Chapter 6Food and groceries
6.1Prices for staple food and groceries have trended downwards through to 2022. But in the last 12 months, prices for most food and groceries increased significantly, growing at the fastest rate since 2006, when Cyclone Larry destroyed much of Queensland's banana crop.
6.2By late 2022, fruit and vegetable prices, on average, were 16 per cent more expensive over the year; dairy products 12 per cent higher; bread and cereal products 10 per cent higher; and meat products had risen by 7 per cent.
Drivers of food and grocery price rises
6.3Food prices were impacted by repeated flooding throughout 2022 in major production regions of the east coast of Australia. Floods and excess rainfall led to crops being destroyed or abandoned, restricted planting, caused livestock losses, and worsened the impact of some pests and diseases on crop yields. Infrastructure damage also caused supply chain delays which drove up prices further. Global inflation also contributed to food price spikes in 2022, with agricultural producers forced to pay more for inputs such as fertilisers, fuel, lubricants, and chemicals.
Figure 6.1Grocery products Australia, annual change in price (percent), 12 months to December 2022
Source: ABS Consumer Price Index Australia series, 25 January 2023, chart from Commonwealth Bank of Australia, Submission 61, p. 2.
6.4Price increases in dairy products throughout 2022 were attributed to reduced milk production due to a dry period in parts of the country, flooding in other regions, and increased export prices for dairy products.
6.5Global wheat prices spiked following the outbreak of conflict in Ukraine, driving up Australian bread and cereal prices. Input costs related to labour shortages, fuel price rises, transport, and packaging costs also pushed up the domestic price of bread.
6.6Meat and seafood prices rose throughout 2022, reportedly due to supply chain disruptions, high transport costs, labour shortages, and high international demand for meat that placed additional pressure on domestic prices. Efforts to rebuild herds during favourable weather conditions also reportedly contributed to rising meat prices.
6.7Mr Paul Harker, Chief Commercial Officer for Woolworths Supermarkets, attributed food price hikes to three main factors: the war in Ukraine that had sharply increased the price of canned goods, raw ingredients, fertilisers, and had impacted global oil and energy markets; ongoing supply chain shocks and bottlenecks resulting from the pandemic; and significant weather events throughout 2022, including floods, excessive rain, low light, and unseasonably cold weather.
6.8Metcash similarly submitted that cost rises for suppliers were being driven primarily by logistical issues connected with pandemic disruptions, adverse weather events, and the war in Ukraine.
6.9Ms Jo Sheppard, Chief Executive Officer of the Queensland Farmers Federation, told the committee that increases in the cost of production were impacting the ability of Queensland's farmers to produce food, with some farmers seeing their input costs increase by over 120 per cent in two years. She also attributed the dramatic increases in production costs to escalating energy prices, the war in Ukraine, disruptions related to COVID-19, and significant weather events (floods, excessive rainfall, and extended periods of extreme heat or cold weather). Ms Sheppard described a workforce crisis in which many producers could not hire sufficient or sufficiently-skilled labour due to an 'accommodation crisis' in which regional centres were facing housing shortages, restrictions on the mobility of workers due to the pandemic, and reduced foreign labour.
6.10Mr Michael Coote, CEO of AUSVEG (the peak body for vegetable and potato growers), told the committee that its members had faced significant increases in input costs of over 200 per cent in some cases. He attributed these increases to adverse weather events, foreign worker shortages, and supply chain disruptions resulting from the COVID-19 pandemic and global conflict.
6.11Mr Coote claimed that the price of vegetables within the retail sector had remained relatively stable throughout 2021 and 2022, despite input cost rises, meaning growers had been forced to absorbed much of these increases themselves.
6.12Mr Coote nevertheless acknowledged:
The recent disruptions to supply chains and significant increases to input costs have impacted the affordability and availability of food in Australia, especially to lower socioeconomic communities and those living in some rural and remote communities. Over two million households in Australia experienced severe food insecurity in the last 12 months.
The food and grocery retail and wholesale sector
6.13The food and grocery sector is dominated by four main retailers and wholesalers that constitute over 80 per cent of the market in Australia. These include Woolworths (37 per cent of the entire market), Coles (28 per cent), Aldi (11percent), and Metcash (7 per cent, including its Independent Grocers of Australia and Foodland brands, among others). Metcash submitted that the combined market share of Coles and Woolworths in some areas of Australia was over 90 per cent of the market.
6.14Average prices in the September quarter rose 7.1 per cent at Coles and 7.3percent at Woolworths.
6.15Grocery retailers and wholesalers can agree to be bound by a (voluntary) Food and Grocery Code of Conduct (Code), that is enforced and supported by the Australian Competition and Consumer Commission (ACCC). The Code requires signatories to act in good faith towards suppliers and to establish a dispute resolution process to raise and resolve complaints. An independent reviewer oversees implementation of the Code, can make recommendations to resolve complains, and can refer to the ACCC any matters that may constitute a breach of the Code.
6.16Mr Coote dismissed the utility of the voluntary code, describing it as meaning 'absolutely nothing to the retailer… it's useless'.
6.17The Treasury began a review of the Code in late 2022. The review will consider the effectiveness of the dispute resolution process, barriers to using the dispute resolution process, and alternative approaches to improving the dispute resolution provisions of the Code. The review is due to be provided to Government by 30 April 2023.
