What is it?
the Price of Competition
The Woolworths-Coles Duopoly: Impact and Controversy
“Australian farmer says Woolworths and Coles $1 milk is hurting them worse than the drought.”
How the Duopoly Hurts Farmers
A new report criticizes the supermarket industry, saying that Coles and Woolworths’ strong presence harms the wider agriculture and food sector.
The report, called “The Need for Strategic Food Policy in Australia” by the Commission for the Human Future, points out that most of Australia’s food system is focused on serving just a few companies. Coles and Woolworths, in particular, dominate with about 60% of fresh food and grocery sales.
“A food system that depends on a few corporate interests creates perverse outcomes, particularly the squeezing of producers and processors’ margins,” the report said.
The Coles and Woolworths duopoly in the Australian supermarket industry has been a source of concern for many farmers and agricultural producers. Here’s how it can negatively impact them:
Price Squeezing: Coles and Woolworths, as dominant players in the market, have significant bargaining power when dealing with suppliers, including farmers. They often negotiate hard for lower prices for the products they purchase from these suppliers. This price squeezing can lead to reduced profitability for farmers, making it challenging for them to cover their production costs and invest in their operations.
Limited Market Access: The duopoly’s immense control over the supermarket sector means that they can dictate which products they choose to stock on their shelves. As a result, many farmers are reliant on these two retailers as their primary market outlets. If Coles and Woolworths decide not to stock a particular product or offer it at unfavorable terms, it can severely limit a farmer’s ability to sell their goods, forcing them to comply with the retailers’ demands.
High Standards and Requirements: To meet the stringent quality and packaging standards imposed by Coles and Woolworths, farmers may need to make costly adjustments to their production processes. These standards often involve specific packaging, labeling, and quality criteria that may not be financially viable for smaller or less-established farmers. Complying with these requirements can put additional financial strain on producers.
Volatile Pricing: The duopoly’s aggressive pricing strategies, such as deep discounts and promotions, can lead to fluctuating prices for agricultural products. This price volatility can make it challenging for farmers to predict their income and plan for the future, creating financial instability.
Limited Choice: The dominance of Coles and Woolworths can limit the variety of products available to consumers. While they offer a wide range of products, the emphasis is often on mass-market, highly standardized items. This can be detrimental to smaller or niche producers who struggle to find a place on the shelves of these supermarkets.
Negotiation Imbalance: Negotiating with two powerful supermarket chains can leave farmers with limited leverage. They may be hesitant to demand better terms or higher prices for fear of losing access to these crucial markets.
Costly Promotions: While promotions and discounts can benefit consumers, they often place a significant financial burden on suppliers. Farmers may be asked to subsidize these promotions, reducing their profits further.
In summary, the Coles and Woolworths duopoly in the Australian supermarket industry can hurt farmers by driving down prices, limiting market access, imposing strict standards, creating price volatility, reducing product variety, and creating an imbalance in negotiations. Farmers often find themselves in a challenging position, trying to meet the demands of these major retailers while maintaining the viability of their operations.
Dairy producers face challenges in maintaining their profitability.
As highlighted in a submission by NSW Farmers to the Australian Competition and Consumer Commission (ACCC) Dairy Inquiry, consistently low farmgate milk prices could weaken farmers’ financial resilience, especially during extreme weather conditions and costly input cycles involving energy, water, and feed. NSW Farmers cautioned that this reduced resilience might ultimately lead to potential shortages of dairy products for consumers. However, the ACCC inquiry disregarded these concerns.
In April 2019, consumers in NSW experienced shortages of dairy products as supermarkets struggled to meet demand. Lion, one of Australia’s major dairy processors, acknowledged that “Extreme weather conditions… along with significant cost increases in water, feed, and energy” had contributed to the challenges faced by the dairy industry in Australia, resulting in reduced milk supply.
Actions for establishing a more sustainable food system
Who owns Coles?
It is not commonly known that Wesfarmers merged with Coles. And who is the top shareholder of Wesfarmers? Yep, you guessed it, Black Rock, Inc. And The Vanguard Group, Inc.
The potential negatives associated with the company BlackRock include:
Size and Influence: BlackRock is one of the largest asset management companies globally, which can lead to concerns about its influence on financial markets and its ability to affect investment decisions on a broad scale.
Systemic Risk: Due to its sheer size, BlackRock’s activities can have a significant impact on the financial system. Critics argue that its size can make it “too big to fail,” which could potentially result in taxpayer bailouts in the event of a financial crisis.
Conflict of Interest: Some critics argue that BlackRock may have conflicts of interest, as it both manages assets and provides advisory services. This dual role may raise questions about whether the company prioritizes its own financial interests over those of its clients.
Environmental Concerns: BlackRock has faced criticism for its investments in companies associated with fossil fuels and other environmentally damaging industries. Some argue that the company should do more to promote sustainable and responsible investing.
Lack of Transparency: Like many financial institutions, BlackRock has been criticized for its lack of transparency in certain aspects of its operations, including its voting and engagement practices in relation to shareholder resolutions.
Market Concentration: BlackRock’s dominance in the asset management industry has led to concerns about market concentration. Some worry that this concentration could stifle competition and limit choice for investors.
Regulatory Scrutiny: As a major player in the financial industry, BlackRock is subject to regulatory scrutiny. Any regulatory changes or investigations could have implications for the company’s operations.
It’s important to note that opinions on these negatives may vary, and BlackRock also has many supporters who emphasize its role in providing diversified investment opportunities and financial services to clients. Additionally, the company has made efforts to address some of these concerns through initiatives focused on sustainability and transparency.
Strategically, the way these two companies have intertwined is intriguing, illustrating how competition can serve as a catalyst for significant innovation. Having a peer to compare yourself to fosters honesty and motivates continuous hard work to outperform each other.
This is a key reason why duopolies are more compelling than monopolies. In a monopoly, when one company dominates a market, it tends to become complacent and take customers for granted, creating opportunities for new competitors and disruptors. However, in a duopoly where two companies compete over time, natural accountability emerges, leading to captivating business results.
About the Author
Mr Stacky is the leader in Tower Garden Systems in Australia, specializing in commercial hydroponic farming, urban farming & residential vertical gardening.
Find out how he can help you achieve your food production goals. Contact Brian