Supermarkets breakup not the answer

Breaking up is never easy, it is said. That is especially the case in terms of calls to break up major corporations on the basis they are abusing their market power, as it’s alleged Australian supermarkets have done.

This idea is not new. Its most notable applications have been in the US, against the Standard Oil monopoly in 1911 and in pulling apart telecommunications monopoly AT&T in 1984. There’s no significant history of that happening in Australia.

However, with anti-supermarket rhetoric peaking from several inquiries during a cost-of-living crisis, even the Liberal Party has entertained the idea as a last resort to threaten big retailers and keep its Coalition partner in check.

I can only imagine the incredible disruption and costs incurred by such an action, which would inevitably be passed on to consumers. And if a breakup occurs, how far does it go? We have four big banks and everyone complains about them, too.

Back in the 1990s, Telstra was the market-dominating gorilla that was used as a political football, having been privatised and listed on the ASX.

As mobile phones and the internet developed, the telco was blamed for slowing down innovation in our economy. The irony here is that Telstra’s monopolistic structure was retained so the government could get a good price.

Various politically motivated inquiries are asking if supermarkets really are gouging farmers at the gate and ripping off customers at the checkout.

I visit a variety of shops for groceries and other goods and don’t consider the supermarket giants are unreasonably expensive. I suggest we have plenty of choice for most goods through smaller supermarkets such as the IGA network, foreign competitors including Aldi, specialist family stores and online options.

There is more doubt in my mind how farmers are treated. I have heard plenty of complaints that these big businesses have squeezed producers.

The biggest issue I recall is how supermarkets allegedly supported individual food producers to get big enough to serve their needs, then threatened to pull the rug out from under them when they had significant capital at risk.

However, farmers like to paint themselves as the victims so there’s sure to be doubt about the veracity of the allegations above.

Firstly, big farms have developed at the expense of smaller ones, with only a fraction of the farming families who worked the land 30 to 40 years ago remaining.

Back then, of course, farmers had all sorts of monopolies of their own, like the Australian Wool Corporation and the Australian Wheat Board, which helped enrich producers at the expense of buyers (albeit mainly foreign).

Potato growers in Western Australia had a government-enforced quota system to stop any of them, or those outside the cartel, growing too much. Farmers were even restricted as to the varieties they could produce.

Farmer Tony Galati objected to that and fought until those restrictive and ridiculous rules were overturned.

Now wealthy, the Galati family has also proved that big supermarkets are not required to sell their wares, having launched the successful Spudshed retail chain.

National conglomerate Wesfarmers was once the Westralian Farmers Co-operative, which was created by farmers to act in their best interest when dealing with suppliers and buyers. Many farmers were enriched by the demutualisation and stock market listing of Wesfarmers, which went on to own Coles for nearly a decade.

A better outcome when it comes to government intervention is to have stronger competition rules, properly enforced, especially to discourage monopolistic mergers from occurring in the first place.

That includes examining the impact in smaller markets rather than just looking at the national picture.

The merger of Channel 7 with WA Newspapers to become Seven West Media, and its subsequent acquisitions of The Sunday Times and Community Newspaper Group, is an example of a poor outcome in terms of market concentration.

Another more complicated example was BGC Australia’s purchase of Midland Brick, which reduced the number of WA manufacturers to two. Rival Brickworks, which closed its WA operations last financial year, has launched a court case against BGC for anti-competitive activities.

Why do we allow struggling businesses to be sold to their competitors when market concentration is already evident?

If failure was the only option, perhaps they might fight on and find a way to get value for their businesses rather than selling out to the competition.

And we might not have the same concentration of supermarket power as we have today.