SUBJECTS: Grocery sector, FuelWatch, competition, NSW Labor Party Conference
David Speers:
Good morning, Helen, and Chris Bowen, thank you for joining us. You've announced a FuelWatch Scheme, currently operating in Western Australia. It will be rolled out across the entire nation. Now this forces petrol stations to lock in and publicise the price they're going to charge for the next 24 hours. Can you explain how this will save motorists one cent?
Chris Bowen:
Well, David. There are two points to make here. Firstly, as you say, to force service stations and petrol companies to lock in their price, that means they'll have to put in their best, cheapest possible price. That means if they want to get market share the next day, they're really going to have to make sure their pencil is very sharp and they've put in the cheapest possible price. They won't be able to take the risk of being a cent or two higher than the average because everybody will know they're more expensive. But secondly, what it does, it really empowers motorists.
It gives motorists a chance to find out what will be happening with petrol prices over the next 24 hours, and they'll be able to buy the cheapest petrol, so if they know petrol's going up by 10 or 15 cents overnight, they'll be able to buy that day, or they'll know if it's coming down. They'll be able to put their purchase off.
It will also mean they will have access to proper information about the best place to buy their petrol. The difference between the cheapest and the most expensive petrol in any capital city is very big on any given day so we're really putting motorists back in charge and empowering consumers.
SPEERS:
But if you're forcing petrol stations to lock in their price, it not only means they can't increase that price over the next 24 hours, they also can't cut their price which many of them do. So isn't this robbing motorists of that competition during the day?
BOWEN:
Well, what it does is it forces the competition into the period where service stations have to nominate their price. Now the evidence from Western Australia where this scheme has been operating successfully with the support of both parties in a popular way for the last 8 years, is that it is very rare for a petrol station to try and cut their price, but what it does it means that an industry that relies so much on market share -- service stations really trying to get more people into their service station -- they have to nominate their best price and, if, at the moment, a service station is a little bit over the margin, if they're trying to make a bit too much, then they can pull their price back down. But if they know that if they can't do that, they're going to have to put in their best, cheapest price from the beginning, and motorists will be the winners out of that.
SPEERS:
Well, you've pointed to Western Australia there, but the price monitoring groups point out that the cheapest and the average prices are actually higher in Western Australia than they are in the rest of the country. Not only that, Woolworths, one of the biggest petrol retailers, says it actually makes more money in Western Australia than it does in other states because the retailers don't cut their prices down because of this FuelWatch Scheme.
BOWEN:
Well again, David, two points to make there. Firstly, the fuel standards are higher in Western Australia. They have more environmentally-strict standards which means their prices are higher than they would be in the Eastern States. So you need to compare apples with apples.
SPEERS:
Well, they're also closer to Singapore ... Which is where a lot of the fuel comes from so they'd actually be better off anyway.
BOWEN:
But the biggest difference is the environmental standard, and secondly, David, really if oil companies and big supermarkets thought this would really increase their profits, I think they would be calling for this a long time ago. I don't think anybody suspects that if petrol stations and service stations thought this would make their life easier, they wouldn't have called for it. In fact, they've opposed this. We expected them to oppose this, but motorists will welcome it.
SPEERS:
But why not have a scheme that bans petrol stations from increasing their price over the coming 24 hours, but still allows them to cut their price?
BOWEN:
Well, it simply wouldn't work, David. What you need is a scheme which gives motorists certainty. Now, if you have a scheme where people can cut their price, but not increase it ...
SPEERS:
But people want low prices more than certainty, surely?
BOWEN:
What service stations will do is put in a high price, then cut it. So you nominate say 2 or 3 dollars a litre, then say I'll move up and down below that 3 dollars a litre mark, so it just simply wouldn't work. As I said, the experience in Western Australia is that this scheme works very well, it is very popular. Motorists find that it empowers their decisions. It was introduced by a Liberal government in Western Australia, has been supported by the Labor Party in Western Australia, and we're really calling on the Liberal Party federally to support this because this will put motorists back in charge.
People complain to me all the time: that prices are so volatile, they don't know where the cheapest petrol is, that by the time they get to a service station the price has changed. I had a woman email me the other day, and say that the price had gone up 10 cents while she was waiting in the queue! I mean these are the sorts of things we see at the moment. We need to give motorists a lot more control and put them back into charge of their purchasing decisions.
SPEERS:
Well, if the system is so good, why do we have to wait until December for it to take effect? Why not start this right away?
BOWEN:
Oh, look David, this is a very big scheme. This is a complex scheme, we have to set up a large and complex website. We need legislation which needs to pass both Houses of Parliament. To do the smaller, unincorporated service stations, we need some referrals of powers from the states. We want to get this right, we're not going to rush it in next week, and find that it's not working, that there have been technical glitches. We need to do a lot of work. We're getting on with that work. We'd like to have it up and running by Christmas, and that's what we're working to do.
SPEERS:
It sounds as if it's so complex, there might be some additional compliance costs for the service stations. Do you think this might have the reverse effect of what's intended?
BOWEN:
On the contrary, David. At the moment, service stations, the vast majority of service stations, notify a central body of their prices in real time. That's a website called Informed Sources. And what they do is they send an email every time they change their price to Informed Sources. But they pay for that privilege. They pay Informed Sources for the ability to do that, and for the ability to know what the service station down the road is charging. There are very substantial compliance costs for Informed Sources. We'll be taking all that out. This will be a free service. We'll be covering the cost of the setup, and there'll be no increased compliance costs for service stations whatsoever.
