Supermarkets abandon local farmers

Survey finds many products not sourced locally

Mike King

Mike King is a Fool.com.au Investment Analyst and Writer. He caught the investing bug more than a decade ago, at a time when the U.S. had invaded Iraq and fear reigned in the markets. His initial success as the markets took off encouraged his passion and thirst for knowledge. With 13 years behind him at one of Australia's largest domestic banks, Mike's passion for stocks led him to join a boutique funds management firm, where he stayed for four years. A seven-year stint in equity research at one of the largest investment banks in the world followed that, giving Mike a thirst to pursue his passion further. Mike holds a Diploma in Applied Finance and Investment and a Graduate Certificate in Financial Planning. His passion is to help retail investors invest better, and that passion was one of his primary reasons for joining The Motley Fool Australia in late 2011. Mike has written thousands of articles since joining, including for Fairfax Media, Yahoo!7, Ninemsn and has also appeared on ABC's The Business. You can see all of Mikes' holdings here

Published September 6, 2012 2:37 pm AEST

Many Australian farmers could disappear if big supermarkets continue to source products for their home brands from overseas, according to a recent report.

In a survey of 360 private label products, consumer group Choice has found that just 38% of Woolworths Limited's (ASX: WOW) and 55% of Coles' – owned by Wesfarmers Limited (ASX: WES) offerings were sourced locally. That compares to 92% for the market leading products, such as Kelloggs Rice Bubbles, which is made in Australia, while Woolies and Coles similar products were made in New Zealand.

When it comes to fresh food, 96% is sourced locally. Coles and Woolies dispute the findings saying that 90% and 70% of their products respectively, were sourced locally, and that Choice surveyed only a limited amount of products in their home brand ranges.

Choice spokesman Ingrid Just has said that the big two claim their buyers only look to overseas markets when local suppliers are unable to meet customers' needs. She also said that tenders to supply vegetables for home label products are not being made public, and are often by invitation only.

Farmers say that they could supply private label produce, but were being left out because they were too expensive. According to William Churchill, manager for growers' lobby AusVeg, farmers face higher labour and supply chain costs, compared to overseas producers.

Farmers and other produce suppliers face pressures from both higher input costs and lower margins, as the big supermarkets push harder to lower the prices they pay. We've seen that recently with $2 milk and $1 bread. Goodman Fielder Limited (ASX: GFF) has struggled as the supermarkets slashed the margins on the product it sells them, and even Coca-Cola Amatil Limited (ASX: CCL) has been forced to the negotiating table.

The Foolish bottom line

With the big supermarkets looking to grow their private label sales as a percentage of their total sales, we are likely to see more reports like this in future.

If you're in the market for some high yielding ASX shares, look no further than our "Secure Your Future with 3 Rock-Solid Dividend Stocks" report. In this free report, we've put together our best ideas for investors who are looking for solid companies with high dividends and good growth potential. Click here now to find out the names of our three favourite income ideas. But hurry – the report is free for only a limited time.

More reading

Motley Fool writer/analyst Mike King owns shares in Woolworths. The Motley Fool's purpose is to help the world invest, better. Take Stock is The Motley Fool's free investing newsletter. Packed with stock ideas and investing advice, it is essential reading for anyone looking to build and grow their wealth in the years ahead. Click here now to request your free subscription, whilst it's still available. This article contains general investment advice only (under AFSL 400691). Authorised by Bruce Jackson.

Automatic Renewal

By taking up this offer, you will also be enrolled in our auto-renewal program, which is our way of making your ongoing subscription easier by ensuring uninterrupted service. Don't worry, though – you're not locked in, and can cancel your auto-renewal at any time before each 'anniversary' date without question or penalty.