A state government inquiry has recommended against intervention in the regional fuel price market despite being told that agricultural and other bulk buyers were avoiding certain towns over 15-cent price differences.

The Parliament of Victoria’s Inquiry into Fuel Prices in Regional Victoria handed down its report on Tuesday.

Submissions made to the inquiry stated that Ararat and Stawell bulk fuel sales might have benefited from higher prices further west in the state, but high prices were bad for rural areas.

Average petrol price differential between Melbourne and regional Victorian locations

Source: Inquiry into fuel prices in regional Victoria.

The inquiry found that “high fuel prices in some regional areas increase business expenses and residents’ cost of living, which ultimately has an adverse effect on the local economy”.

The report made just three recommendations, including that the state government raise awareness of fuel price tracking apps and municipalities “review planning policies to encourage the entry of new service stations to regional fuel markets with low competition”.

“The difference between average petrol prices in regional Victoria and Melbourne has dropped in recent years and was less than one cent per litre in 2016-17,” the inquiry found.

Inquiry chair, Northern Metropolitan MP Nazih Elasmar, stated in the report that it would be difficult for the government to intervene in country fuel prices.

“The evidence indicates that inconsistencies in fuel pricing between locations are due to local market factors and lags in price changes due to lower stock turnovers,” he stated

“The level of competition and the presence of independent fuel discounters within a town can significantly affect fuel prices.

“The individual characteristics of each regional fuel market make it difficult for the Victorian Government to implement measures that could reduce fuel prices across all regions.”

Sources: RACV and Petrolspy.com.au.

A submission from Horsham Rural City Council stated that a January 2016 survey of businesses in Horsham found that some of them purposely bought fuel in Ararat and Stawell because fuel there was about 15 cents per litre cheaper than in Horsham

Victorian Farmers Federation president and Murra Warra farmer David Jochinke told the inquiry that higher fuel prices were affecting agricultural profitability, which was having a knock-on effect to rural communities.

“In agriculture, we find that unfortunately, we are in the position of being mainly commodities,” he said.

Those commodities do not allow us to shift that price onto the consumer or to be able to give any price indication of the costs that we do incur— fuel being one of the set costs just because of the distance that we have got to move our product.

“We have got to absorb any increase or fluctuation in the fuel prices … That impact on profitability is one of the key drivers in a lot of regional areas. Agriculture is the major employer. Agriculture is the major economy, and that leads to employment.”

The inquiry found that the introduction of fuel price tracking and comparison websites and smartphone apps “helps to make service stations more accountable for their pricing” but a lack of updates in rural areas could limit their usefulness.

 The inquiry report did not support mandatory fuel price reporting schemes that have been introduced in Western Australia and New South Wales.

“There is no evidence that mandatory schemes have reduced fuel prices in the areas they have been introduced,” the report stated.

“Indeed research suggests that mandated transparency schemes, where there is full transparency across the market, discourage fuel retailers from discounting and can stifle competition.

“Therefore, the Committee recommends encouraging competition within towns by improving fuel price transparency through existing apps and fostering the entry of new independent retailers. It also supports improving public awareness of the multiple factors that influence how fuel prices are determined.”

Inquiry findings

  • FINDING 1: The difference between average petrol prices in regional Victoria and Melbourne has dropped in recent years and was less than one cent per litre in 2016–17
  • FINDING 2: A major determinant of retail fuel prices is local market competition. Regional areas typically have less competition, which drives up fuel prices
  • FINDING 3: The lack of a price cycle in many regional towns results in regional motorists missing the opportunity to purchase fuel at very low prices but at the same time, they are less likely to pay the high prices that occur at the peak of the cycle.
  • FINDING 4: Price lags and local market factors, such as the level of competition, are the main causes of fuel price inconsistencies between regional towns and between Melbourne and regional Victoria.
  • FINDING 5: High fuel prices in some regional areas increase business expenses and residents’ cost of living, which ultimately has an adverse effect on the local economy.
  • FINDING 6: Existing fuel price apps and websites do not provide complete or timely information for all Victorian service stations.
  • FINDING 7: Fuel discounters lose their competitive advantage under mandatory fuel price reporting because their competitors can see their prices instantly and match them.
  • FINDING 8: There is no evidence that mandatory fuel price reporting schemes in Australia and overseas have reduced fuel prices.
  • FINDING 9: It is unlikely that mandatory fuel price reporting would reduce prices in regional Victoria due to the small number of competing service stations.
  • FINDING 10: Planning restrictions may hinder the entry of new service stations to a regional market, which may limit competition.

Inquiry recommendations

  • RECOMMENDATION 1: The Victorian Government conduct a public awareness campaign in regional Victoria to encourage the use of fuel price apps.
  • RECOMMENDATION 2: The Victorian Government support the Royal Automobile Club of Victoria’s efforts to improve the coverage of fuel prices on its app through crowdsourced data.
  • RECOMMENDATION 3: The Victorian Government and local governments review planning policies to encourage the entry of new service stations to regional fuel markets with low competition.

Extracted from Goondiwindi Argus.

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