Distressed And Unimpressed — MonopolyWatch NZ

A new chapter has been written in the history of consumer legislation, a sad and underwhelming one. Seldom in the history of canned tomatoes, tuna and toilet paper has so much been expected and so little been achieved as happened on Monday,10 July 2023, when The Grocery Industry Competition Act 2023 came into force – although force is too strong a concept to be used in conjunction with so damp a squib.

The Act’s purpose: “to promote competition and efficiency in the grocery industry for the long-term benefit of consumers in New Zealand.” Yet scant attention is paid to that purpose. A search for “competition” yields just 30 results in the Act’s 38,154 words. A search for “promote competition,” just three: one under Purpose and two dealing with the power to designate a grocery retailer as having obligations under a grocery supply code.

The shiny new Grocery Commissioner can consider conduct that lessens competition. He can report on the state of competition, but the legislation that created him offers no insights or pathway that might lead to creating scalable, like-for-like price competition in the monopolised supermarket industry.

The lawyers and lobbyists who serve the monopolists deserve handsome congratulations for their sterling efforts in disrupting, diluting and defanging the initial work of the Commerce Commission. They succeeded in having it kick into touch the policy difficulty of breaking up a cartel, a move tantalisingly contemplated in the its Draft Report. Now, Cabinet is so gun-shy about forced divestment that it will not permit the public to have a say in the matter. In fact, it won’t even let the public see the results of the studies on options for forced divestment, which it commissioned from Coriolis, Sense Partners and Cognitus. And these include a comparison of the “costs of divestment” with the Commerce Commission’s estimates of the supermarket chains’ excess profits. Price competition, innovation – along with the pay packets of Kiwi consumers — have been sacrificed to fears of outlier scenarios and unintended consequences.

MonopolyWatch NZ is not alone in its thinking, but it’s not alone in having its advice ignored. Here’s Paul Clark, Westpac’s Industry Economist:

“We think that stronger measures will be required to generate enough competition to deliver the outcomes that Government seeks.

“Our view is that this can only be achieved by introducing more competition throughout the grocery value chain and hence breaking up the existing duopoly. We think that reforms should begin by reducing linkages between large grocery chains and suppliers/manufacturers (vertical de-integration) and then reducing horizontal integration by encouraging new players into grocery retailing.”

The Minister demurred.

We agree with Mr Clark: the only way genuine price competition in grocery will be seen in this nation in our lifetimes is by breaking up of the market power of the incumbent geographic monopolists.

This shiny new Act with its shiny new Commissioner will not do that. It’s an Act that promises to issue reports, summaries of reports and reports about reports. It has simply created more red tape, more lanyards and more bureaucracy.