THE DECLINE OF COUNTRY TOWNS 

The effects on Country towns of the polices of ; WESTFIELD, WOOLWORTHS, COLES, and WEAKNESS OF AUSTRALIAN COMPETITION LAW

“Mr. Speaker…… [our country] communities depend primarily upon local enterprise for the support of their social, educational, and spiritual institutions, their schools, their churches, their hospitals, their civic enterprises of all kinds. The backbone of that local enterprise is the local independent businessman, whether manufacturer, merchant, or producer of raw materials. It is a mistake to assume that he is less efficient just because he is small. For that very reason, on the contrary, he is often more efficient. He has less overheads, less of a top- heavy, unwieldy organisation, less of this activities devoted to the crushing of competition rather than to services really productive. Yet a non-resident competitor, armed with the privilege of price discriminations now permitted by law, with the financial resources furnished by the metropolitan banks, and with the ability to absorb losses with excessive profits in non-competitive territory, is able to come into that local community, plant a competing enterprise next door to the local merchant, cut prices below cost, and crush the local merchants superior efficiency with no other weapons than those of greater size and power of outside resources. In the assurance of equal opportunity and fair play which gives this bill to local independent business, it guarantees the integrity and wholesomeness of the local community life against corruption and impoverishment by these sinister influences”[1]

Walk down the main street of any country town in Australia and if you listen carefully enough you’ll be able to hear the giant sucking sound of the policies of Westfield, Woolworths and Coles Myer, (assisted by Australia’s hopelessly weak competition laws) as they use both Price Discrimination and Geographical Price Discrimination (Price Flexing) to vacuum up the wealth from the surrounding rural communities, and transfer the assets of small local business straight into their corporate headquarters in Sydney and Melbourne. 

Across Australia, the business practices used by Woolworth/Coles (illegal in other countries) but allowed under the weakness of the Australian Trade Practices Act, has our country towns trapped in a never ending downward spiral of decay from which there seems little escape. 

The laws in Australia must be changed to outlaw these practices, to give life back to our country towns, and this requires introducing Price Discrimination Laws similar to the USA and Geographic Price Discrimination (Price Flexing) Laws similar to Canada.

Evidence of the Decline 

There are many facts and figures to emphasize the decline of country Australia,[2] however the most telling is that in the last 20 years, more than 50 Australian Rules football clubs have folded in country areas.[3]  

The decline of local country sporting clubs, sums up what is happening in rural towns across Australia. Sporting clubs have always relied on willing volunteers to donate their time to support and organise the activities of the club - however with prices for most farm products remaining almost unchanged for the last 20 years, many farmers in rural areas are forced to work long, thankless hours in isolation and uncomfortable conditions, and they simply have less time to volunteer to community groups. The social activity and interaction for spectators, the camaraderie of team-mates and the (sometimes) friendly rivalry with other country towns provided the glue that kept the social structure many rural towns together. With the death of the local footy team, comes the virtual death of the town.

With farm prices depressed, younger family members are forced to look elsewhere for a future. In country towns local citizens are simply denied the equitable opportunity to open a business due to the anti-competitive practices of the large city based retailers, which the Trade Practices Act is currently ineffective to prevent – they are therefore forced to move to cities in search of employment.

 

Cause of the Decline.

One of the major reasons for the decline of country towns is the Predatory pricing strategy of Westfield. Benefiting from low predatory rents, and shielded from competitive market pressures from independent business, Woolworths and Coles have been given artificial dominance and strength.

 

With this artificial and unnatural power, they have become a Frankenstein Monster that is destroying rural Australia. 

This artificial strength of Woolworths/Coles affects country towns in two ways.

Power Buyer

The first is through Woolworths/Coles increasing strength as a “power buyer”.  Woolworths/Coles have 80% of the dry grocery market – this level of concentration is unprecedented in the history of the world.

Therefore, Woolworths/Coles ‘buyer power’ over small food producers is also unprecedented in the history of the world.

For many small food producers - the backbone of country towns – Woolworths/Coles are their dominant customer, they have become “power buyers” with an unnatural dominance and power over these small country based firms. 

Therefore they have been able to hold small food producers to ransom, squeezing the price they get for their produce to a mere subsistence level, while increasing their own corporate profits. The result has been an asset transfer from local business owners of the country town, to the large corporations based in Sydney and Melbourne.

Traditionally primary producers and their processors have been the mainstay of rural and regional towns, providing many of the locally based employment opportunities . However when small business faces the might of power buyers, with weak competition laws that allow power buyers to exploit their dominance, these country businesses are in decline.

Also the owners of these small businesses, understand that should Woolworths/Coles no longer decide to buy from them for any reason - overnight there business is finished. Therefore given the business risk, it reduces the levels of investment that food producers will make. With less investment comes less employment – and yet a further decline for our country towns.

