The price of being indistinguishable

If you grow fresh vegetables, you know something the shopper in the supermarket aisle does not: not all produce that looks the same is the same.

Two boxes of tomatoes can be identical in size and colour, yet one may have been harvested at the right maturity, cooled quickly and handled carefully, while the other may have poorer flavour and a shorter shelf life. 

Economists call this information asymmetry, and it sits at the heart of George Akerlof’s famous “market for lemons” theory. Akerlof showed that when buyers cannot distinguish good products from poor ones, they tend to pay a price based on average expected quality. That creates a problem for the producer of the better product: if the market will not pay more for quality, why incur the extra cost of producing it?

For Australian vegetable growers, the problem is compounded by supermarket buying power.

Large retailers do not simply sit between growers and consumers. They control access to shelf space, set detailed product specifications, manage tender processes and hold far more information about consumer demand, competing suppliers and likely volumes than any individual grower. That imbalance can allow supermarkets to capture much of the value created by growers while shifting risk back down the supply chain.

When vegetables are sold loose or under a supermarket brand, the consumer often has no idea who grew them. A grower can invest in better varieties, cooling, packing and handling, yet receive little recognition or premium. If the product performs well, the retailer’s brand gets the credit.

This matters because supermarkets can use that anonymity to strengthen their buying position. If one grower’s produce appears indistinguishable from another’s, the retailer can more easily treat suppliers as interchangeable and negotiate primarily on price. The grower bears the cost of quality, but the supermarket controls whether that quality is visible to the customer.

The system can also reward what retailers can easily specify and enforce: size, shape, colour, packaging and blemish tolerances. Flavour, freshness and eating quality are much harder to measure. Growers can therefore find themselves spending more to meet retailer-specific cosmetic and compliance standards without receiving a reliable return for the quality consumers actually value.

That is where information asymmetry and market power reinforce each other.

If better quality cannot be identified and rewarded, growers have less incentive to invest in it. Over time, this can discourage innovation, squeeze margins and push capable producers towards alternative markets.

The answer is not simply more regulation. It is greater transparency and a better balance of bargaining power: stronger grower branding, clearer provenance, more transparent tendering, fairer volume commitments and quality systems that reward measurable performance.

A healthy market should give consumers good produce while ensuring growers have a fair chance of being paid for the value they create.