The State Government

The State Government back to their old tricks

Once again, the state government has gone back to its old tricks with continual rising costs at the market. After careful review, Fresh State has investigated the trend of produce prices within the last four years, and the results aren’t in favour of tenants.

Increasing costs in 2020 have put a bitter mood on the start of the year. Out of many rising costs here at the market, the main concerns can be seen in the never seen before land tax being introduced, rent, with the same amount of certainty, that night turns into day will increase again in August and the fiveyear honeymoon period on council rates and taxes will reach an end this year, so be prepared for yet another added cost to your business. The Melbourne Market Authority has recently announced an outstanding land tax bill of $1.9 million dollars in tax, which was owed from the tenants. While the MMA should be congratulated for successfully having the arrears wiped by the State Revenue Office, the more pressing issue is how the new charge will be implemented moving forward. It’s yet another example of how the Victorian State Government has lost touch with the needs of their tenants at the Melbourne Markets. Rent is a whole other issue. After February 2019, we saw a 2.5% increase to the 3-year, 3.5-year, and 5-year rent contracts. However, in August 2019, the tenants holding a 3.5-year rent contract saw an additional 2.5% increase, making their rates higher than the others. Despite the odd differences in charges and no comment from the MMA about the matter, another increase to the rents is set to occur in August 2020 at the expiry of the current 5-year leases. During Fresh States investigation, we found that prices for produce have not increased in the last four years, which means that wholesalers have absorbed the ever-increasing costs over that period. This adds another stress to the increasing rents, as the balance between profit and expenses is out of line and makes it harder and harder for tenants to keep up with costs. Other commercial businesses in this scenario could simply increase their price to compensate for these types of increases. This industry is unique, and unfortunately what the government fails to understand is that many of our biggest customers can simply source their produce from other markets that operate on a lower-cost model, or worst still, go direct and cut the central market out altogether. The five-year honeymoon period on council rate and taxes has now finished, ultimately meaning another cost to the business. While not unexpected, if this was the only new cost that a business had to deal with, then in many cases, it wouldn’t be a major issue. However, this is not the reality of life in the Melbourne Markets. Within the Melbourne Market Authority Act 1977, the Objects of the Authority states that the role of the MMA is: — to provide a commercially viable wholesale facility for the efficient distribution of fresh produce; and — to optimise returns on land and assets controlled and managed by the Authority; and — to ensure a fair and competitive environment for the wholesale trading of produce. With the current situation in costs at the market, it's hard to see how the MMA is following these statements. While they certainly couldn’t be accused of not following the second point, which is to optimise the return on land and assets, it’s difficult to understand how the increasing costs, much of which is in their control addresses the other two points.

There will be a point where businesses can’t absorb any more cost increases, making them commercially unviable. We have already seen many instances of smaller businesses being absorbed by bigger businesses. Is this the business model that the State Government wants moving forward. If they do, then their actions align perfectly with this strategy. Not only are they adding extra expenses to the tenants, but they also have not yet completed the review, which was requested earlier last year. Fresh State is waiting with baited breath to see what this review recommends. All that we can hope is that the ‘independent’ review is truly independent and doesn’t simply white-wash the issues that are obvious to everyone that operates a business in the Melbourne Markets, other than the people that make the decisions over these ongoing cost increases.

While all of this is going on around us, it’s worth noting that the Melbourne Market Authority recently released their Annual Report for 2018-2019. While the tenants are struggling to manage their businesses in an environment of continually rising costs, the MMA proudly announced a profit of over $4 million, before income tax and depreciation. Perhaps they have misunderstood the objects of their own act. While they’re certainly optimising their returns on behalf of the government, they’re certainly not providing a ‘commercially viable wholesale facility’ for their tenants. Surely it’s time for the government to think about putting the future of the industry ahead of their own self-interest of increasing revenue, at the expense of wholesaler and all market users sustainability. Take a look at the graph below which shows the trends in Produce Prices vs CPI vs Rent, from January 2016 to October 2019.

Produce Price —VS— CPI —VS— Rents

Produce Price CPI Rents

Jan 2016 Jan 2017 Jan 2018 Jan 2019 Feb Feb Feb Feb Mar Mar Mar Mar Apr Apr Apr Apr May May May May Jun Jun Jun Jun Jul Jul Jul Jul Aug Aug Aug Aug Sep Sep Sep Sep Oct Oct Oct Oct Nov Nov Nov Dec Dec Dec