Environment News
From "Maple Street Co-op News", Apr/May 2006

Cheap Food – At What Cost?
by Stephen Alexander

Last August I attended a meeting at Sunshine Coast University to explore the possibility of setting up a study to examine and measure the overall economic impact that supermarkets are having on regional communities in Australia, from both the consumer and supplier perspectives. My input was to report on the work I’d carried out over the last 15 years for the US and UK governments as well as for Australian Federal, State and local governments on the implications for trade of the growing trend in e-commerce, and to evaluate which tier of government, if any, would act on any findings. This article reflects the initial groundwork on the supermarket industry globally.

Although the emerging, aggressive, cut-price supermarket stores we see in Australia today are copied from the US Wal-Mart model, the foundations were laid for the supermarket revolution in Britain with the consumer-controlled, independent, local co-operative retailers movement of the early 19th century which later developed into a national chain of co-op supermarkets (http://www.united.coop/MembOrigins.asp).

The first shift towards consumers paying for cheap food via a structured tax model also originated in Britain, in the post-WWII period. The 1948 Agriculture Act, which initiated the “cheap food” policy, introduced government subsidies to farmers for new machinery and new chemicals arriving on farms.

This policy migrated to the Europe-wide Common Agricultural Policy (CAP), where the European Union now subsidises food production in Europe to the tune of euro51.41 billion, which is 46% of the EU’s total budget generated from a consumption tax.

In 1964, the UK government abolished the Retail Price Maintenance mechanism, giving supermarkets free rein to dictate food prices to producers and gain complete control of the supply chain. Once this was established, retail control was gained by offering bargains and “loss leaders” to entice customers away from local retailers, who cannot compete on prices or absorb such losses.

Costs for communities and local producers

The War On Want group explains how the US-based Wal-Mart’s local pricing strategy eliminates its competition: “Every store manager has the authority to lower its prices if they see the store across the street is selling for less.” A survey of Wal-Mart’s impact in the first 12 years of its operation in the State of Iowa found that 50% of clothing stores, 42% of variety stores, 26% of department stores and 30% of hardware stores had all closed (see “Asda Wal-Mart – The Alternative Report”, at http://www.waronwant.org).

A February 2006 report by the UK House of Commons All-Party Parliamentary Small Shops Group cited trends that should ring alarm bells for all Australian regions. It concluded that by 2015 “many small shops across the UK will have ceased trading”. It also focuses on the rural implications of job losses to the current 680,000 employees of the retail and wholesale sectors, and factors-in regional economic losses in supermarket-dominated communities where 95% of turnover migrates from the community. (See http://news.bbc.co.uk/1/shared/bsp/hi/pdfs/15_02_06_highstreet.pdf).

As reported in the “Ghost-town Britain” article in the Ecologist (September 2004): “Studies have shown that local communities could be losing inward investment of up to £100 billion every year because of supermarket centralisation. That translates to £2,000 for every person in the country” (http://www.theecologist.org/archive_detail.asp?content_id=316). And we are warned that consumers will be the biggest losers if supermarkets are allowed to continue expanding unchecked, because they will “start raising prices after achieving saturation point in the high street by wiping out small local shops” (Guardian, UK, 15 Feb 2006).

The situation is just as grim for the supply chain. Rationalisation means doing whatever it takes to cut costs. Contracting large producers to supply nationally to the exclusion of smaller and regional producers and forcing efficiencies on the large growers, such as mechanisation and the use of chemicals, not only drives the price down but also controls production. If we follow experience in Europe and the US, then the costs are initially passed to the farmer.

“Fifty years ago, farmers in Europe and North America received between 45 to 60 per cent of the money consumers spent on food. Today, that proportion has dropped to just 7 per cent in the UK and 3.5 per cent in the USA, but remains at 18 per cent in France. Campaigning group FARM say supermarkets’ practice of underpaying farmers and bypassing smaller producers has contributed to the disappearance of over 4,500 farms a year, or 12 a day.” (See “Ghost-town Britain” article.) As local producers go bankrupt, ultimately the cost is passed to the taxpayer who has to foot the bill for an increased demand on welfare benefits.

