Politics & Society
Have yourself a very thrifty Christmas
Why limiting supermarket prices could end up costing Australians more
Australia's proposed grocery pricing laws aim to ease cost-of-living pressures, but they might raise prices for the very consumers they're meant to protect
Published 18 December 2025
We all know that food prices in Australia have skyrocketed. We feel it every time we reach the checkout at the supermarket.
Earlier this year, the Australian Competition and Consumer Commission (ACCC) released its Supermarket Inquiry Report.
The proposed new law
Supermarket prices are a political problem. Governments can rise or fall on the cost of living.
So, the Federal Government, keen to address the issue, has released draft legislation that it claims would limit excessive pricing in supermarkets, following an earlier consultation paper.
The problem? It won’t work. If this bill becomes law, it might even raise prices.
This is because it will cost so much to obey and report on. Because it’s so vague, supermarkets will end up spending a bomb on expert advice, including lawyers and economists.
The proposal continues the Federal Government's trend of regulating business conduct to address the misuse of market power, rather than relying on existing competition and consumer laws.
Currently, firms possessing substantial market power are allowed to price above the competitive level without breaching competition law, on the basis that markets will self-correct. In a competitive market, pricing above the competitive level would only result in lost sales and attract new entrants into the market.
The Explanatory Statement (which guides the courts) accompanying the draft laws claims the laws will promote workable competition. But it is better described as the imposition of a vaguely defined maximum price for supermarket products.
The prohibition will be added to the Food and Grocery Code of Conduct. The new prohibition, as well as associated reporting and record keeping obligations, will apply to “very large retailers”, that is, those with an annual turnover of more than AUD$30 billion
This means that only Coles and Woolworths, Australia’s two big supermarkets, will face reporting and record-keeping obligations, as well as a new prohibition.
They must notify the ACCC if they qualify or cease to qualify (or face a fine of just over AUD$1 million).
Information about prices, costs and other factors must be kept as records for at least three years in case an ACCC investigation seeks information to determine if a price is excessive.
Most significantly, these supermarkets will be forbidden from selling grocery products at excessive prices.
Failure to meet the record-keeping obligation, or the excessive pricing prohibition, could result in fines of the greater of AUD$10 million, three times the value of benefit gained, or ten per cent of turnover during the 12 months preceding the breach.
What constitutes excessive pricing?
There are many problems with the proposed laws, starting with the inherent uncertainty about what constitutes excessive pricing.
The bill fails to define this – something that is likely to prove very expensive for Coles and Woolworths.
The Explanatory Statement says that a price is excessive only if “it is significantly and persistently above the price a very large retailer would be able to charge if it were faced with workable competition”.
The Consultation Paper states that whether prices are excessive will be determined based on “the full range of relevant costs, risks and market dynamics impacting long-term incentives to supply the grocery product”.
This is incredibly vague, and clearer guidance will only become available once the ban is challenged in a court case. An expensive exercise.
From an economic perspective, a price is excessive when it exceeds cost plus a reasonable rate of return by more than a permissible margin.
This is consistent with the approach adopted in the European Union, but it begs the question: What is a permissible margin? The draft laws offer no answer.
Calculating a competitive price is not simple.
For example, how should overheads be allocated across products? Changes in allocation could change whether a price is excessive. To avoid this may require specification of how common costs should be allocated, but on what basis?
Another unanswered question – over what period is excessive pricing to be determined?
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The Treasury’s Explanatory Statement says this will be “over a sufficient period to imply that the relevant grocery product market is not workably competitive”.
This is not helpful.
Even in a competitive market, prices do not equal the cost of supply at any given point in time. Prices will only approximate the cost of supply in the long run.
The problem here is not just uncertainty. When determining what constitutes an excessive price, the courts will be guided by the Explanatory Statement, leading to potential overreach (that is, prices will be incorrectly found excessive).
The prohibition will need ongoing monitoring, for which the government plans to provide additional funding for the ACCC.
If you consider the thousands of items that may be priced excessively at a particular time, then the ACCC is about to have a massive new task on its hands.
Will the benefit of the price controls confer a net increase in welfare after taking account of compliance and monitoring costs?
Improving competition in the supermarket sector
The best way to tackle the market power of the supermarkets is to make it easier for new players to establish in Australia.
The Prime Minister’s invitation to the Emirates’ LuLu Group to come to Australia is a step in the right direction. Obstacles to new supermarkets, like planning and zoning restrictions that limit the availability of sites, must be addressed.
However, these measures will not provide immediate cost-of-living relief.
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Many of the government’s current efforts to improve competition in the supermarket sector are sound. But the proposed excessive pricing rules are bad policy and should not be implemented in any form.
They may be politically popular. Sound bites and headlines about banning excessive pricing will appeal to consumers hammered by cost-of-living pressures.
But uncertainty and potential overreach will impose significant costs that will be passed on to the very group the laws aim to benefit: struggling Australian consumers.