Many Australian markets are dominated by a few big firms. Worse, over recent decades, market concentration has increased.
A lack of competition doesn't just harm consumers; it can also hurt businesses that have to deal with monopolies.
Small‑scale farmers are the meat in a market concentration sandwich. Upstream, there is often no choice about dealing with large‑scale providers on inputs. Downstream, there is often no choice about negotiating with larger processors and retailers.
In a new analysis, I study the competition squeeze on Australia's farmers. For many commodities, there are a diverse range of farmers, making farming itself quite competitive. But that isn't true of the markets where farmers buy their inputs and sell their outputs.
A common way of measuring concentration is to look at the market share of the top 4 firms. When it comes to the inputs farmer buy, these markets can be heavily concentrated. In fertiliser manufacturing, the biggest 4 firms have 62 per cent of the market. In hardware and building supplies, the top 4 have 49 per cent of the market. For garden supplies, the leading 4 have 33 per cent.
Downstream, farmers deal with concentrated markets for freight, processing and retailing. In rail freight, the largest 4 firms have a market share of 64 per cent. In shipping, the top 2 have 85 per cent.
In fruit and vegetable processing, the big 4 have 34 per cent of the market. For meat processing, the top 4 have 44 per cent of the market. The 2 major supermarkets have two‑thirds of the market.
For many farmers, their options are even more limited than these figures suggest, as transport costs and risk of spoilage further limit the commercially viable options available to them.
A few examples show how market concentration hurts farmers. When it comes to seeds, the US Department of Agriculture found last year that the sector 'has become highly integrated with agricultural chemicals and more concentrated, with fewer and larger firms dominating supply'. In the 3 decades from 1990 to 2020, the average seed price quadrupled.
Or take wine.
There are many wine growers, but few wine makers. A wine grape market study completed by the Australian Competition and Consumer Commission (ACCC) found that the largest 1 per cent of winemakers accounted for over 80 per cent of wine production. In winemakers' dealings with grape growers, the ACCC raised questions about slow payment times and a lack of transparency.
Beef markets have problems too. In a market study, the ACCC found evidence that conflicts of interest regularly arise in saleyard transactions when buyers bid for livestock on behalf of multiple clients, and when agents represent both a cattle seller and a cattle buyer in the same transaction.
The ACCC pointed out that cattle auctions have characteristics that make it easier for cartels to develop, including repeated interactions with the same auctioneers, who are often linked by social networks that make it easier to 'punish' auctioneers who break away from agreed anti‑competitive bidding practices. Other problematic behaviours included the exclusion of rival agents, and a lack of transparency around saleyard weighing protocols.
As for supermarkets, a report from the House of Representatives Economics Committee, chaired by Daniel Mulino MP, summed up the problem crisply: 'Many agricultural suppliers are at risk of that power imbalance being used to negotiate outcomes that affect profitability and, therefore, the capacity and willingness to invest.'
Our Labor government is committed to ensuring farmers get a better deal.
First, a few months after winning office, we passed legislation banning unfair contract terms. These tougher laws were important last year, when the ACCC investigated complaints about fertiliser companies using contracts in a way that could disadvantage farmers.
Contract terms allegedly gave larger suppliers the right to unilaterally vary the quantity delivered or to terminate the agreement and restricted buyers from raising issues about defects. Fertiliser suppliers co‑operated and changed the contract terms to address the ACCC's concerns.
Second, we're making the Food and Grocery Code mandatory, with Coles, Woolworths, Aldi and Metcash subject to million‑dollar penalties for serious breaches.
There will be improvements to the dispute resolution mechanisms. There will be a pathway for anonymous complaints from suppliers and whistle‑blowers, and guards against retribution by supermarkets.
We released exposure drafts for consultation in September and we aim to introduce legislation into the parliament later this year.
Third, Treasurer Jim Chalmers directed the ACCC to undertake a 12‑month inquiry into supermarkets. The interim report highlighted concerns from fresh produce suppliers about information asymmetries, power imbalances and specific practices that have enabled supermarkets to transfer disproportionate risk and cost onto suppliers.
In the next phase of the inquiry, the ACCC will undertake 14 case studies to examine supermarket profit margins and how profits are distributed in the supply chain. It will hand a final report to the government in February 2025.
Fourth, we recently appointed former competition minister Craig Emerson to lead an independent impact analysis of the wine and grape sector's regulatory options. Dr Emerson's report will examine fair trading, competitive relationships, contracting practices and risk allocation.
Fifth, we have announced the most significant reforms to merger settings in almost 50 years. The proposed reforms will make Australia's merger approval system faster, stronger, simpler, targeted and more transparent.
Sixth, the Albanese government is working with state and territories to revitalise National Competition Policy. The original National Competition Policy underpinned a generation of growth from the 1990s. We are aiming to strike agreement with states and territories for the next phase of reforms by the end of the year.
A lack of competition across Australia's agricultural supply chains is bad for small‑scale farmers. It can mean higher prices for inputs and lower prices for outputs. Power imbalances in negotiating contracts. A lack of transparency around prices. Farmers can find themselves at the mercy of both monopoly power and its evil twin, monopsony power.
It isn't just farmers who are squeezed. A lack of competition has long‑term consequences for Australia's economic and environmental sustainability and profitability. That's why our government is focused on practical solutions to improve Australia's competition settings. To make things fairer for farmers, and fairer for families.
