Groceries, food inflation and market power

Renae does her big shop on a Thursday night, after her two kids are asleep, because that is when she can go through the list without feeling rushed. She works three days a week at a childcare centre in Logan, south of Brisbane, and budgets in the same order every fortnight: rent, power, then food. Five years ago, food was the category with some give in it — swap a brand, skip a treat, and the total came down to where she needed it. Somewhere around 2022, it stopped behaving that way. The same trolley of home-brand basics kept costing more, shop after shop, no matter how she swapped and skipped. She was not imagining it. Between 2021 and 2025, grocery prices rose faster, for longer, than almost any other part of the household budget bar housing and energy — and the households who felt it hardest were the ones like Renae's, who spend the biggest share of what they earn simply keeping the fridge full.

This is a story with two separate strands that tend to get told as one. The first is what actually pushed grocery prices up: a war that cut off wheat and fertiliser exports, floods that wiped out vegetable crops, a fuel bill for every truck that moves food from farm to shelf, and a wages bill for every worker who stocks it. The second, harder question is whether two supermarket chains — which between them ring up somewhere around two in every three dollars Australians spend on groceries — used a genuine cost shock as cover to protect, or even grow, their own margins. Government inquiries have spent close to two years and drawn on hundreds of submissions and compulsory information notices trying to answer that second question. What they found, and what policy did about it, is the subject of this article.

What pushed prices up, and what the government did about it

The shock had real, external causes, and they arrived close together. Russia invaded Ukraine on 24 February 2022. Together, the two countries had supplied a large share of the world's wheat, barley and sunflower-oil exports, and Russia is also one of the world's largest exporters of the fertilisers that grain and vegetable farmers everywhere depend on. Global food commodity prices, already elevated as pandemic supply chains struggled to recover, jumped further: the Food and Agriculture Organization's global Food Price Index hit a record high in March 2022 (approx.; FAO Food Price Index). Those global grain and fertiliser prices feed into Australian farmers' input costs and into the price of imported food ingredients well before a single extra dollar shows up on a supermarket shelf.

Weather compounded the shock at home. Major flooding hit northern New South Wales and south-east Queensland in February and March 2022, followed by further flooding through the year across parts of New South Wales and Victoria, damaging vegetable crops and cutting supply just as demand held steady. The clearest public symbol of that squeeze was the iceberg lettuce, which briefly retailed for somewhere around $10 to $12 a head in mid-2022 in some stores (approx.; media reporting; ABS CPI, Vegetables sub-group), prompting one fast-food chain to substitute cabbage in its burgers while supply recovered. It became a minor national joke. It was also a precise, visible example of how a single weather event, hundreds of kilometres from any capital city, can move a grocery price within weeks.

Transport and labour costs added a second, slower-moving layer on top of the weather and war shocks. Diesel prices, which set the marginal cost of trucking food from farm and processor to distribution centre and store, rose sharply through 2022 alongside the broader global oil-price shock, even after the then government's temporary halving of the fuel excise, from late March to late September 2022 (Australian Government, Budget 2022-23, Mar-2022), partially cushioned the increase. Wage costs rose too, as they were always going to in an economy this short of labour: the Fair Work Commission's Annual Wage Review lifted award and minimum wages by around 5.2% in 2022, roughly 5.75% for award wages (8.6% for the National Minimum Wage) in 2023, and a further 3.75% in 2024 (approx.; Fair Work Commission, Annual Wage Review decisions, 2022 to 2024) — increases concentrated in exactly the retail, food-processing, hospitality and logistics sectors that move groceries from paddock to trolley. None of this is a complaint about wage rises, which were themselves a policy response to the cost-of-living squeeze; it is simply an accounting of where an extra input cost, once it exists, tends to end up.