6.18Mr Coote told the committee that vegetable growers were vulnerable to the power imbalance between retailers and vegetable growers. He stated that '[growers] are locked into processors on a set price or we are price takers from the supermarkets'.
6.19Ms Sheppard similarly described a 'power imbalance' between smaller farmers and large retailers, which she told the committee the Queensland Farmers Federation was constantly working with its members to address.
6.20Both Metcash and Aldi raised concerns with the committee about consolidation and competition within the sector. Mr Scott Marshall, Chief Executive Officer of Metcash's Food Division, warned the committee of major chains acquiring independent stores to increase their market share and power. Metcash also drew the committee's attention to so-called 'anti-competitive' behaviour and recent acquisitions of independent businesses by major retailers. Mr Oliver Bongardt from Aldi Stores Australia similarly claimed that some sectors in Australia were duopolistic or had only three or four main players, to the detriment of the consumer.
6.21Mr Bongardt told the committee that in 2022, Aldi had faced the largest number of cost increases from suppliers since it began operating in Australia. These increases, he said, had come on top of rising operating costs.
6.22Mr Bongardt stated that Aldi had accepted 96 per cent of all cost increases requested by suppliers in 2022. Mr Bongardt further claimed that the cost of its goods had risen by 9.2 per cent, whilst the supermarket had increased its retail prices by eight per cent. He told the committee that Aldi's approach was to buy 'very competitively', whilst ensuring relationships with suppliers remained good and that suppliers remain financially viable: '[t]here's no point trying to buy the product at a lower cost that [suppliers] can't sustain', he said.
6.23Ms Vittoria Bon from Coles similarly acknowledged that suppliers had experienced input cost increases, but claimed, '[w]e don't necessarily pass those costs through to our customers. Often we absorb those costs'. She told the committee that Coles itself was also facing direct cost increases, particularly in terms of energy, fuel, packaging, and labour.
6.24Mr Harker told the committee that Woolworths Supermarkets had responded to food input cost rises by freezing prices on some essential items. He also described pricing as a 'balancing act' between customers wanting good value and the sustainability and financial viability of suppliers.
6.25Mr Richard Shi, Vice President of the Asian Business Association of Whitehorse Inc, said many businesses (including small food retailers) were running at a loss due to high labour costs.
Growing food insecurity
6.26In October 2022, Foodbank released a report on hunger in Australia, key findings of which included:
in mid-2022, over 2 million Australian households (21 per cent) had experienced severe food insecurity over the previous 12 months, meaning they had reduced food intake, skipped meals, reduced meal sizes, forgone balanced meals, or in some cases, had gone whole days without eating;
households with children were 1.5-times more likely to have experienced severe food insecurity, with a third (32 per cent) reporting that they were severely food insecure; and
nearly one quarter (23 per cent) of Australian households perceived that they were struggling financially to access food more often than last year.
6.27Foodbank found that nearly two-thirds (64 per cent) of those experiencing food insecurity in 2022 attributed their insecurity to high living costs, whilst two-fifths (42 per cent) put it down to insufficient income. Other factors cited by respondents included costs associated with traveling to buy food (26 per cent), changes in living arrangements (24 per cent), and the impact of natural disasters (19 per cent).
6.28Across the country, Foodbank research found 55 per cent of households were highly food secure; 12 per cent were marginally food secure; 12 per cent were moderately food insecure; and 21 per cent were severely food insecure.
6.29OzHarvest reported in 2022 that its partners had seen the demand for food relief increase by 61 per cent over six months. Nearly a third of those seeking food relief were reported to be doing so for the first time.
6.30Metcash told the committee that they had not seen a major shift in consumer behaviour, but subsequently provided evidence that consumers had begun to shift from fresh food to frozen, were buying more promotional items, and were now favouring private labels over major brands. Coles said that whilst customers had not stopped buying particular categories of food, they were now buying cheaper items within each category. Mr Bongardt from Aldi similarly stated, 'there's clearly a shift out of branded products into exclusive brands or value brands…we see people trading, within category, into cheaper options'.
6.31As discussed in Chapter 3, rising food costs have also driven up costs for food relief agencies, forcing many to reduce services, even as demand for assistance has grown since the pandemic.
Evidence on potential solutions
6.32Removing issues in the supply chain to reduce retailer costs was a consistent theme in evidence provided to the committee on how to reduce prices. Mr Coote told the committee that to cope with future supply shocks and food price rises, Australia needs a 'national food supply chain resilience plan'. Mr Coote also advocated for greater openness and transparency between growers, processors, and retailers.
6.33Ms Sheppard called for stronger competition policies that strike a better balance between the needs of farmers and retailers, calling also for the ACCC to be better resourced to put in place a framework that enables farmers to negotiate fairer terms.
6.34Mr Marshall called for stronger competition laws to limit market share and the acquisition by large retailers of independent stores. Mr Bongardt advocated for more competition across the entire supply chain to promote the best and fairest price.
6.35Mr Shi told the committee that lower requirements were needed for migrants coming to Australia so as to reduce labour shortages that were driving up costs to businesses in his area.
Interim committee findings
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. |
Senator the Hon Jane Hume
Chair
Liberal Senator for Victoria