The competition regulator should scrutinise Australia’s major supermarkets for using their market power to expand profits and exert pricing pressure over consumers, farmers and other suppliers, according to recommendations by the former watchdog Allan Fels handed to the federal government.
Fels, presenting the initial findings of an ACTU-led price gouging inquiry he chaired, said in a letter to the federal treasurer on Monday there were also potential problems with supermarket promotions, with once-normal prices now regularly advertised as specials.
“I draw your attention to a key recommendation: there should be a comprehensive ACCC inquiry into competition and prices in the retail food and grocery industry,” Fels wrote in the letter to Jim Chalmers, referring to the Australian Competition and Consumer Commission.
Woolworths is Australia’s biggest supermarket chain, slightly ahead of its rival Coles. Combined, the chains control about two-thirds of the market.
Fels, a former ACCC chair, said duopolies had a mutual incentive not to decrease prices when possible, and there had not been a price war between the major supermarkets in years.
He said high grocery prices, including coordinated prices between supermarkets, were not prohibited by competition law except when there was unlawful communication between the parties.
“With that exception, duopolies are free to charge high prices,” Fels said. “The ACCC has no powers to even investigate whether the prices are excessive unless the government requires it to do so.”
Supermarkets will soon face a parliamentary inquiry, as well as a newly announced state inquiry in Queensland, as pressure mounts over pricing decisions that have led to increased profits at the same time as consumers and producers grapple with fast-rising costs.
The parliamentary measures lack the fact-finding capacity of a regulatory inquiry, like those ordered in the UK, New Zealand and Canada.
Australia’s major supermarkets have consistently defended their pricing decisions, arguing that they must balance the needs of customers, suppliers and their large workforces in the context of economy-wide inflationary pressures.
Woolworths has said higher wholesale prices paid to suppliers were the primary driver of food price rises.
A Coles spokesperson said: “We know our customers are impacted by the increase cost of mortgages, rent, insurance, fuel and household energy prices and we are doing all we can to provide the best possible value across our store in food and groceries.”
The major chains have previously said their promotions are designed to communicate clear and accurate prices.
The findings presented to Chalmers include an analysis of supermarket profitability which shows the big retailers expanded their margins during the inflationary period.
“What has occurred since the pandemic, though, is an increase in margins in both Coles and Woolworths food and grocery segments driven by low competitive forces and an ability to not pass on immediate cost reductions,” the Fels report found.
The findings are in keeping with Guardian Australia analysis that has consistently showed that the major supermarkets increased their profit margins for their food businesses even as living costs surged.
While concerns over supermarket prices are not new, there has been revitalised political interest due to the apparent discrepancy between prices paid to farmers and those charged by supermarkets.
The ACTU findings said supermarkets could profit from holding down prices to suppliers, while delaying price reductions for consumers.
“That downward price transmission is not fast is evidence of a lack of competitive forces in this sector,” the report said.
The report also provides examples of products, including coffee and cheese, offered “on special”, even though the prices appear to be the same, or even higher, than what the items previously retailed at.
Promotional items can sell at up to 70 times their normal rate, analysis shows, in a sign of the market power the grocery giants exert over households.
The final ACTU report is scheduled to be published early next month.
