An unhealthy blow to competition - The Centre for Independent Studies
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An unhealthy blow to competition

The Rudd government's new long–term strategy for indigenous Australians states that it is committed to adopting ‘market–based solutions’ and only permitting government intervention when markets fail. But, when it comes to remote indigenous stores, the government is not practising what it preaches.

In 2006 the then indigenous affairs minister, Mal Brough, established a company called Outback Stores, which manages stores on behalf of indigenous communities, who pay a fee for the service.

The original rationale for the Outback Stores Company was to provide services in areas where viable stores did not exist or where people could not access a variety of healthy, fresh produce at competitive prices.

Outback Stores has 27 stores in communities across Australia and plans to expand the number of stores it manages to 90.

Though never intended to reduce competition, this is exactly what Outback Stores is doing.

The large amount of federal funding the Outback Stores Company receives – $77 million to date – has created an unlevel playing field.

Outback Stores have already opened in communities with functioning stores and made it harder for independent community–run stores to keep operating.

Because of the federal funding it receives, Outback Stores can over–order fruit and vegetables to meet healthy food targets without having to worry about bankruptcy when the rotten goods are thrown in the bin.

This is just one of the problems with Outback Stores.

In some cases Outback Stores has decreased rather than increased the supply of groceries to remote communities.

In one region in Western Australia, three community stores had a joint freight arrangement. But when Outback Stores took over the management of the largest store, it decided to use a different freight company operating out of Alice Springs.

This rendered the freight run no longer economically viable for the freight company servicing the two smaller stores, so they now receive a delivery of fresh produce just once a fortnight. By the time the consignment finally arrives, the ‘fresh’ food sold in these communities can be up to two weeks old.

Although the aggregated buying power of Outback Stores has had some benefits, the deals that it strikes with preferred suppliers are also running out of business the independent wholesalers who have traditionally served remote communities.

Outback Stores maintains that it looks for the most affordable supplies of groceries.

Yet when one independent wholesaler submitted an unsolicited tender, he was told by Outback Stores that even if his prices were lower, it had all the suppliers it needed.

Outback Stores may have good reasons for rejecting his bid, though one might suspect that the large government subsidies the company receives makes it less cost–conscious than might otherwise be the case.

Outback Stores has also been accused of using ‘standover tactics’ to encourage communities to sign up with the company.

Stores have allegedly been told they will not be able to access stock when neighbouring communities come under the management of Outback Stores. In response to these concerns, the Rudd government called an inquiry into the operation of remote stores in 2008.

The House of Representatives Standing Committee on Aboriginal and Torres Strait Islander Affairs released its report, Everybody's Business: Remote Aboriginal and Torres Strait Community Stores, in November 2009. Although the committee identified a number of concerns with the operation of Outback Stores, its recommendations did not get to the heart of the problem.

Outback Stores is being propped up by government support and is threatening the livelihoods of its competitors.

More than six months later the government is yet to respond even though its policy is to do so within three months of a report being tabled in parliament.

No government likes owning up to policy failure, even if it inherited a bad policy from its predecessor.

But at the very least, the report should be taken down from the shelf. The government cannot afford to continue to prop up Outback Stores indefinitely.

Outback Stores may help address the poor mismanagement practices that have plagued indigenous stores, but it does so at the price of crowding out competition and increasing indigenous dependence on government.

A clear exit strategy is needed that supports and trains local indigenous people to become responsible for the management of their own stores.

Otherwise, Outback Stores will be yet another example of a government doing something for indigenous people, rather than with them.