As bills rose through 2022 and into 2023, a second and more contested debate opened up alongside the input-cost story: whether Coles and Woolworths, which between them dominate the packaged grocery market, were using the cover of a genuine cost shock to protect or expand their own margins — a practice some economists and politicians labelled "greedflation." The claim was contested from the start, and the government did not simply accept it; it set up two formal, largely independent processes to test it against the data supermarkets and suppliers actually hold, rather than adjudicating the argument by press release.

Political pressure over the same period pushed toward harder measures than the government eventually adopted. The Greens, joined at various points by the Nationals leader and several crossbench senators, called for divestiture powers or an outright cap on grocery prices, and a Senate select committee held its own hearings into supermarket pricing and market power running in parallel with the ACCC's formal inquiry. The government resisted both a price cap and, at least within this term, forced divestiture, arguing that the competition regulator, working from compulsory evidence rather than a parliamentary hearing, was better placed to design a proportionate remedy. That choice — inquiry and code reform over blunt intervention — is itself one of the central judgments this article assesses.

The first process was a review of the industry's Food and Grocery Code of Conduct — at the time a voluntary code governing how the major supermarkets deal with the farmers and suppliers who sell to them. In January 2024 (approx.), the government appointed former minister and competition economist Dr Craig Emerson to conduct an independent review. Emerson delivered his final report around June 2024 (approx.; Emerson Review, Independent Review of the Food and Grocery Code of Conduct, 2024), recommending the code be made mandatory, with meaningful financial penalties for breaches rather than the reputational-only sanctions the voluntary version carried. The government accepted the recommendation, and a mandatory Food and Grocery Code of Conduct commenced from 1 April 2025 (approx.; Treasury, Government Response to the Food and Grocery Code of Conduct Review, 2024), with civil penalties reported at the time as running up to the greater of several million dollars, three times the value of the benefit gained, or a share of the offending business's turnover (approx.; government and Treasury materials, 2024).

The second, broader process was a formal ACCC inquiry into supermarket pricing and competition, directed by the Treasurer on 25 January 2024 (approx.) under Part VIIA of the Competition and Consumer Act 2010 — a power that let the ACCC compel supermarkets, suppliers and wholesalers to hand over pricing, margin and contract data they would never disclose voluntarily. The inquiry released an interim report in 2024 and a final report to the Treasurer around February 2025 (approx.; ACCC, Supermarkets Inquiry 2024-25, Final Report). Alongside both processes, the government also funded the consumer group CHOICE from 2024 (approx.) to publish regular price comparisons across the major chains, a modest transparency measure aimed directly at shoppers rather than at the market's structure.

The evidence: what the primary record shows

What the CPI actually shows

The Australian Bureau of Statistics' Consumer Price Index tracks Food and non-alcoholic beverages as its own group within the broader CPI basket, and the series shows both how sharp the shock was and how it compared with the economy-wide inflation rate households heard about in every Reserve Bank statement. Headline CPI peaked at 7.8% in annual terms in the December quarter of 2022 (ABS, Consumer Price Index, Dec-2022) — the figure most Australians associate with the cost-of-living crisis. Food and non-alcoholic beverage prices ran hotter than that headline figure through the worst of the shock, peaking at around 9.2% in annual terms in the twelve months to March 2023 (approx.; ABS, Consumer Price Index, Food and non-alcoholic beverages group, Mar-2023), several months after the headline CPI peak, as the flood-driven vegetable spike and the flow-through of global grain and fertiliser costs continued to move through the supply chain after the broader inflation number had already started to ease.

The averages sit on top of considerable variation by category. Meat and seafood prices, dairy and related products, and bread and cereal products all recorded annual increases running into high single or low double digits at points through 2022 and 2023, while fruit and vegetable prices were the most volatile of all — swinging sharply upward during the flood-affected months of 2022 and then falling back just as sharply once supply recovered, a pattern the ABS records separately because fresh produce prices are seasonally volatile in ordinary years and were unusually so through this period (approx.; ABS, Consumer Price Index, Food and non-alcoholic beverages sub-groups, 2022 to 2023). For a household budgeting week to week, that volatility matters as much as the average: a shopper cannot substitute away from an entire food group the way a national index can smooth across one.

