“I think it’s not even a message, it is the reality, really we in Australia we are very lucky because we have a world class supply chain we have world class producers of food and produce and we really have world class manufacturers of grocery items.
‘’The vast majority of grocery and food we sell in Australia is actually made and produced here. We just don’t have a supply issue, there is more than enough, more than enough, food and groceries to go around. Australia produces enough food to feed 75 million people and have a very vibrant export market.’’
Tom Daunt – CEO of Aldi Australia
The challenge that consumers face is a quantity assurance problem (my RMIT colleague Vijay Mohan came up with that term). They can’t be sure that when they go to the supermarket to buy widgets that the supermarket will be stocking widgets. Under normal conditions the supermarkets perform a valuable warehousing function – they store goods until consumers need them for more or less immediate consumption. This is a more or less egalitarian function – in a capitalist economy the stores are normally full of stuff that anyone can buy more or less at any time. During abnormal times, the supermarkets cannot perform that function because consumers do not trust that the goods they want to buy will be at the store (or any store) when they go to buy. At this point it pays consumers to perform that warehousing function themselves.
Economists are familiar with this story – it is a version of the Diamond–Dybvig bank-run model. Everyone withdraws their money from the bank because they think everyone else will withdraw their money.
Historically there are two broad categories of solution to this form of market failure:
- black markets and price increases.
Right now the supermarkets are rationing – and yesterday we saw the government threaten hoarders. We also see black markets springing up.
This, however, is profoundly an information and trust problem. Right now a lot of information and trust is lost in supply chains and there are good reasons why that has happened. Going forward, however, to build a resilient economy we are going to have to re-incorporate a lot of that lost information and rebuild trust in our economic institutions and processes.