The cost of groceries has surged due to rising prices for energy and key commodities like sugar. Despite this, politicians from both major parties have dismissed claims by Coles and Woolworths that suppliers are driving the pressure on consumers at the checkout.
On Friday, Coles and Woolworths told a parliamentary inquiry that over the past year, they’ve faced a flood of requests from suppliers to increase the prices of thousands of products by more than 10%. As a result, the supermarket chains stated they couldn’t guarantee lower shelf prices before Christmas.
The Food & Grocery Council, representing big players like Unilever, Kraft Heinz, and Johnson & Johnson, defended the price hikes, pointing to the dramatic rise in production costs during and after the pandemic. Tanya Barden, the Council’s CEO, explained that while some commodity prices have eased, they remain higher than pre-pandemic levels. Barden also criticised the Albanese government for failing to promote productivity growth that could help businesses cope with rising costs.
She emphasised that cocoa prices have skyrocketed by 200% since late 2023, sugar by 46% over the past three years, some packaging materials by 28%, and energy and gas costs by more than 50%. Barden noted that throughout 2023, production cost increases have outpaced retail price growth.
“The harsh reality is that manufacturing costs have exploded. We’re facing supply-side inflation, and we need supply-side solutions,” Barden said. She urged the government to implement policies that encourage productivity, including tax incentives for automation in the food and grocery sector.
Coles and Woolworths have both argued that their profit margins on groceries haven’t increased and that they negotiate fairly with suppliers to keep prices down. A Woolworths spokeswoman stated that suppliers blame energy, shipping, commodities, packaging, and labour for rising production costs, reflecting inflation pressures across the economy. However, the food and grocery code of conduct prevents the supermarkets from demanding detailed data to back up supplier price hike requests.
Competition policy minister Andrew Leigh challenged the supermarkets to stand firm against large multinational suppliers pushing up prices for consumers. He also urged them to be more competitive on their margins when prices rise. Leigh said Labor’s recent amendments to the food and grocery code of conduct are aimed at helping farmers, not multinational companies.
While Coles and Woolworths have faced criticism for allegedly exploiting their market power against local suppliers, they argue that the real power imbalance lies with the multinational corporations that supply 70% of the products on their shelves. Paul Harker, Woolworths’ chief commercial officer, pointed out that supermarkets are often up against suppliers many times their size, a dynamic that the ACCC will examine closely.
Although no specific companies were named, Australian supermarket shelves are filled with products from global giants like Nestlé, Unilever, PepsiCo, Kraft Heinz, Mars, and Mondelez. The ACCC is set to investigate the pricing practices of these major suppliers in the next phase of its inquiry into supermarket competition.
Nationals leader David Littleproud accused the supermarkets of using “diversion tactics” by blaming suppliers for price increases and welcomed the ACCC’s investigation. He also claimed supermarkets have long engaged in predatory behaviour toward both farmers and consumers.
Barden acknowledged the difficult choices manufacturers face in response to rising costs, including shrinking packaging sizes, lowering product quality, or moving production overseas.
As grocery prices soar, Coles and Woolworths find themselves under fire from both Labor and the Coalition, as each party vies to prove they can best handle the cost-of-living crisis ahead of the next federal election in May.
Treasurer Jim Chalmers has singled out the supermarket sector as part of a broader overhaul of Australia’s merger laws, ensuring any future mergers in the grocery industry are thoroughly reviewed by the ACCC. Last month, the competition watchdog launched a legal case against Coles and Woolworths, accusing them of misleading consumers by claiming to lower prices while actually raising them. The ACCC is pushing for penalties that could reach $50 million per breach or 30% of the turnover during the period in question.
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