While Canada strong-arms supermarkets into lowering prices with threats of increased taxes and regulation, even government intervention will struggle to keep Australia’s duopoly honest and grocery bills low.
The public, opposition parties and the polls are hammering Justin Trudeau’s Liberal government for failing to take action as Canadians, like Australians, face a cost-of-living crisis and rising grocery bills.
His response was threatening to increase taxes if the supermarkets didn’t develop plans to reduce food prices, and establishing a Grocery Task Force to monitor those commitments and investigate practices that hurt consumers.
The threat of regulation was enough to turn the heads of supermarket boards and directors, who have now committed to stabilising prices, with Costco and Walmart agreeing to “aggressive” price cuts.
Matt Grudnoff, senior economist at the Australia Institute, said while Trudeau’s efforts may work in the short term, Coles and Woolworths are more likely to be able to resist government pressure because of the lack of competition in the market.
“We’ve got this short-term spike in inflation, it’s on people’s minds and it might be in their interest to buckle down to avoid other taxation, regulation or laws,” he said.
“Over the long term, they are going to drift back and it’s really only competition that’s going to keep them honest.”
The five supermarkets targeted by Trudeau have a similar market share to Coles and Woolworths, around 70 per cent, because Australia’s weak merger and acquisition laws contribute to highly concentrated markets dominated by a small number of powerful businesses.
The Australia Council of Trade Unions (ACTU) is currently holding an inquiry into price gouging, and its Assistant Secretary Joseph Mitchell said members of the public have made more submissions about supermarkets than any other industry.
“It’s clear that supermarkets, along with other big businesses, have been able to increase their margins and profits and it is time for big business to pass on the cost reductions they are experiencing to customers,” he said.
“Not only are many of these large companies keeping their prices too high, but they are also insisting on keeping wages low.”
Allan Fels is leading an inquiry into price gouging, profits and living standards backed by the ACTU. Photo: AAP
Food prices in Australia have been rising faster than inflation, while the two supermarket giants simultaneously post billion dollar profits.
Grudnoff said it would be difficult to pressure Australia’s duopoly supermarkets into lowering prices because powerful businesses are able to resist government action, but there are other levers the government can pull.
“If big supermarkets are making excessive profits, we could simply tax those at a higher rate through a super profits tax,” he said.
“If we wanted to actually change the laws to give us more powers, there’s absolutely things we could do.”
The ACTU will hold another hearing on October 26 in Adelaide, before the chair of the inquiry Allan Fels hands down his interim report in November.
When asked if Australia could create a similar body to Canada’s Grocery Task Force and what actions are being taken to stabilise food prices, Andrew Leigh, Assistant Minister for Competition, Charities and Treasury, said the Albanese government has “committed to reviewing the Food and Grocery Code to assess whether the code is fit-for-purpose and achieving its goal of improving commercial relationships between retailers, wholesalers and suppliers in the grocery sector”.
Concentration in domestic markets has increased steadily between 2006 and 2020, with most Australian industries now dominated by at most four major players.
Here in Australia, consumers have taken to calling out the supermarkets instead. Photo: Grassroots Action Network Tasmania
Grudnoff suggested anti-trust laws, similar to the United States, would increase competition by splitting large companies into smaller ones and lower prices for consumers.
“There isn’t a lot of love for Coles and Woolworths, and if you are talking about more competition with lower prices it means less profits for firms, but that’s lower prices for Australians,” he said.
“Traditionally, we’ve felt that we were this tiny county in the middle of nowhere and that we just had to accept big firms in order to survive, but we’ve basically turned into a country of oligopoly and it doesn’t have it be that way.”