Source: Radio New Zealand
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The government’s attempts to shake up the supermarket sector have so far failed and something has to be done, Consumer advocates say.
New Zealand First said at the weekend that it was going into the election with a policy of ending the supermarket duopoly.
New Zealand’s grocery industry is dominated by Australian-owned Woolworths, and New Zealand co-operative Foodstuffs, which operates New World, Pak’n Save and Four Square.
NZ First said it would introduce legislation to break up Foodstuffs into two co-operatives, one for New World and Four Square and the other for Pak’n Save.
It also wanted tougher penalties and powers for the Commerce Commission and to address the supermarkets’ control over which products were stocked on shelves.
A potential break-up of the supermarket duopoly was raised as a prospect after the Commerce Commission’s 2022 market study into the supermarket sector, which found they were earning $1 million a day in excess profits.
After the 2023 election, ministries examined structural reform options, but the bulk of the policy effort focused instead on smaller regulatory fixes and market-led solutions, including work to understand what hurdles were in the way of another competitor entering the New Zealand market.
Officials warned that structural separation was more likely to be effective but was riskier.
Finance Minister Nicola Willis has said stronger intervention is possible if reforms are unsuccessful.
As of last year, a cost-benefit analysis was underway, she said. But similar work commissioned under the previous government found the economics of a break-up were far from straightforward.
A 2023 MBIE analysis suggested forced divestment could deliver competition benefits but also carried the risk of a $3.8 billion net cost over 20 years, largely due to the loss of economies of scale.
Consumer NZ spokesperson Gemma Rasmussen said since the Commerce Commission report, there had been a lot of tinkering around the edges of what was required.
“We have more regulation in the market, and more formal protections, but it’s fair to say that consumers aren’t really seeing any major changes at the supermarket. We’ve got the Grocery Industry Competition Act and the Grocery Commissioner has been created.
“There’s been work put in place to try and help suppliers, like the Grocery Supply Code of Conduct, and obviously there’s been the land covenant ban, which is to try and make things easier for a new entrant to come in, as well as some wholesale supply reforms. But what we’ve found, and what we’ve seen, is it seems like National has placed all of their chips on an international third party coming in, and that’s something that doesn’t seem to be a gamble that’s paid off. We’re a country with a really small population.”
She said the geographic isolation of New Zealand increased supply chain costs and made it harder for international players to expand here.
She said there were things in NZ First’s proposal that Consumer would support but there was no one solution that would fix the sector’s problems.
“When you potentially work to break up Pak’n Save and New World, you could potentially see an increase in operational costs which could drive up the price of food.
“There could be unintended consequences of the price of food going up ion the short term, or potentially the long term.”
She said there was also a risk that Woolworths could leave the country if it was no longer viable.
“Then we’d be back to square one with two small players.”
Rasmussen said a third player would also not necessarily guarantee lower prices.
In Australia, even with Aldi, the government had to introduce intervention to try to improve competition.
From July, the Australian government will introduce a law that bans large supermarkets from charging excessive prices.
This carries a penalty of up to A$10 million or 10 percent of turnover, or three times the gain from unjustified prices.
“This is something that would potentially be less risky. It would send a warning shot across the industry that when there have been these examples of extremely high mark-ups that they can’t be doing that.”
She said Consumer wanted to see more heat on supermarkets and more drastic measures taken. A move similar to Australia’s on excessive pricing could help, she said.
“If that wasn’t to work, then potentially to break them up. However, we do support what [NZ First] is proposing in terms of stronger powers for the Commerce Commission and the Grocery Commissioner, and we think it’s really great that they’re looking at that farm-to-shelf pathway.
“With what’s happening, it is a concern for us if that local grower market continues to diminish, New Zealand could be in a place where we’re actually really vulnerable to what’s happening in overseas markets.
“Right now, there’s a fuel crisis. If we are primarily importing our food and fuel prices go up, that’s something else that’s just going to continue to drive prices up. So really looking to ensure that our local growers are thriving is a great call and more resourcing there is welcomed by us.”
She said the public was frustrated that millions had been spent on a market study that found excessive prices but little had happened.
Tim Hazledine, Emeritus Professor of Economics at the University of Auckland, said he would support the supermarkets being broken up.
But he said Foodstuffs should be split into New World on one side and Pak’n Save and Four Square on the other so they were competing against each other in every market from the outset.
He agreed that what the Commerce Commission had done so far had not made a difference.
“There may be people who don’t do certain bad things because they’re afraid the Commerce Commission would act, and I hope that’s true, but they haven’t said, right, we really want the minister to give us powers to step in here and break up the duopoly.”
He said the commission had seemed not to want to be given significant powers at all.
‘They said, ‘please don’t, we’re not very brave here, so please don’t send us into battle. We don’t want any weapons. Thank you very much’.”
A spokesperson for Foodstuffs said there was no evidence to suggest breaking up its business would lead to lower grocery prices.
“The Foodstuffs North Island and Foodstuffs South Island co-operatives are made up of more than 500 locally owned and operated supermarkets, each store individually owned by a New Zealand family that is deeply embedded in the communities they serve. Profits are retained locally.
“It is a distinctly New Zealand business model, with members working together, buying together, and collectively owning their supply chain, support functions, and technology systems. This creates the scale needed to deliver the best possible value to their local communities no matter how remote they might be.”
The spokesperson said the model allows it to keep costs down and compete effectively against larger overseas-owned competitors – as well as New Zealand-owned operators.
“We are also a major partner to thousands of suppliers across New Zealand. We place strong emphasis on supporting supplier growth and innovation, and small New Zealand suppliers are among the fastest growing parts of our supplier base.”
The spokesperson said breaking up the co-operatives would reduce efficiencies, require duplication across supply chains and infrastructure and increase costs.
“New Zealand grocery prices are broadly in line with comparable international markets, particularly when factors such as GST on food and the cost of operating in small, geographically remote markets are taken into account.
“We support efforts to improve competition and regulation that deliver better outcomes for customers. In our view, the most effective way to achieve that is by improving efficiency and lowering the cost of doing business, including enabling greater scale across the Foodstuffs co-operatives-owned business model.”
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– Published by EveningReport.nz and AsiaPacificReport.nz, see: MIL OSI in partnership with Radio New Zealand
