21st February 2024 11:21
Victorian Legislative Council, Melbourne
Rachel PAYNE (South-Eastern Metropolitan) (11:20):
I rise to speak to motion 307 brought on by Mr Aiv Puglielli. This motion recognises that Victorians are struggling to afford food and other essentials due to the high prices set by supermarkets. The supermarket duopoly of Coles and Woolworths are increasing their profits. People are doing it tough. The costs of everything are increasing, and many things, like food, we simply cannot go without.
There is increasing concern that supermarkets are extorting the cost-of-living crisis and increasing their profits, and the evidence of this continues to pile up.
Just earlier this week we saw Four Corners reporting on how the supermarket industry profits off rising prices. It found they solicit pay-offs from suppliers so that they can increase the prices you pay for products, and they often seek rebates from suppliers when hiking prices. The only thing down, down, down these days is any semblance of trust we had.
On that note, have you walked inside one of these supermarkets recently? It is dystopian. Talk about a lack of trust. There is clear understaffing. The number of checkouts that are not self-serve keep getting less and less, and when you are at a self-serve you are filmed by 50 different cameras on 50 different angles. ‘Are you sure you scanned that right? Would you like to try that again?’ ‘Here, let me show a video of your face in close-up from the overhead.’ ‘Oh, you want to leave the store? No, you can’t do that. There are some automatic gates there to stop your shopping
pleasure.’ Seriously – all this for someone just trying to buy food that they need to live.
This motion also notes that section 4 of the Essential Services Commission Act 2001 gives the government the power to declare an industry to be a regulated industry and calls on the Victorian government to declare groceries a regulated industry to prevent supermarkets from price gouging.
It is our position that the commission is not suited to fulfilling this kind of significant regulatory role. It lacks the funding, staff and other resources. Additionally, the commission’s wheelhouse is single-product monopolies. Yes, this commission does have some attractive mechanisms available to it – meaning reporting, price determinations, compliance, enforcements, auditing and dealing with new market entrants – but we think there are different ways to better do this intervention, which I will circle back to later.
First, I want to address the idea of price controls, as they are by far the most controversial element of this motion and there is no shortage of economic professors who will come out to dissuade you. In talking you out of price controls you will hear them use terms like ‘supply and demand’.
They will tell you that capping prices will create shortages, the price of other items will go up, an illicit market will thrive, productivity will lower and it will instead have an inflationary effect. They will also tell you about how important prices are for signalling to consumers and producers how to change their purchasing and selling habits. All of these things are not necessarily untrue.
The UK did try and dip their toes into price caps to slow price increase. Ironically, three-quarters of their public were in support and three-quarters of economists were in opposition. But this never got off the ground. Zimbabwe tried with little success. Consumer panic caused shortages. Manufacturers stopped supplying, and retailers could not make a profit. But as we have mentioned, we have this wonderful thing here in Australia where these supermarkets have great big profit margins.
Surely that gives us a bit of wiggle room.
If you want to talk about economics, let us talk about it – specifically elastic versus inelastic demand. Inelastic demand means that the demand of a product does not change proportionately with the rise and fall in its price. A good that we cannot live without – for instance food – is price inelastic.
This means that significant increases in cost do not result in significant decreases in demand, because of course people cannot go without food. ‘Colesworths’ knows this, and they are taking full advantage of it.
Another argument we have heard here is that we should target the cause, not the symptom. Let us fight inflation – great. But where the symptom is price gouging, controlling prices,
perhaps we could do both. I have to say, looking at Coles posting a $1.1 billion profit, a 4.8 per cent rise, and Woolworths posting $1.62 billion, a 4.6 per cent rise, you can understand why we believe that maybe there is some wiggle room. We do not believe that price increases are being evenly spread across the supply chain. They are accumulating at the point at which people are buying their groceries.
Suppliers are losing, consumers are losing and the supermarkets are winning. Woolworths now enjoys the double margins of peers like UK chain Sainsbury’s. Woolworths’ operating margin spiked by 5.3 per cent to 6 per cent during the last financial year for its Australian food division. This is not consistent growth, this is growth inflated out of pockets of consumers. If you want to talk about market manipulation and toying with supply and demand, maybe this government should walk up to the door of these grocery chains’ CEOs for a bit of a chat.
I am certain they would love to talk about how they pass on the costs of inflation so that they can eat the cake at both ends, giving the supplier and the consumer a bad deal. I am sure the CEO of a major grocery chain would not try and walk away from the conversation out of fear of any sort of accountability; that has never been done before.
I do not pretend to be an economist, but I was so tickled by the ideas in some of the material sent to my office – in particular that if the market is left to its own devices, prices will eventually return to normal, consistent with historical prices. How exciting! I do not know about you, but I do not really trust these supermarkets.
I do not trust the supermarket duopoly with meaningfully reducing prices when costs start to reduce. Why would they undercut their own profit margins like that, especially when they are not in a particularly competitive market? If we get this wrong, a major market intervention like this will cause people to go without, and we cannot risk that. Although we do encourage ambition and innovation, we want it to be thoughtfully done and backed with robust policy.
If we are to suggest that this government undertake some of the most significant market interventions of this decade, they cannot be half-baked.
The Greens did raise the important point that it was the Cain Labor government in the mid-1980s who intervened to tackle excessive price rises by introducing price control legislation, an office for prices and a prices minister.
This included price monitoring, investigations, promoting competition, supporting price action groups and submissions to inquiries. So for this government to throw their hands up and say, ‘There isn’t much we can do; our federal buddies are working on it,’ we find deeply disappointing. This is not to say that there is an absence of regulatory framework occurring at the federal level.
The appointment of Dr Craig Emerson as an independent reviewer of the Food and Grocery Code of Conduct and the ACCC’s inquiry into the supermarket sector are both good things.
We need supermarket practices examined on a national level, but we need to work at a state level too. Maybe it could be relaxed planning laws to lower barriers to entry for competitors. But maybe, given the current level of distrust in the grocery industry, market deregulation is not a great idea. As such
Legalise Cannabis Victoria will not be supporting the motion. If we do this wrong, the consequences are that people could go without food, and we cannot risk that. But we remain committed to working across party lines to find cost-of-living relief for those who are doing it tough, including market interventions if needed. This motion is not the right way forward, but we do believe there is way more the government could be doing.
There is never a time when ambition is more needed than a time of crisis. One cannot help but feel like this is one of those times. The government needs to avoid economic orthodoxy and come to the table with inventive solutions.
[ENDS]
