Australia is 18 months from the last possible date for the next federal election, so expect a lot more blame-shifting, but hopefully none as absurd as this one.
The government and various allies in the Green/Left establishment have been screeching for over 12 months now about supermarket “price gouging.”
This is a ridiculous claim, as Coles and Woollies make only about 2.5 cents for every dollar of stock they sell. But even if it were true how would you solve it?
A rational policymaker would try to induce supermarkets to contract margins and cut costs. That would involve introducing more retail competition into the sector to force margins down; encourage productivity improvements from staff and equipment; tougher negotiations with landlords for cheaper rents; and stronger negotiations with suppliers for lower cost of goods.
But no, that is not what the interim report is suggesting. Rather Mr. Emerson implies he wants retailers to pay their suppliers more and everything else to stay the same.
How does that lead to lower prices?
In fact, the absurdities keep multiplying as the review won’t materially change the situation for major retailers at all.
- The Food and Grocery Code of Conduct should be mandatory and apply to all retailers with turnover of $5 billion or more.
- Maximum penalties for breaching the code should be 10 percent of turnover (so greater than $500 million on the basis of the turnover criteria).
- There should be a complaints process for suppliers, as well as confidentiality.
- There should be a resolution and mediation process for disputes, with supermarkets encouraged to pay up to $5 million to resolve disputes.
- Minimum standards that can’t be contracted out of.
A binding code voluntarily entered into is as good as mandatory, unless one of the parties decides to withdraw, and there is no sign of that.
If they tried, then you could make a case you needed a mandatory code, but at the moment that seems unnecessary.
Further, the fine of $500 million is hardly ever likely to be justified. If there is an imbalance of power, then we are talking about small suppliers, not ones to whom the damage caused by improper dealings could be as high as 10 percent of a retailer’s turnover.
The prime minister tried to waffle his way through this one. He told ABC News that:
“Clearly we are signalling the direction in which Dr. Emerson is headed,” Mr Albanese said.
“This work is all about how we make our supermarkets as competitive as they can be, so that Australians get the best deal possible, whether they be the providers or, of course, the consumers at the check-out.
“And this recommends the code be made mandatory with very heavy penalties for major breaches.”
Apart from distracting from the real villains of cost of living—this and previous governments and the RBA and the union movement—the report is also designed as a wedge between the Liberals and the Nationals.
Every time the government references the code they talk about “farmers and suppliers,” putting the weight on farmers, who are represented by the Nationals.
Even though the Nationals represent some of the poorest Australians, their heart is with their agricultural constituents, some of whom sit in their party room.
Opposition Leader Peter Dutton, representing a middle-income, outer-suburban seat might want lower prices, but he still has to accommodate his partners in some way.
He’s done this with a counter wedge, suggesting the government ought to have “divestiture powers.”
This was first advanced by Nationals leader David Littleproud, and Mr. Dutton is a late adopter, however, it does address one of the issues that might have an impact on prices–competition.
Even better from Dutton’s point of view, the government has ruled it out and branded it “populist.”
Mr. Albanese may not recognise this, but “populist” acts as a dog whistle to average Australians driving them away from him as they recognise themselves in the adjective.
In principle, I don’t have a problem with divestiture powers, although most monopolies die under their own weight, but with Coles and Woollies only sharing 65 percent of the market, they’re a long way short of where you might want to use those powers.
If Mr. Dutton wants to win some points he should broaden the argument to be about competition and flexibility.
Since Prime Minister Albanese has been in power, the CFMEU has been let off the leash increasing building costs by up to a third; the ACTU has been allowed to push for higher wages without productivity increases; small businesses and contractors have been heavily penalised by the “Closing the Loopholes” Act; while energy price caps have been put in place, contributing to high gas prices and a looming shortage.
On top of that, the federal government and their state counterparts are trying to reduce CO2 emissions by centrally planning economies, a path that has led to falling living standards everywhere it has been tried.
Labor is trying to surf its way to the next election on the announcement effect. There is a lot of posture in this report, but not much substance.
