Where does the squeeze end?

The never-ending margin pressure squeezing Australia’s food producers raises some serious questions.

Today SmartCompany takes a long look at the great squeeze that continues to hurt Australia’s food producers.

As our deputy editor Cara Waters reports, between the high Australian dollar and rising raw material prices and the relentless push from supermarket giants for lower prices and more private label sales, food groups are increasingly being left with nowhere to go. The result is a string of collapses that is unlikely to end soon.

A Senate inquiry is currently examining the food sector and, today, representatives from Coles and Woolworths will appear.

You can guess what the underlying message from the grocery giants will be: We work hard to deliver Australian consumers the lowest prices possible. In the ultra-competitive Australian market – and make no mistake, the competition between Coles and Woolworths is incredible – that’s where it starts and ends.

We’ve seen Coles and Woolies front various parliamentary inquiries over the years and the song remains the same. Yes, the two companies dominate the market. But the evidence that they abuse their market power just isn’t there.

So where does that leave us? With a list of questions and very few answers. Nonetheless, I reckon the questions are worth asking.

The big ones are simple. Firstly, does Australia want or need to have a food manufacturing sector? And if we do – and I think we do – what are we prepared to do about it?

Some sort of regulation against Coles and Woolworths looks unlikely and without evidence of abuse of market power – real evidence, not just the old line that suppliers are too frightened to come forward – impossible to justify.

Government support for the food sector is possible – particularly from a food security point of view – but likely to be limited.

Parliamentary inquiries certainly aren’t likely to achieve much.

My sense – and it’s one supported by our story today – is that it all comes back to the consumer. What are we prepared to do to support a local food sector? Is price the only thing that consumers care about?

There are SMEs asking this question. Aussie Famer’s Direct, a star of the Smart50 list and now a $150 million business, sources all local food and operates its own daily production facility.

Similarly, we spoke to the Britt family, farmers from the Victorian town of Dunnstown, who invested $1 million in their own milk bottling plant after Coles slashed the price of milk to $1 a litre.

The family’s pitch to customers is simple – buy local.  But its big challenge is educating consumers about why this matters.

In the end, what is happening in the food sector is symptomatic of what is happening across many sectors in Australia. In retail and in manufacturing, structural change and the way the internet has bought the global market into our living room is wreaking havoc and raising questions for which there are no easy answers.

Do Australians still want to be a nation that makes stuff? Do we really care about anything other than price?

I reckon the answer to both is “yes”. But we’ve been answering yes for decades…