The Wal-Mart example can help us better understand where the Australian retail market is going. Founded in 1962 in Bentonville, Arkansas, by the Walton family (which now accounts for four of the 10 richest people in the world), the Wal-Mart supermarket chain is not just the world’s largest retailer, it’s the world’s largest company. The scale can be hard to absorb. Wal-Mart sold US$244.5 billion worth of goods last year. On current global expansion plans, it expects to raise this to $600 billion by 2011 – and that is without factoring-in its plans to expand its range of goods and services such as banking.

The Wal-Mart chain has been the most successful at exploiting the ability to cut food production costs, eliminating retail competition and influencing governments to shift costs to taxpayers or consumers. For example, New England Consulting estimates that Wal-Mart saved its US customers $20 billion last year alone. It also says that if you factor in the price cuts that other retailers must make to compete, then the total annual savings to consumers approach US$100 billion (http://www.businessweek.com/magazine/content/03_40/b3852001_mz001.htm).

Impacts on workers and taxpayers

So who pays for the US$100 billion every year to enable Wal-Mart to dominate the retail sector by offering cheaper goods than its smaller competitors? These “savings” have been shifted to the workforce and the taxpayer. A 2004 report by US Congressman George Miller (Dem-CA) identified a range of cost shifts to the workforce such as low wages (below the poverty line for migrant workers), unequal pay for equal work, withholding earned wages, and unaffordable and unavailable healthcare. He estimated that taxpayers pick up $420,750 per year for a hypothetical Wal-Mart store employing 200 people.

When he unveiled the report, Miller said: “Wal-Mart’s slogan should be ‘always low wages, always’ [as opposed to “always low prices, always”]. There’s no question that Wal-Mart imposes a huge, often hidden, cost on its workers, our communities, and US taxpayers. And Wal-Mart is in the driver’s seat in the global race to the bottom, suppressing wage levels, workplace protections, and labor laws.” (See http://www.wakeupwalmart.com/facts/miller-report.html).

In Australia, we may already be heading in the same direction. The ACTU has asked the Commonwealth Ombudsman to investigate the government’s temporary business visa program over numerous reports that that some employers are abusing the program to exploit overseas workers by paying under-award wages and forcing people to work long hours. Last year, 400,000 temporary visas were issued. One incident cited is at Murray Bridge, where local workers were locked out of the abattoirs and replaced by Chinese workers (http://www.abc.net.au/worldtoday/content/2006/s1590314.htm).

Importing cheap labour and outsourcing manufacturing not only shifts the real cost to vulnerable people but invests our dollars overseas rather than in building the Australian economy. National Public Radio reported on 16 November 2004 that 70% of merchandise in Wal-Mart contains components made in China, and more than one million jobs have been outsourced to China since the early 1990s, leaving families and communities devastated (http://www.pbs.org/wgbh/pages/frontline/shows/walmart/view/).

How can we compete with wages that average 16.5 cents an hour for workers who make toys in China’s Guangdong Province? (See National Labor Committee, “Toys of Misery 2004”, February 2004, http://www.nlcnet.org/campaigns/). And how could we afford to receive payments below the cost of production and pay huge supermarket fees for a product to be marketed at an appropriate price, as has happened with South African fruit and wine suppliers to Tesco, UK? (See http://www.foe.co.uk/resource/briefings/every_little_hurts.pdf).

The real costs to our health

To date, no one has factored-in the implications of cheap food for health. In the United States, fast food outlets are being held responsible, in part, for the rise in obesity and the increase in diabetes – which tops the health bill, costing US taxpayers $986 billion per year (http://win.niddk.nih.gov/statistics/index.htm#preval).

