With farms in all states and covering a vast range of products, AFPA members include Costa Group, apple giant Montague, which sold a stake to the Ontario Teacher’s Pension Plan fund in late 2023, Perfection Fresh, and the 120-year-old Californian berry company Driscoll’s. Australian-owned members include Queensland’s Rugby Farm, Australian Produce Partners and Pinata Farms, while Premier Fresh Australia is majority-owned by Kiwi co-operative Market Gardeners.
Scale growing everywhere
Tim Lee, who is the chief executive of AustOn, the local arm of the $300 billion Ontario teachers fund, said farm sizes and the scale of operators was rising around the world, and Australia was no exception.
“Scale and farm size have been growing,” he said, adding costs for fruit and vegetable production were higher than for broadacre farming.
“The costs per hectare is much higher and more intense.”
AustOn bought a majority stake in Australia’s biggest potato producer, Mitolo Family Farms, in March 2023, and also owns apple and stone fruit group Pomona Valley, and avocado producers Capel Farms and Jasper Farms.
Mr Lee declined to say whether that extra size and clout was an advantage in negotiating with Woolworths and Coles, which faced the heat of a parliamentary inquiry this week.
Both Woolies’ Mr Banducci and Coles CEO Leah Weckert testified in the Greens-led Senate inquiry into pricing on Tuesday in Canberra. Key areas of focus were land banking, forced divestiture laws, a debate over how to measure supermarket profitability, and the treatment of suppliers.
Woolworths works with about 350 of the 12,500 fruit and vegetable businesses in Australia, but Mr Banducci was keen to emphasise the scale of the big-dozen produce growers.
“There are big suppliers in fruit and veg just like there are in nappies or other parts of our shop. But there is a big difference between big and small,” he told the inquiry while admitting more could be done when working with some of the less sophisticated suppliers.
MST Marquee analyst Craig Woolford said suppliers have become more concentrated over the years.
“What you see in this space to a more concentrated grocery retail sector is increasing scale on the supply side as well,” he said. “Australia – we are a big country with a relatively small population so scale matters – and will lead to a lower cost per unit outcome.”
Market power
Despite the emergence of competitors such as Aldi and Costco, Coles and Woolworths still control 65 per cent of Australia’s $133 billion grocery sector, compared to 42 per cent for the UK’s top two retailers and 33 per cent in the US.
Mr Woolford said even large suppliers, however, could still succumb to the market power of Coles and Woolies and were at risk of retribution for speaking out or pushing too hard in negotiations.
“If you are a grocery supplier your two biggest customers are Coles and Woolworths, you are not going to risk a big portion of your volume by going public with a concern,” he said.
Mitolo Family Farms – which runs 26 farms in SA and NSW and is Australia’s largest supplier of potatoes – sold a majority stake to a big Canadian super fund in early 2023. Pictured are Darren, Frank and John Mitolo.
Frank Mitolo, the managing director of Mitolo Family Farms, supplies Coles and Woolies from its 26 farms and 850 staff in SA and NSW. He said bigger size enables the group to better navigate the ups and downs of the agricultural cycle.
“The scale of our operations enables us to be agile in the face of seasonal challenges and to continue to innovate,” Mr Mitolo said.
He said the market was continually changing, with consumer trends shifting, and the group needed “to be responsive to changes in consumer behaviour and product trends”.
He also said that the large-scale and extra investment had enabled advances such as the development of kerbside recyclable paper bags for fresh potatoes, which came about through work with Coles and packaging group Detpak.
‘Disproportionate influence’
The Australian Food and Grocery Council, the lobby group for manufactured groceries, has complained the supermarket giants exercise a “disproportionate influence” over retail and wholesale prices. Suppliers seeking a lift in wholesale prices are subject to lengthy assessment processes controlled by Coles and Woolworths, the AFGC said in an inquiry submission.
Neither the AFPA, nor any of its members have made a submission to the pricing inquiry, but other growers have many gripes.
Melons Australia CEO Jonathan Davey said the financial clout wielded by a few big producers was little comfort for others facing squeezed margins and financial strain. More than 100 growers had exited the industry in the past seven years, he said.
The Queensland Farmers Federation said in a submission this week that supermarkets pushed costs down the supply chain and forced growers to absorb declining profit margins by “extending payment terms, imposing additional fees for shelf space, or requiring suppliers to absorb the costs of discounts and promotions”. This left farmers with “little to no bargaining power” and made farm-gate returns “unsustainable”, chief executive Jo Sheppard said.
The QFF also outlined practices such as the purposeful oversupply of produce, which ensures market saturation, and in turn helps in the negotiations for lower farmgate prices.
“This manipulation skews the supply and demand margins and effectively controls the marketplace, not to mention exacerbating issues of waste,” Ms Sheppard said.