Leveraging Profits to Expand into Country Towns

The second way this artificial strength effects country towns, is that Woolworths and Coles are able to leverage their profits gained from being ‘free riders’ in Westfield and every other major regional shopping centres in the cities, to expand their tentacles into country towns. 

When these large corporations move in to a country town, they divert sales from locally owned businesses. Therefore instead of the money that is spent in the town, staying in town, and being re-circulated by the community to drive growth and underwrite future prosperity in the town – all the profits are sucked out of the country town back to head office in the major cities. 

This has a snowballing effect, as wealth is sucked out the local communities, it further reduces local employment opportunities. Families are split up and children are forced to leave for the cities to find employment, and the remaining local businesses are trapped in a spiral of never ending decline.

The effects on Sydney & Melbourne

The decline in rural Australia also has a detrimental affect on the cities of Sydney and Melbourne. As the population of country towns decline, over 1,000 people every week, try to squeeze into the city of Sydney – and Sydney is forced into “urban consolidation”.

This results in freeways becoming parking lots, higher levels of pollution, and more and houses and flats are crammed next to and on top of each other.

One of the major social problems facing Australia is obesity in children. During an International Obesity Congress in Sydney in Sept 2006, Ms. Jo Salmon from the Deakin University’s School of Exercise and Nutrition Science said that one of the major causes of obesity was that ;

“Many children were victims of poor urban design that discouraged outdoor activity”[4]

In the 1960’s and 1970’s the average suburban house was on a quarter acre block, and children had large yards where they could run and play. However, the decline of country towns has forced more and more people to squeeze into Sydney, which has resulted in many homes today having very tiny outdoor areas. Where children of a generation ago had yards large enough for a game of backyard cricket or football, today’s generation have been denied that opportunity, because of the need to squeeze more houses and units into the city.

The best way to avoid the health crisis of obesity is to strengthen country towns, to make them viable again and a place where families and children can grow up with space to run and play, rather then being trapped in concrete jungle of Sydney.

The serious of this situation and how urgent something must be done is demonstrated by the comments by Dr. Haikerwal of the AMA:

“The situation that we've got is really quite critical now.  Within under 20 years' time more than half of all of our children and young people will be either overweight or obese and that brings with it a significant amount of illness, early illness, diabetes, things like heart attack, stroke, cancers early and what we've got to do is really head this off at the pass.  It's really gone a significant way down the road.  We've got to get very tough with this because if we don't, this crisis will really spiral out of control, as this generation of children will be the first that won't actually outlive their own parents and that's really scary.”[5]

Australians need to carefully think about this situation, forgetting the economic arguments of the trillions of dollars of costs to economy from illness and lost productivity through obesity related to the destruction of our county towns, almost every generation throughout history has succeeded to make a better future for the next one – however our generation is on course to be the first one since the time of the time of Black Death in Middle of the 14^th Century where children won’t outlive their own parents.

An important step in restoring the viability of country towns is to Laws important.

Competition Laws to Prevent decline in Country Areas.

One way to arrest the decline in country areas is to improve Australia’s competition laws, by bringing them up to at least international best practice and introducing Price Discrimination and Geographical Price Discrimination

These laws do not give country areas any special benefits, a leg-up or a hand-out - they just restore the level playing field and give people who live in country areas the equality of opportunity that is currently denied to them

1. Geographic Price Discrimination Laws.

To restore the equality of opportunity in country towns, Australia needs to introduce Geographic Price Discrimination Laws similar to those that exist in Canada.

Canada has a prohibition on Geographical Price Discrimination under Section 50, clause B of the Competition Act of Canada – titled “Illegal trade practices” which states;

“Every one engaged in a business who………engages in a policy of selling products in any area of Canada at prices lower than those exacted by him elsewhere in Canada, having the effect or tendency of substantially lessening competition or eliminating a competitor in that part of Canada, or designed to have that effect… is guilty of an indictable offence.”[6]

Such laws are critical in large countries with small and geographically diverse populations. This is one of the reasons why Geographical Price Discrimination laws exist in Canada, and why they should also exist in Australia.

These laws work as a double edge sword, first to ensure that citizens of country towns enjoy the same benefits of competitive markets that their city cousins enjoy, and second, to prohibit large city based firms from engaging in localised predatory pricing tactics to destroy local country retailers. 

Geographical price discrimination laws require a large firm to sell at the same prices across all their stores – but with reasonable allowances for legitimate higher costs in freight, or higher rents, or other legitimate variations in cost.

