PIGGY IN THE MIDDLE:

Kirsty Johnston goes shopping for a way to break the supermarkets’ stranglehold

New Zealand produces enough food to feed a country eight times our size. And yet, families are going hungry, suppliers are struggling, and there are mountains of food waste. Meanwhile, supermarkets are making $1 million profit a day. It’s not hard to see that our food system is broken. Will breaking the supermarket stranglehold be enough to fix it? Kirsty investigates.

Each Monday afternoon at the Merivale Community Centre, a charityfunded organisation offering social services in suburban Tauranga, a sparse crowd begins to gather just before 2pm. On the deck out the front, old friends swap stories: ‘‘How’s your daughter?’’ ‘‘Where are you staying now?’’ and browse the book exchange while they wait. In the converted garage out the back, volunteers unload boxes of groceries from a grey SUV, packing bread and vegetables into brown paper bags that make up the centre’s free food parcels.

‘‘Look at what we’ve got this week,’’ says volunteer, Gladys*, holding up passionfruit and a box of grapes. ‘‘It’s so generous. But then again the supermarkets wouldn’t sell it anyway, they’re already close to going off. But they’ll be used tonight.’’

Today, there’s lots of fruit and prepackaged salad. Last week was mushrooms. Before that it was bagels, boxes and boxes of them, so many that the staff were flagging down primary school children and handing them each a bag, to make space in the centre’s freezer.

‘‘It’s fairly random, but we take what we can get,’’ says acting manager John Fletcher. ‘‘Once I unloaded a truck with 15 pallets of potatoes because the farmer had put them in bags that said ‘washed’ and they hadn’t been, so it was cheaper to throw them out than re-bag them.’’

At 2pm, the centre’s sliding door opens. Volunteers reach into the fridge for milk, and go out the back to the freezer for extra meat if they think a family might need it. There’s no judgement here, but if the same faces return a few weeks in a row, a volunteer will pull them aside to offer extra help with budgeting or other support.

Mum-of-six Hinenehu Hoko, from Greerton, arrives by car to pick up her bags.

Her kids go through 10 loaves of bread each week and four bottles of milk. Hoko has done the centre’s budgeting course, but her food bill still stretches further than her bank balance. ‘‘We learned about making food go around, making big pots to last,’’ she says. ‘‘But we help out others too, if they haven’t got anything, we share.’’

Before, Hoko came to centre once a fortnight, but lately she’s coming more and more, usually once a week. Food prices are going up. And petrol. And rent.

‘‘Lots of people who come here, once their rent and power is paid, they have about $30 left over for food,’’ long-time volunteer Mazz Adams says. ‘‘You can budget all you want, but they might have three kids, or five. That’s not going to make it.’’

The food supplied to the centre comes from a local food rescue charity, Good Neighbour. In the past two years, the food rescue scene has exploded, going from a collection of regional charities to a national sector with its own representative body, the Aotearoa Food Rescue Alliance (AFRA). Mainly, the food is the product that supermarkets can’t sell, or – like the potatoes – that supermarkets won’t take. Last year, food rescue diverted 8 million kilograms of food from landfill, AFRA said.

Because the ‘‘rescued’’ food is used to feed those who can’t afford supermarket prices, both the Government and the supermarkets have backed the programme, celebrating it as a huge success. To them, it’s a useful symbiosis. But to food security advocates, the growth of ‘‘food rescue’’ is just

one more symptom of a broken food system, where profit has been put on a pedestal.

‘‘These programmes acknowledge the wastefulness of supermarkets, but they’re not curtailing it,’’ says Green MP Ricardo Mene´ndez March. ‘‘Why are we accepting that supermarkets are there to create excessive profits and get away with wasting food when people are going hungry?’’

In March, the Commerce Commission released its report into the supermarket industry, adding heat to shoppers’ simmering disquiet over already sky-high grocery costs. The commission found the country’s two industry giants, Progressive and Foodstuffs, used confusing pricing, crippling land covenants and their huge power over suppliers to befuddle consumers and stymie competition. The result: profits twice as high as they should be, an eye-watering $430m a year.

This week, the Government will respond to that report. The pressure is on for Commerce and Consumer Affairs Minister David Clark to respond with something meaningful, particularly given the increasingly hostile economic landscape and its impact on families’ ability to pay their bills.

The highest hope for those who pushed hardest for the report – Consumer New Zealand,

the Food & Grocery Council and the smaller, independent stores – is that Clark will announce changes designed to erode the supermarket duopoly’s iron grip on our food supply. Ideally, they say, this will see a raft of new players enter the market, creating a war for every dollar of the $22b consumers spend at supermarkets each year.

