Supermarket price war on fruits and vegetables could affect growers

2 February 2012

On 30th January 2012, Coles announced a new campaign to reduce the price of at least a dozen fruit and vegetables by up to 50%, in its ongoing price war with Woolworths. This is a bid by Coles to obtain a bigger share of Australia's grocery market. This strategy also uses a "loss leader" approach whereby a supermarket uses a few cheap products such as milk to draw in customers, who then spend more on other products in the same store while they are there. While these lower prices may be great news for customers, farmers' groups are warning that the price war risks driving growers out of business.

Initially, price discounting may have some benefits such as getting rid of excess produce due to the current good growing conditions. If the supermarket absorbs the discounts, giving the farmer the same farm gate price, this may encourage farmers to produce more of the commodity. However, if farmers receive a lower farm gate price, the consequence is that they will get a lower profit margin.As their cost structure will remain largely the same, a reduced farm gate price may result in less production and/or lower quality of the commodity. Some farmers may incur a very small profit margin or even exit the industry. Consumers expect farmers to meet strict environmental guidelines, but then want cheaper food. Australian farmers who are in minimal profit margins cannot afford to produce cheaper quality food or take care of the environment. 2012 is the Australian Year of the Farmer. It is important that our farmers have a fair go and stay profitable with a reasonable farm gate price for their fresh produce.

Contact: Dr Daniel Tan

Phone: 02 8627 1052

Email: 2022043e110b7f19525f104611161f52281d2a28345a520c