There is an interesting juxtaposition happening in the Australian food supply chain. On the one side you have farmers who compete for a slot in the market. And on the other you have the supermarket duopoly, who, according to a report by the former watchdog Allan Fels, face no real competition at all.
This is an old story for those of us who live in the bush, who are used to an unlevel playing field and the weird conditions that can result.
Supermarkets are just one link in a supply chain that has many opportunities for big operators to squeeze producers along the way.
There were about 88,000 farm businesses in Australia at last count, almost all of which are selling into the same market.
Farmers are generally price takers. If you are selling your lamb or apples or pears to just a few buyers, whether it’s supermarkets or processors, too bad if you’re not happy. Finding less conventional buyers, such as farmers markets, is not impossible but harder if you are producing at scale.
The assistant minister for competition, Andrew Leigh, acknowledged as much last week. For farmers, most parts of the supply chain are concentrated.
“Sometimes for farmers who are supplying to processors they’re supplying into a pretty concentrated market,” he told ABC radio. “And you’ve got to feel for the farmers because sometimes, too, they’re buying their products, like fertilisers and seeds, from concentrated markets.
“So in farming you’ve got a fairly competitive sector squeezed by concentration upstream and concentration downstream.”
One of the more gobsmacking examples of rural market concentration is chicken meat.
There was a time in the postwar period when chicken was reserved for a luxurious Sunday roast or a Christmas dinner. But industrial-scale chicken farming and cheap supermarkets have changed all that, making it the cheapest meat protein around.
Australians eat more chicken meat – 50kg per person per year – than any other meat. That’s a lot of nuggets. And 97% of the chook we produce is for the domestic market.
The latest supermarket kerfuffle is because Coles and Woolies have increased their profits while holding about 65% of the market share for groceries. This is slightly less market share than is held by the two biggest chicken processors.
The publicly listed Inghams Enterprises and the family-owned Baiada Poultry produce 70% of Australia’s chicken, according to the Australian Chicken Growers’ Council. The balance is owned by four other companies. Baiada and Cordina dominate the New South Wales market.
But those processing companies don’t generally grow the chickens.
Farmers grow out the birds from chicks to the processing stage. The farmers provide the land, the housing, the equipment and the labour to raise the chicken.
The processors generally own the parent breeding farms, the hatcheries, the chickens, the feed mills to supply the growers, the processing plants and the distribution network.
One major sticking point has been that if the processors change their mind on contracts, the grower can be stuck with the purpose-built infrastructure to raise chickens, but no chickens and no one to sell to.
While Coles and Woolies are dealing with a national market of 25 million consumers, minus more remote regional pockets, the big chicken processors are dealing with 700 chicken farmers who produce 80% of Australia’s chicken meat under such growing contracts, according to the ACGC website.
A region might have several growers but only one processor, leaving nowhere to go for the farmer who doesn’t want to sign a contract. Ten years ago, six companies owned nine significant poultry meat processing plants in NSW. Right now, two poultry meat processors operate four regional plants in NSW, producing 35% of the national market.
It is very hard to get a chicken farmer on the record to talk about prices, because contracts are confidential. There is an understandable fear in the industry of losing contracts when they have sunk significant costs into infrastructure on very tight margins.
We are allegedly the land of the free market. Yet this strange arrangement has been hiding in plain sight for years, following a model largely associated with the American chicken industry.
The NSW Farmers association has described the Australian chicken meat industry as a “regional monopsony environment” – a market dominated by a single buyer with the power to influence prices.
The perishable agricultural goods inquiry report released by the ACCC in 2020 acknowledged the power imbalance in the chicken meat industry. Nothing has changed since then and the chicken meat market is only expected to get bigger with the population.
Another investigation was released in December, after the federal agriculture department funded the National Farmers’ Federation to report on a potential code of conduct for the chicken industry.
The NFF’s interim report found that: “As it stands, Australian consumer law is not an adequate vehicle to address the issues identified in this report. The monopsony power processors have and the real fear of commercial retribution means that growers are unwilling to challenge processor misbehaviour.”
It favoured a mandatory code of conduct, but we have yet to see whether this will occur.
The great conundrum at the heart of the chicken story is that it is a model that has produced very cheap meat for consumers, and the reason we are talking about competition is because of the cost-of-living crisis. But if chicken eaters have a right to a fair feed, chicken farmers surely have a right to fair market conditions if they are going to increase their production.
Otherwise they will leave the market. And then where will we be?