The law prevents a multi-store retailer from exploiting varying degrees of competition in different geographic areas, by changing profit margins depending upon local competitive conditions.

a) Ensuring Country Towns Enjoy the Equitable Benefits of Competition

Many small towns only have populations large enough to only support a few retailers, as such, competition in these country towns is not as vigorous as in the major cities where hundreds of retailers are located. Therefore country residents can be unfairly denied the benefits of competition that city residents have

An example of this was exposed in Alice Springs where evidence before a government inquiry indicated that working side by side, Woolworths and Coles were price gouging residents of the town and making higher profits margins because of limited competition.

Geographical Price Discrimination Laws create a level playing field, they ensure that country residents have the same equitable opportunity to benefit from competition that city residents do.

An example of how the law works, is that if Woolworths sells a jar of Nescafe Coffee for $5.00 in the city, they can’t sell the same product for $7.00 in a remote country area just because that small town has less competition.

Therefore the benefits that city residents enjoy from competition are also enjoyed equally by country residents. 

To charge higher prices and make higher profits by exploiting citizens that live in remote towns, or where residents are elderly or less well off and don’t have access to transport, because of local competitive conditions in Canada is rightfully a criminal offence with jail terms. But in Australia it’s just considered a sharp business practice, a tactic used to underwrite the obscene salaries the executives of Woolworths/Cole award themselves. Australian laws need to be amended.

We believe that Woolworths would fully support the introduction of the law, the same as in Canada; as such a law should not affect any of their pricing policies. Woolworths have the slogan “everyday low prices” therefore unless they are engaging in misleading and deceptive conduct, they obviously don’t use Geographical Price Discrimination, otherwise this slogan would be, “someplace low price, someplace high price –just depending upon the local competitive conditions”

b) Preventing Predatory Conduct 

The second effect of these laws is that predatory conduct is outlawed. Therefore a large dominant city retailer cannot come to country town, and sell goods at lower prices than in the city, forcing small local retailers out of business, and then increasing profit margins once the local competition is suppressed.

An example of this type of predatory conduct, was given by Senator Ron Boswell in July 2002 in his submission to the Trade Practices Act review;

 “A large grocery chain….decided to construct its own new store in the town. Once operational the chain started advertising individual brands below the statewide price but only in that one country town. Consequently the [locally owned] store could not compete nor sell its business”

The current Australian laws are useless to prevent this conduct. Such conduct can only be prevented when Geographic Price Discrimination Laws introduced into the Trade Practices Act, with fines of $10 Million and backed up with vigorous enforcement from the ACCC. 

However we do not believe that penalties should include jail, as they currently do in Canada, as hopefully a $10 million fine (or each offence) will act as an adequate deterrent.

2. Price Discrimination Laws

Specific Price Discrimination laws exist in every developed country in the world, except Australia - and they are urgently needed to be added to the Trade Practices Act to restore the equality of opportunity for small country businesses.

Price Discrimination Laws ensure that small countries retailers are able to purchase their products for resale at a price that allows them to compete with a city based retailer that sets up in the local town.

For example, a city based retailer may receive discounts, rebates and terms, that are not available to independent country retailers. In a country town this places the local retailer at an unfair competitive disadvantage against the out-of-town city based retailer. 

Facing the unfair competitive disadvantage of having to pay higher prices for the same products – the local retailer is unable to compete and is driven from the market -  leaving the out-of-town retailer with less competition.

enabling profits that were previous kept in the town to be funnelled back to Sydney.

An example of the way these laws would work, is if Woolworths in Maleny, Qld ordered a pallet Nescafe Coffee from Nestle, and the price was $5 per jar, with a 15% discount - Nestle are required to offer the same terms and conditions to all competing purchasers, as so that neither competitor is given and advantage or disadvantage.

Therefore if Nestle shipped one pallet to Woolworths in Maleny and then shipped one pallets to an Independent in the same town – Nestle could not discriminated in price – and both retailers would compete on a level playing field.

This gives the independent retailer equality of opportunity to compete. Competition is then based on merit, rather than size, power and outside resources – and with greater competition in the market, the consumer is the winner.

It’s a law about the ethos of “a fair go for all” – which is one of the founding principles of Australia. However we expect that Woolworths shall vigorously oppose this, as by taking advantage of Price Discrimination, they are able to shield themselves from competition. 

When an independent retailer is forced to pay higher prices, not related to higher costs -  such a pricing structure throws up an umbrella of protection for Woolworths, were the independent retailer simply cannot bring any competitive pressure to the market – the result can only be to the detriment of the consumer, especially consumers in country areas. 

In our opinion quite simply Woolworths/Coles want to ensure that the laws in Australia work to protect them from competition – as they understand that if they have to compete on a level playing field against independent retailers they will slaughtered – and they need to the protection that Price Discrimination and Geographic Price Discrimination affords them.

Its time our politicians put the interests of the nation especially our country towns, ahead of the interests of Westfield, Woolworths/Coles and introduced strong and effect Price Discrimination and Geographic Price Discrimination Laws in Australia, similar to the laws that exist in other countries.