Beware dead wood in retail's root-and-branch review

Given that they were speaking at a Food and Grocery Council forum, it isn’t surprising that Australian Competition and Consumer chairman Rod Sims and Small Business Minister Bruce Billson focused on the more contentious issues flowing from the dominance of the two major supermarket chains. It would be a massive missed opportunity, however, if those issues were a major focus of the proposed ‘’root and branch’’ review of competition law.

Sims’ speech went over the much-travelled ground of the chains’ dominance, its impact on smaller competitors and suppliers and also touched on (not for the first time) the potential impact of the Woolworths and Coles’ "shopper docket" schemes on competitor fuel retailers, while Billson was also concerned about the pressure on suppliers and the longer term impact on grocery prices.

Even if the debate was confined to the supermarkets and their supply chain,  the issues that need to be canvassed go well beyond the extent of the market power of the two big chains and into a broader discussion about the scale, efficiency and productivity of the supply chain, including agribusinesses and processors.

One only has to look at a topical sector – dairy – to compare Australia’s shrinking share of global export markets (which halved in the decade to 2012) with the performance of New Zealand’s industry, which increased its share from 30 per cent to 37 per cent over the same period.

The discussion would also need to include an examination of the structural changes occurring in retail both here and offshore. This would include the supply chains of Aldi, Metcash and Costco, and the role that technology plays in re-shaping the competitive environment.

While its terms of reference have yet to be released, Billson’s planned review is of competition law generally. He has indicated that it won’t just look through a legal lens, but will consider the structural issues that might relate to the competitiveness of the Australian economy.

While there are those in Canberra and elsewhere who tend to look at competition as an unequal contest between big business and small business, the influences on competition and competitiveness go way beyond that. It includes the role and cost of government and regulation, the management of the economy, the tax system, the quality of infrastructure and workplace productivity.

If the Abbott government is truly serious about improving the competitiveness of the Australian economy (as well as ensuring fair but fierce competition within it), all those issues and more would need to be considered with an eye to the rapidly evolving global context.

The ‘’root and branch’’ review shouldn’t just be a reprise of the Dawson Committee’s 1993 inquiry into the Trade Practices Act. It should be an amalgam of that kind of review of the law with something akin to the Hilmer Review of national competition policy a decade earlier than Dawson, with an extra emphasis on national competitiveness.

Billson said today that he hopes to release the draft terms of reference and appoint a senior business person to chair the review shortly, with the review itself to get under way next year.

The identity of the chair will be critical to the outcome of the review, and perhaps provide some insight into the broad direction of the outcomes the government would like from it.

A David Crawford or David Murray (who’s probably going to have his hands full with the financial system inquiry, where he’s the hot tip to be chair) would be the obvious prototypes for an appropriately qualified chair. There will also need to be a senior economist with competition policy expertise (Stephen King, formerly a member of the ACCC, springs to mind) and inevitably a senior lawyer with competition policy experience.

It would be easy to overlook the beneficial impacts of fair competition on the economy and consumers, and end up inadvertently protecting less efficient competitors and detracting from the intensity of competition and the overall productivity and competitiveness of an evolving economy. The competition between Woolworths and Coles has created grocery price deflation and billions of dollars of savings for consumers.

Billson’s review needs to be holistic and to take an economy-wide and ambitious view of the impacts it could and should have on national competitiveness.