Possible Solutions to the Energy Crisis For Farmers

Imagine a game of Monopoly with four players. Two have gradually come to own all the expensive properties. The others have just enough leverage to keep making it round the board for their meagre go-passing paycheques. But the majority of their funds are funnelled into the laps of the two big players.

It’s the kind of game you would want to do this to:

But, for many Australian farmers, this is just life. They are the players in the middle. The two giants squeezing them: electricity distributors and supermarkets.

The rising cost of power

Through social media and news outlets, more and more farmers are coming forward with examples of their ballooning electricity bills. The consensus seems to be that bills have doubled over the last two years. Compounding this issue is the fact that other businesses the farmers deal with are also suffering from the power price hikes and the charges are passed on down the line.

The Central Irrigation Trust, for example, is now looking at a $4 million power bill. The Trust supplies 1600 irrigators and manager, Greg McCarron, explained there’s no way they can’t pass on some of this extra cost to farmers. Electricity comprises 40% of their operational costs so to not do so would be financial suicide. However, McCarron is concerned about the effect this, and the rising costs of electricity generally, is having on farmers.

“Those people we supply operate in domestic and international markets against people who don’t face the same costs. The rising cost of power affects their business, their families and their region.”

Lee McKenzie, a dairy farmer from the Mount Compass dairy region, told The Adelaide Advertisier he will no longer be able to continue with his business if the costs of power and irrigation continue to rise.

“The high cost of energy is a significant factor in cutting production on dairy farms because the people I know are all cutting back. For us it will be the nail in the coffin to give up farming.”

Ergon currently has a proposal before the Australian Energy Regulator (AER) for a new tariff structure that, if approved, will see electricity prices go up yet again. While companies like the Central Irrigation Trust are able to pass on some of the costs to their consumers, many farmers are unable to do the same. CEO of the New National Irrigators Council, Steve Whan, explained:

“They can’t go to the big supermarket chains and say ‘hey, our electricity costs have gone up, we’d like you to pay a bit more for your fruit and veg’. They’re effectively price takers. So it’s another thing that puts the economics of being in business on a farm at risk.”

Supermarkets: the other side of the squeeze

More than just a fun word to say, “oligopoly” describes a market with limited competition, dominated by a couple of big players. When it comes to Aussie supermarkets, two major chains have such a profound grip on the market it is almost more accurate to call it a duopoly.

The two ubiquitous brands dominating the scene are, quite obviously, Coles and Woolworths. And economists describe their presence as one of the most severe concentrations of power in the world. While ALDI is growing, it still only accounts for around 10% of the market share. Meanwhile, between them, Coles and Woolworths take up 80%.

According to a Four Corners report, Australia has more supermarkets per capita than the US and the UK. But the vast majority of these are just the two big brands: Coles and Woolworths. Their oligopolistic hold on the industry gives them an inordinate amount of power.

Coles is actually owned by Wesfarmers who have an astounding number of brands under their umbrella.

What does Wesfarmers own?

• Coles;
• Coles express;
• Vintage Cellars;
• First Choice Liquor;
• Liquorland;
• Bi-Lo;
• Coles financial services;
• Spirit Hotels;
• Bunnings;
• Homebase;
• K-mart;
• Target;
• Officeworks;
• Wesfarmers Chemicals, Energy & Fertilisers;
• Workwear group;
• Coregas;
• Blackwoods;
• Quadrant Energy;
• And a host of other businesses and industrials.

What does Woolworths own?

• Woolworths supermarkets;
• Countdown;
• Thomas Dux;
• Caltex Woolworths;
• Woolworths money;
• Dan Murphy’s;
• BWS;
• Cellarmasters;
• Langton’s;
• Big W;
• EziBuy;
• ALH Group.

Australia is operating under an illusion of choice. While the costs of production increase, the supermarkets won’t accept higher prices from farmers and, with no-one else to go to, they have little choice but to comply.

The big companies don’t care if they shut Aussie farmers down altogether because it’s cheap, easy and profitable for them to import what they need from overseas. In June 2016, Coles was brought to task for advertising their bread as “bakery fresh” when all they were doing was throwing pre-made, imported dough in the ovens.

They dance delicately around the edges of what’s allowable, occasionally venturing far enough into wrong-town to get pulled up by the ACCC. But the action taken against them doesn’t exactly help farmers. For many, it just makes it a slow squeeze rather than a quick kill.

Historically, if Coles or Woolworths put something on sale, they didn’t take a hit to their own profits. Rather, they demanded that the farmer sell their produce at a lower price. While the supermarket twins have recently signed a voluntary code of conduct forbidding the practice, the issue hasn’t been completely eradicated. Woolworths recently demanded  a “voluntary” contribution from its suppliers to pay for a dubious campaign featuring Jamie Oliver.

The new Food and Grocery Code of Conduct bans the supermarkets from demanding payments for:

• the right to be a supplier;
• shelf space;
• any food that goes past its use-by date prior to sale;
• promotions;
• store refurbishments.

While this is a good thing, it also highlights just what Aussie suppliers have been dealing with.

What can farmers do to survive?

Tackling the energy crisis

Many growers are lobbying the government for a reduction in electricity prices and a separate tariff for fruit, vegetable and fibre growers. Others are calling for grants and support structures to be put in place to assist farmers in making the move to renewable energy. If the government is willing to give millions of dollars in grants to mining companies who install solar arrays, why not farmers?

With network outages also a problem for many farmers, switching to an off-grid system can save money while also improving the reliability of their power supply. Growers risk lower yields and loss of crops if their irrigation timing is thrown off or power cut to their cool rooms and packing sheds.

Breaking up the supermarket oligopoly

On the supermarket front, Bob Katter, Nick Xenophon, Andrew Wilkie and John Madigan have drafted a bill that, if successful before parliament, would be a game-changer for the supermarket oligopoly. Their bill would give courts the power to break-up any company that misuses its large market share. Xenophon cut straight to the point when explaining who the bill was targeted at:

“No other country in the world has as large a percentage of its dry groceries market controlled by two chains. We have been mugs to allow that to happen.”

Considering the divisive stratagems used by the grocery giants, such a bill may be the only thing capable of loosening their grip on the market. They have a breathtaking arsenal of tactics which they regularly use to muscle out even the smallest competition. These include:

• buying out the competition (creeping acquisition);
• buying land competitors might be interested in and leaving it vacant (greenfield acquisitions);
• expanding into other markets (like finance, insurance, coal mines and the pokies);
• deals made with shopping malls to keep out competitors;
• predatory pricing (pushing prices “down down” and then raise prices again when competition closes).

If the illusion of choice could be shattered, and true competition introduced to the supermarket industry, then farmers would finally have some bargaining power and the ability to build a more equitable position for themselves.