Food's share of the pain also has to be read against the rest of the household budget, because it was not the only fast-rising line. Housing, energy and insurance costs rose sharply over the same period, a decomposition explored in detail elsewhere on this site; food's distinguishing feature is not that it rose fastest in isolation, but that it is a bigger, less avoidable share of the weekly budget for lower-income households than most of those other categories, which is what makes its regressive effect so direct and so hard to plan around.

By 2024, as global grain and fertiliser prices eased from their 2022 peaks and the worst of the flood-driven vegetable shortages passed, food inflation began cooling — though more slowly than headline CPI, which itself was still working its way back toward the Reserve Bank's 2–3% target band. Taken across the full period, the cumulative rise in food and grocery prices from 2021 to 2025 runs to somewhere in the order of 20 to 25% (approx.; ABS, Consumer Price Index, Food and non-alcoholic beverages group, cumulative index change), a figure that understates the lived experience for many households because it is an average across a basket that includes some items — home-brand pasta, tinned goods — that moved comparatively little, alongside fresh produce, meat and dairy categories that at points moved much more sharply.

Two supermarkets, two-thirds of the market

Australia's grocery retail sector is unusually concentrated by the standards of comparable economies. Coles and Woolworths together account for somewhere around 65% of the packaged grocery market (approx.; ACCC, Supermarkets Inquiry, 2024-25), with Aldi holding roughly a tenth (approx.) and the remainder split between independent supermarkets — most of them supplied through the wholesaler Metcash under the IGA banner — and smaller specialist grocers. By comparison, grocery markets in the United Kingdom and the United States are typically less concentrated: no single UK chain sits inside a two-player market of this size, and the largest four or five chains in each of those countries compete more directly on price across a bigger set of rivals (approx.; comparative retail-market reporting). That comparison is one reason competition economists here and abroad have flagged Australia's grocery sector as unusually concentrated for an advanced economy, even before accounting for the country's geography, which itself raises the cost of establishing a genuinely national third or fourth competitor.

Both the Emerson review and the ACCC inquiry spent considerable time on the relationship between the major chains and the farmers and small suppliers who sell into them, because that relationship is where market power shows up most directly. Submissions to both processes, and the ACCC's own compulsory information-gathering, described a recurring pattern: suppliers, particularly smaller growers without the scale to walk away from a major chain, reported limited ability to negotiate price, unclear or retrospective deductions for promotions and wastage, and a reluctance to complain formally for fear of being delisted (approx.; Emerson Review, 2024; ACCC, Supermarkets Inquiry, Interim Report, 2024). The practical effect, described qualitatively across both reviews rather than through any single verified national figure, is that the price a grower receives at the farm gate for produce like lettuce, broccoli or stone fruit can move only modestly even in a period when the same item's shelf price is swinging sharply — because the retailer, not the grower, holds the negotiating power over where in the supply chain a cost shock, or a price gain, actually lands.

This is the structural core of the market-power argument, and it is distinct from the input-cost argument set out above. Even if every input-cost claim supermarkets made during the 2022–23 shock was entirely accurate — and much of it plainly was — a concentrated market with two dominant buyers on one side of the negotiating table and thousands of individually small suppliers on the other does not need a formal cartel agreement to produce outcomes that look, from a supplier's or a shopper's side, like the exercise of market power. The bargaining structure does that work on its own.

Vertical integration deepens the structural picture further. Both major chains operate extensive private-label manufacturing and distribution networks, own or lease large-scale distribution centres, and increasingly compete with their own suppliers by expanding home-brand ranges into categories previously dominated by branded manufacturers. None of that is illegal, and home-brand products have given cost-conscious shoppers a cheaper alternative through the worst of the shock. But it does mean the same company setting the shelf price a consumer pays can also, in effect, be competing with — and negotiating against — the supplier whose branded product sits on the same shelf, a structural feature of the market that a code of conduct governing supplier treatment does not, on its own, resolve.

