Sunday, June 5

The Banana Republic

Cyclone Yasi ripped through North Queensland in early-February this year. It was Australia’s most powerful cyclone in living memory, recording wind speeds reaching 225km/h at its peak, and leaving a trail of destruction in its wake. The nation’s banana crop was hit particularly hard. In the months since, the fruit’s price has soared. As of yesterday, our local supermarket was selling bananas for a staggering $13.98 per kilogram, or more than $30 per pound. Elsewhere I've seen them selling for at much as $15.00. Prior to Yasi’s arrival bananas were going out the door for less than $5 per kilo.

However, the soaring price of bananas, while understandable, isn’t the only retail price that’s stunned us since our return from London. In fact, almost every price tag has been something of a shock, regardless of the retail category. For example, our cable television bill has doubled, our internet bill is almost three times more expensive and our first utility bill was mistaken for an accounting error. In short, Garry and I are beginning to appreciate that fresh food and most retail items were significantly cheaper in London.

Nationwide, Australia's retail prices are becoming a contentious subject. As the Australian dollar rises in value, offshore online shopping has began increasingly popular, and frequently cheaper than buying locally. We’ve already noticed identical items online that are significantly cheaper than prices we’ve seen in local stores, even after shipping costs are added to the invoice. Given the tyranny of distance and its impact on freight costs you’d expect price tags to differ. However, the difference has become so extreme that it’s clear something else is driving up local retail prices.

Numerous theories abound. Retailers claim that commercial rents are three or four times higher in main street Australia. The minimum wage, and thus the cost of labour, is also higher. There may be some grain of truth to these claims. Commercial rent typically represents up to 25% of revenue in Australia, while global brands typically pay less than 10% in the United States. Last week the minimum wage was increased by 3.4%, or $15.51 an hour, to $589.30 a week for a full-time employees. By contrast, the current minimum wage in the UK, set in October 2010, is £5.93 per hour for adults aged 21 or older; less for younger workers. That less than A$9.20 per hour.

However, higher commercial rent and labour costs cannot account for the entire price differential. Analysts suggest that Australians, use to higher prices generated by a weaker dollar, are still willing to pay the same retail price even though the wholesale cost of imported goods has fallen 40% or more. Personally, I’m waiting for the new banana crop to mature.

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