Andrew Leigh

GROCERY PRICES

Matter of Public Importance, House of Representatives
Wednesday, 28 February 2024

,It is a great thing in this House to be discussing the important issue of competition, and for that I thank the member for Kennedy for bringing forward this matter of public importance.

If you're a sports fan in Australia you have plenty of choices. If you're an AFL fan you've got 18 teams to choose from. If you're a fan of the Women's Big Bash League you've got eight teams to choose from. If you're a fan of the Australian Ice Hockey League you have 10 teams to choose from including the Canberra Brave, the Central Coast Rhinos, the Melbourne Mustangs and the Sydney Ice Dogs. If you're an A-League fan you have 12 teams to choose from. The fact is that many of these leagues are also growing new teams, so we've had the GWS Giants and the Tasmanian JackJumpers.

However, in business you'd be lucky if you had not 18 choices, not eight choices but just a few, because too many Australian industries—from banking to baby food to beer—are dominated by just a couple of big firms. While we've seen our sporting codes growing new teams, the trend in corporate Australia over the last generation has been towards mergers. Over the past 30 years the number of corporate mergers has grown by a factor of six and the value of corporate mergers has grown by a factor of 11. If our sporting codes had gone the same way we'd all be barracking for the same few teams.

The result of these mergers has been that over the course of the last couple of decades we've had an increase in market concentration and we've seen an increase in mark-ups—the gap between prices and costs. We've seen a decline in the job switching rate, which matters because switching jobs is typically the best way of getting a pay rise in the career of a typical employer. If we look at the start-up rate focusing on employing small businesses, Australians are starting fewer firms now than in the past. The result of increasing market power is that consumers pay more, farmers earn less and small businesses are constrained. More competition, on the other hand, is good for consumers, good for workers and good for innovation.

We were talking during question time about the gender pay gap, and it turns out that more competitive sporting codes tend to have less discrimination. We've seen that in major league baseball because as it became more competitive, racial pay gaps narrowed. We've seen this with the gender pay gap in banking. To go back to the example of sport, vigorous competition can be a force for egalitarianism. Kenyan runners dominated the marathon because the world marathon made it a serious sport with serious prize money. They were then able to compete on that level playing field.

Conversely, a lack of competition most hurts the poor. The member for Kennedy has talked about the impact on farmers, but it's also true that we see a lack of competition having an adverse impact on low-income consumers. If you don't have a car you can't drive to a cheaper supermarket. If you don't have a good internet connection you can't connect up to get good online sales. It's no coincidence that payday lenders are going door to door in the poorest communities.

Competition keeps prices low and encourages firms to innovate. If consumers can choose, they're less likely to be gouged on price. If workers can choose they're more likely to get a fair return for their labour. We know competition is important for spurring economic growth. We saw this in the 1990s when the reforms of Fred Hilmer and Paul Keating kicked off one of the most productive decades in the postwar era, during which we had strong growth in labour productivity. At the end of that decade there was a permanent 2½ per cent increase in national income, which in today's dollars is equivalent to some $5,000 a household.

We have instead had a lousy period of productivity growth. Under the former government we had labour productivity growth at its slowest rate in the postwar era. We have a lot of stasis in the Australian economy. If you go back to the mid-1980s the biggest Australian firms in the stockmarket were Westpac, the Commonwealth Bank, NAB, ANZ and BHP. Now they're Westpac, the Commonwealth Bank, NAB, BHP and CSL. Don't worry too much about ANZ because it's sitting just behind the pack. Monopoly power transfers resources from consumers to shareholders, thereby worsening inequality. We are committed to the fair go on this side of the House, and you can't have a fair go without fair competition. The member for Kennedy mentioned some of the history of supermarket aggregation but he did not go very far back. It is somewhat surprising, as the member for Kennedy has been a member of parliament since I was two years old—in 1974—taking only a year out between the Queensland and the national parliaments. Let me take him back a little further.

Mr Katter: It's been 50 years.

Dr LEIGH: It is half a century ago, member for Kennedy. As David Merrett notes in his book, Coles and Woolworths accounted for most of their competitors through a series of acquisitions. Six years after they entered the market, their share was 20 per cent. By the time the member for Kennedy first became a MP in 1974, it was nearly 40 per cent. Twenty years on and the two big supermarket operators had more than 60 per cent of the market.

We saw in the 4 Corners recent report that now for every $10 Australians pay for groceries, $6.50 is spent at Coles and Woolworths and just $1 at ALDI. That 4 Corners report had a story of a cherry farmer who sent 15 tonnes of cherries to Coles, an entire semitrailer load, expecting to receive $90,000. Instead, he was told it was not up to standard and got less than $6,000 on the seconds market. He said, 'So that is market power when you can simply reject something for no good reason.' Another supplier told the story of asking to be paid five per cent more and being told that request would only be approved if he paid Coles $25,000. We have seen accounts of farmers being asked to pay so-called rebate charges in order to have their invoices paid on time. Fruit Growers Victoria have said many members have had little choice but to agree to pay rebate charges sometimes as high as four per cent to get their invoice paid on time. The operations of the large supermarkets mean that they are now tending to buy direct. One report said that, in Queensland, 10 to 15 years ago some 80 per cent of fresh produce ran through the central market at Rocklea. Now 80 per cent is sold directly to supermarkets.

I want to draw particular attention of the House to a report, Australian Food Story: Feeding the Nation and Beyond, from a committee ably chaired by the member for Paterson. That spoke of the challenges of the supermarket duopoly and quoted the National Farmers' Federation about the lack of transparency in the supply chain. It called for a review of the Food and Grocery Code of Conduct, to consider whether it should be made mandatory. The government is doing just that, and I thank the member for Paterson for this important work on this important report. The government has charged former competition Minister Craig Emerson with reviewing the Food and Grocery Code of Conduct, and his consultation paper specifically goes to whether it should be made mandatory.

Since coming to office, the government have increased the penalties for anticompetitive conduct and we have banned unfair contract terms. We have set up a competition task force in Treasury which is actively considering issues such as reviewing Australia's merger laws and considering whether noncompete clauses that apply to one in five workers and are used by one in five firms ought to be reformed in order that workers can more easily have the freedom to go to a better job. We've tasked the Australian Competition and Consumer Commission with a review of the supermarkets that will report this year on the conduct of the supermarkets and any reforms that need to take place. And in order to deliver immediately for consumers, we are funding CHOICE to do quarterly price monitoring, ensuring that consumers know where the best deal is available.

I started with sport, let me finish with it. Sometimes collusion reminds me of a story that David Williamson told about making the movie Phar Lap. He said, 'We had to replicate the exact winning order of the horses in the 1930 Melbourne Cup, which Phar Lap won. I remember asking some of our jockeys whether it was possible to do this. They looked at each other and burst out laughing. Sure enough, the horses crossed the winning line in perfect order, and every one of the jockeys looked as if he was trying his heart out.' We don't want an Australian economy that looks like the movie depicted by David Williamson in that quote.