Two chains ringing up roughly two in every three grocery dollars do not need to collude to behave like a duopoly. The market structure does that work for them.

What the inquiries actually found

The ACCC's interim report, released in 2024, and its final report to the Treasurer around February 2025 (approx.), drew on the compulsory notices issued under the Part VIIA inquiry power to examine supermarket pricing practices directly, rather than relying on submissions alone. Several findings stand out. The inquiry documented widespread use of "shrinkflation" — reducing the size or quantity of a packaged product while holding the shelf price steady or raising it, which lifts the effective per-unit price without a headline price rise a shopper is likely to notice (approx.; ACCC, Supermarkets Inquiry, Interim Report, 2024). It found the structure of specials, multi-buy discounts and loyalty-program pricing had become complex enough that comparing a genuine discount against a recent "normal" price was difficult for an ordinary shopper to do reliably in-store, a finding that fed directly into the ACCC's recommendation for stronger, clearer rules under the national Unit Pricing Code. And, most pointedly for the "greedflation" debate, the inquiry's analysis of category-level margin data found that the major supermarkets' overall profitability had not compressed through the worst of the input-cost shock, and in some categories had risen, even as the same chains publicly attributed shelf-price increases to rising costs (approx.; ACCC, Supermarkets Inquiry, Final Report, Feb-2025). Woolworths Group and Coles Group each reported net profits in the broad vicinity of one to one-and-a-half billion dollars in financial year 2023-24 (approx.; company annual reports, 2024), figures that sit alongside, without on their own proving or disproving, the ACCC's margin findings.

The final report also examined barriers to new competition entering the sector, including planning and zoning approval processes that can take years and the ability of established chains to acquire and hold strategically located sites ahead of need — a practice sometimes described as land-banking — making it harder for a new entrant to secure the retail locations needed to compete at scale (approx.; ACCC, Supermarkets Inquiry, Final Report, Feb-2025). The ACCC considered, and explicitly flagged for government rather than immediately recommending, the more radical option of forced divestiture powers — legislation that would let a regulator order a dominant firm to sell off stores or assets where market power is being misused. The government did not adopt divestiture powers in this term, choosing instead the mandatory code, enhanced unit-pricing rules and continued ACCC monitoring as its response.

The critique: a real diagnosis, a partial cure

Start with what the evidence above actually supports, and what it does not. It supports, clearly, that a large part of the 2022–23 food-price shock had genuine external causes the government did not create: a war it did not start, floods it could not prevent, and global commodity and fuel markets it does not control. It also supports a second, separate finding: that the major supermarkets' profit margins did not compress through that same shock, even as those chains attributed price rises to rising costs. Both things are true from the same primary record. Holding them together, rather than picking whichever one suits an argument, is what a fair reading of this topic requires.

The government's response addressed the second finding with real, if limited, tools. A mandatory code with turnover-linked penalties is a genuine improvement on a voluntary code that, in practice, few suppliers who feared delisting were ever likely to invoke. Stronger unit-pricing rules make shrinkflation and complex specials somewhat easier for a shopper to catch. But neither instrument changes the underlying market structure the ACCC itself identified as the root of the bargaining-power imbalance: two chains controlling roughly two-thirds of the market, and planning and land-acquisition barriers that keep a third or fourth large-scale competitor from emerging to discipline prices through genuine competition rather than through a code of conduct policed after the fact. The ACCC's own final report put forced divestiture on the table as an option. The government's response left that option on the table too, rather than picking it up — a structural remedy considered and set aside in favour of behavioural ones.

Timing compounds the limitation. The mandatory code took effect from around 1 April 2025 (approx.), roughly two years after food inflation had already peaked in the CPI data and well into the period in which the shock was already easing on its own, driven mainly by global grain and fertiliser prices retreating from their 2022 highs rather than by any change in how the major chains were behaving. None of the households who paid the sharpest grocery price rises in 2022 and 2023 — including households like Renae's — received the benefit of a mandatory code, stronger unit pricing, or turnover-linked penalties while the shock was actually landing on their weekly shop. The reform arrived on a reasonable review timetable for a competition inquiry of this scale. It did not arrive in time to change the outcome it was built to address.

