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Issue #1536      22 February 2012

Farmers and the supermarkets

Australian shoppers have experienced a significant drop in fresh food prices over the past year. Fruit prices fell 13.4 percent in the last quarter of 2011, with vegetables 5 percent cheaper. The average price for groceries fell 4.1 percent in the three months to December.

The reductions have resulted from good weather, and from a year-long price war on milk, bread, cereals and eggs between supermarket chains Woolworths and Coles, who control 80 percent of Australia’s groceries market. Last week Coles promised half-price deals on food staples every week.

Despite the price war, both companies are doing very well. Woolworths increased its sales 5.6 percent between June and December last year.

Part of the reason is that cost reductions were passed on to suppliers. As a result, some farmers have gone out of business and others are facing bankruptcy.

The Gillard government doesn’t seem worried. Competition spokesman David Bradbury acknowledged that “Producers and farmers are also entitled to get a fair price for their produce”, but added: “… the government has confidence that farmers and supermarkets will continue to work together to ensure the viability of primary production”.

Last week Coles representative Jon Church declared, with benevolent concern: “By giving growers a commitment that we will take as much of their crops as we possibly can, we have provided them certainty that they have a market for their product.”

However, the supermarkets haven’t promised to take all that the farmers produce, just “as much as we possibly can”, and the farmers will still have to take whatever the supermarkets offer to pay them for it.

Agriculture’s anarchy of production

Farmers have no dependable guarantee that the market will adequately compensate them for their investment in labour and capital, and they are dependent on good weather conditions for a good harvest. Consequently, when good weather arrives, as it did recently, with excellent rainfalls and much of the agricultural areas spared from flooding, farmers will strive to produce as much as possible.

Logically, this should also serve the national interest. Modern storage equipment enables fresh fruit and vegetables to be stored for very long periods, potentially avoiding food shortages during poor weather and wastage during good periods.

But that’s not quite how the system operates. The supermarkets will pay the farmers a reduced price per unit, arguing that because of the increase in supply relative to demand prices must fall. However, they will store the fruit and veggies for as long as possible in order to restrict supply to consumers and maximise their returns.

Prices will certainly fall if a price war breaks out, as is happening at the moment between Coles and Woolworths. However, the intention of each of the supermarkets is not to benefit the customers, but to seriously damage the profitability of its rival and gain market predominance.

If one of them manages to do so, it will be able to set prices to maximise its profit level, regardless of the public interest. And prices will then rise! The losers will be the consumers in the long term, and the farmers in both the long and short term.

The supermarket monopolies have an interest in retaining access to supplies from local farms, but only at minimum cost, and only to fill gaps in the quantities they can derive from cheaper markets overseas. They wouldn’t worry if the entire Australian agricultural industry was closed down, as long as their profit levels were maximised.

An undesirable harvest

The world is facing catastrophic problems in feeding its rising human population, particularly because of the threats posed by climate change. The “dog eat dog” ethos of capitalism is the worst possible system to deal with these problems.

Australia’s agricultural industry has played a major role in meeting the global demand for food. However, our relative production level has fallen and we’re now a net food importer. Many farmers are abandoning agriculture and seeking employment in other areas.

Some politically short-sighted consumers have welcomed the price reductions. One Twitter correspondent sneered:

“Canadian farmers have no trouble competing. The labour costs aren’t as ridiculously high as they are here. Farmers will … bring in cheap third-world labour from Mexico, the Caribbean and Latin America to work on Canadian farms for $6 per hour, plus room, board and return flights. … It’s ridiculous that tropical fruits like bananas, pineapples and mangoes … cost half than it does in Oz, despite these products being grown here.”

This argument overlooks the fact that Canadian agricultural workers simply can’t afford to work for third world rates. The logic of the argument is that any Australian industry should use imported labour paid at third world rates because we’d all be better off – despite most of us being unemployed. There’s to be no agricultural industry, as well as no manufacturing. What a great solution!

In Australia, good agricultural land is being threatened by other industries, particularly gas and coal mining. At the same time, the level of food production in third world countries is actually falling, not only because of weather problems, but also because of declining petroleum reserves.

Rather than developing renewable energy sources and an electric vehicle industry, the powerful petroleum and auto industries have promoted the use of maize and other crops for production of bio-fuels, rather than food.

A recent BBC documentary revealed that in Britain a third of all fresh supermarket food is thrown out, and other crops are rejected en masse because they have minor blemishes or aren’t the size required. The same is probably true here.

With regard to the current price war, some federal MPs have called for a review of competition laws and have even predicted the end of Australian agriculture.

Bruce Bilson, opposition spokesman for small business, says assurances are needed that price cuts are not an attempt by big operators to control supply chain.

But of course they are! These demands are totally inadequate. The only counter to the current trend towards a food crisis is a boycott of supermarket products, and/or the introduction of market controls. Even that may prove inadequate. The only effective solution may turn out to be replacement of the system itself.  

Next article – Roebourne community demands apology – Statement, Yindjibarndi Aboriginal Corp

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