocery Code of Conduct to enshrine them and complete the supply chain protection.

The need for strong but pragmatic competition policy

1.44The committee heard extensive evidence of the need for strong competition policy in Australia.

1.45The dominance of duopoly market structures heightens the need for robust protection for consumers and small businesses in our major corporations supply chain.

1.46The inquiry has also heard evidence how commercial practices inhibit competition:

Land banking: with the property development arms of the major supermarkets accused of securing sites well in advance of demand to prevent competitors gaining footholds in the market.

Creeping acquisitions: with the large supermarket operators acquiring competitors without ACCC notification. This practice is rife across not just supermarkets but ‘big box’ retail as well, with the ACCC only becoming aware of the issue when they are notified of larger mergers.

Lack of bargaining parity: with suppliers and growers threatened with loss of contracts for pursuing breeches of the code, querying rejection of non-standard produce, and not accepting drawn out payment times.

Lack of incentives for mutualisation and cooperatives: the committee has heard that farmers and growers are increasingly unaware, or time poor to utilise, of the process and ability to seek ACCC exemptions to share information. The committee has also heard how the current cooperative regimes are easy to be picked apart by would be acquirers by targeting individual members.

1.47The committee is not convinced that divestiture, as a principle, is a substantive deterrent to investment. As many witnesses, including Professor Allan Fels have pointed out, divestiture powers exist in many comparable jurisdictions without chilling investment. Further, divestiture exists within the Competition law already through the energy code, and divestiture is a regular part of the merger and acquisition process as it currently operates.

1.48However, the committee accepts that the Competition and Consumer Amendment (Divestiture Powers) Bill 2024 (the Bill) as drafted does not put in place appropriate safeguards to ensure any divestiture power operates in a way that offers procedural fairness and prevents adverse outcomes for communities. Notably, the Bill provides no clear public benefits test or protections for loss of jobs or services, while also providing too narrow a timeframe for assets to be divested.

1.49Accordingly, given the lack of wide consultation it is not the view of Coalition Senators that the Bill should be passed.

1.50The Coalition is not opposed to the principle of divestiture, however any divestiture power needs clear guidance on how and when it can be applied, and must have appropriate safeguards to protect jobs, services, and consumer outcomes. This requires a clear public benefit test to any proposed legislation.

1.51It is crucial as a first step, that the government’s merger reforms create an adequate regime to counter the issue of creeping acquisitions and land banking that have been provided to the committee.

1.52The Coalition does not support the passage of the Competition and Consumer Amendment (Divestiture Powers) Bill 2024.

1.53The Coalition does not believe the committee has persuasively found that divestiture powers should not be pursued at all. However, divestiture powers should be targeted to sectors of concern—with appropriate safeguards for regional jobs and services, and have a clear public benefit test.

1.54The government’s merger reforms must adequately address the practice of creeping acquisitions and land banking.

The need for strong economic management and investment to drive greater competition

1.55The committee has heard that new market entrants are one of the most effective ways to boost competition.

1.56Recent new market entrants and investors have helped support competition and lower prices in the food and grocery market. ALDI, Costco and Amazon have introduced substantial competition into the market that is delivering benefits to consumers and creating alternative markets for growers to sell to.

1.57Further, the committee has heard how new market entrants have adopted different approaches for dealing with suppliers, leveraging the opportunities of more streamlined business models to deliver mutual benefits to customers and suppliers.

1.58However, the Kaufland example provides a cautionary case study for the impact of poor policy settings on the likelihood of further market entrants. Kaufland’s abandoning of its expansion into Australia despite having begun acquisition and construction shows the challenges of the Australian market to new entrants. Government is often one of the biggest impediments to this.

1.59Red tape, high energy and construction costs, tax settings, and restrictive industrial relations laws all create impediments to investment that mean that the success of ALDI and Amazon are less likely to be repeated. This means less choice: for farmers to supply to, and for consumers to shop.

1.60The inquiry has heard that these challenges extend beyond federal jurisdiction and into state and local council planning laws.

1.61An unattractive investment environment will continue to operate as an impediment to new market entrants.

1.62The government must address these anti-competitive and anti-investment policy settings as a matter of priority.

