SUBJECTS: Consumers, Trade Practices Act, ACCC
LEON BYNER:
Recently, we had an announcement about FuelWatch, a Western Australian initiative that compels oil companies to announce a retail price at two o’clock any afternoon, for the next day, and then not change it for 24 hours.
This forces oil companies to put their lowest price up, and hope that another competitor doesn’t undercut them. Now I do understand that the federal government is considering ways to let the public know, where to find the cheapest food and grocery prices. I can hear you say ‘hallelujah’, well, you would be aware, that depending on area, the cost of any given item, be it bread, cereal, fruit, produce, can differ widely. In fact, I’d like your input on this today because I know that if you shop selectively, as we should, you’ll notice enormous price disparities. This is often because competition in a specific suburb is not as good as it might be somewhere else.
Now what is being proposed is a basket of goods comparison between one area and another, it’s called Geographic Price Discrimination, where lets say if you go to one suburb you can buy your Weeties at one price, but go to another suburb and it’s much more expensive, well that’s what that’s called. Now in South Australia, there are whole suburbs and country towns where one company owns the hotel, the bottle shop, the supermarket and the petrol outlet. Now, these are places where of course, there’s no competition and where price will be most non-competitive.
Now, I’m arguing that the unabated purchase of businesses by multi-nationals is out of control. I’m arguing that the ACCC regulations do not reflect the public interest because the way they’re calculated doesn’t look at specific regions, only the country as a whole. Have a listen to this as an example – a media company can own a newspaper, and a radio but not a TV, it can’t own three outlets in one city. So why the hell do we allow, with a supermarket chain, anything different? So it’s not the policing here, it’s the strength of the legislation itself. Now small and medium business must be afforded, I would’ve thought, the opportunity to fairly compete with their corporate Packmen and the rules that they have to play should be fair for everybody, not into the hands of multinational companies that just want market share and complete control of Australia’s supply and distribution networks and I would’ve thought that’s got to be resisted at all costs.
Now Chris Bowen, thank you for your availability on this.
CHRIS BOWEN:
Pleasure
LEON BYNER:
Can you tell the people of South Australia what you’re considering to try and reign in, and first of all encourage competition, in the food and retail sector, but also help make a difference for people that want to pay the best price.
CHRIS BOWEN:
Oh look there’s a range of things we’re doing Leon, some of which we’ve discussed and some of which we’re still working on. As you’ve said, we’ll have a website up and running which will enable people to compare grocery prices in different areas, at different outlets. Now that’s not simple to do, and we’ve been thinking carefully about how we’ll do that, and I’ll be making some statements shortly about the details of how we’re doing that. But anything that can give consumers more information is a good thing, so if people can look up and see in their area well generally one supermarket is cheaper than the other, for a basket of goods, whether it be fruit and vegies or dry groceries, or whatever, we’ll have different categories, and that’s helpful to consumers. One of the things we’re trying to do Leon, is give consumers much more information, and when you’ve got more information you’re back in charge. When you’re driving around trying to work out where the cheapest petrol is or where the cheapest supermarket is, then really, you’re not in charge, but if you’ve got more information, you are in charge and you can base your purchasing decisions on that. We’re doing other things some of which, as I say, we’re talking about foreign investment changes, to try and get some wider representation, Aldi for example, in New South Wales is very popular, expanding them into other states would be good for competition and there may be others from overseas who are interested. So, there’s a range of things we’re doing and of course we’ve got the grocery inquiry and they will be looking at a range of things which will report in July, on what might be possible to get more competition and transparency into the grocery industry. I imagine they’ll be looking at planning for example and whether there’s too many artificial restrictions on new supermarkets going up etc. They’re the sorts of things that are coming up in the hearing so far.
LEON BYNER:
Now Chris, before I introduce Frank Zumbo, who is an ACCC expert and you know him well and I know you get on very well, which is great. He put a proposition to us the other day that Informed Sources which is an information supply that gives oil companies virtually momentary movement in prices, ought to be available to everybody publicly, now do you concur with that?
