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Australian Economic Institutions and Performance

Contents

Introduction.

Economic Policy Issue.

Economic Institutions and Legislation Relating to This Issue.

Stakeholders.

Lobby Groups.

Recommendations for Change.

Constraints on Solution to the Issue.

Conclusion.

Reference.

Introduction to Concentration in the Supermarket Sector

The economy of Australia has recorded constant economic growth for the past numerous years. The economic contribution of the supermarket and grocery retail sector is not limited to the incomes and occupations produced in supermarket stores only. Besides, its influence includes the whole value overhauling this industry (Pulker et al., 2018). Mainly, it is suitable in local and rural areas wherein grocery stores are operating effectively and supporting native producers and traders. This report is going to discuss the issue of concentration in the Australian supermarket sector by concentrating on numerous aspects. It includes the economic institutions and legislation; stakeholders; lobby groups, and so on. Furthermore, it also discusses the recommendations to bring about changes and the constraints on solutions to the issue. 

Economic Policy Issue

There has been an issue of concentration facing Australian Industries. The supermarket and grocery sector in the nation is extremely competitive, so far concentrated (Sutton-Brady, Kamvounias & Taylor, 2015). There are mainly four larger companies named as Coles, Metcash, ALDI, and Woolworths that are accounted for up to eighty per cent of the entire industry's revenue. Furthermore, there are two major supermarkets named as Coles and Woolworths that are accounting for up to 65 % of the market (Knox, 2015). The price increase in competition endures playing a chief role. The main issue is the competitive policy of the major players that pressurizes the small businesses to be competitive with bigger ones. Furthermore, with the constant growth of ALDI and the threat of novel market players facilitated the Woolworths and Coles to lower their prices. This has placed a noteworthy burden on small and autonomous vendors (Thornton et al., 2017).

It is projected that competition will remain robust, with the main supermarkets struggling to preserve market share in the aspect of novel market participants. Such companies have the potential to pointedly disturb the market and will force the current Australian supply, trader, and retail industries to change round how they contend to content the consumer going onward. The augmented competition in the Supermarket industry might benefit traders by introducing novel networks for them to acquire their products to the market. Though, it is also probable that main retailers and vendors will react to novel rivals by placing a superior burden on their traders to protect market share (Grimmer, 2017).

Given the extreme level of industry concentration within the Australian supermarket sector, competition policies must be furnished to deal with issues that may arise from such market situations. It is needed to certify that corporate practices in the national interest are preserved. The ACCC (Australian Competition and Consumer Commission) plays such a role as an independent statutory authority (Wardle et al., 2014).

The broad market power of Woolworths and Coles, though, is responsible for noteworthy issues affecting local suppliers in the Australian food system. The dwindling market share of autonomous vendors leaves the mainstream of dealers with slight ranges but to sell with the duopoly. The market environment safeguards that the supermarket giants exercise substantial influence over price intervention and adjustment demands (Pulker et al., 2018).

Economic Institutions and Legislation Relating to This Issue

The legal system and the nation’s legislation possess a history of pursuing to safeguard small businesses from unacceptable and anti-competitive conduct via trade practice 1974. Moreover, it aims to promote economic freedom and competition. There are numerous legislations and economic institutions relating to the competition policy issue in the supermarket industry in Australia. These are illustrated as follows:

