Higher food prices blamed on limited competition

Posted by Daniel Palmer on 9th November 2009

New OECD price data has shown Australia to have the highest rate of food inflation since 2000, although it has begun to moderate over the past year.

The data shows Australian food prices have risen by 41.3 per cent, higher than the other 29 nations in the survey. However, based on comparisons to 2006 figures, Australia has seen the seventh highest rate of food inflation in the OECD – behind Hungary, Iceland, Mexico, New Zealand, Turkey and the UK. Indeed, the global financial crisis has helped created a situation where many products are now cheaper today than they were at the start of the year.

The report of surging food prices has been blamed on a lack of competition, something the major chains refute.

“We don’t believe we have too much power,” Woolworths’ James Aylen told the Seven Network this morning. “We actually think the Australian market is very competitive.”

“We know the ACCC had their inquiry last year and they certainly found it to be competitive as well.”

Surprisingly, the ACCC has this year been quite vocal in their defence of competition in the grocery sector as the debate about market power continues to rage. The competition regulator believes relatively new entrants like Aldi and Costco are beginning to make an impact and found in their grocery inquiry last year that the industry was “workably competitive”.

The Australian National Retailers Association, which represents Coles and Woolworths, echoed similar sentiments to Mr Aylen.

“The ACCC’s exhaustive inquiry into food prices last year found a range of factors have influenced food prices in this country, including seasonal conditions, and the international commodities boom,” ANRA CEO Margy Osmond said in a statement. “The margins of the major supermarkets have remained very modest at between 3-5 per cent.”

“According to the latest OECD statistics between 2005 and September quarter 2009, food prices in Australia have risen 18.3%, and actually fell last quarter. This compares to a 22.4% rise in the UK, 13% rise in the US, and 15% across the European OECD economies.”

Government response

Competition Minister Craig Emerson indicated that competition was not yet as robust as the government would like, but barriers were steadily being broken down.

“We’re taking on hard measures by taking down the barriers to competition with Coles and Woolworths,” he claimed. “We are determined to apply the competition blowtorch.”

Dr Emerson acknowledged that there were factors beyond supermarket control that have forced prices higher but increased competitive tension would be welcome.
“There’s a range of combining factors that go into price rises over a number of years but competition is the best force for lowering prices,” he said, according to AAP. “If you ask Australian consumers they will say prices have been rising and that they are too high.”