I have reprinted this great post from Jan Davis CEO of Tasmanian Farmers and Graziers found here
August 23, 2013
Wesfarmers, owner of the Coles supermarket chain, last week announced a $2.26 billion net profit for 2012/13, aided by Coles’ contribution of $1.53 billion, 13 per cent up on the year before.
That’s good. We want to see Australian companies making healthy profits.
However, I’m bemused by the comments made by the bosses of both Coles and Wesfarmers that, despite their Down Down, Prices are Down campaign that has seen food inflation as low as 1.1 per cent, Australians are still paying too much for our food. They intend to cut prices more.
If you look at where we stand internationally, the argument is unsustainable. In Australia, we now spend about 10 per cent of our incomes on food – which is one of the lowest levels in the world. According to a study undertaken by the Washington State University, this is less than consumers in Scandinavia, where people spend an average of 11%. In China, consumers spend 39 per cent of their earnings on food; the figure is 44 per cent in Indonesia. If you lived in Azerbaijan, you would spend 48.5 per cent of your income on food.
Even more importantly, the proportion of our income that we spend on food has continued to fall each year in Australia, whilst our average incomes have risen. According to government surveys, our proportionate spending has halved in thirty years. People now consider to be basic essentials that previous generations could only dream of – flat screen TVs, brand new cars, overseas holidays, private school education etc etc – and that means there is less money directed to food spending.
I understand these are average figures, and some Australians are worse off than others, but we are not exactly at risk of starving, are we? At some point, we need to recognise the unalterable fact that you get what you pay for – and it is simply not possible for Australian farmers to produce safe, nutritious, quality food at ever-diminishing prices.
It’s not rocket science to work out that Australian farmers can’t defy the forces of gravity – they can’t continue to survive with increasing input costs and decreasing farm gate returns. Everyone knows that $1 per litre milk is not sustainable. The only way retail food prices in Australia can continue to fall is if supermarkets import more and more cheap foreign products that don’t meet the standards we expect in terms of safety and quality. Is that what we want?
The Australian Competition and Consumer Commission seems to be in a constant state of scrutiny of the supermarket behaviour: whether they exercise unfair market domination for groceries and petrol, or their alleged bullying demeanour towards suppliers. Yet nobody seems to be able to address the real issue – that the Australian grocery marketplace is distorted because of the Coles and Woolworths’ duopoly.
We all know that increased profits for the supermarkets, and cheaper food prices for consumers, come at a cost. And we all know that it is Australian farmers who end up paying these costs in food prices.
Our beef is that, at the bottom of the food supply chain, it is Australian farmers who are getting screwed on price. Studies show that, while we live in an affluent society that pays less each year for food, 86 per cent of shoppers are still driven by price.
We need a reality check here. There has to be an equitable balance between returns to farmers, the prices that retailers charge consumers, and the profits that those retailers make.
Profit is not a dirty word. It is good for Australian companies – including supermarkets – to make a profit. However, farmers run businesses too – and they should be able to expect to make a reasonable living in return for their hard work and investment.
Contact Jan Davis
0409 004 228