  • Trade Practices Act 1965: The modern competition policy originates from the trade practices act 1965. Though it needed process of trade agreements and controlled scope for the disallowance of such contracts if disagreeing to the public interest, the 1965 policy was extremely feeble. The changes to the act to talk about resale price preservation stuff were accepted in 1971 whereas a novel trade practices act executed by the Whitlam government in 1974. The main aim of the TPA was to eliminate or limit the monopolistic or anti-competitive practices by sellers and buyers (Shanahan & Round, 2014).
  • Trade Practices Act 1974: This was established the trade practices tribunal and trade practices commission. This act further took a novel approach to competition law based upon the exclusion rather than a managerial examination of conduct; it also delivered for approval of conduct in the public concern. This act is the nation’s major legislative weapon to certify consumers get the finest deal from rivalry. However, there are numerous areas of the Australian economy today that are resistant from that act named state public sector businesses, commonwealth enterprises, and professions in the private sector. The primary aim of the legislation is the security of competition instead of the security of any specific rival like small business, to ban a dominant market participant from taking advantage of market power to abolish participants.
  • Competition and Consumer Act 2010: This act is being administered by ACCC. It covers numerous parts of the market, the association between brokers, consumers, traders, and retailers. The main purpose of this legislation is to improve the well-being of Australians by endorsing fair trade practices and competition, and through the endowment of consumer protection. It broadly consists of aspects such as merger and acquisitions; industry codes; price monitoring; product safety and labelling; industry regulation; and unfair market practices (Bembrick & Witt, 2020).
  • The Australian competition tribunal: It is a quasi-judicial assessment body established under TPA 1974. It was initially recognized under TPA 1965 and endures under the TPA 1974. Before 1995, it was named as trade practices tribunal. The evaluation by this body is a re-hearing of the matter and it might act all the functions and control all the powers of the unique decision-maker for the resolutions of review. Overall, its function is to review purposes of the ACCC in respect of claims for, and reversals of, approvals of conduct and provisions that would then violate provisions of the act. 
  • The Hilmer Committee: A committee lead by Fred Hilmer suggested in early 1990 the considerable reforms to the competition policy outline. It was developed to study the finest ways of providing for steady, nationwide appropriate competition instructions to all business activity in Australia, irrespective of possession, or business status. The major recommendations were:
  • Issue of competitive objectivity
  • Widespread microeconomic improvement desired, mainly in the public sector
  • Augmented influence of trade practices act to contain public sector
  • Launch an NCC (national competition council) to supervise national competition policy (Parliament of Australia, 2020).

Stakeholders

This issue of high concentration in the supermarket sector of Australia is important for a wide range of stakeholders. These include industry bodies, suppliers, wholesalers, both signatory and non-signatory supermarkets, government agencies, regulators, and leading academics.

Managing among régimes at all stages to make the national competition policy in 1990, and the national reform program since 2006, demonstrates legitimate originality within a federal structure and fortifies wide political support for market-linked methods. The main task of reform since 1990 was to make precise the government-business association. Eradicating exclusions was strictly linked with justifying infrastructure directive as infrastructure facilities and rules offered by states were not in line in nationality competition law. It is true to say that it is essential to consider the political-economic setting of market association to better comprehend the concentration issue of the supermarket sector. There were many changes in the political aspects of the nation. The consumer and competition act in 2010 made the rules against market power exploitation and imbalanced pricing. The ACCC has inaccuracy of retailers’ obedience with such procedures and it embraces the authority to study any potential break (Beaton-Wells & Paul-Taylor, 2017).

As per Elmas (2019), the federal government has acknowledged supermarkets suppliers need robust protections from bigger retailers like Adli, Coles, and Woolworths. It desires to announce a test to certify novel entrants like Kaufland play by the instructions if they become recognized. There were also reforms in respect of the price negotiations within the sector. They state that the supermarkets are no longer to force suppliers to disclose commercially delicate information while discussions. Furthermore, they must have to report on how many price rise changes would assist reestablish belief between parties.

Lobby Groups

These refer to a group of people working on behalf of or powerfully assist a specific cause like legislation and industry (Nownes, 2017). In the case of the issue of highly concentrated supermarkets in Australia, the lobby groups are ACCC, and the government business enterprises like Telstra, Commonwealth Bank, and Qantas.

