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Supermarkets abandon local farmers

Many Australian farmers could disappear if big supermarkets continue to source products for their home brands from overseas, according to a recent report.

In a survey of 360 private label products, consumer group Choice has found that just 38% of Woolworths Limited’s (ASX: WOW) and 55% of Coles’ – owned by Wesfarmers Limited (ASX: WES) offerings were sourced locally. That compares to 92% for the market leading products, such as Kelloggs Rice Bubbles, which is made in Australia, while Woolies and Coles similar products were made in New Zealand.

When it comes to fresh food, 96% is sourced locally. Coles and Woolies dispute the findings saying that 90% and 70% of their products respectively, were sourced locally, and that Choice surveyed only a limited amount of products in their home brand ranges.

Choice spokesman Ingrid Just has said that the big two claim their buyers only look to overseas markets when local suppliers are unable to meet customers’ needs. She also said that tenders to supply vegetables for home label products are not being made public, and are often by invitation only.

Farmers say that they could supply private label produce, but were being left out because they were too expensive. According to William Churchill, manager for growers’ lobby AusVeg, farmers face higher labour and supply chain costs, compared to overseas producers.

Farmers and other produce suppliers face pressures from both higher input costs and lower margins, as the big supermarkets push harder to lower the prices they pay. We’ve seen that recently with $2 milk and $1 bread. Goodman Fielder Limited (ASX: GFF) has struggled as the supermarkets slashed the margins on the product it sells them, and even Coca-Cola Amatil Limited (ASX: CCL) has been forced to the negotiating table.

The Foolish bottom line

With the big supermarkets looking to grow their private label sales as a percentage of their total sales, we are likely to see more reports like this in future.

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Motley Fool writer/analyst Mike King owns shares in Woolworths. The Motley Fool’s purpose is to help the world invest, better. Take Stock is The Motley Fool’s free investing newsletter. Packed with stock ideas and investing advice, it is essential reading for anyone looking to build and grow their wealth in the years ahead. Click here now to request your free subscription, whilst it’s still available. This article contains general investment advice only (under AFSL 400691). Authorised by Bruce Jackson.

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