Believe it or not, supermarket ‘price gouging’ is not to blame for your high grocery bill

Wages are determined through an Enterprise Bargaining Agreement (EBA) with the unions. There is some competition here between the unions, but again costs are pretty much fixed once you enter the EBA.

Cost of goods is the last significant factor, and here they have some control over some products, and not much over others.

What about the farmers? Well, it's not that clear cut either

Farmers have successfully propagated the line that the big two are rapacious negotiators when it comes to buying farm products. While they are certainly tough, farmers are not forced to sell to anyone at any price, but most of the price fluctuations have to do with markets that go from feast to famine.

When there is more than enough produce to satisfy the retail market's needs the supermarkets are going to pay less, and some farmers are going to be potentially faced with selling below the cost of their production.

You never hear them complaining when the boot is on the other foot and shortages push the price of produce well above the cost of production. Like all businesses with volatile prices, farmers only make a good living on average, and some years absolutely stink.

There was a long-running dispute over the price of milk, while at the same time, there were a lot of dairy farmers happily and profitably selling to Coles and Woollies. It had more to do with the deregulation of the industry, and larger, more efficient producers out-competing the old cottage industry farms, than price pillaging.

Food is only one part of the supermarket offering. When it comes to many other products, they are negotiating with companies many times their size and who have real pricing power.

And there is also intense competition on every supermarket's shelves. If they have 20 different brands and types of pasta, then each of those products has to justify its shelf space.

If they are not priced and specified in a way that sees them turnover at the right rate, then they will be abandoned, to be replaced by some other product that consumers have demonstrated they will buy at an appropriate margin.

While supermarkets do their best to control product costs, again they have limited power to change much.

All of these three factors more or less dictate the price that must be charged to make a profitable business, and those prices have to be spread over 20,000 to 25,000 different products.

Dancing on a tightrope

So pricing is done more based on heuristics of what has worked over time, as well as recommended retail prices.