JEFF Kennett believes the balance of power between supermarkets and suppliers will be turned on its head in the next decade as overseas appetite for Australian produce accelerates.
The former Victorian premier, and independent arbiter between Coles and its suppliers, said supermarkets needed to get smarter with their suppliers or risk being locked out of commodities, or forced to pay premium prices to secure stock.
"In the last few years there have been more and more overseas buyers coming in to look at produce," Mr Kennett said.
"I know of one producer who committed the whole of next year's crop to an overseas supplier and they were paid up front.
"We are living in a quickly changing world...just as we are seeing the end of letter writing and post delivery because of the internet, I think we will see a massive change in demand for Australian agricultural produce."
Kennett on supplier front-line
Coles gave Mr Kennett his job after the supermarket chain agreed with the Australian Competition and Consumer Commission in December 2014 that it had engaged in "serious, deliberate and repeated" misconduct towards suppliers.
In his role, Mr Kennett has ordered Coles to pay $12.3 million to small suppliers who were pressured to stump up additional rebates to join a new supply-chain program or be hit with fines for misdemeanours, including late deliveries.
The former premier's dealing with Coles began in 2013 after he complained to the Australian Competition and Consumer Commission that Coles had engaged in misleading conduct by claiming bread was freshly baked in store when it was half-baked in Ireland. Coles copped a $2.5 million penalty from the Federal Court.
Mr Kennett has met with hundreds of suppliers and he said it was increasingly obvious the landscape was shifting and changing quickly as demand for Australian produce swelled.
Suppliers will be king
He predicted it wouldn't be long before suppliers were "king" in many supermarket categories. Chinese interest in Australian vitamins was just the beginning and it would quickly extend to many food categories, he said.
"The gate has just been opened slightly and in the next 10 years, not through technological disruption but through people disruption and cost disruption, we will see the gate substantially opened.
"We should be in the box seat for feeding this huge population to the north but we don't even have a national agricultural and water policy," Mr Kennett said.
"And no government has for the last 50 years."
Meat prices jumping
Grocery insiders said the impact of of higher demand from overseas had already caused a sharp spike in beef prices in the past year.
Beef prices have jumped as much as 50 per cent as farmers tapped into United States demand for Australian meat.
Many butchers are straining to absorb these price hikes but with no relief in sight prices must go up. The alternative is certain cuts of beef will just disappear from the shop window.
One supermarket insider said this was the reality of more-aggressive overseas buyers.
He said it came down to the metrics of supply and demand or who was willing to stump up the highest price.
"It's pretty simple economics, if a supermarket offers to pay over the top of what a overseas buyer is willing to pay, the supplier with go with that," the source said.
"If you take the example of beef, the US is paying a lot for beef so beef producers are asking for more money.
"It's a global marketplace and there's not a lot retailers can do about that."
Eyes on Asia
Not so, according to Mr Kennett, who says Australia should set ambitious targets and gear up its food producers to feed the big Asian communities to our north.
"Let's get to a position where we could feed 1 billion people by 2050," he said.
"Let's build up our production capability to feed half a billion people by 2025."
Coles and Woolworths already invest in security of supply through long-term supply contracts and, in the case of Coles, direct investment into supply operations through its $50 million Nurture Fund.
