The push to break up the supermarket duopoly could end up forcing customers to pay more and give “extreme power” to the government, a peak business body has warned.
It comes after the left-wing Greens proposed a divestiture power bill that would allow the Australian consumer watchdog, and the courts, to make Coles and Woolworths sell their assets if they are found to be uncompetitive.
The Greens accused the supermarket behemoths of “ruthlessly using their market power to gouge prices while raking in billions of dollars in profits” amidst a cost-of-living crisis.
If the bill passes the Senate on March 27, it would give the courts and competition regulators the power to “smash the supermarket duopoly” and “help rein them in,” the Greens argued.
However, Business Council of Australia (BCA) CEO Bran Black said the bill wouldn’t solve the current issues, including price transparency from farm gate to the shelf, and nor does it take pressure off inflation.
Instead, the proposed law would exacerbate financial pressures and put jobs at risk, he warned.
“However, trying to rush through laws which have considerable unintended consequences, including harming consumers with increased prices, is not the answer.”
Mr. Black also warned the legislation would capture a wider sector of businesses.
“These are extreme powers which do not help the cost-of-living crisis and it would mean courts and the ACCC decide which businesses and jobs need to go,” he said.
What is the Bill About?
Under the proposal, the Australian Competition and Consumer Commission (ACCC) could apply to the courts for a divestiture order that could force the sale of a suite of specific stores held by Coles or Woolworths, which would then have to be sold to a competitor or an international operator wanting to enter Australia.It also proposed measures to increase competition in supply chains.
Greens Economic Justice Spokesperson Nick McKim claimed the existence of a divestiture bill means that “dominant supermarkets, banks or energy companies will think twice about pocketing higher margins and instead pass on savings to their customers.”
“Political donations from Coles and Woolworths have meant that successive governments have stood by and watched the supermarket duopoly dominate. It’s time to stand up.”
Mr. McKim also argued that competition agencies of Ireland, Italy and the Netherlands have been using divestiture power to “increase local competition.”
But Mr. Black noted that the last three major competition reviews—the Harper Review (2015), Dawson Review (2003) and Hilmer Review (1993)—had all rejected divestiture powers.
“Multiple reviews have shown divestiture powers can put jobs at risk and up-end the stability of critical sectors, particularly in regional and rural areas, which have very complex supply chains.”
In the most recent review in 2015, the Senate Economics Legislation Committee found that court-ordered divestiture would “risk significant disruption and economic damage, with unpredictable consequences for competition.”
The committee also noted there’s no evidence that the potential advantages of the divestiture would outweigh the likely disadvantages.
In New Zealand, the Commerce Commission recently advised against divestiture powers following an extensive market inquiry.
‘Not The Soviet Union’
In an unusual move, the Nationals announced they would back the plan, with leader David Littleproud saying “it is time” protections need to be given to farmers and consumers.“We saw it with the beef prices where we saw a 60, 70 percent reduction at the farm gate, but only an 8 percent reduction at the checkout and the same’s happening with fruit and vegetables, melon producers getting paid a $1.50 a kilogram, yet they’re charging over five dollars,” Mr. Littleproud said.
Prime Minister Anthony Albanese, however, dismissed the bill, saying Australia is “not the Soviet Union,” while the Liberals have not clarified their position on the proposal yet.
Yet he noted that in the year from September 2022 to September 2023, the Consumer Price Index increased 5.4 percent while that of food and non-alcoholic beverages was only 4.8 percent.
“If anything was driving inflation, it was insurance and financial services (8.6 percent), housing (7 percent), transport (5.6 percent), recreation and culture (5.6 percent), and health (5.4 percent).”
Meanwhile, Coles and Woolworths’ after-tax profit only amounts to somewhere between 2.57 percent and 2.53 percent, respectively.
Mr. Young added that supermarkets were also the victims of inflation.
“Most of their costs are fixed, and they can only play around to a limited extent with staff productivity, increasing turnover through marketing, and optimal pricing strategies.”
