Farmers are fed up with minimal market margins. Agricultural lobbyists from NSW, Victoria, WA, and Queensland are joining forces to align themselves against supermarkets with premium pricing power.
In an interview with ABC News, NWS farmer representative Peter Darley noted that corporations like Woolworths (ASX: WOW) and Westfarmers (ASX: WES) are using their monopoly market power to put farmers in a pinch. "They're forgetting about the farmer," Darley said. "He's the guy that's taking all the risk, producing all that product and hoping that he's going to get a fair price for his cost of production." Other middleman companies like Metcash (ASX: MTS) and BEGA Cheese (ASX: BGA) could also find themselves in the crossfire of margin maximization battles.
The Australian Competition and Consumer Commission (ACCC) is currently investigating improper behaviour by supermarkets, but the Australian National Retailers' Association denies any wrongdoing. A spokeswoman told ABC that she would "heavily dispute" any accusation of deteriorating relationships, and noted that many farmers enjoy long-term relationships with supermarkets.
Foolish takeaway
When it comes to grocery stores, Australia and New Zealand both have extremely concentrated market powers. That spells efficiency, economies of scale – and potential price picking. The story isn't a new one, either. Winemakers like Treasury Wine Estates (ASX: TWE) and Australian Vintage (ASX: AVG) have also aligned themselves under larger federations to fight back against big supermarkets, and tough times for retail are making the push more poignant than ever.
The ACCC will ultimately determine which part of the supply chain stands in the right. For now, investors should continue to keep a close watch on this price war. Grocery store margins are infamously thin, and any realization that a company has artificially been inflating theirs should be reason enough to revise an investment thesis.
While big corporations are potentially making big mistakes, two of Australia's most promising small companies are still flying under the radar. Discover these two exciting ASX investments in our brand-new special FREE report, "2 Small Cap Superstars". Click here now, it's free!
More reading
Motley Fool contributor Justin Loiseau has no position in any stocks mentioned in this article. You can follow him on Twitter @TMFJLo.
