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Coles warns low food prices may not last

 

Historically good growing conditions have helped drive down fresh food prices, but Coles managing director John Durkan has warned consumers they may not last.

Mr Durkan said there is a "raft" of fruit and vegetables coming onto the market at the same time, with supply overtaking demand to trigger deflation.

Consumer price growth fell well below the Reserve Bank's target band in May, with a sharp 4.1 per cent fall in the price of fruit and vegetables.

"What we have seen in the last quarter is unprecedented growing conditions in Australia, in particular in bananas," Mr Durkan told analysts at a Wesfarmers strategy briefing on Wednesday.

"The natural supply and demand is driving prices down. That will subside. I don't know how many weeks it'll take, but it will subside."

Mr Durkan said Coles was working with growers to support lower prices through more efficient operations.

"As we become more efficient, we have bigger supply agreements with a smaller number of suppliers across all our fresh categories," he said.

"There is an efficiency that goes with this that backs up the fact that we can continue to lower our prices."

He gave tomato grower Sundrop Farms as an example, describing it as Australia's most efficient tomato grower.

Price cuts across a range of items helped lift Coles' comparable food and liquor sales by 4.9 per cent during the third quarter of the current financial year, while rival Woolworths' food and liquor sales declined 0.9 per cent.