Grocery prices under scrutiny again

Posted by Daniel Palmer on 20th July 2009

The release of price data from the Reserve Bank of Australia on Thursday has again put the major supermarket chains under the spotlight.

The RBA’s research established that food, beverage and tobacco prices had risen 4% each year, on average, since 1993 – comfortably above the 2.7% core inflation recorded.

“The various types of food included in the CPI show a broadly similar trend price increase over this period, although the prices for dairy, cereals and fruit and vegetable items have grown comparatively fast in recent years,” the central bank advised. “The recent strong price rises for these goods partly reflects the increase in raw food input prices – which have been affected by the poor conditions for agriculture in Australia and the rise in prices globally – though the raw input is only one part of the final retail price due to processing and distribution costs, and margins.”

Spokesman for consumer group Choice, Christopher Zinn, contends that the price rises can be linked to limited competition in the grocery sector.

“This will come as no surprise to anyone who does the shopping. You really don’t have to be a Reserve Bank economist to know that fresh produce out of all the things that you buy in the grocery story have really been going up,” he told ABC radio over the weekend. “Really the one thing we can change in the short term is to look at how competitive this sector is and what can be done to inject more competition because that is the one thing that really is the consumer’s friend in this issue.”

Margy Osmond from the Australian National Retailers Association – which represents Coles, Woolworths and Franklins – disagrees, believing the recent activity in the sector bodes well for healthy competition.

“If you’ve got companies like Costco and Aldi, Foodworks, all entering the marketplace, that doesn’t tell me it’s uncompetitive marketplace; that tells me it’s a very healthy marketplace and consumers are getting the benefits from it,” she said. “I think it’s easy to pick the big grocers sometimes as a target, and I think it’s completely unwarranted.”

Last year, the ACCC found the industry to be “workably competitive” and ACCC Chairman Graeme Samuel has been encouraged by the continued growth of rivals to Woolworths and Coles in the past year. He says the Grocery Inquiry carried out by the competition watchdog outlined that the bulk of price changes could be linked to higher raw food costs.

“The RBA points out that an element of this has had to do with what they call raw food import prices; that is the somewhat poor conditions for agriculture in Australia,” he noted. “And of course we’re talking about that in terms of the drought and the rise in prices globally.”

To view the research from the RBA please visit: