Oil is now the major consumer pressure point. My prediction is that food is going to be as big, if not bigger, as a pressure point. I make that prediction after talking to a middle ranking Queensland sugar and vegetable farmer who tells me what he and his mates are doing. Watch out Woolworths and Coles, because growing numbers of vegetable farmers in Queensland, with plenty of water, are not planting vegetables.
Woolworths and Coles are being so tough on growers that the farmers have now, well and truly, set in motion forces that will make Australia much more dependent on imports at a time of growing global food shortages. In Queensland the smarter sugar growers, like my source, are now able to bypass rent seekers (like the various boards) and are doing well. However, larger vegetable growers need the mass markets of Woolworths and Coles.
But Woolworths and Coles use their buying power to cut farmer margins and right now farm costs are escalating, led by the rising cost of diesel. The supermarkets are helping the big transport companies (who have clout), but the Queensland farmer I spoke to cannot get them to budge on price. For the past few years he and his mates have been planting because that’s what they always did.
But Woolworths (and it was not Coles) took one step too many when the price of diesel skyrocketed and they refused to let the farmers raise prices to compensate. Of course, the supermarkets are now sourcing many food products like oranges and other fruits offshore.
Some vegetables can also be sourced that way. But the supermarkets can’t source the leafy vegetables offshore – lettuce, cabbage, brussel sprouts and so on. These staples of many Australian diets are going to rise sharply in price in the next two years as the word spreads among the farmers that it’s simply not worth growing them.
I believe that Woolworths and Coles are building up a set of forces that are likely, in time, to explode on them. Fresh fruit and vegetables are among the highest margin products in the supermarket and their margins are being maintained by imports and by squeezing the locals.
In similar fashion overseas processed food is becoming more and more prevalent on the shelves. The words “local and imported ingredients” is usually a euphemism for 90% imported product. Often these products are coming from areas where hygiene is not at the same standard as in Australia.
The chances of a lethal incident are rising. Hopefully it never happens, but if it does, the practice of squeezing local farmers out of business will become one of the greatest scandals ever seen in this country. In that event, politicians on both sides of the house will be under enormous pressure to act in punitive ways against the shareholders of both Woolworths and Coles.
I should underline that the supermarkets’ safety measures taken overseas have so far worked and there have been no health catastrophes. Perhaps they will continue to work, but as the volumes rise so the chances of error become greater.
In discussing Australian inflation, we should be aware that the higher cost of fuel has not yet been fully reflected in the food chain, and as it does it will underpin inflation in the next few months.
This article first appeared in Business Spectator.
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