Australia's government has taken aim at food prices as it targets rising inflation, launching a national inquiry to try to stem price rises close to double figures for some staple items.
But grocers have warned that a long-running drought, strong export demand and global grain shortages mean Australian consumers will inevitably pay more at the checkout.
Grocers say they are as much victims of the economic situation as their customers, with costs going up all along the supply chain as the drought hits production and high oil prices push up freight rates. They have welcomed the inquiry as likely to improve transparency about costs.
Farmers say that ultimately it is buoyant foreign demand for Australia's high-quality produce that is to blame. "It is not as if retailers are making any more margin when prices rise," said Jos de Bruin, chief executive of Master Grocers Australia which represents around 1,100 small grocers across the country.
"They are actually making less margin. They are having to contain costs," he told AFP. Although inflation figures for the December quarter showed food prices only went up a modest 1.2 percent, economists say a 32 percent fall in fruit -- largely driven by a sharp decline in banana prices -- masked the real extent of the problem.
Milk prices went up 10.1 percent, vegetables rose 8.6 percent and bread gained 8.8 percent, the Australian Bureau of Statistics (ABS) said. Assistant Treasurer Chris Bowen has said he wants the inquiry to ensure consumers get a fair deal at the supermarket. The Australian Competition and Consumer Commission (ACCC) will report its findings by the end of July.
"The (Prime Minister Kevin) Rudd government has instructed the ACCC to take a broad approach to its inquiry and ensure all aspects of the chain are included -- from the farm gate to the check-out counter," a ministerial statement said.
The drought has had wide-ranging effects on prices, not least by reducing supply of key commodities. Australia's official government forecaster has predicted that total winter grain production in 2007-08 will be down by a third from 37 million tonnes to 25.6 million tonnes as farmers battle the worst dry spell in a century.
The Australian Bureau of Agricultural and Research Economics has lowered the forecast for the country's largest crop, wheat, from the 22.5 million tonnes projected in June to 12.7 million tonnes.
But the major issue, farmers say, is that foreign demand is just too strong. Around two-thirds of Australia's produce is destined for export and its proximity to large markets in Asia means it is strategically well placed, despite facing substantial trade barriers.
Farmers say many prices are effectively set by the international market. World financial instability has made commodities, normally seen as risky, an attractive alternative to stocks for some investors, further pushing up demand.
"For agriculture a lot of our prices are set on the international market, not by domestic factors," said Ben Fargher, chief executive of the National Farmers Federation.
"The prices for agricultural commodities at the moment, particularly wheat but also grains, are high. That is because of demand and supply factors internationally," he said. "The fundamentals of agriculture are very strong. The demand for protein in Asia is very strong. "At the end of the day what we are looking for is for farmers to be able to get fair prices for their product."
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