A mandatory code changes how the game is refereed. It does not change how many major players are on the field.

There is also a narrower question about enforcement follow-through. The ACCC's compulsory information-gathering powers under this inquiry were time-limited to the inquiry itself; day-to-day monitoring of a sector this large, once the formal inquiry concludes, relies on the regulator's ordinary, more constrained powers and on complaints from suppliers who, the inquiry's own evidence suggests, are often reluctant to come forward for fear of commercial retaliation. A mandatory code with real penalties only has teeth if breaches are actually detected and pursued, and detecting them depends on exactly the supplier complaints the same evidence found suppliers are afraid to make. Whether the new code closes that gap, or simply formalises a set of rules that remain as hard to enforce in practice as the voluntary version was, is not yet something the record can answer — it is a test the next few years of ACCC enforcement activity will set, not one this article can resolve today.

The inquiries also had comparatively little to say about the sharpest end of the regressive problem: households in remote and very remote communities, particularly across the Northern Territory and northern Western Australia, who already pay substantially more for an equivalent basket of groceries than households in capital cities, because of the cost of freighting stock over long distances to a small number of stores with little or no competing option nearby. Various remote-store and regional price-monitoring exercises have put that gap well above the national CPI average — in some cases 50% or more above capital-city prices for the same items (approx.; state and territory remote-store price monitoring; ABS regional price analysis) — meaning the national food CPI figures used throughout this article, while accurate as a national average, still meaningfully understate the burden falling on exactly the communities this masthead's fairness doctrine requires be counted, not averaged away.

Finally, the inquiries were scoped to supermarket pricing and supplier conduct. They were not scoped to the structural cost drivers named at the start of this article — energy, labour and transport — which continue to move largely independently of anything a grocery code or a unit-pricing rule can affect. That gap is the subject of the risk flagged at the end of this article.

What the government got right

Credit is due in several specific places, and a fair audit states them plainly rather than burying them under the critique above. Converting a voluntary code that had operated for years without ever being genuinely tested into a mandatory one with real financial penalties is a structural reform earlier governments, facing similar public concern about supermarket power, chose not to make. It took real political capital to legislate against a concentrated and well-resourced industry with a strong interest in the status quo, and it happened within a single term rather than being deferred to a future review, as had happened repeatedly in the decade before.

Giving the ACCC compulsory information-gathering powers for the inquiry, rather than relying on a voluntary submissions process, was also the right regulatory tool for the question being asked. Submissions alone would have produced another round of dueling claims between supermarkets and their critics; compelled internal pricing, margin and contract data produced findings — on shrinkflation, on margin behaviour, on planning barriers to new entrants — that neither side could simply wave away. Funding CHOICE to publish ongoing price comparisons, while a modest measure next to the code and the inquiry, is a genuine transparency tool that puts comparative data directly into shoppers' hands rather than leaving them to rely on memory and instinct while standing in the aisle.

The review processes also gave organised growers and suppliers, through bodies such as the National Farmers' Federation and industry-specific grower associations, a formal and, for the first time in years, genuinely consequential channel to raise the retrospective-deduction and delisting-fear concerns described earlier — concerns that had circulated informally in the sector for years without producing a change in the code that governed them.

It is also worth restating, plainly and without qualification, the steel-man case made earlier in this article: much of the 2022–23 shock was real, global, and outside any Australian government's control. A government that had done nothing in response to a shock of that scale — no independent review, no inquiry, no code reform — would deserve sharper criticism than one that used the tools available to it, even if those tools stopped short of the more radical structural options the evidence arguably supported. Restraint from price caps and windfall taxes, instruments with a poor track record of improving food security without side effects, was itself a defensible and evidence-consistent choice.