Time to get tough on supermarket tactics

Jeff Kennett
Herald Sun
July 19, 2012

SADLY, many of my concerns for Australia’s manufacturing, retailing and food industries that I first raised 18 months ago are being played out, not only for industries but also for employees and their families.

Prices paid by supermarket shoppers are hurting suppliers and manufacturers, says former premier Jeff Kennett

Today I wish to focus on two sectors – food and manufacturing.

Coles and Woolworths have about 80 per cent of Australia’s supermarket business – the second-strongest effective monopoly in the world behind New Zealand.

Both chains are ripping up relationships with suppliers, farmers and manufacturers that have served all well for more than 70 years. Coles first demanded its suppliers charge it only 3 per cent as profit on top of their costs. Woolworths has followed, with its latest edict to suppliers: “Reduce your costs to us by 10 per cent or risk losing shelf space.”

Many suppliers, with fixed prices for repayment of assets, etc, face economic hardship or ruin.

Many simply cannot afford to lay off large numbers of employees, having built their business up based on contracts entered into in good faith with Coles and Woolworths.

Be assured Coles’ and Woolworths’ return is much greater than the 3 per cent Coles is allowing suppliers. And the leaders of these companies are being rewarded with multi-million-dollar bonuses for their threatening behaviour.

The supermarkets will tell you it’s all about securing better prices for customers. But such advantages will be short-term. If this trend continues there will be few manufacturers of food products left in Australia. Some, such as Heinz, have already gone and, in my discussions with the industry, no international food manufacturer with plants here will invest more capital if this environment remains.

Australia needs to keep control of its water supply, and must always retain the majority of its primary production and food manufacturing requirements. If we do not retain our production capacity it will be bought by overseas interests and, while they may continue to supply our needs, when other opportunities open up or the populations of their own countries take priority, Australia’s needs will be secondary.

And maybe one day our supermarkets will be justifiably able to say, “we have to buy our products from overseas, because there are no local manufacturers”.

What do we do? The politicians are silent, the ACCC is toothless and refuses to protect our industry from the actions of those holding monopoly positions.

Recommendation: A law. If any company secures a monopoly, alone or with up to two other companies, their books can be audited on genuine complaints of intimidation or abuse of that monopoly. Penalties could see offenders fined heavily, depending on the extent of the offence; ordered to divest themselves of some of their operations; or have a penalty tax applied to future profits.

On Tuesday, Ford announced 440 workers would be retrenched at its Geelong and Broadmeadows plants. The impact on their families will be profound.

But, remember, the federal and state governments gave Ford $103 million to keep the company operating until 2016. But there are no guarantees as Tuesday proved.

YES, it is tough for manufacturing, and at least Ford president and chief executive Bob Graziano was honest. He did not blame the high Australian dollar, high labour costs or the carbon tax. He said we are not buying enough large cars. In other words, Ford has not read the market.

Governments can’t keep using our money to prop up businesses that, through their own decisions or the introduction of new technology, are no longer viable. I can’t remember the last big company that got itself into trouble and received large taxpayer subsidies that survived and grew long-term.

Remember Kodak? The nation gave it $80 million, and within two years it closed. What about the $40 million-plus given to Alcoa to keep its Point Henry plant in production until 2014. The reality is it is one of the oldest smelting plants in the world and, sadly, other and larger plants are more efficient.

Surely it is fairer to let market forces work, retrain staff and be honest, rather than leave them to face job death by a thousand cuts.

So often subsidies are not given for commercial reasons or even the interests of employees, but for the short-term interests of politicians and political parties who refuse to accept the inevitable, rather than create an environment for people to move from job to job in an economy that is growing.

Recommendation: Governments should stop using taxpayers’ money to prop up businesses. If you are a small business who is finding it tough, there are no government subsidies. It is time for some honest and real leadership in Australia.
Jeff Kennett is a former Liberal premier of Victoria