‘‘We want to see all the things that happen in a dynamic and competitive market – where companies compete on price, there’s a range of retailers for suppliers to sell to and the ability of supermarket retailers to put pressure on suppliers and charge high prices is diminished,’’ says Consumer NZ chief executive Jon Duffy. ‘‘Then ideally suppliers and consumers will flock to those who are providing the best prices and treating people fairly.’’

Consumer New Zealand is campaigning for a shakeup of the wholesale supply, to wrench it from the supermarkets’ hands. Others are still hoping the supermarkets will be forced to sell some of their stores to create more competition.

Clark has made no promises yet. But the commission has opened a can of worms. Now, many in the food sector feel like whatever policy is introduced, it needs to lead to much wider reform.

‘‘We have got to be more courageous with where we take this,’’ says Rangita¯ ne iwi chair Mavis Mullins, a board member of the A¯ tihauWhanganui land incorporation. A¯ tihau-Whanganui has 21,000 hectares of land. It is a major producer of red meat, dairy and honey. But like most of the food grown in Aotearoa – an amount enough to feed 40 million people each year – the corporation’s food is largely for export.

‘‘It doesn’t make sense,’’ Mullins says. ‘‘This report has challenged us, as Ma¯ ori, and it doesn’t end here. We have to re-think the whole supply chain.’’

The Commerce Commission was asked to answer one question: is the grocery market competitive? And it got its answer: no. ‘‘But that doesn’t tackle the bigger question,’’ says Otago University food scientist Miranda Mirosa. ‘‘Is having supermarkets as the main way New Zealanders get their food the best way?’’

I‘‘We want to see all things that happen in a dynamic and competitive market – where companies compete on price, there’s a range of retailers for suppliers to sell to and the ability of supermarket retailers to put pressure on suppliers and charge high prices is diminished.’’

Jon Duffy, left Consumer NZ chief executive

t’s hard to imagine now, what life might be like without such convenience. But New Zealand didn’t get its first supermarkets until the late 1950s. One of the first was Foodtown O¯ ta¯huhu, in June 1958, boasting 118 parking spaces. More than 4000 shoppers descended, blocking the street with cars. Before that, no-one really drove. Most people walked to the local shops, where butcher, baker, fishmonger and greengrocer clustered together, or had food delivered to the door. Even throughout the 1970s and 80s, independent retailers made a thriving trade. But in the 1990s, deregulation swept in. Supermarkets were allowed to sell wine, then beer. In 1990 a law was passed to allow shops to open 24 hours, seven days a week. Smaller operators began to close, unable to compete with the range and accessibility. And then, 2002. Submitter after submitter to the Commerce Commission identified this year as the turning point when Progressive Enterprises bought Woolworths New Zealand, and merged Woolworths, Big Fresh, Foodtown, Countdown, Price Chopper, Super Value and Fresh Choice brands. With only one other large operator – Foodstuffs, which runs New World, Pak’nSave and Four Square – New Zealand’s supermarket industry was now one of the most concentrated in the world. Between them, the two chains held a 90% share.

‘‘During the inquiry, the supermarkets kept saying it’s a small market and can only support two major retailers,’’ says Food & Grocery Council chief executive Katherine Rich. ‘‘But if you look at places like Denmark and Ireland, places a similar size to New Zealand, they have five or six operators.’’

The commission linked the lack of competition directly to the amount shoppers were paying, saying in a ‘‘workable’’ market retailers would find it difficult to raise prices, because consumers would switch to cheaper rivals. That wasn’t happening here. It found no direct evidence of the duopoly agreeing to this, but referred instead to ‘‘tacit coordination… where firms recognise they can reach a more profitable outcome if they accommodate each other’s price increases rather than undercut them’’.

Since the 2002 merger, profits have grown and grown, the commission found. Last year alone, Woolworths’ net profits increased by more than 11 per cent. In 2020, Countdown’s sales increased by 13%, to $1.9b. Between them, the supermarkets generate a return of 12% per year, what the commission called ‘‘above normal levels’’. Owning a single supermarket is now enough to propel its owner onto the country’s list of richest people. Meanwhile, grocery prices here are the 5th highest in the OECD.

‘‘It’s not difficult for people to put two and two together,’’ says Duffy. ‘‘People can say, they’re profiting to the tune of $1m a day and I can’t afford cheese. Something is missing in the middle here.’’

There were actually four main things ‘‘missing’’ in the market, the commission said.

