Major supermarket chains can wield considerable power across the entire food supply chain: the concentration of this power allows them to outsource responsibility for the damage to public and environmental health, biodiversity loss and the low wages of farm workers and farmgate prices that drive their profits. Just two supermarkets in Australia, Coles and Woolworths, control nearly 70% of the country’s grocery sector, granting them enormous power. This duopoly bestows Coles and Woolworths the market power to set the terms of the relationship with their suppliers, to influence labour and animal welfare standards across the food supply chain and to shape the public regulations and norms under which they operate.
Criticisms of the two supermarkets have occurred against a backdrop of wider debates about the negative environmental, labour, animal welfare and public health costs of Australia’s industrial food system, exacerbated by the supermarkets’ profit-oriented business strategies. A frank discussion needs to be had among Australian supermarkets, their customers and policymakers about the true cost of food as an essential prerequisite for making their operations more sustainable and ethical.
Impacts across the food chain
The struggling business environment in which Australian farmers currently operate is a reflection of continuous and significant changes to Australia’s agricultural sector over recent decades. This includes the deregulation of agricultural markets and abolishment of governmental price supports, the privatisation of infrastructure and agricultural services, rising costs for labour and energy and increasing concentration across the entire food chain, particularly the processing and retail sectors. These cumulative factors have placed farmers in a cost-price squeeze for decades, accelerating a 40% decline in family farms over the last 35 years, with subsequent reductions in rural and regional employment.
The highly concentrated supermarket sector has placed Australian farmers in a stranglehold, reorienting their bargaining position. While in the past, farmers were ‘price-setters’, they have become ‘price-takers’. At the beginning of the 20th century, Australian farmers’ share of the food dollar was around AUD $0.80-90 (GBP £0.43-49) but this has been whittled down over time to just AUD $0.10-15 (GBP £0.05-08) as of 2010. A recent viral facebook video from dairy farmer Shane Hicks revealed what this means in real financial terms, calculating his hourly wage for his monthly supply of milk to the major supermarkets at AUD $2.56 (GBP £1.38) per hour.
Australia’s dairy industry is a pertinent example of the ramifications of the major supermarkets’ price wars and the overpowering bargaining power between retailers and their suppliers. In what was dubbed the ‘milk wars’, Coles and Woolworths imported a US–UK template for supermarket profit growth: bring retail prices down by demanding more cost-cutting and rebates from suppliers. In 2011, the supermarkets began aggressively competing for consumer dollars by selling supermarket-brand milk at AUD $1 (GBP £ 0.54) a litre – down from AUD $2.41 per two litres and soon to be followed by cost reductions in other staples such as bread and eggs. With only two major dairy processors – itself a result of deregulation and concentration at the retail level – dairy farmers had little option but to accept the inevitable cut to milk prices or be locked out of the largest drinks market in Australia.
Dairy farming organisations, including Australia’s main dairy farming body, Australian Dairy Farmers, evidenced in a Federal Inquiry the consequent reduction in farm gate prices, milk production and the number of dairy farmers since milk prices were slashed by the supermarkets. But Coles and Woolworths contend that there were benefits to consumers from lower dairy prices and that it was up to consumers to choose how they supported the Australian dairy sector. Despite a number of farmers, farmer organisations and processors highlighting that the supermarket determined the $1 per litre milk price was unsustainable, a national inquiry by the Australian Competition and Consumer Commission (ACCC) dismissed these concerns as attributable to the supermarkets’ market power, arguing instead that that this resulted from the asymmetry in bargaining power between farmers and dairy processors. While the ACCC pronounced the retail industry sufficiently competitive, as it brought consumers greater choice and access to milk products, this conclusion continues to be contested among farmers and dairy bodies, particularly in times of drought.
A string of investigations by Government and press involving the exploitation of labourers, found slave-like conditions on farms and in factories supplying Australia’s biggest supermarket chains, including Coles and Woolworths. According to the National Union of Workers, many farm workers are paid far less than the legal minimum pay and work conditions in Australia, while being forced to pay for sub-par accommodation and transport provided by employment contractors at exorbitant prices. Many workers suffer repetitive strain and other injuries, due to the excessively fast pace of work, and lack of training and rotation across activities; they are also subject to intimidation and sexual harassment.
The exploitation of foreign workers is a widespread and systemic issue, reflecting serious breaches of supplier standards and the major supermarkets’ own ethical sourcing policies. A high-profile investigative report found farmers and suppliers who uphold legal labour and pay standards are being dropped by the supermarkets, who are instead granting contracts to cheaper suppliers using grossly exploited labour. The major supermarkets have claimed both ignorance and immunity due to the distance between themselves and the abuses taking place. But the relentless downward pressure that the supermarkets apply on their suppliers to cut costs and incur more of the risks, coupled with the lax auditing regime governing labour hire contractors, drives farmers and suppliers to resort to cut-price, illegal labour.
Animal welfare standards
Coles and Woolworths have made the establishment and advertising of a range of higher animal welfare labelled products a key part of their brand identity: across both supermarkets, the terms ‘free range’, ‘RSPCA Approved’ and ‘sow stall free’ are commonly displayed on egg, chicken and pork products. Obscured from these labels, however, is the reality that the layer hens, broiler chickens and pigs are typically raised in industrial-scale, ‘factory-farm’ production systems.