SPEERS:
Chris Bowen, a final one on petrol before we move on. It's a question that did cause you a bit of grief when you first took this job. How does cutting, or trying to drive down the price of petrol, fit with the fight against climate change?
BOWEN:
Well, what we don't believe, David, is that the way to deal with climate change is to allow service stations and petrol companies to charge more than the market would indicate. Now we have committed to an emissions trading scheme. There is more work to do on that, there is more detail out on that later in the year.
SPEERS:
But that will drive up the price of petrol, won't it?
BOWEN:
The two aren't contradictory at all. We want to make this petrol market work better for motorists. We want to make the petrol market work better for consumers, not for oil companies. At the moment, it's a one-way street. Now when you look at climate change, that's a completely separate matter, with an emissions trading scheme which we're working through the detail. We don't say the way to deal with climate change is to allow what the ACCC calls a comfortable oligopoly run without check.
SPEERS:
The two aren't entirely separate, are they? I mean, when you do have a carbon trading scheme that is going to drive up the price of petrol.
BOWEN:
Well, there's a lot of water to go under the bridge under the carbon trading scheme, David. We've got more work to do ...
SPEERS:
It will drive up the price of petrol, that's fairly obvious.
BOWEN:
There'll be a White Paper out later in the year which will deal with all the matters, will deal with compensation matters to low and middle income earners ...
SPEERS:
You're not suggesting petrol will be quarantined from a carbon trading scheme?
BOWEN:
What I'm suggesting, David, is that there's a lot of water to go under the bridge and a lot of work to do on the carbon trading scheme.
SPEERS:
Okay, but a carbon trading scheme would have to include petrol, wouldn't it?
BOWEN:
What I'm suggesting is that we're working through all these issues, that we are putting out the White Paper later in the year. Penny Wong, Wayne Swan, myself, are working very hard on it, and there's more work to do and more detail to be revealed.
SPEERS:
Okay, we look forward to that.
Grocery prices is the other tricky one in your particular basket. You're changing the rules to make it easier for foreign players like Wal-Mart and Aldi to set up shop here in Australia to try and boost competition. What you're doing is changing the number of years they can hold a block of land before they have to develop it. Currently, they can only hold it for one year. You want to make it five years.
What's to stop Wal-Mart, or indeed any other foreign player, from buying a chunk of land, and sitting on it for five years, and then selling it for a profit without laying one brick. What's to stop this sort of land speculation?
BOWEN:
Well, David, the situation here is for people like Aldi and IKEA -- this doesn't just apply to groceries, it applies across the retail spectrum -- but people like that who are already operating in Australia came to us and said, look, we want to expand, we want to employ more people, we want to open more stores, we want to give people more choice, but we're restricted by these laws.
To develop a block of land within 12 months is very difficult. You need planning approval, you need to find a builder, you need to start construction, and that is very difficult, especially when you're looking at Greenfield sites, where there's new residential estates going in, but they may not be finished for another two or three years. So if a grocery company wants to get in and secure that land, really the foreign investors were disadvantaged. Now we believe again in competition, we believe in giving people choice.
All the evidence is that where have Aldi, or IGA, or any other entrant into the market, you see downward pressure on prices in that locality. So we thought they made an eminently sensible suggestion, and five years is reasonable.
Now these companies aren't property developers, I mean Aldi's not in the business, or IKEA isn't in the business, or any other, really aren't in the business of developing property. What they're in the business of, is selling groceries. Five years strikes a reasonable balance. If they haven't developed in five years, well then they'll need to either develop it or move on.
Five years is a good limit, and it will stop landbanking but it will give them the opportunity to get more sites to expand, and consumers will be the winners out of that.
SPEERS:
Another idea that's come from, well, Family First Senator Steve Fielding, amongst others, is to force supermarkets to list on the supermarket shelf the price per weight of each product so that customers can come along and see: "Well, the Home Brand product costs this much per hundred grams, the brand product, which might be a slightly bigger tin, costs this much per hundred grams." So you can really see the price difference. Is that something you look at?
BOWEN:
Well, look, that's unit pricing and that is the case in some countries in Europe and some states of the United States of America. I envision that that will be something the Grocery Inquiry the A Triple C is conducting will look at very closely. We need to strike a balance here again. That would give consumers more information. It would be an increased compliance cost for smaller grocers, in particular.
We need to strike those balances, we need to insure that we give consumers as much information as possible, without imposing unnecessary burdens on smaller grocers, in particular. So they're the sorts of things we need to consider, and no doubt the A Triple C will considering in their grocery inquiry which will come to government later in July.
SPEERS:
Minister, just finally, are you going to the NSW Labor Conference next weekend?
BOWEN:
Yes, I'll be there on Sunday, yes.
SPEERS:
And, of course, the question is will you support or oppose the Iemma Government's very controversial power privatisation plan?
BOWEN:
Well, actually, I'll be there, but I'm not a delegate this year. I'm going for the leader's address, and I'll be there to support the Prime Minister, and I'll be concentrating on Federal issues.
SPEERS:
You're a senior player, though, in New South Wales, Chris Bowen, you were around state politics for a long time, too, where do you stand on this one? People, I think, would be interested to know.
BOWEN:
Well, I'm sure the conference will be expressing a strong view. I won't be a delegate to that conference. I'll be there in my capacity as a minister. There were days when I was a delegate, those days have moved on. I've got other things to do now, and I'll be supporting the prime minister in his addresses.
SPEERS:
All right, Chris Bowen, we'll leave you there. Thank you very much for joining us this morning.
BOWEN:
A pleasure.