Shane Jones: Doing nothing about the supermarket duopoly is harebrained

The month of March has passed. Although there was no evidence of hares behaving abnormally in our capital city, economic madness appears to have invaded the corridors of our Commerce Commission.

In March it released its final report into market failure within the notorious, $22 billion fat-cat supermarket sector. Despite finding that there were excessive profits and competition wasn't working in the sector, the commission raised the white flag.

Midway last year it released an interim report with muscular language and sharp-teeth regulatory options for industry restructuring.

Sadly in its overhyped final report, the commission showed it has the bite of an old, gummy ewe. It has failed consumers, betrayed growers and processors, and guaranteed ongoing whopping profits for the supermarket barons.

After the last election, the Government trumpeted the advent of market studies, to be undertaken by the commission. They were heralded as the first step towards shared prosperity. Remember that?

Unfortunately it neglected to appoint supermarket reformers.

Current ministers think reform can be outsourced to bureaucrats.

However, this shapeless contingent are dab hands at delay and playing down the parliamentary clock. Transformation does not happen via press statements. It requires political capital and a show of solidarity with businesses and consumers... er, voters.

Apparently, officials from the Ministry for Business, Innovation and Employment (MBIE) are plodding through the supermarket report and will soon advise ministers. No doubt the corporate lawyers operating on behalf of the barons will thoroughly examine this advice, looking for ways to litigate.

Unlike fuel, where margins are in the open, Foodstuffs and Woolworths are opaque and lack institutional transparency. This dense commercial thicket has beggared suppliers, crippled consumers and enriched the duopoly. Such a cash register will not be easily handed over.

Now is the time for ministerial mettle. Reform is only possible if there is political will.

If the Government really cared about Kiwi households and businesses, it could introduce into Parliament a Supermarket Reform Bill. It could effect a separation of the duopoly’s distribution, warehousing and wholesaling.

Such an intervention would end a competition blocking vertically integrated duopoly, thus bringing to heel the forces that overpowered the commission and undo the unhealthy concentration of market power enjoyed by supermarket barons.

It is so easy in cases of market failure and vested corporate interests in New Zealand to turn a Nelson’s eye.

By and large bureaucrats, including the Commerce Commission, are compensated by the girth of their advice, not the outcome. The status quo is less perilous for them than transformation.

However, voters are not blind. Already they have set their electoral sights on the Government and its response to the tepid supermarket report.

Gritty governments break up monopolies and give entrepreneurs the space to have a go. Competition helps Kiwis in Struggler’s Gully to make ends meet by making goods cheaper.

The immediate problem to be dealt with is the current industry structure. A robust challenger may very well arrive, but at the moment the current concentration of market power prevents such an outcome.

The commission also calls for a statutory ban on restrictive land covenants and exclusivity clauses which blocks competitors – a practice that was outlawed in Australia over 15 years ago. In the absence of a Supermarket Reform Bill, this practice will not cease.

Sadly the hares who conducted this market study did not borrow models from the dairy industry. Fonterra has been forced to sell wholesale milk to rivals for competition purposes. That is despite having a smaller market these days than the duopoly.

Bizarrely, the commission prefers a range of voluntary measures, which are a definite non-starter for current supermarket profiteers – turkeys never vote for an early Christmas.

Suppliers have apparently come out of the review in a stronger position. Time will tell. Any code between these retail giants and suppliers which is not enforceable is worthless. However, it could easily be included and legislated for by the end of this calendar year in a Supermarket Reform Bill.

A regulator is mooted to oversee grocery retail conduct. Such a development will only work if it has very clear mandates and powers that keep chief executives awake at night.

Once again, it is instructive to consider the track record of existing industry regulators and their effectiveness or not in dealing with market shortcomings. A well-functioning market, however, trumps phlegmatic regulators.

The commission shied away from forcing a divestment strategy, unlike supermarket bosses who are not shy about threatening to delist suppliers. Of course, getting the supplier firms on the record is difficult due to duopoly bullying.

Commissioner John Small seems to have been deeply involved in this market study. In 2021 he sounded like Simba in terms of structural separation. In fact he was reported as saying that operational separation was “a minimal requirement for effective wholesale supply by grocery retailers”.

Pressure came to bear and the Simba persona became like the Wizard of Oz’s Lion, bereft of courage.

While the commerce minister is jawboning about exceeding the commission’s supermarket recommendations, his record on the credit law imbroglio in the Credit Contracts and Consumer Finance Act is not encouraging. Officials will be fretting about property rights and our international investment reputation if he follows through on his rhetoric.

It should be obvious to ministers that the rise in the cost of living is damaging Labour.

With the rapid increase in consumer prices off the back of the worst inflation in three decades, a large number of households admit that their personal financial position is worsening. Toss in rising interest rates and the outflow of talent to Australia, and we could be looking at a full-blown recession.

National MPs are running an energetic campaign on cost of living pressures. They will not touch the barons, though. It’s easier for them to rail without remedy.

But as food bills surge and the contents of the grocery basket shrink, it’s clear – doing nothing about the supermarket duopoly is harebrained.