Social Licence

We have heard a lot about the term social licence in the last few years.  In particular it has been applied to my industry – the northern cattle industry – with claims the industry had lost its social licence over the cruelty claims of treatment of Australian cattle in Indonesian abattoirs. 
The cost of the loss of this social licence to the northern cattle industry was first the closure of the industry followed by the imposition of additional regulation.  This was in the form of an auditable supply chain tracing mechanism.  An Australian animal exported to Indonesia can now be traced from its place of birth in Australia to its point of processing.  Fallout has also been ongoing with Indonesia reducing imports from Australia and a massive loss of confidence in the industry. 

At the time when the issue of a social licence was raised, many of us in the northern cattle industry were annoyed – why should it apply to us and not every other industry?  That question has never really been resolved but most in the cattle industry have come to accept that things are not always fair. 

What about applying the concept to other industries?  The mining industry always cops its fair share of flack and is always under pressure to maintain its social licence.  The mining industry argues that it contributes substantially to Government revenues through royalties and taxation as well as contributing in other ways such as funding local community projects. 

The supermarket industry in Australia is an industry where the concept could be applied.  The supermarkets announced a policy where homebrand milk be retailed for $1 per litre.  In a previously regulated industry, milk price was last at a $1/litre sometime in the mid-1980’s.  While the low price is good for consumers, the biggest losers are the nation’s dairy farmers with the low retail price reflected in the farmgate milk price.  Dairy companies also lost a substantial amount of equity in their brands which will ultimately affect their profitability and ability to invest in the supply chain. 

There is meant to be protection from this kind of activity through Trade Practices Legislation administered by the Australian Competition and Consumer Commission.  The ACCC is either unwilling or unable to intervene in this instance.

Where does the issue of a social licence come into this discussion?  Shouldn’t supermarkets provide goods at the lowest possible costs to their customers?  I believe that supermarkets have a broader responsibility than just screwing down their suppliers to the lowest possible price.  The end result will be a reduction in milk production as dairy farmers leave the industry.  Coles and Woolworths are only interested in a percentage point of market share from each other. 

What would the loss of social licence mean for supermarkets?  Loss of social licence could mean additional legislation or regulation to prevent this form of predatory pricing.  Additional regulation could also force supermarkets to be more transparent in their pricing policies.  It could also mean additional regulation to prevent supermarkets from entering new markets such as retailing or pharmaceuticals.  Limits could also be placed on the market share that the two major supermarkets have of the total grocery market.