Supermarkets could be seen as equally responsible for the influence they have on people’s eating habits. With the growth of the supermarket culture, shelf life became a major issue. Almost overnight, the national diet switched from fresh to processed foods; and foods devoid of fibre but ladened with salt, sugar, trans fatty acids and chemical preservatives became the consumer’s choice. The trend continues with our fresh food. Apples treated with the chemical “SmartFresh” (1-MCP) can now be stored and presented as “fresh” on the shelves up to a year later. Will this affect our health? No one knows, but we do know that impurities in the compound are carcinogenic to animals (http://www.foodanddrinkeurope.com/news/ng.asp?n=64546&m=1FDED13&c=dztfvpansnshmkn).

Furthermore, we are seeing an increase in imports of foods such as farmed prawns and fish from countries with little or no regulation, allowing chemicals into our food chain that are carcinogenic and normally banned within Australian food production. Although new labelling regulations by FSANZ are now in place to inform us of the country of origin of imported foods, this will do little to alert the consumer to any toxic load and subsequent cost to their health.

What’s in store for Maleny

From the research, it would seem that people are likely to decide to shop at Woolworths based on a small saving on their weekly food bill. However, they are likely not to “shop there” based on a deep sense of injustice or a cost shift that causes a personal loss. We already have a sense of injustice in Maleny over the inappropriate siting of the supermarket, destruction of wildlife and excessive costly policing, but it remains to be seen if the personal cost to local families generates a sufficient sense of injustice for a boycott.

However, an interesting observation has been made by the New York Times (6 October 2003), which reported that while Wal-Mart seldom submits to community groups that oppose its plans to build new stores, the number of such challenges has increased steadily and is now running at about 100 a year. Wal-Mart’s “biggest barrier to growth is...opposition at the local level,” said Carl Steidtmann, Deloitte Research’s retail economist.

The Stop Wal-Mart movement has been bolstered recently by a series of academic studies that have debunked the notion that a new big-box store boosts employment, sales and property-tax receipts. “The net increases are minimal, as the new big-box stores merely capture sales from existing business in the area,” concludes a new study of Wal-Mart’s impact in Mississippi. “I see it pretty much as a zero-sum game,” says co-author Kenneth E. Stone, an economics professor at Iowa State University. (See http://www.businessweek.com/magazine/content/03_40/b3852001_mz001.htm).

Once the Australia model matures, it will have to be rationalised. Based on the experience of the Asda (Wal-Mart) chain in the UK, this could involve Wal-Mart buying Woolworths, which would allow Woolies to follow the US trend of combining everything they sell, from liquor to washing machines, under one roof.

So, based on these reports, what can communities like Maleny expect from a supermarket corporation moving in? We can expect a very strong media blitz that systematically targets customers of its perceived competition for three to five years. We can expect sophisticated PR activities that include leveraging power over local media to refrain from writing bad press or even to censor letters to the editor. We can expect to see little in the way of local produce, but, if we do, it’s likely that local producers will be used initially if only to assist the downfall of competition. Government support for supermarkets will probably stay strong until, as is the case in Europe, the local bankruptcy level starts to increase after three years.

It generally takes between five to 10 years for community opposition to reach a critical mass where local boycotts have any meaningful effect, except in cases where the supermarket is sited in such a way as to cause offence to the majority – as is the case in Maleny, where 80% of the population is opposed to a Woolworths supermarket beside Obi Obi Creek (according to Woolworths’ own telephone survey). It remains to be seen whether this opposition will manifest itself as a meaningful, long-term boycott.

[Maleny-based strategist Stephen Alexander addressed senior administrators from most Australian government departments at a national conference hosted in 2004 by the Institute of Public Administration Australia, where some the implications of globalisation for our society were identified. Stephen delivered a paper, “Trade Routes of the 21st Century”, which explained the growing polarisation of global and local trade and cited the emerging trend for local and common-interest-based communities to aggregate their economic and political power to act as a counterbalance to multinationals.]

[From "Maple Street Co-op News", April/May 2006; published by The Street Co-operative Society Ltd, 37 Maple Street, Maleny, Qld 4552, Australia, tel (07) 5494 2088, email maplest.coop@ serv.net.au, website http://www.maplestreetco-op.com.au]