04.Fresh food prices
While 70% of packaged groceries are sold through Coles and Woolworths, the major chains only account for about half of all fresh food (such as fruit, vegetables and meat) sold in Australia. This allows for greater competition, as farmers have the option of selling to export markets or wholesale markets (which in turn supply to independent supermarkets, butchers and greengrocers). In theory, this diminishes the buyer power of Coles and Woolworths in this category.
This year, for the first time, we included fresh foods in our survey – bananas, chicken breasts and tomatoes – and found prices were markedly lower in areas with a greater population density, indicating the pressure of local competition. In NSW Woolworths stores alone, for example:
- chicken breasts ranged from $7.99/kg in outer Sydney suburbs Blacktown, Liverpool and Hornsby, to $12.98/kg in regional Wagga Wagga
- tomatoes ranged from $1.78/kg in Tuggerah to $3.98/kg in Dubbo
- bananas ranged from $1.95/kg in Belmont to $4.48/kg in Dubbo
Farmers the ultimate losers
But the price you pay at the checkout doesn’t always reflect farm gate prices, even after factoring in transport and other costs. Apple & Pear Australia says 2009 is a good year for apple production, and consequently apple growers are getting paid as much as a third less for their produce – yet consumers are paying just 5%-10% less. In spite of these and similar assertions, the ACCC found little evidence to suggest retail price hikes for fresh products exceed increases in farm-gate prices. Frank Zumbo, Associate Professor within the School of Business Law and Taxation at the University of NSW, is cynical. “Coles and Woolworths are paying farmers less and less, but retail price doesn’t fall in proportion to fall in the price that farmers get. So the reality is that Coles’ and Woolworths’ profit margins have been growing.”
Duopoly the big winners
Price promotions play a big part in moving fresh produce in the major chains, particularly when it’s a bumper season for a certain crop. But they can also have an insidious knock-on effect. The ACCC report explains how when promotional specials for apples, for example, are run by the major chains in periods when there’s no excess supply, shortages of similar quality apples in the wholesale markets can occur. This helps drive up wholesale prices, which means smaller supermarket chains and greengrocers (and their customers) may be forced to pay significantly higher prices – hardly a level playing field.