Small farmers at mercy of supermarket giants, seller says
After 30 years of selling bananas to Coles, New South Wales farmer Amrit Singh believes the supermarket's decision to stop buying his produce is signalling a possible end for small, family-run farms like his.
In the past two months, Coles and Woolworths confirmed they would pull various local products from their shelves, with suppliers told the decisions were due to changes to the supply chain.
Amrit Singh says small-scale growers are "price takers", not price makers. (ABC News: Samuel O'Brien)
Industry experts have claimed major Australian supermarkets were centralising their supply chains in a bid to cut costs, warning some producers could now be at greater risk of having their products removed from supermarket shelves.
Woolworths said its supply chain network had expanded, while Coles rejected the experts' claims.
An inquiry by the Australian Competition and Consumer Commission (ACCC) into supermarkets last year found Coles and Woolworths had overwhelming power in their trade relationships with suppliers.
Amrit Singh labelled Coles' decision to pull local bananas from its shelves as "anti-competitive" and said supermarkets should be encouraging diversity in growing regions. (ABC News: Giulio Saggin)
Local bananas dropped
In August, Coles confirmed it would stop selling Coffs Coast bananas, pumpkins and cucumbers, in an effort to simplify its supply chain.
Mr Singh sold his bananas indirectly to Coles through a wholesaler, an agreement he said was worth hundreds of thousands of dollars a year.
The produce is now expected to come from north Queensland, but Mr Singh believes his business is too small to compete with north Queensland's banana industry.
"Freight costs [involved in] getting access to those [new] markets are going to be extremely high," he said.
Mr Singh said farmers who did not sell directly to supermarkets had "no power" to negotiate trade agreements and were forced to reduce prices to support promotions and specials.
"That doesn't come out of [Coles'] pocket, that comes out of returns, so we actually [foot] the bill for those specials,"
he said.
Coles says keeping its supply chain efficient helps it absorb costs and reduce the impact on grocery prices. (ABC News)
Rise in 'middlemen' leaves farmers vulnerable
NSW Farmers' principal economist Samuel Miller said supermarket giants had long been centralising their supply chains.
He explained one way they were doing this was through buying produce from packhouses or "middlemen" — selling on behalf of a group of growers — instead of directly from them.
"If they can consolidate [supply] down to just a few suppliers, then it's sort of up to those suppliers to take on all of that risk,"
he said.
"When those supermarkets make a decision like consolidating their suppliers or rejecting some produce … it affects not just that supplier in the middle, but it can affect dozens, 40 or 50 other farmers down the line."
Samuel Miller says supermarkets have a large share of the market, so they hold negotiating power. (Supplied: Samuel Miller)
In a statement to the ABC, Coles said it continued to source directly from a range of Australian producers.
"In fresh produce, aggregators are not new and have long played an important role in Australia," a spokesperson said.
"This model can also give smaller growers a pathway to major retailers when they may not have the scale, volume or infrastructure to supply a national network independently."
In August, Woolworths confirmed it would stop selling Tasmanian beef in stores around the country from early next year. (ABC News: Laurissa Smith)
Beef supply chains centralised
Queensland University of Technology retail marketing professor Gary Mortimer said meat was one of the main supply chains where processing had been centralised, citing Woolworths' decision to stop selling Tasmanian beef from early next year.
Gary Mortimer says supermarkets centralising their processing can give shoppers greater product consistency. (Supplied: Gary Mortimer)
Some suppliers said they were told this was due to rising production and shipping costs.
"Over the last 10 to 15 years, what we've seen is that reduction of in-store processing back to centralised processing," Dr Mortimer said.
"Less trade butchers in stores and more of that processing taking place centrally."
Dr Mortimer said some very small-scale producers could be at risk of having certain products pulled from shelves.
Coles and Woolworths both recorded annual profits exceeding $1 billion in the last financial year. (ABC News: Four Corners)
Distribution centres changing over time
Coles operates 18 distribution centres around the country. In 2019, it operated 23.
The ABC understands that while the number of distribution centres has declined, some have grown in capacity.
Woolworths operates 25 distribution centres around the country. It was unable to provide the number it operated in 2019 but said it had added several distribution centres since 2017.
"We have also invested in key regional distribution centres, for example in Townsville, to strengthen food security and supply resilience in areas affected by natural disasters."
Woolworths says its supply chain network has expanded and continues to do so. (ABC News)
Coles said it had invested significantly in modernising and consolidating parts of its distribution network.
"Keeping our supply chain efficient helps us absorb cost pressures which can limit impact on grocery prices."
Centralisation through own brand products
Mr Miller said another tactic used by supermarkets to centralise supply chains was introducing more own-brand products.
"Supermarkets [want] to really consolidate … make it as cheap as possible for them to provide those products regardless of whether or not it is best with respect to local supply chains and local growers," he said.
Last year, Coles introduced 1,600 new own-brand products, 400 more than it did in 2019.
Woolworths introduced 640 new own-brand products in 2019, and last financial year brought in 445 new own-brand products along with 680 reformulated ones.
Dr Mortimer said this growth could be problematic for smaller producers.
"You're not going to get your big famous national or global brands disappearing," he said.
"There is a risk that probably smaller bespoke brands that might be important in a particular town or particular area might disappear."
Gary Mortimer says it's estimated that almost one-in-three products bought at a supermarket are private label or own-brand. (ABC News: Courtney Withers)
Coles said its own-brand range wasn't about centralising its supply chain, and the range was constantly being revised based on customer preferences.
"These products are made by a broad range of suppliers, including many small Australian manufacturers, producers and growers who otherwise may not have the opportunity to supply Coles," it said.
Tasmanian farmers benefit from centralisation
Tasmanian farmer Richard Bovill, who previously worked for Woolworths as a produce distribution manager, said consolidated supply chains had benefits.
"Tasmania's been the beneficiary of a lot of the aggregation [Coles and Woolworths] made, particularly with fruit and vegetables," Mr Bovill said.
"Six months or more [of the year's worth] of all berries come out of Tasmania."
The semi-retired farmer said he was more concerned by the cost of shipping across the Bass Strait.
"We're growing a huge amount of product for the mainland for major supermarkets, and if something happens, we don't have any local market that it can go to."
Richard Bovill believes input costs "going through the roof" are causing difficulty for small producers, not Coles and Woolworths. (ABC News: Laurissa Smith)
Coles said it was misleading to combine distribution network, own-brand product, fresh produce sourcing and changes to its store operations as one centralisation strategy.
"They are completely different operating areas with separate decisions made for different reasons," a spokesperson said.
Supermarkets have the power, report says
Roughly 18 months on from the ACCC's inquiry, former ACCC chair Graeme Samuel said no significant recommendations or changes had been made.
"Many suppliers are reluctant to raise concerns about their trading arrangements … due to a fear of retribution," the report reads.
For suppliers unhappy with their treatment by the supermarkets, Mr Samuel said the process of initiating an ACCC investigation was expensive, with a likely "two-year time frame".
"By that time, of course, the poor supplier, if it's a small business, has gone broke."
Coles said suppliers already had avenues to raise concerns, such as mediation processes under the mandatory Food and Grocery Code.
While he looks for other business, Mr Singh said the findings of previous inquiries into supermarket behaviour had not changed the playing field for small growers.
"Decisions like this [are] signalling the end of small family farms."
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