ACCC: It, Australian competition and consumer commission, is the nation’s peak consumer protection and competition organization. Further, it is an autonomous constitutional government body that serves the interest of the public. The compliance and implementation work of ACCC are under the endowment of CCA (competition and consumer act 2010). The main motive of this act is to improve the well-being of the nation's residents by endorsing competition among businesses; endorsing fair trading by business, and safeguarding consumers in their transactions with the business. Furthermore, this body utilizes a range of tools to boost obedience and prevent breaks of the act, entailing business and consumer learning, and working diligently with participants and other agencies (Grimmer, 2018).

GBE (Government Business Enterprises): These were established to prevent private businesses from having monopolies. Mainly, the establishments like Commonwealth Bank of Australia, Telstra, and Qantas were established in this regard. The government became engaged in commercial areas for numerous reasons like the private sector was perceived as incompetent of offering the needed products and services, the public considered it suitable that the government must possess a firm that functioned as a usual monopoly, or the government desired to meet a CSO (community service obligation). GBEs are the establishments having features of both the private as well as public sector companies (Kalendra, 2016). The CBA (Commonwealth Bank of Australia) was completely privatized in 1996 using a public share float. Moreover, Trans Australia airlines were established in 1946 and merged with Qantas in 1992 that privatized in the same year (Biddle, 2015).

Recommendations for Change

The recommendations for changes to solve this particular issue are demonstrated as follows:

  • Policymakers must reduce barriers to entry in the scale-economy sectors like the supermarket sector. It can assist deepen competition in this sector however the competitive pressure is weak because half of the profit earned can be regarded as super-profits. The situation for additional changes to competition regulations, though, is not robust. Therefore, one option that can strengthen competitive pressure is to lessen zoning limitations that can restrict the entry of participants.
  • Along with the present policies, there must be a requirement to revise the CCA 2010 (Consumer and competition act) mainly in the case when claims of biased market practice continue. Furthermore, the government via ACCC must be ready to refine the policy and implement harder punishments if the controlled code fails to function efficiently.
  • It is impractical to recommend a comprehensive domineering reaction from the government to claims of misappropriation of supermarket power in the nation. It is, rather, essential for the government to refine security and inducements for small and medium farmers, to certify the endurance of a varied local food system.
  • It is recommended that to certify the presence of a varied range of food manufacturers in Australia, the equilibrium of power between seller and buyer in the supermarket sector must be reestablished.
  • Deliberations on imposing a controlled code of conduct are taking place intending to address market influence. It is recommended that the nation's government must take supplementary measures and interfere if severe breaks of the code are committed. Further, the code should also cover the stoppage of the destructive pricing practices presently assumed by the duopoly.
  • Moreover, transparency is an essential feature for the co-existence between supermarkets and native suppliers. Thus, the code must enable open communication between all parties, to confirm that its goals are attained without discouraging other market players. It will be for the benefit of all parties for the code to openly instruct truthful and sincere conduct, destruction of which would appeal to financial fines.
  • There must be a review of the supermarket and grocery code within 3-5 years of employment of any changes resulting from the review.

Constraints on Solution to the Issue

The manufacturers face limitations on shelf space and thus prospects to reach the customers. Their goods are frequently forfeited to make way for competitive identical remote label proposals, trade limitations, and the cost of doing business, along with retailer desires for bottomless promotional pricing. It is supplementary to the exterior, non-grocery factors influencing the nation's food manufacturing business like the greater Australian dollar, ever-altering regulatory obedience ingenuities, product pricing, and growing costs of energy and labour.