1.63Putting in place policies that support private sector growth and make Australia an attractive investment destination for companies to invest, grow, and employ more Australians will also deliver better outcomes to growers and suppliers.

1.64The expansion of buyers for Australian growers will increase their ability to accept the best price, rather than be subject to onerous price setting from two major retailers.

1.65The government should put in place enterprise-led economic strategy that supports business growth and job creation through energy, industrial relations, tax, and workforce policies to drive investment to increase competition.

1.66The government should put a pro-investment, pro-competition planning reform on the National Cabinet agenda at Premier, Treasurer, and building Minister’s level. The government should use these forums to drive planning reform that enables competitors to enter the market and prevents land banking.

Addition comments

Food wastage and incentivising charitable food donations

1.67Australian charities and not for profits are fighting to meet record demand, with many clients seeking food relief for the first time.In the year to July 2023, 3.7million Australian households experienced moderate to severe food insecurity.[11] While this is occurring, there is a widespread culture of food wastage in Australia, with a reported 7.6 million tonnes of food being dumped annually, about 70 per cent of it able to be consumed.[12]

1.68AUSVEG highlighted the wastage occurring in food supply chains, especially regarding produce that fails to meet the specific requirements of suppliers. The organisation notes that, largely due to transport costs, it is often more cost effective for suppliers to dispose of produce and record it as a loss to their business rather than donate it to charity.[13]

1.69As a solution, AUSVEG proposed the introduction of tax incentives that ‘permit growers to offset a percentage of costs related to food donations from taxable income’.[14]

1.70Similar tax incentives exist in several countries around the world and a proposal geared to Australia has been developed by Foodbank Australia and its partners, among them OzHarvest and First Bite, with economic modelling undertaken by KPMG.[15]

1.71The House of Representatives Standing Committee on Agriculture recommended ‘an incentive through the tax system for those who donate food or related services, based on the Food Waste Tax Incentive developed by KPMG and the Fight Food Waste Cooperative Research Centre’.[16]

Transportation costs

1.72The cost of transporting food and beverages has increased rapidly in Australia.These additional costs are being felt by everyone, from the average Australian to major supermarket chains. In their submission Coles pointed out that ‘Operational costs remain high including transport, processing, packaging, and labour’.[17] Coles evidence notes ‘[t]he cost of doing business has increased: energy, labour, logistics and packaging costs have all risen resulting in a $1.4b increase in Coles annual operating costs from FY19 to FY23’.[18]

1.73During the hearing similar sentiments were made by Woolworths who said:

Senator Sterle would rightly know that the biggest cost increase is actually just the pressure in transportation…[19]

1.74Transportation costs are also being felt by agricultural suppliers. In its submission the Victorian Farmers Federation noted that higher input costs derived from transportation is felt throughout the supply chain.[20]

1.75The National Farmers Federation Horticulture Council noted in their submission that increases of six per cent annually for three years of the heavy vehicle road user charge will result in ‘significantly lifting transport costs’.[21]

1.76Transport costs from farm to plate are on the rise. The Albanese Labor Government needs to find a solution to sky-rocketing fuel costs and review the impact of higher taxes and increased red tape places on our trucking and logistics industry.

Labour costs and IR changes

1.77Labour costs and changes to industrial relations laws have made doing business in Australia harder and has driven up costs.

1.78During the Canberra hearings, the CEO of Coles, Ms Leah Weckert stated:

… labour has been a part of our cost base, which has increased significantly.[22]

1.79This sentiment was shared by ALDI’s CEO Ms McGrath who said:

… labour costs do continue to rise, and we hear that from our suppliers as well; they're obviously in the same market that we are, and they're contending with increases in labour costs. So those costs do rise.[23]

1.80Supermarkets, and suppliers can only find so many efficiencies within their business to absorb additional labour costs, but they ultimately will always find their way down to the consumer who will have to pay for them.

1.81These are warnings the business sector has been making for months.Innes Wilcox from AI Group stated in February 2024:

The latest round of industrial relations changes passed by the senate today are a further handbrake on productivity that will add more complexity, conflict and rigidity to our workplaces and increase job insecurity for many Australians.[24]

1.82This echoes previous warnings from the Business Council of Australia, which said in September of 2023 that ‘IR changes to add cost, complexity and delay’.[25]

1.83By complicating industrial relations during a period of rampant inflation and rising labour costs, the Albanese Government has only fuelled the fire in sky‑rocketing grocery prices.