CHRIS BOWEN:
Oh look I do, but I’d go further. The trouble if you just did that would be that you’re giving people more information about pricing, but pricing in petrol is so volatile that if you on the way to work and you look it up and think well ‘ok I’ll access this pricing’ and ‘oh ok that’s the cheapest service station on my way home I’ll got there’, by the time you get there, there’s absolutely no guarantee that that price will be the same. I had a woman email me the other day and let me know that the price of petrol had gone up 10c while she was in the queue, at the service station…
LEON BYNER:
I’ve seen it double that, don’t worry
CHRIS BOWEN:
Yeah, but it’s a bit annoying when you’re sitting in the queue and you can see the man come out and change the price in front of your eyes. The other thing that wouldn’t achieve is give people information about forward pricing, under our scheme you’ll be able to log on at three o’clock ad see what pricing will be tomorrow, so you’ll be able to bring your purchase forward if petrol’s going up 15c, you’ll be able to say ‘ok well I’m going to buy petrol tonight’ if it’s coming down you’ll be able to say ‘well I can get through tonight without buying petrol, I’ll buy it in the morning’. If you only just did real time information, you really wouldn’t be empowering consumers all that much.
LEON BYNER:
Alright, stay on the line. Now let’s bring in Australian school of business, university of NSW Frank Zumbo, Associate Professor, Frank, first of all, your comment on what we’ve discussed thus far, I want to talk about Geographical Price Discrimination, what’s your remedy for that?
FRANK ZUMBO:
Leon what we need is effective laws against geographic price discrimination. Canada has those laws. We don’t have them in Australia. Our equivalent section 46 is not working, nothing the previous government did fixed that, nothing this government is proposing will fix section 46, we need laws against geographic price discrimination, that’s the only way you’re going to break the strangle hold of the supermarkets on competition.
LEON BYNER:
So now just explain what the remedy would be, you’re saying that if for example, a packet of Weeties, a big packet is say $1.50, at one supermarket, at one chain, it ought to be that price across the board, is that what you’re saying?
FRANK ZUMBO:
Well what I’m saying is that if a supermarket offers a low price in one location, they should offer that price in another location. The only reason they don’t offer that low price in another location is because competition has failed in that other market. So supermarkets need to charge the lowest price across all their stores, all the time. That would give consumers the best deal, all the time.
LEON BYNER:
Chris Bowen, would you be favourable to look at that section 46 that Frank’s talking about?
CHRIS BOWEN:
Oh look I’m always happy to look at anything, however, I must stress, I would need to be absolutely convinced that it would be the lowest price that would then be across the board. The great risk in what Frank’s proposing is that the supermarkets will say ‘ok fine, we’ll have the same price across the country, but it won’t be the cheapest one, it’ll be the most expensive one. And the last thing that I’m going to do is introduce a law which actually pushes grocery prices up, so no doubt the grocery inquiry will look at this and if they recommend it I’d seriously consider it, but I would really need to be 100% sure that that wouldn’t be the case, if a good is $5 in one location and $6 in the other that the supermarkets wouldn’t say ‘well fine, if that’s the law, that’s the law, it’s $6 everywhere’, and those people who are benefiting from that competition, then missed out.
LEON BYNER:
Now, Frank what remedy have you got, to reign in grocery prices, what would you be suggesting to the minister that you think would actually work, and work effectively?
FRANK ZUMBO:
Well firstly as I said, geographic price discrimination needs to be outlawed, the Minister said he’d want it at the lowest price, the legislation could be drafted to guarantee the lowest price, the thing is if a supermarket seeks to raise their prices across the market that is not often the lowest price, what’ll happen is independents will come in and undercut the supermarkets, so the supermarkets would have an incentive to charge the lowest price in every market if there was a law that required them to do that. Also, you need tough laws against predatory pricing and the Minister is going undermine an initiative last year that was enacted called the Birdsville amendment, he will make it harder to prove predatory pricing cases. We haven’t had a predatory pricing case get up in this country and since the high court handed out some decisions a number of years ago, the ACCC has not taken any cases under section 46. We have a weak section 46 and nothing that this government is proposing with strengthen that section 46, to make it an effective remedy against predatory pricing.
LEON BYNER:
Chris are you in fact doing that, are you making it easier for the multi nationals to predatory price and harder to prove it?
CHRIS BOWEN:
No, not at all. What we’re doing is strengthening 46 in the same way that has been called for years, that has been called for by various inquires, that has been called for by ACCC, the ACCC has been fighting with one hand tied behind it’s back. Now Frank is correct when he says the courts have undermined the operation of section 46 and what we’re doing is fixing that. The courts have said that’s necessary to prove, to prove, that the big company can get those losses back, if they cut, so, in other words if you cut your price, below cost and then you drive somebody else out of business, then you can make up your profits again from that cost cutting that you did and that’s a very, very difficult thing to prove, and when the courts found that, the ACCC immediately said ‘well we’re not going to waste taxpayers money running these cases anymore, because we can’t prove that’.
LEON BYNER:
Yep.
