A review of the Food and Grocery Code of Conduct (FGCC), a Senate inquiry into supermarket pricing, a year-long Australian Competition and Consumer Commission inquiry, and three state inquiries into supermarket pricing (South Australia, Victoria and Queensland) – 2024 is shaping up as a year of major focus on the big supermarkets and their relationships with the growers who supply them with fresh produce.

It is understandable many growers – who over the years have seen similar inquiries and reviews come and go with little material improvement to their circumstances – may view this current flurry of political and public attention with scepticism, doubtful that the outcome will be any different this time.

In 2024, however, the level of scrutiny appears more pronounced, with the intensity of focus and sheer volume of individual reviews and inquiries rarely seen amid a cost-of-living crisis, and the surging cost of producing vegetables.

In these circumstances, it is incumbent on AUSVEG to seek to leverage the opportunities presented to push for changes needed to address the margin squeeze threatening the viability of the vegetable, potato and onion growing businesses it represents.

In its submission to the Senate Select Committee on Supermarket Prices, AUSVEG is calling for necessary reforms to address supply chain power imbalances that are contributing to that margin squeeze.

This comes as the latest data from the recent industry sentiment survey conducted by AUSVEG reveals 37 percent of growers are considering leaving the industry in the next 12 months – up from 34 percent mid last year.

Growers are not just dealing with poor retailer behaviour and pricing. High cost of inputs like fertiliser, fuel, power and wages; workforce shortages; increasing burden of regulation and compliance; on top of severe weather events and the threat of biosecurity incursions, are all adding additional challenges to the business operating environment.

Unless addressed, these issues will continue to threaten the viability of vegetable growing business, contribute to significant food waste, threaten the availability of fresh produce for Australian consumers, and ultimately drive retail prices higher as growers leave the industry and supply reduces. With these factors pushing vegetable production costs higher and higher, it’s crucial to ensure growers are receiving sustainable prices for produce.

While farmgate price is a major concern, growers also consistently cite the power imbalance that allows for poor or unconscionable behaviour and tactics by retailers as an even bigger issue. A lack of certainty in arrangements with retailers in relation to price and volume, disproportionate risk and compliance burden, a lack of negotiating power, asymmetrical information flow and concerns over various behaviours that could be in breach of the FGCC are among the many issues raised by growers with AUSVEG in the preparation of the submission.

Unscheduled specials, unauthorised deductions, questionable rejections, lack of written supply agreements, and late cancellations of orders, are just a few of the examples of behaviour that is not permitted under the FGCC but according to grower feedback, is part of doing business with the supermarkets.

This also highlights that some of the growers AUSVEG has spoken to were not aware these behaviors are not permitted under the FGCC (unless agreed to in writing). Others understood that the behaviours were not permitted, but felt powerless to complain to supermarkets without fear of retribution.

The lack of independent arbitration or other effective recourse actions that address fear of retribution, are hampering growers’ efforts to have their issues addressed and resolved. AUSVEG is advocating for substantial new penalty provisions in a revised FGCC for both business and individuals. The current penalties are so low that they provide no incentive for businesses to improve their behaviour. Furthermore, AUSVEG is advocating for compensation for suppliers found to have been financially impacted by non-compliant behaviour from the supermarkets.

One of the biggest issues growers raised is the lack of ongoing certainty in relation to price and volume. With often millions of dollars worth of crops planted, based on non-binding supply agreements with retailers, growers are bearing all the risks.

Weekly price negotiations are based on very asymmetrical data flow: the retailer – who has the most comprehensive data on availability, volume, demand and price – and the grower – who often has nowhere near that level of detailed information. With perishability and cash flow pressures, growers often have few options but to accept below-cost offers from their biggest customer.

AUSVEG is also currently preparing its submission into the Food and Grocery Code of Conduct (due 29 Feb 2024). Some of the key asks will be:

• Providing greater certainty for growers in arrangements with retailers,
• Making the Australian Food and Grocery Code of Conduct mandatory,
• Introducing significant enforceable penalties and fines for breaches and
• Introduction of a genuinely independent complaints and arbitration mechanism

The complexity of the fresh produce supply chain and grower-retailer relations is also a reason to proceed cautiously, to avoid interventions that artificially distort the market, and further disadvantage vegetable growers.

Every business across the supply chain – from vegetable growers to the retailers – has felt the impacts of supply chain disruptions and the high-inflation environment, fuelled not only by domestic factors and policy settings, but also international events.

A vibrant and successful retail sector is integral to the success of the Australian vegetable industry, and all businesses across the supply chain – from vegetable growers to retailers – need to be profitable to keep operating.

While the prices paid to growers are a key part of the equation, they are just one part – just as competition law is just one aspect of the suite of legislative and policy settings the government has available to it.

To truly secure the long-term sustainability of the Australian vegetable industry, governments must consider and address all the current factors contributing to the margin squeeze threatening the viability of the vegetable producers that feed the country.

Ongoing workforce shortages; reduction in workable migration programs given the changes to the PALM scheme, overseas student hours, and UK backpacker rules; increasingly complex and unworkable industrial relation changes; and an ever-increasing burden of regulation and compliance, are just a few of the issues growers face daily. Adding insult to injury, the proposed new Biosecurity Protection Levy would add further cost imposts to growers which – as has already been proven – are close to impossible to claim back from the supermarkets.

As part of its ongoing efforts to advance the interests of the Australia’s vegetable, potato and onion growers, AUSVEG continues to advocate on all of these issues of crucial importance, both publicly and in its meetings with key decision makers at the highest levels of government.

The AUSVEG submission to the Senate Select Committee on Supermarket Pricing can be found here.

For more information, contact AUSVEG General Manager of Public Affairs and Communication Lucy Gregg at lucy.gregg@ausveg.com.au, or 03 9882 0277.