The Australian Consumer and Competition Commission (ACCC) has moved into the next phase of its investigation into supermarkets and is now focusing on land banking.
In case you were wondering what that means, land banking is the practice of buying up land and selling it for a profit later on. Australian supermarket giants Coles and Woolworths are being accused of specifically buying land to prevent competitors from setting up shop.
This is possible because of Australia’s zoning laws. Only so much land is usually set aside for retail or commercial purposes. If you buy some land in that area, a competitor is less likely to buy, or be able to buy, or develop a site close to that site, and hey presto you are the only game in town. Bonus points: you also cut down on the chances of your competitors earning profit.
While I commend the ACCC’s gusto, it’s going to be a difficult one to prove. Land banking in this sense is not illegal. It’s not great, but it’s not illegal.
And the supermarkets may be quite legitimately buying land while it’s cheap (or cheaper) to build on later. Both supermarket chains use resources to analyse demographics and recommend growth areas to buy into.
And let’s face it, if anyone who has dealt with any local council knows, it can take years to have a project approved, much less built to completion.
It’s not just a matter of “Oh golly, a supermarket would be nice here”. There are generally objections, design requirements and countless meetings with planning officials before even one piece of dirt is removed.
It’s great to be shining a light on the practice, but I don’t think much is going to come of it other than some watered-down competition ‘laws’ that will be difficult to enforce. Indeed, how would they enforce it? A supermarket chain buys some land and the ACCC swoops in and forces them to build straight away? Not a chance.
Pointless laws
The Labor federal government has announced an overhaul of merger laws, singling out supermarkets.
In a nutshell, the government has introduced legislation to scrap a voluntary merger reporting program and replace it with laws that force companies to apply for mergers over certain financial thresholds. The tweaks are designed to stop monopolies and abuses of market power.
“The government intends to make sure the ACCC is notified of every merger in the supermarket sector,” Treasurer Jim Chalmers said.
“Reviewing every supermarket merger is part of the decisive action our government is taking to help Australians get fairer prices at the checkout,” he said.
“We want to make sure supermarket mergers don’t come at the cost of Australians, families and pensioners getting a fair price on their grocery bills.”
That’s great Jim, but the horse has already bolted. Who does he imagine is merging with whom in the above scenario? Coles and Woolworths already have the vast majority of market share. They also ain’t merging anytime soon, so I’m not quite sure what he’s talking about. The duopoly also certainly isn’t buying up IGAs or Aldis either.
No, while anti-monopoly laws are generally a good thing, this is a pointless headline grabber in the face of a government that seems incapable of making any hard decisions on the cost of living, say, for example sorting out the energy market or holding supermarkets to account for their pricing.
Are milk wars starting up again?
It’s been reported that milk prices have dropped for the first time since 2011, with farmers fearing the Coles/Woolworths duopoly is returning to the ‘milk wars’.
For a bit of history, from about 2011 onwards the supermarkets lured customers in with cheap milk, with Coles firing the first salvo with $1/L milk. Soon Woolworths followed and Aldi jumped in too. It was made possible by market deregulation and it artificially lowered the market for years.
It was good for consumers in the short term, but disastrous in the long run. Dairy farmers fled the industry in droves. To be fair, increasing power, feed and fertiliser costs didn’t help, but it’s hard to cover those if your income is being slashed.
Eight per cent of Victorian dairy farmers left the industry alone last year. And while that doesn’t sound like much, it all adds up over the years.
If you know anything about the laws of supply and demand, you reduce supply and the demand – and prices – go up. But if you are forcing a price on a supplier, very often it’s just easier to leave the market.
“We are very concerned where this is heading,” Dairy Farmers Victoria president Mark Billing told the ABC.
“It’s extremely frustrating, particularly in the environment we’re in … margins are really, really tight, and it’s putting a lot of pressure on farm management,” he said.
“We just need to understand what the strategy is.
“I’d love to be able to hear what their thinking is behind these reductions.”
Let’s see how this goes.
What do you think the government should do to lower grocery prices? Why not share your thoughts in the comments section below?
Also read: Which supermarket was most expensive this quarter?
