![The suppliers of foods and groceries sold in supermarkets, who are big customers of farmers', have outlined the power imbalance they endure with Coles and Woolworths in the Senate inquiry into supermarket pricing. The suppliers of foods and groceries sold in supermarkets, who are big customers of farmers', have outlined the power imbalance they endure with Coles and Woolworths in the Senate inquiry into supermarket pricing.](/images/transform/v1/crop/frm/38U3JBx5nNussShT8aZyYjc/d40184bf-a81b-48f4-91c8-979c9e74de7d.jpg/r0_161_5568_3638_w1200_h678_fmax.jpg)
Food and grocery manufacturers who buy large amounts of agriculture products each year say the entry of Aldi and Costco has done nothing to alleviate the negotiating power imbalance the two big supermarkets yield.
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In fact, the emergency of the two new players heralded a significant competitive response from Woolworths and Coles which involved far more stringent managing of purchasing costs.
That has resulted in supplier profitability falling from $8 billion to $5b between 2010 and 2019, manufacturing capital investment stagnating and increased offshoring of manufacturing jobs, the Australian Food and Grocery Council says.
In its submission to the Senate inquiry into supermarket prices, the AFGC said Coles and Woolworths still hold a disproportionately high share of the food and grocery market, with 65 per cent of Australian turnover between them.
That compares to 42pc for the UK's top two retailers and 33pc in the US.
Aldi and Costco's combined market share has only reached 11pc.
"The consequences of Coles' and Woolworths' combined market share are numerous, but all centre on a significant imbalance in negotiating power between the major supermarkets and their suppliers," the AFGC submission said.
"Whereas a supplier may derive half of its revenue from one of the major supermarkets, its business will likely represent a tiny fraction of the supermarket's total revenue. The stakes are therefore much higher for a supplier when dealing with retailers because their viability as a business depends on continuing to sell to the retailer.
"This gives the retailer significantly greater leverage in the relationship, which it can use to extract highly-favourable terms."
In the decade to 2021, input costs to food manufacturing rose at double the rate of wholesale prices, the AFGC said.
In the years since, the gap has narrowed only slightly, with food manufacturers' input prices 20pc above output prices between June 2020 and June 2023.
"It could be argued that the major retailers' downward pressure on the price at which they purchase from suppliers helps to maintain downward pressure on retail prices for consumers," the submission said.
"However, this ignores the fact that while retailers reap the benefits from lower shelf prices - that is remaining competitive against other retailers and selling a greater volume of goods - their ability to do this is effectively subsidised by suppliers."
The AFGC recommendations to the inquiry include investigating the barriers faced by new supermarket retailers aspiring to enter the Australian market, with the aim of developing policies to encourage new entrants.
It also supports retaining the Food and Grocery Code of Conduct as voluntary but strengthening its dispute resolution provisions, though increasing the independent reviewer's powers, including binding arbitration and resourcing.