While the focus has been on the role of supermarket profits in driving inflation, especially as a result of the “exposé” last week by ABC’s Four Corners, there’s an important source of profit-led inflation that is beyond the control of supermarkets, cosy duopoly or not.
Yesterday’s monthly consumer price index (CPI) figures for January from the Australian Bureau of Statistics (in which, to the rage of the Financial Review, the expected seasonal bump in inflation failed to materialise) illustrated the continuing inflation pressure in housing, insurance — an area we’ve written about recently — and in the food and non-alcoholic beverages group. At 17.18%, food and drink is the second most important group in the CPI, behind housing at just over 22%. In fact from 2019, the weighting has risen from 15.75%.
The annual CPI rise in the food and non-alcoholic beverages group rose to 4.4% in January, up from 4.0% in December and just behind the 4.6% rise in housing. That doesn’t include fresh food: meat, seafood, and fruit and vegetables. In fact, meat and seafood prices actually fell 2% across the year. But consider the rest of the category: meals out and takeaway foods, 5.7%; food products, 6.9%; bread and cereals, 7.4%; tea, coffee, water, juice, 5.7%.
So, are Coles and Woolies to blame for pricer food groceries?
It’s not a matter of global food prices. Global wheat prices have fallen more than 25% from their most recent high last July, which makes bread inflation puzzling. If you compare the current price of around US$5.68 a bushel with the post-Ukraine invasion peak two years ago, then the global price has more than halved in that time. Global sugar prices remain high but have come off recent peaks. Canola is back to 2020 prices. So are corn and soybeans.
And why is the humble cup of coffee, tea or cocoa, or mineral or spring water, soft drinks and juices and fruit juices going up? Cocoa is currently at historically high prices, so don’t expect your hot chocolate to be getting any cheaper any time soon. But coffee prices are back to 2021 levels; tea is at 2020 levels.
These prices may be set by global markets, but when they get to retailers, their processors impose a lot of costs as well, including their own profit margins. In the cases of these products, their processors and makers are multinationals — Unilever, Nestle and JDE (Douwe Egberts and 22 other brands), along with the likes of Coca-Cola and PepsiCo in the soft drink category.
Forget Coles and Woolies — these transnational giants dwarf the supermarkets and don’t care about the pressures Australian consumers of their products might find themselves under, or the pressures on Australian retailers. They are “take it or leave it” price setters and, whatever their sins, the supermarket duopoly feels they have to take it. Perhaps it’s something for the Australian Competition and Consumer Commission to chew over, seeing it released the issues paper for its supermarket inquiry today.
European supermarket giant Carrefour, on the other hand, has decided to leave it. After campaigning against giants like Nestlé, and Unilever over “shrinkflation”, early this year Carrefour told PepsiCo it simply wouldn’t stock its range of snack foods and drinks due to “unacceptable price rises”.
It’s possible Coles and Woolies would do a lot to enhance their battered reputations if they told their consumers they were following Carrefour’s example and simply refusing to carry the products of gouging multinationals. Consumers might be happy to get on board with that. You never know.
Duh. The debate borders on idiotic at times. Metcash is a critical issue when it comes to smaller supermarkets getting access to better pricing.
The relationship between distributors like Metcash and the food manufactures they represent is missing so often in these debates.
And then there is the critical point that supermarkets have one of the highest effective tax rates with another 10% clip taken along the way on most products – other than the fresh food that rich people can afford.
It would appear than standard greed is the driving force, with companies increasing profitability to counter higher interest rates which is the olden days generally meant stock prices cooled and the economic cycle rattled along.
But greed is so central to our modern nations of stockholders, and the boards who all have their own clipping agreements – are more than happy to give shareholders what they want – namely stock prices up and dividend yields higher that ever as they try to beat the bank rate.
An annual surcharge calculated by Treasury and the ATO could set an excess profit tax based on various key variables that’s then levied as a “rent tax”.
Anyway goodluck with all that – time for an extra strong EB tea out of the new 80 unit box they slinked out with. I noticed that only the “fancy” ones are 80 units – the standard english breakfast and australian afternoon remains 100 units.
As a carnivore who buys only meat and vege and tinned tomatoes I’m jealous of vegans whose grocery bill is even lower than mine. How much processed food does a human need? Apparently the question is how much carcinogenic processed food can a human body tolerate? As for cleaning products, I’m not purebred, using just bicarb and vinegar. There’s a brand I like. And sponges.
You are what you eat. If your food ingredients have numbers, it’s not food. Harden up Australia. Stop eating shi te.
It’s the greed of all big business. It’s time the people took it all back.
To paraphrase Black Adder.Ah,the capitalist system,you’ve just got to love it.
I can’t help but be in awe of your forensic analyses of economics. Just one thing; the linking of Australian monopolies, duopolies, call it what you like to the ‘multinational’ factor – shouldn’t the local cost of energy be included – like the struggle last year to have fossil fuel (locally produced) prices disengaged from the international market prices … Just wondering … [with the current panic about international agents of influence … ]