Independent minds fall into a supermarket stupor

Bob Katter, Andrew Wilkie and Nick Xenophon want to introduce laws to "smash" Woolworths and Coles’ dominance of grocery retailing. There must be an election in the offing.

Katter this week introduced a bill into federal parliament that would force the two big chains to divest stores over the next six years until their individual market shares were below 20 per cent.

While there are various numbers bandied around for the existing market share of the chains, which depend on how the market is defined, they each have significantly more than 20 per cent of the grocery market.

Katter, a long-time critic of the chains, appears to be motivated by the impact of the intense competition between them on farmers. But he also claims they are able to "jack up" prices to consumers because they face no competition.

There is no doubt that the competition between the chains has placed pressure on their supply chains, including food producers, but whether that is something to be concerned about is another matter.

It is in the national interest to lift agricultural productivity and if the chains play some part in forcing that to occur they are helping to create economic benefit, not destroying it. There is an opportunity, if the agricultural sector can improve its performance, for Australia to benefit from an expected surge in demand for food in our region as Asia’s incomes and living standards continue to rise.

It is also inarguable that the competition between Woolworths and Coles has produced substantial consumer benefit, significantly reducing the cost of groceries and other staples for households and, because of food price deflation, contributing to the low levels of inflation and the low interest rate settings.

There have been endless Australian Competition and Consumer Commission and parliamentary inquiries into the grocery sector. Katter’s proposal isn’t novel – there have been plenty of calls over the years for market share caps on the grocers, none of which succeeded because the concept is absurd within a market economy.

It is ironic that in 2007 Kevin Rudd toyed with legislation to restrict so-called "creeping" acquisitions and also established 'GroceryWatch' (which, like FuelWatch, quietly sank without trace) because of concerns that grocery prices were too high. Now there is, according to Katter and his fellow travellers, an issue because they are too low.

The ACCC looked at the sector in 2008 and concluded that creeping acquisitions weren’t a significant concern and that the sector was "workably competitive". The subsequent expansion of Aldi and Costco and the continuing, indeed expanded, presence of Metcash and its independent supermarkets tend to be overlooked by critics of the two major chains.

While the ACCC under Rod Sims has been somewhat more aggressive in opposing acquisitions of independent supermarkets by Woolworths (which demonstrates that the commission believes it already has the power to act if it sees a threat to competition in a local market) the push by Katter and his fellow travellers to forcibly divest Woolworths and Coles of stores and market share is the kind of silliness that comes from independents in the lead up to an election campaign.

Would it really make sense to gut the most efficient retailers in the sector in order to protect the less competitive and to shelter the farm sector from pressure to lift its productivity?

Does anyone (other than those independents promoting the bill) seriously believe we should turn our backs on decades of promoting competition as the means for lifting national productivity and generating consumer benefit to protect inefficient competitors and suppliers?

The chains are currently negotiating a voluntary code of conduct with their suppliers (under the threat of having a mandatory code imposed on them) but it should be noted that if they were to abuse their market power or act unconscionably their behaviour would be illegal and the ACCC has well-defined powers and legislation that it could use against them.

Despite myriad inquiries over many years there is no evidence that the chains have deliberately or systematically abused their market power but there is plenty of evidence that the intense competition between them – and Aldi, Costco and the independents – has generated, and is generating, considerable consumer and economic benefit.

"Smashing" the chains might have some populist appeal among those who don’t understand or can’t accept the pivotal role competition plays in a market economy but would be destructive, not just of the chains’ employees and shareholders’ interests (and, directly or indirectly, a lot of Australians are shareholders in the chains), but of the national interest.