CHRIS BOWEN:
So we’re making it very clear in the Act that that’s no longer necessary, now what Frank’s referring to there is the Birdsville amendment which Barnaby Joyce introduced last year, which was out of frustration, frankly, that the previous government wouldn’t strengthen section 46, so Barnaby moved and got support eventually at five minutes to midnight from the previous government to have a new test called ‘market share’. Now the trouble with market share, Leon, is that a small business can have market share, substantial market share, but not have market power. You can have a small hardware shop in a country town with 20% of the market that might be, might be, we don’t know, classified by the courts as substantial market share, but it would take ten years for the high court to figure all that out and then for us to get some guidance and I wasn’t prepared to let that happen, so what we’re doing is strengthening 46 in a way that several inquiries have called for that small business groups across the country have welcomed over the last few days and if you do that, you don’t need the confusion of a second sort of test of market share.
LEON BYNER:
Now Chris, are you going to do anything about individual regions where one operator comes in and buys up everything?
CHRIS BOWEN:
Well, what we’re doing is we will introduce regulation of creeping acquisitions, so what that means Leon is what you’re referring to before, if say, just for example, just say Woolworths decided to buy Franklins tomorrow, the ACCC would very clearly have a view on that and would say yes or no, but if Woolworths decided to buy one Franklins store a week, for the next 52 weeks then the ACCC might not be able to have a say on that and they should be able to. Now you need to get this balance right because there are a lot of independent grocery stores out there who might want to sell up and get a good price and we don’t want to stop them getting a good price, it’s the last thing we want to do, so we’re going to engage in a round of consultation and I’m looking to see what comes out of the grocery inquiry on creeping acquisitions and how it should work, but we will do it, we’re committed to doing it, but it is something that you don’t want to rush in and you want to certainly get it right.
LEON BYNER:
Ok, so Frank two things from you I’d like are: your view on what Chris has said and the most useful thing a government could do to try and keep things fair.
FRANK ZUMBO:
With respect I disagree that the changes he’d proposing will strengthen section 46, the changes the minister is proposing fiddle around the edges they don’t change the fundamental test in relation to market power, that test is a very high test, the high court is saying that you don’t have market power unless you have the ability to raise prices without losing business, effectively 46 only applies to monopolists, it will continue to apply to monopolists and not be relevant to players like the oil companies and Coles and Woollies.
LEON BYNER:
Yeah.
FRANK ZUMBO:
That’s a major step back. Now as far as moving forward, we need world’s best practice, Trade Practices legislation, we don’t have it, dealing with creeping acquisitions is fine, but we really need a general divesture of power to break up monopolies when they get to big, too powerful when they rip off consumers, so we need to go a lot further than the Minister is proposing, unfortunately the Minister’s only fiddling around the edges and won’t address the fundamental problem that exist in groceries, having a basket of good, yes fine, but we know that we’ve got one of the world’s highest food inflation figures, we have a CPI index that tell us we have inflation, it tells us we have a lack of competition in supermarkets. Your listeners should be able to confirm the real problem Geographic Price Discrimination; how they get ripped off in one suburb and unless that problem is dealt with we’re not going forward in this area.
LEON BYNER:
Chris, are you going to do anything that Frank wants?
CHRIS BOWEN:
Well Frank and I agree we need world best Trade Practices law, we might disagree about what that actually is, as I say, what we need is competition working properly and you’ve got to be very careful when you’re doing these things, you can do things with the best of intentions and actually reduce competition. As I say, if you had geographic price discrimination outlawed, you might find where there’s vigorous competition in one area, that people don’t benefit from that because there’s pricing across the board. Now, as I say, if I can be convinced and the grocery and inquiry comes up with evidence that this will work, then sure, fine, but I’m not going to risk people’s grocery bills without very, very firm evidence, but look, the reforms that we’re proposing to the Trade Practices Act, let’s be clear, are the most substantial in 22 years, since my namesake, Lionel Bowen, who’s no relation, reformed the Trade Practices Act in 1986. These are the most substantial reforms we have seen in 22 years. So I don’t think it’s fair, frankly, to call it tinkering, sure some people will say we should go farther, some people will say we’ve gone far too far, I don’t have the luxury of being a commentator, I’ve actually got to get it right, and get that balance right and that’s what we’re committed to doing. This is just one round of reforms, we’re introducing jail terms for cartel operations, we’re doing things across the board there’ll be more reforms to come, and this is an on-going process but what this government believes in Leon, is competition and I know you do too, and anything that promotes competition we’re in the market for, because you and I and every other consumer is the winner when we’ve got companies out there desperate for our buying dollar.
LEON BYNER:
Chris and Frank Zumbo, thank you very much for joining us today.