The real cost of Coles halving produce price

Imported fruit and vegetables, growers out of work, higher prices in the long run and no Australian produce industry to fall back on are the predicted impacts of Coles’ decision to slash its produce price in half.

The supermarket giant made the decision to half its prices in the produce department this week, in what is being seen as the last-ditch attempt to annihilate arch rival Woolworths.

“They’re looking for market share, and they’ve been successful in getting that over Woolworths in most areas,” Simon Coburn, spokeperson for AusVeg, the peak representative body for growers, told Food Magazine.

“Fresh produce is where Woolworths is still seen as the dominant player, so I think Coles has gone after that to take that back.”

The next milk wars

There is little doubt that Woolworths will follow suit and reduce its prices, as it did with the milk pricing, as the two supermarket giants go head to head to be the biggest and best in Australia’s biggest sector.

This is not the first time Coles has slashed prices on products to entice shoppers to its store, but it always comes at a price.

Just over a year ago, Coles was pulling a very similar stunt, slashing the price of own-brand milk to $1 per litre.

Woolworths had no choice but to follow suit, as dairy farmers voiced their outrage over the decision.

“It has the making of [the milk price wars] and we haven’t had a lot of dialogue with Coles on the issue, we weren’t consulted, Coburn told Food Magazine.

“Woolworths is not going to sit back on this, they will get on this quick and it will come down to who is cheap so it definitely has the potential to be the next milk wars.”

Despite a Senate Inquiry and an investigation by the Australian Competition and Consumer Commission (ACCC), the supermarket giant was not found guilty of any wrongdoing, as for the meantime, it will be absorbing the costs of the price decrease.

But many dairy farmers are predicting that won’t last forever, and the “unsustainable” prices will leave their businesses unprofitable, so they are already leaving the industry.

Australian Dairy Farmers Association President Chris Griffin told Food Magazine the industry will continue to suffer as a result of the milk prices.

“We know there’s been at least 30 leave the industry in Queensland alone, and the majority are sighting the uncertainty of milk prices as the reason.”

He said the instability in the industry will only worsen as the government implements the carbon tax and Murray Darling Basin plan.

Long term impacts

Coburn agrees that the reduction in costs will be felt throughout the industry now, but he predicts more pain in the long term.

“Long term this could deliver lots of damage to the industry,” he told Food Magazine.

“Depending where the reduced retail price is going to be absorbed, whether it’s a small grower or a big business, this will damage them long term.

“Eventually it will come back to growers and that’s where they’ll get into trouble.

“These prices aren’t sustainable if they’re passed onto growers, small operations and even big ones won’t survive this.

When asked whether the price cuts shows a lack of knowledge or respect for growers from Coles, Coburn said that will be determined by Coles’ behavior going forward.

“It depends on how these costs will be set up,” he said.

“If they absorb the costs within their own structures, it could be good, but if it is going to be passed onto growers, which it probably will, it shows mass disrespect to growers.

Coburn told Food Magazine the unsustainable pricing will result in fruit and vegetables having to be imported to maintain the low costs.

“The perspective is that if there’s no Australian industry, just import.

“The industry will die off, probably not slowly, and imports will start flooding the market.

“So we face more imports and lose our identity and in the end the consumer will pay the same if not higher and we won’t have an Australian industry to fall back on.”

He said the behavior of the two major supermarkets is putting profits ahead of what’s good for the industry.

“Generally speaking, consumers do want to support local industries, but in the current economic environment, we do look at prices and it’s tough to always choose Australian products over the cheaper imports.

“But what we’re trying to promote is that they should take a long term view and think about what it’s really doing.”

Fresh calls for Supermarket Ombudsman

The latest move by Coles has added fuel to the fire of the Australian Food and Grocery Council’s calls for a Supermarket Ombudsman to oversee the actions of the major supermarkets.

The AFGC has been calling on the government to include a Supermarket Ombudsman in the Federal Budget to enforce a Supermarket Fair Trading Code of Conduct since last year.

It is concerned over the reduction in competition in the sector, as the major two supermarkets take market share, largely thanks to private-label products flooding the shelves.

AFGC Chief Executive Kate Carnell said the produce cuts have not been driven by supply chain competition or lower costs of production.

“If these current ‘price wars’ continue, the profitability of Australia’s food manufacturing sector, as well as farmers, will be eroded and the result could be a significant loss of both processors and producers,” Carnell said.

“We’ve already seen the impacts of price discounting on food and grocery manufacturing, this latest move will obviously impact small producers and spells danger for manufacturing, jobs and regional communities.”

If the current supermarket environment is allowed to continue, 130 000 people in the food and grocery sector will be out of work by 2020.

Those are scary figures, considering it is already 2012, and the government is yet to step in and address the issue.

“Australia and New Zealand has the highest levels of supermarket concentration in the world, delivering significant market power to major supermarkets and making it increasingly difficult for suppliers to negotiate reasonable trading terms and compete with the growing levels of private label products.

Food Magazine has contacted both Coles and Woolworths to discuss these issues; Coles has not returned calls.

Woolworths provided a media release with a list of produce prices it has that are the same as Coles, and an explanation that a surplus of stock has led to the price cuts, but would not respond to further questions.

Image: WA Today

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