The first was competitive pricing. It found that the supermarkets used confusion promotions, discounts and loyalty schemes – which made it hard for shoppers to know the real price of anything. Unit pricing – the little ‘‘per kilogram’’ price in the corner of some labels – was inconsistent, and poorly displayed. Therefore, it was harder to compare which stores had better deals. ‘‘Markets work better when consumers are confident market participants,’’ it said. ‘‘Consumers have confidence when they have access to accurate information that helps them.’’

Second was a lack of large-scale independent wholesalers, so other businesses – restaurants, smaller supermarket chains, dairies – also had to buy from the duopoly.

‘‘When you go to the local dairy and the butter is exorbitant that’s because they’ve bought at the local supermarket,’’ says food campaigner Sue Kedgley. ‘‘They have no choice.’’

Even larger operators have struggled. The Warehouse chief executive Nick Grayson recently told Stuff its failure to enter the grocery market 16 years ago came down to ‘‘access to products and supply chains’’. It is now trying again – although its success is tied to the third issue highlighted by the commission: the duopoly’s power over food growers and suppliers.

With limited options of where to sell their vegetables, or fruit, or cereals, suppliers told the commission they were left with minimal bargaining power against the weight of the supermarkets. Over time, more and more costs were taken out of their pay – for store placement, shelf stocking, promotional displays. If there was waste or products didn’t sell, suppliers picked up the bill. And if you also wanted to sell to the opposition, you had to be sure not to undercut the other retailer. And if you didn’t comply, or you complained – it could ruin you.

‘‘Threats of de-listing suppliers’ products appear to be very common,’’ the report said. The NZFGC’s survey of its members found 82% of respondents have been threatened with deletion for not agreeing to a retailer’s terms or margins.

‘‘A lot of growers were being forced to sell below the cost of production,’’ Kedgley says. ‘‘It was so galling for them to go and look at the cost of their produce and see the huge returns the supermarket was making. ‘‘To make ends meet, they’d sell off an acre of land every year, a disastrous policy.’’

Consumers lost out, too. Suppliers said they had to make cuts – using lesser ingredients or making smaller package sizes. When supermarkets promoted their own brands over outside suppliers, this risked some brands disappearing, reducing choice.

And, it harmed competition as a whole. Independent supermarkets, like online retailer Supie, described how it spent months trying to find suppliers who were willing – or able – to face the wrath of the duopoly for breaking exclusivity agreements. Against the odds, Supie is thriving, but others haven’t been so lucky. Last month, two other online retailers – This Local Piggy and The Honest Grocer – pulled the pin. Last year, Newsroom reported chief executive, Ben Nathan, said it had lost more than 10 suppliers after what he called ‘‘bully tactics’’ against producers by the supermarket chains.

As a result of what it heard, the commission recommended a code of conduct.

The final issue highlighted by the commission was about land. It found the supermarkets used restrictive covenants and Resource Management Act planning rules to prevent rivals setting up shop. It recommended immediate prohibition on such clauses, which Clark has already introduced legislation to address.

Journalist Bernard Hickey said finding out how supermarkets worked to add a layer of profit into the cost of everything we buy was ‘‘a lot like finding out how the mortgagefuelled housing market works’’.

‘‘Aotearoa has found itself held hostage by uncompetitive markets and dominant market players for two of the basics of life: food and shelter. A series of accidents of political history tied to a naive three-decade-long assumption that free markets would always provide the basics and the luxuries of life both efficiently and fairly has made our housing and groceries some of the most expensive in the world.’’

The flow-on effects of placing all the food power into the hands of two large, profit-oriented players go much broader than price. While the commission was unable to deal with issues like health, human rights, sustainability and food sovereignty, submitters pointed out they were inherently linked.

‘‘Food cost is an important determinant of the healthiness of diets, especially for those on limited incomes,’’ wrote the Health Coalition Aotearoa in its submission. Some

40% of children in New

Zealand faced food insecurity, they said. It meant they were more likely to eat less fruit and vegetables, but more likely to eat cheaper food – which was unavoidable at supermarkets. Studies highlighted the prominence of junk food displays at the end of an aisle as a particular problem.

‘‘Everywhere you walk there’s something that captures your eye that says it’s cheap and a lot of that is unhealthy,’’ said nutritionist Sally McKay. ‘‘It’s food made popular by marketing and it’s always in your face.’’

Equally, food waste was also linked to supermarket policies and the push for profits. An Otago University study found each year supermarkets create 60,500 tonnes of food waste. A quarter of that goes to landfill, where it creates methane and contributes to our greenhouse gas emissions.

Studies by Otago, including a paper written for the environment select committee by food waste expert Miranda Mirosa highlighted practices like discarding food before best before dates; producing too much bread; selling pre-packaged salads, and advertising two-for-one deals as

causes of waste.

