Confronting corporate power in the food system

Market share: Two companies in Australia control more than half of the country’s bread and bakery business. Flickr/looseends

The Federal Government’s current national food plan process is heavily dominated by business interests. It is built on flawed assumptions that the market can provide the solutions that our broken food system sorely needs.

Australia’s food system, like the food system globally (see also The GROW Report), is dominated by a handful of corporate players in pursuit of profit. Far from the rhetoric of “free” and “competitive” markets, our food economy is governed by an oligopoly of private interests.

(Super)market domination

Concentration of economic power in the Australian agrifood system is probably best understood through the example of the supermarket duopoly of Coles and Woolworths, controlling around 80% of retail grocery sales. Lesser-known corporate giants include Cargill, the world’s largest grain trader, which became Australia’s largest grain trader when it purchased the privatised Australian Wheat Board in 2011.

Since deregulation of the dairy industry, one multinational food and beverage company, Kirin, controls around 80% of Australia’s drinking milk market, forcing out farmer-run cooperatives. Two companies, Weston Foods and Goodman Fielder, control more than half of the bread and bakery markets.

Private control of agriculture, food processing and retailing means that decisions about what food is produced, how it is processed and where it is sold are driven by profit motive, and not by human needs. Moreover, the huge market share controlled by the small number of companies that dominate Australia’s food system creates the potential abuse of market power.

Farmers’ struggle

Farmers feel this impact of this market power keenly. As suppliers to the two big supermarket chains, and to companies like Kirin in the milk market, farmers are forced to accept lower and lower prices in order to win supply contracts. In the milk sector, farmers are receiving a decreasing proportion of retail revenue since deregulation in the early 2000s. The start of the so-called “Milk Wars” between Coles and Woolworths in early 2011, pushing milk retail prices to $1 per litre, only exacerbates this downward pressure on farmgate prices.

In addition to low prices, farmers are forced to meet exacting standards regarding the appearance of fruit and vegetables, to package and label produce at their own expense, and risk having produce returned at the whim of the retailer. Negotiations between supermarkets and their suppliers are not transparent and the resulting contracts, with no standard terms of trade, provide little consistency for suppliers. At times, suppliers are notified of the prices they will be paid after the sale is completed.

It is not only farmers who suffer as a result of the enormous economic power of the handful of companies that dominate the food system. A survey of hundreds of truck drivers working for Coles earlier this year found that the majority felt pressure to drive above the speed limit in order to meet the company’s demands.

Drivers were forced to work for hundreds of unpaid hours per year, waiting in delivery lines, and loading and unloading cargo. Health and safety standards dropped, putting workers’ lives at risk, when the company failed to allow sufficient time for vehicle repairs.

Need for change

It is unacceptable that powerful food companies obtain profits by extracting unreasonable concessions from primary producers and workers in the food system. This imbalance of economic power undermines farmer and rural livelihoods, and threatens the future of Australia’s food production industries.

There has been significant discussion in Australia of the power of the supermarket duopoly. The ACCC issued an astonishing report in 2008 which pronounced the retail industry sufficiently competitive, despite the two largest retailers controlling, at the time, 70% of grocery sales, 50% of fresh fruit and vegetable sales and 60% of all supermarket stores.

Nonetheless, the ACCC did find that some adjustment measures were required, such as lowering barriers to entry for other firms. There has been little progress on this point as Coles and Woolworths have further consolidated their market positions and are refusing to agree to a more “streamlined” process proposed by the ACCC for approving mergers and acquisitions. The retailers are reportedly concerned that the new process will enable the ACCC to block deals and limit their growth plans.

Amid many complaints from farmers and other industry stakeholders, the ACCC’s new Chairman has made several attempts to curb the duopolists’ power, including the streamlined approval process for acquisitions. The ACCC has also investigated claims of unconscionable conduct regarding suppliers and misuse of market power regarding private label products. The outcome of these initiatives is yet to be seen.

The national food plan process has been particularly dismissive of concerns regarding the impact of the duopoly. The government has refused to intervene in the relationships between Coles and Woolworths and their suppliers, preferring to “let the market decide”.

The Australian Food Sovereignty Alliance decided in early 2012, after seeking to engage with the government’s flawed food plan process, to initiate the “People’s Food Plan” project. The national food plan fails to provide adequate access to the public for consultation and prioritises the needs of the market over the needs of the people who depend on the system. In contrast, the People’s Food Plan questions the dominance of corporate interests and the market-driven nature of the food system, opening the door to the kind of transformative change that many are advocating.

The People’s Food Plan involves community meetings throughout Australia. At these forums, interested farmers, community activists, food-lovers, students, workers and others will get together to talk about the changes we want to see in our food system. If you are interested and would like to participate in one of these discussion events - you can find out more or contact us at The Australian Food Sovereignty Alliance.