We hear a lot about consumers getting screwed by Australia’s supermarket duopoly, but how do you think farmers feel?

Andrew Leigh, the Assistant Minister for Competition, says this country’s small-scale farmers are getting hammered at “both ends” by concentrated markets, at numerous points along the agricultural supply chain.

Farmers ‘often caught in the middle’

Dr Leigh is speaking today at the Australian Bureau of Agricultural and Resource Economics and Sciences (ABARES). 

The title of his speech is Caught in the Middle: How Market Concentration Hurts Farmers.

He has done a lot of academic and political work on the problem of market concentration in Australia, and today’s speech is part of that project.

Leigh says if you apply the rule-of-thumb that a market is “concentrated” if the largest four firms control one-third of the market or more, over half of the industries in Australia’s economy are concentrated markets.

He says market concentration is bedevilling our farmers, with IBIS World data on market concentration in the agricultural supply chain showing farmers are “often caught in the middle.”

Upstream, farmers are facing concentrated markets for their inputs:

“The largest four companies in fertiliser manufacturing in Australia have a combined market share of 62 per cent,” he says.

“The largest four in hardware and building supplies retailing control about 49 per cent of the market.

“And the market share for garden supplies retailing is about 33 per cent for the largest four firms.”

Downstream, they’re facing concentrated markets for processing, freight and retailing:

“According to IBIS World industry reports, there is concentration in fruit and vegetable processing, with the largest four companies holding about 34 per cent of the market.

“For meat processing, market share of the largest four companies is 44 per cent with JBS Australia, Thomas Food International, and Teys Australia being the dominant players.

“For rail freight transport, the four largest including Aurizon and Pacific International have a combined 64 per cent market share.

“For shipping freight transport in Australia, the market share of two companies — ANL and Maersk — amounts to about 85 per cent.”

Leigh says the data shows our agricultural supply chain is highly concentrated at the national level.

But for many farmers, he says, their options are even more limited than the figures suggest because transport costs and risk of spoilage further limit the commercially viable options available to them.

What are some examples?

Start upstream.

Leigh says farm equipment and machinery represent a significant capital investment involving up-front and ongoing costs.

But many farmers “feel they have no genuine choice or ability to shop around.”

He says the Australian Competition and Consumer Commission (ACCC) found, a few years ago, that farm machinery markets are concentrated at the manufacturer and dealership levels.

“Compared to car manufacturers, agricultural machinery makers have greater ability to leverage their market share in new sales to reduce competition in the market for servicing, repairs and parts,” he says.

“Warranties restrict the purchaser to a single authorised dealer for servicing and repairs.

“And tech restrictions mean independent repairers or farmers can’t access the parts, manuals and diagnostic software they need to carry out repairs.

“In short, farmers have few choices when buying machinery but even less choice when servicing or repairing that equipment.”

Leigh says he’s long been an advocate for the need for service and repair information to be shared with independent repairers, and that extends to agricultural industries.

“In July 2022, I launched Australia’s first right to repair law, the Motor Vehicle Service and Repair Information Sharing Scheme,” he says.

“The government is currently monitoring how this scheme is operating for the benefit of independent repairers and consumers.

“I am pleased there have been negotiations between Australian farmers and the farm machinery industry to consider putting in place voluntary right to repair arrangements for the sector.

“I encourage parties to continue those negotiations as voluntary arrangements are a great opportunity to foster collaboration and flexibility and can often lead to innovative and effective outcomes,” he says.

A beef with competition

Or consider how market concentration plays out in other areas of farming life.

In December last year, the National Farmers’ Federation (NFF) released an issues paper criticising the lack of transparency and competition across agricultural supply chains.

“As market concentration has increased in Australia, farmers have had fewer places to buy inputs and fewer places to sell their products,” the NFF argued.

“Businesses are taking advantage of this with higher input prices, lower output prices, increased compliance costs, shifting the risk burden to farm businesses, and increasing uncertainty for farmers.

“Reduced competition in the agricultural supply chain means farmers aren’t receiving the incomes they should in an otherwise competitive market. This directly impacts their long-term competitiveness, profitability, and economic and environmental sustainability.”

Leigh says the concerns in that NFF paper echoed the ACCC’s cattle and beef market study from 2017.

“That study found evidence that conflicts of interest regularly arise in saleyard transactions when buyers bid for livestock on behalf of multiple clients, and when agents represent both a cattle seller and a cattle buyer in the same transaction,” Leigh says.

“The report pointed out that cattle auctions have characteristics that make it easier for cartels to develop, including repeated interactions with the same auctioneers, who are often linked by social networks that make it easier to ‘punish’ auctioneers who break away from agreed anti-competitive bidding practices.

“Other problematic behaviours included the exclusion of rival agents, and a lack of transparency around saleyard weighing protocols.”

Leigh says beef and cattle farmers also have to contend with opportunistic behaviour from some businesses during periods of extreme stress.

Unfair contract terms

Leigh says unfair contract terms are another problem farmers have to deal with.

He says contract terms can be very lopsided, such as when they allow a more powerful party to unilaterally change prices or cancel a contract.

He says there’s plenty of area for improvement in this space.

“Last year, the ACCC investigated complaints about fertiliser companies using contracts that could disadvantage farmers,” he says.

“Contract terms allegedly gave large suppliers the right to unilaterally vary the quantity delivered or to terminate the agreement and restricted buyers from raising issues about defects.

“Fertiliser suppliers co-operated and changed terms to address the ACCC’s concerns,” he said.

In another example, he says in 2019 the federal court declared that Mitolo Group, Australia’s largest potato wholesaler, used unfair terms in contracts with growers.

He says the court declared contract terms that allowed Mitolo to unilaterally determine or vary the price paid to growers as void.

It also declared void terms preventing growers from selling potatoes to other purchasers, and terms stopping farmers from selling their property unless the buyer entered into a contract with Mitolo.

He says the Albanese government has tried to tackle this problem.

“In 2022, we delivered on our promise to strengthen unfair contract term laws,” he says. “We introduced civil penalty provisions outlawing the use of, and reliance on, unfair terms in standard form contracts. And we extended the coverage of the protections.”

Economic harm from concentrated markets

Leigh says it’s an ongoing fight.

He says merger regulation is one of the “key pillars” of competition law but the Competition Taskforce recently found Australia’s ‘ad hoc’ merger process was unfit for a modern economy.

“In response, we have announced the most significant reforms in merger settings in almost 50 years.”

He says national competition policy needs to be revitalised to account for changes in the economy that have occurred since the 1990s. Those changes include digitalisation and the net zero transformation.

Overall, he says competitive markets matter in all parts of Australia’s economy “but especially in the farm sector.”

“As the ACCC’s Mick Keogh crisply puts it: ‘There are many farmers, but few processors or wholesalers, and even fewer major retailers’,” Leigh says.

“As my analysis of IBIS World data shows, small-scale farmers are often the meat in a market concentration sandwich.

“Upstream, there is often no choice about dealing with large-scale providers on inputs. Downstream, there is often no choice about negotiating with larger processors and retailers.

“Higher prices for inputs. Less choice for repairs. Power imbalances in negotiating contracts. A lack of transparency around prices. And potentially unfair contract terms,” he says.

And don’t forget Australia’s supermarket reality.

“Coles and Woolworths account for about 67 per cent of national retail sales,” Leigh says. 

“Only two OECD countries – New Zealand and Norway – have a greater market share of sales controlled by two supermarkets.”