High cosmetic standards, and rising customer expectations that fruit and vegetables will look ‘‘perfect’’, also led to edible produce being wasted. Blemished fruit would be removed from shelves, the studies said, or rejected from suppliers. ‘‘Supermarkets can simply not take orders, or cancel orders, or they can refuse orders,’’ Mirosa said. ‘‘That pushes waste up the supply chain.’’

That could lead to crops being abandoned at primary production level – like leaving tomatoes on the vine, or not harvesting, because it wasn’t worth it.

Supie owner Sarah Balle told a story about her sister, a former asparagus farmer, who produced 80 crates of asparagus for supply, but had them rejected because they were a centimetre too short.

Jo Wrigley, manager at Waikato’s Go Eco, which provides food rescue, said that was the kind of produce that was often diverted to them. But more common, she said, were the tonnes of white bread and imported goods that were never sold. An audit earlier this year found most of their food came from 15 different countries.

‘‘We’re talking sour cream and chives water crackers, made in

Estonia, imported in clusters of six wrapped in trays in foil and wrapped again,’’ she says. ‘‘That produce coming from overseas, think of the emissions on that.’’

Wrigley is one of those disillusioned with the way ‘‘food rescue’’ is being treated. It started as waste management, but has morphed into a way to combat food insecurity, she says. ‘‘Which it doesn’t. Food rescue is naturally

‘‘Adding another player – that’s a Western solution – there’s no long-term gain for people who can’t access land to grow food. Or for people who don’t have enough income.’’ Jo Wrigley Manager at Waikato’s food rescue team, Go Eco

insecure. It’s not a predictable source of nutritional food.’’

Supermarkets, to their credit, have moved to address some of these issues. Countdown has announced a sustainability strategy and has the Odd Bunch initiative, which sells misshapen fruit and vegetables. All its stores undertake food rescue. Foodstuffs has been running a waste plan since 2014. And both were signatories on various health pledges aimed at reducing child obesity.

But advocates like Wrigley say those changes – or those proposed by the commission like addressing wholesale – will not go far enough to change the way we get our food.

‘‘Adding another player – that’s a Western solution – there’s no long-term gain for people who

can’t access land to grow food. Or for people who don’t have enough income. If you think about it in terms of when New Zealand was settled by Pakeha, Ma¯ori were trading, but they used a model of abundance – they provided for who was here first and then traded the rest. But we’ve flipped that model. How do we get back to it?’’

Wrigley isn’t talking about everyone having their own garden or being able to hunt and fish. Rather, that communities have spaces to create food – stepping away from the global, to the local.

Otago university geographer Sean Connelly says we also need to switch from thinking about agriculture and horticulture as industries separate from food.

‘‘We’ve fully bought into the notion that the thing we value most about food is cheap food and mass production and convenience, so to generate those economies of scale we specialise in particular things and export those things to the world. We don’t talk about food from an eating perspective.’’

There are glimmers of change. Food cupboards, or pa¯taka kai, where people drop their excess food for the community, are in more than 100 towns around New Zealand. There had been a small revival in independent retailers like butchers and bakers, but it was a struggle, Mirosa said.

‘‘I think people want to connect more with their food. We can see pockets of activity starting to emerge – where farmers are supplying directly to consumer by farm gate or sending boxes. But convenience has been the No 1 consumer trend for a long time.’’

Balle, the founder of Supie, says a good first step for consumers is buying New Zealand goods. ‘‘There are some amazing people who support farmers markets and that’s great. But we need to be making a bigger impact.’’

Last week, supermarkets made a last-ditch PR effort, rolling back and freezing prices.

Countdown said it was a privilege to bring groceries to Kiwis, and it believed it had a key role to play in helping protect and enhance our food systems, ‘‘especially in light of the climate emergency and its impact on food security’’.

Emma Wooster, head of cooperative public relations at Foodstuffs, said the business ‘‘absolutely have a role to play in helping influence healthier food choices and reducing food poverty in Aotearoa, and we take this responsibility extremely seriously and give a great deal of focus to it.’’

Foodstuffs’ Here for NZ initiative, for example, aimed to provide better access to healthy, affordable food.

On a national level, the Food For Thought nutritional education programme helps children learn about healthy eating and reading food packaging. Wooster also said every owner-operated New World and Pak’nSave store partners with at least one local food bank or food rescue organisation.

Long-time food campaigner Sue Kedgley doesn’t buy it.

‘‘They could be supporting local growers, seasonal produce, organic sustainable food – but they’re not, they’re supporting ultraprocessed foods.

‘‘They’ve missed their opportunity, and lost their social licence. They’ve abused their duopoly position and now people are fed up.’’