In relation to broiler chickens, the RSPCA Approved indoor system dominates Coles and Woolworths production standards. Compared to the conventional industry standard set out by the Australian Model Codes of Practice, it represents minor improvements for the birds as it requires slightly lower stocking densities (17 instead of 20 birds per square metre) and slightly better indoor conditions (stipulating 2.7 metres of perching per 1000 birds as compared to no perching). The majority of breeder pigs in Australia are now ‘sow stall free’, but the sow stall free supermarket standards includes up to 24 hours to 5 days in a sow stall for pregnant pigs, and a further 3-4 weeks in a ‘farrowing crate’ while suckling the piglets. Neither RSPCA Approved indoor standards or ‘sow stall free’ equate to free range, with both meat birds and pigs kept indoors in confined and crowded spaces for their entire lives under these standards.
Less obvious is the way the supermarkets can indirectly influence national animal welfare regulation through the setting of their own animal welfare standards. In 2012-2013, both Coles and Woolworths responded to the high market demand for free-range eggs by introducing their own free-range brand with an outdoor stocking density of 10,000 per hectare. This stocking density was much larger than the Model Code of Practice at the time, which defined free-range as a maximum of 1,500 hens per hectare of outdoor space, or the 2,500 hens per hectare recommended by RSPCA. In line with the free-range standards of the major supermarkets, the new national free-range egg labelling standard stipulates an outdoor stocking density of 10, 000 hens per hectare – making Australian stocking density one of the highest in the world. While these industrial-scale free range standards were strongly and effectively argued for by Australia’s egg industry, it was with the tacit support of Australia’s two dominant retailers, who had already redefined and watered-down free-range standards to permit industrialised, concentrated egg production.
Despite their influence over grocery sales and consumer food choice, there is very little public health research examining the impact of supermarket food in Australia. In the latest national survey, 63% of Australian adults were above a healthy weight (35% overweight, 28% obese). Unhealthy diets comprised of energy-dense, nutrient poor foods are a major contributor to poor health and obesity in Australia, and supermarkets play a major role in promoting these foods to the public: 67% of all food and beverage spending in Australia (excluding alcohol) occurs in supermarkets. Australia’s major supermarkets can negatively impact public health by encouraging the consumption of food products with poor nutritional value and non-food products with adverse health effects (such as tobacco and alcohol) via pricing, placement and promotional strategies.
In their catalogues and promotions, both major supermarkets have a greater percentage of advertisements for discretionary foods that are high in fat, salt and sugar compared with foods from the five major food groups. Supermarkets promote the consumption of these unhealthy items in-store by placing them in highly visible and convenient positions at the end of aisles or at supermarket checkouts. With more than 50% of packaged foods in supermarkets being discretionary products and almost all convenience foods (98%) being ultra-processed, what Australian supermarkets provide in terms of food, is highly inconsistent with national dietary guidelines.
According to a first-of-its-kind study by Deakin University ranking the nutrition policies of Australia’s biggest supermarkets, much more could be done to encourage healthy purchases. This includes replacing confectionery and sugary drinks from displays near registers with healthier options and committing to fewer price discounts on unhealthy food products. But the display of cheap, unhealthy snack food items in supermarkets is driven by a profit motive: when in-store promotions exist for unhealthy snack items and items are highly visible, their purchase is likely to be higher, leading to increases in supermarket profits and consumer waistlines.
Making supermarkets accountable
Although supermarkets work on profit and loss statements, their balance sheets do not take into account the ‘hidden costs’ on the environment, public health, labour or the viability of farming and rural communities. While Australian consumers do not generally pay for these ‘hidden costs’ at the checkout lines, they do pay for them through public health insurance, taxes for environmental clean-up programmes that address air, water and land pollution from unsustainable production practices, or through conservation and biodiversity programmes to mitigate the decline in natural capital from monoculture farming systems. Less tangible is the cost to local farming and systems of indigenous knowledge that have been generations in the making and provide invaluable insights into the land, sustainable food production and context-specific approaches to natural resource management.
True Cost Accounting “enables us to understand the scale and nature of these ‘externalities’, by identifying, categorising and quantifying the costs and benefits of different food and farming systems.” Clearly, the disproportionate power of Australia’s two major supermarkets produces a range of ‘hidden’ costs that impact the viability of small-scale farms, food workers, public and environmental health and animal welfare, and these costs are being passed down the supply chain from powerful corporate actors to under-resourced rural producers, labourers and non-profits. But what if the supermarkets were connected as directly as possible with the consequences of their actions and the ‘externalities’ of their business model were internalised through appropriate taxes and grocery prices?
Market forces would work to ensure that ethical and sustainable food production systems were prioritised, discriminating against production systems or businesses that degrade social and natural capital. Responding to this kind of thinking requires a political and economic environment that isn’t tied to short-term electoral cycles and shareholder dividends but embraces long-term responsibilities in the public interest. It requires cultivating corporate citizenship where firms are incentivised to go above and beyond their duty of care in managing the long-term conservation of our food and agricultural systems and the health of its workers. And it demands that grocery shoppers understand the true cost of food.
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