1.84The Government must consider putting a handbrake on radical changes while businesses still adapt to post-pandemic market settings.

Roles of consumer goods companies

1.85The supermarkets alleged in their evidence that increased prices are the consequence of multinational consumer goods companies.

1.86In its submission, Woolworths explained that:

Price inflation in long-life products is driven predominantly by the multinational consumer goods companies that supply Woolworths. We negotiate directly with them with the intent of trying to ensure that their price increases are reasonable and based on genuine changes in their cost. However, it is important to note that suppliers are not obliged to provide cost information to justify their increased prices to retailers under the Food and Grocery Code of Conduct. This limits our ability to test and verify the basis for a cost increase request.[26]

1.87Similar sentiments were echoed by the Coles CEO, Ms Weckert during a line of questioning on this issue:

There are many categories where the multinational players have very significant levels of concentration. So, if you think about areas like soft drinks or snacks or confectionary or biscuits, they have high levels of concentration from certain suppliers, and I would describe them as absolute must-have brands—that is, our customers come into our stores and expect to be able to find those products. They're a core part of their weekly shop, and they're much-loved brands. So the ability for us to end up in a situation where supply is withheld because we would not accept a cost price increase is challenging in those categories for us because they are such a significant part of it and customers love them so much.[27]

1.88Coles, Woolworths, ALDI and other supermarkets claim they are presented with a binary choice—either they accept price hikes by the multinationals, or they reject them and lose the product.The Coles CEO said Australians expected to see these products on the shelves. Nobody wants to create a scenario where Australians have less choice at the supermarket, so it should have been incumbent of this committee to investigate the claims made by the major supermarkets.

1.89The Australian Food & Grocery Council (AFGC) has argued there is still unequal buying power to the major supermarkets, and pointed out that these increases have not occurred in isolation. The AFGC noted supplier costs reflect costs due to energy, transport, and wages:

Supermarket retailers have pointed to supplier cost increases as a major contributor to food and grocery inflation. In considering the issue of supplier inflation, we encourage the committee to consider the following factors that have happened over a number of years. In the pre-COVID decade, suppliers wholesale prices rose at only half the rate of their input costs and the industry's profitability fell from $8 billion to $5 billion. During that same period, capital investment in food and grocery manufacturing stagnated. In recent years, COVID saw significant supply chain disruption. Coupled with adverse domestic and overseas weather events and geopolitical tensions, this resulted in significant increases in supplier costs across all fronts including agricultural commodities, other ingredients, packaging, transport, warehousing, logistics, energy and, more recently, wages.

Given the effect of the preceding period, suppliers were no longer able to absorb the extraordinary level of costs that were coming down the supply chain without risking the viability of domestic manufacturing and the jobs associated with that. As a result, suppliers have sought to pass on a proportion of their cost increases, in many situations negotiating a price increase for the first time in over a decade. Therefore, in considering the pricing dynamics of the major supermarkets, the AFGC encourages the committee to consider the importance of the long-term sustainability of food and grocery manufacturers.[28]

1.90The committee did not have the opportunity to thoroughly examine these claims in detail in the time available. It is our view these claims should be examined through future hearings and forums.

Shrinkflation

1.91Shrinkflation is when a product will reduce in size but remain at the same cost.This has been a common practice for long-shelf-life items, such as Cadbury’s chocolate.[29]The key issue with shrinkflation is that it is done covertly, and in a way that is not obvious to the consumer, who the producer is passing the cost on to.

1.92Supermarkets and multinational food suppliers should notify shoppers of shrinkflation so that consumers are able to make informed purchasing choices.This is not a new idea and was recently done voluntarily in France by Carrefour[30] who in 2023 sought to name and shame the big multinational food suppliers for giving their customers less for more.

1.93While it began as a voluntary move by Carrefour, the Government of France has ordered that from 1 July 2024, retailers in France must notify shoppers of shrinkflation.[31]

1.94It is our view that supermarkets should begin voluntarily advertising shrinkflation so that pressure is placed on multinational producers who are ultimately responsible for the reduction in product size, and the increase in product cost.An example of this would be a pink ticket displayed for 60 to 90days when packaging size has changed.

