Could Australia adopt India’s strategy to stop supermarket price gouging?

There are a lot of things that you find are different when you make the move to Australia. Some good, some bad, and some just whimsical. 

It was surprising to me that EMI (easy monthly installment, very big in my native India) is a concept not offered by Australia’s banks, despite being an attractive opportunity for private BNPL players. 

But the Indian standard whose absence on these shores truly surprised me was MRP (Maximum Retail Price) printed on the actual product. Landing in Australia after a 12-hour plane journey, my partner was running a high fever. I went out to get some groceries and couldn’t make sense of the prices. Worse? Finding out in the second or the third store I visited that a certain commodity I had bought from the first store was available much cheaper elsewhere. It was my first evening in a foreign land so obviously I didn’t have a job yet, and being the fiscally responsible person I am, I kicked myself (metaphorically, of course; not that I have the physical flexibility otherwise).

But I told myself it was okay: I didn’t understand my new surroundings yet, so why cry over spilt milk? 

Fast forward a year and a half later and I still don’t understand why the supermarkets here work the way they work. In recent months there has been constant talk about cost of living pressures, rising interest rates, and price gouging – all while big corporations have netted record profits.

We’ve all seen it – our grocery bills are getting heavier while our shopping baskets and wallets get much lighter. The Australian Bureau of Statistics (ABS) data on the consumer price index confirms as much:

Source: Australian Bureau of Statistics

It’s an issue that has riled up many politicians in the country, including Nationals leader David Littleproud, who recently called the two big supermarket chains of the country the “worst corporate citizens” and called on the Australian Consumer and Competition Commission (ACCC) to investigate allegations of price gouging.  

As families struggle to pay for their food, supermarkets are still making record profits. We need the ACCC to examine this. pic.twitter.com/H6nIdtqShH

— David Littleproud MP (@D_LittleproudMP) January 6, 2024

To support his case, Littleproud referred to data released by Meat and Livestock Australia, which found that cattle prices had dropped by 70% but prices in the supermarkets fell by only 8%. 

The drop in prices is due to the year-on-year increase in the production of poultry meat in Australia. The Australian Bureau of Agriculture and Resources Economics (ABARES) estimated that the 2023-2024 poultry meat production is 1,256 kilotonnes or 47.6kg per person living in Australia – a number significantly higher than the previous years. 

Not only Littleproud, but the federal government has also announced the review of the Food and Grocery Code of Conduct this week. The review, which will be headed by former Labor minister Craig Emerson, will investigate allegations of price gouging by supermarkets. 

We’re reviewing the Food and Grocery Code of Conduct to make sure customers get a fair deal.

And we’ll look at every option to make sure Australians aren’t paying more than they should.

— Anthony Albanese (@AlboMP) January 12, 2024

This looks to me like a clear argument for MRP: Maximum Retail Price. 

So what is MRP?

As the name suggests MRP is the maximum amount of price a retailer can charge for a certain product. They can charge less (by way of discounts, BOGO offers) but never more. The benefit? It brings some certainty to the consumer when it comes to their groceries. If I know a bag of chips costs $3 today, I know it will remain $3 (or less, if I’m lucky) for the foreseeable future. Wouldn’t that be nice?

To put this in perspective, research by UBS in 2023 found that the cost of chips had soared by as much as 40 percent, even though the production of potatoes had only fallen marginally by 15% in 2021-2022, according to ABS data. I say ‘marginal’ because, in terms of year-on-year growth, it was a decline of only 3% due to the 18% record growth in the year prior. 

This would also help avoid situations where retailers or businesses hoard a product to create an artificial shortage and use it as an opportunity to jack up prices. 

But does this kill competition or a free market?

Not really. Because every brand is free to decide its own MRP, it is able to take into consideration its costs and desired profit margins to suggest and print the maximum price. 

Based on how much a retailer buys from the brand, they may be able to strike better deals and offer lucrative discounts to shoppers (or maybe just keep the profit with themselves).

In fact, a little research into the Australian landscape shows that MRP is an accepted practice in the country. The ACCC’s website has a section on how brands can set prices and what is considered legal. Interestingly, it also mentions that brands can set a maximum retail price.

Source: ACCC

Clearly, MRP does not contribute to less competition in the free market. Most suppliers in their contracts with a supermarket lay out the maximum price a product can be sold at in Australia, but unlike India it is not displayed on the product or the supermarket shelves for the general public. Adding this simple layer of transparency can help avoid price gouging.

But what about cost fluctuations?

On a general level, costs typically do not fluctuate wildly in the short term. But even if they do, retailers will have the opportunity to charge more within the MRP range to cover any shortfall. This perspective is definitely interesting to me because we only consider the upward swing in costs, but not the downward spiral. Wouldn’t the brand and the retailer also make higher profits when the costs go down? In such a situation, the law of averages would suggest that any short-term losses would be offset by such gains as well. 

Another byproduct of the concept of MRP would also be increased productivity. 

With the onus on brands to come up with an MRP instead of the lousy RRP, that they would be required to print on their products, it would also necessitate looking at their processes to increase efficiency to come up with a more competitive price in the market. 

But what about geographical challenges? Australia is a huge country and areas in the regions might be costlier to transport and sell goods in, thereby disincentivizing retailers.

Well, not really. You see, a brand can have multiple MRPs printed on its label varied by area. For instance, a bag of chips can retail at $3 in Melbourne or Sydney CBD. But in regional areas, where storage or transportation costs may be higher, the label could reflect the same and read $3.5. 

Who knows, the introduction of MRP could also motivate certain brands to expand their operations into other areas, thereby bringing more jobs to local economies. It would also allow state governments to dole out more incentives to businesses to ramp up production in their area. 

And why just brands alone? The concept could also benefit farmers and local producers with the introduction of an aligned Minimum Support Price system. 

An MSP is set by the government for various essential crops to ensure that farmers receive a fair price for their produce, especially in today’s world where volatile weather conditions bring a level of uncertainty. An MSP helps ensure that the average cost of growing a certain crop, along with the labour put in, is adequately compensated for. 

Independent senator David Pocock seems to be a fan of a similar idea. He recently suggested that supermarkets should display the prices they’re paying the farmers alongside what they’re charging consumers. 

Do you think the big supermarkets should have to display the price they’re paying the farmer for the meat, milk or vegetables alongside the price they’re charging customers?

— David Pocock (@DavidPocock) January 9, 2024

While the ongoing absence of MRP in Australia sounds perfectly good in theory, the reality is far from it (and we’ve got the shopping receipts to prove it).

An MRP-based pricing strategy not only directly benefits consumers but also helps drive out bad products from the market, plugs leaks in tax evasion, and awards brands that provide value at a reasonable price. It’s a win-win-win for all.