Conclusion on Concentration in the Supermarket Sector

From the above report on the issue of concentration in the supermarket sector in Australia, it can be concluded that there are mainly four larger companies named as Coles, Metcash, ALDI, and Woolworths that are accounted for up to eighty per cent of the entire industry's revenue. Furthermore, there are two major supermarkets named Coles, and Woolworths that are accounting for up to 65 % of the market. Moreover, it can be inferred that the dwindling market share of autonomous vendors leaves the mainstream of dealers with slight ranges but to sell with the duopoly. Furthermore, the economic institutions and legislations related to this issue are the Trade Practices Act 1965; Trade Practices Act 1974; The Australian competition tribunal; and The Hilmer Committee. It can also be found that the stakeholders for whom this issue is of relevance are industry bodies, suppliers, wholesalers, both signatory and non-signatory supermarkets, government agencies, regulators, and leading academics. Additionally, the lobby groups consist of ACCA and GBE. The main motive of ACCA is to improve the well-being of the nation's residents by endorsing competition among businesses; endorsing fair trading by business, and safeguarding consumers in their transactions with the business. GBEs are the establishments having features of both the private as well as public sector companies. Mainly, the establishments like Commonwealth Bank of Australia, Telstra, and Qantas were established in this regard.

Reference for Concentration in the Supermarket Sector

Arblaster, M. (2014). The design of light-handed regulation of airports: Lessons from experience in Australia and New Zealand. Journal of Air Transport Management38, 27-35.

Beaton-Wells, C., & Paul-Taylor, J. (2017). Problematising supermarket–supplier relations: dual perspectives of competition and fairness. Griffith Law Review26(1), 28-64.

Bembrick, C., & Witt, L. (2020). Competition law: Paying the price: Sentencing for criminal cartel conduct. LSJ: Law Society of NSW Journal, (68), 80.

Biddle, I. (2015). Privatization: Freeing up assets or selling out on taxpayers. Busidate23(3), 4.

Grimmer, L. (2017). Is it so hard to say sorry? Revisiting image restoration theory in the context of Australian supermarkets. The Asia Pacific Public Relations Journal18, 17-32.

Grimmer, L. (2018). The diminished stakeholder: Examining the relationship between suppliers and supermarkets in the Australian grocery industry. Journal of Consumer Behaviour17(1), e13-e20.

Kalendra, D. R. (2016). Insights on using action research to change the organizational culture towards a market orientation in an Australian government business enterprise. ALAR: Action Learning and Action Research Journal22(1), 69.

Knox, M. (2015). Supermarket monsters: The price of Coles and Woolworths' dominance (Vol. 6). Black Inc.

Nownes, A. (2017). Lobbying: The preconditions of an anti-corruption promise. U4 Issue.

Parliament of Australia (2020). Australia’s national competition policy. Retrieved from https://www.aph.gov.au/About_Parliament/Parliamentary_Departments/Parliamentary_Library/Publications_Archive/archive/ncpebrief#:~:text=Origins%20of%20Australian%20competition%20law&text=Contemporary%20Australian%20competition%20policy%20stems%20from%20the%201965%20Trade%20Practices%20Act.&text=The%201974%20Act%20took%20a,conduct%20in%20the%20public%20interest.

Pulker, C. E., Trapp, G. S. A., Scott, J. A., & Pollard, C. M. (2018). What are the position and power of supermarkets in the Australian food system, and the implications for public health? A systematic scoping review. Obesity Reviews19(2), 198-218.

Pulker, C. E., Trapp, G. S. A., Scott, J. A., & Pollard, C. M. (2018). What are the position and power of supermarkets in the Australian food system, and the implications for public health? A systematic scoping review. Obesity Reviews19(2), 198-218.

Shanahan, M. P., & Round, K. (2014). Transforming Australian business attitudes to the competition: Responses to the Trade Practices Act 1965. Business History56(3), 434-455.

Sutton-Brady, C., Kamvounias, P., & Taylor, T. (2015). A model of supplier–retailer power asymmetry in the Australian retail industry. Industrial Marketing Management51, 122-130.

Thornton, L. E., Crawford, D. A., Lamb, K. E., & Ball, K. (2017). Where do people purchase food? A novel approach to investigating food purchasing locations. International Journal of Health Geographics16(1), 9.

Wardle, J. J., Weir, M., Marshall, B., & Archer, E. (2014). Regulatory and legislative protections for consumers in complementary medicine: lessons from Australian policy and legal developments. European Journal of Integrative Medicine6(4), 423-433.

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