1.95This would be a move that also supports consumers, who will be notified when the product they’re frequently buying has suddenly reduced in size but gone up in price.

Senator Ross Cadell

Member

Nationals Senator for New South Wales

Senator Maria Kovacic

Member

Liberal Senator for New South Wales

Footnotes

[1]Australian Bureau of Statistics (ABS), Consumer Price Index, March Quarter 2024, released 24 April 2024. .

[2]ABS, Selected Cost of Living Index, March Quarter 2024, released 1 May 2024.

[3]ANZ-Roy Morgan, ‘Australian Consumer Confidence’, 30 April 2024.

[4]ABS, National Accounts, December Quarter 2023, released 6 March 2024.

[5]ABS, National Accounts, December Quarter 2023.

[6]ABS, National Accounts, December Quarter 2023.

[7]The Treasury, Advice on amending tax cuts to deliver broader cost-of-living relief, January 2024, p. 8.

[8]Committee Hansard, 7 March 2024.

[9]Committee Hansard, 7 March 2024.

[10]Committee Hansard, 13 March 2024.

[11]Foodbank Australia, Hunger Report 2023, 25 September 2023, p. 4.

[12]KPMG, Australian National Food Donation Tax Incentive Implementation Analysis 2023, p. 5

[13]AUSVEG, Submission 103, p. 32.

[14]AUSVEG, Submission 103, p. 32.

[15]See Foodbank Australia reports undertaken with KPMG, A National Food Waste Tax Incentive 2020 and Australian National Food Donation Tax Incentive Implementation Analysis 2023

[16]House of Representatives Standing Committee on Agriculture, Australian Food Story: Feeding the Nation and Beyond, Recommendation 19, November 2023, p. 105.

[17]Coles Group, Submission 20, p. 6.

[18]Coles Group, Submission 20, p. 15.

[19]Mr Brad Banducci, CEO, Woolworths Group, Committee Hansard, 16 April 2024, p. 33.

[20]Victorian Farmers Federation, Submission 62, p. 3.

[21]National Farmers’ Federation – Horticultural Council, Submission 101, p. 13.

[22]Ms Leah Weckert, CEO, Coles Group, Committee Hansard, 16 April 2024, p. 39.

[23]Ms Anna McGrath, CEO, ALDI Stores Australia, Committee Hansard, 11 April 2024, p. 4.

[24]AiGroup, ‘Latest IR changes create less productive and more rigid and complex workplaces’, Media Release, 8February 2024, https://www.aigroup.com.au/news/media-centre/2024/latest-ir-changes-create-less-productive-and-more-rigid-and-complex-workplaces/ (accessed 6 May 2024).

[25]Business Council of Australia, ‘IR changes to add cost, complexity and delay’, 4 September 2023, Media Release, https://www.bca.com.au/ir_changes_to_add_cost_complexity_and_delay (accessed 6 May 2024).

[26]Woolworths Group, Submission 23, p. 7.

[27]Ms Leah Weckert, CEO, Coles Group, Committee Hansard, 16 April 2024, pp. 43-44.

[28]Ms Tanya Barden, CEO, Australian Food and Grocery Council, Committee Hansard, 15 April 2024, p.30.

[29]Alex Turner-Cohen, ‘Cadbury’s ‘stealthy’ move amid inflation crisis’, News.com.au, 5 April 2022, https://www.news.com.au/finance/money/costs/cadburys-stealthy-move-amid-inflation-crisis/news-story/61fe0fe74d5f2cd910ff854f6db08746 (accessed 6 May 2024).

[30]Lucy Hooker, ‘France’s Carrefour puts up ‘shrinkflation’ warning signs’, BBC, 15 September 2023, https://www.bbc.com/news/business-66809188 (accessed 6 May 2024).

[31] Reuters, ‘France orders retailers to display shrinkflation’, 19 April 2024, https://www.reuters.com/markets/europe/france-orders-retailers-display-shrinkflation-2024-04-19/ (accessed 6 May 2024).