Supermarkets have worked with suppliers to bypass the wholesale produce markets and establish direct ongoing purchasing relationships with a smaller number of producers.
Sourcing in this way has given supermarkets significantly more control over the quality, volume, varieties, delivery schedule and most importantly the price they demand from suppliers.
Supermarkets are now purchasing more produce from fewer suppliers, which has led to consolidation amongst producers, and the emergence of large corporate and mega family farms.
Coles and Woolworths have supported the growth of these chosen suppliers in a variety of ways, including signing long-term supply agreements, directly investing in farms, and even providing grants and interest free loans to suppliers.
In most fresh food produce categories, 8 producers now supply more than 70% of the market.
Having grown on the backs of supermarket supply contracts, these mega suppliers are now heavily reliant on Coles and Woolworths to ensure their business remains viable.
Faced with constant demands from the Supermarkets for price reductions, rebates and “voluntary” marketing payments, suppliers have little choice but to comply, even if these put practices put even more pressure on their bottom line.
In this supermarket-fuelled "race to the bottom" on price, suppliers have competitive incentives to squeeze costs and cut corners, and shift risk to those at the bottom of the supply chain – farm workers.