Foodstuffs merger debate: Why the Govt should tighten, not loosen NZ competition law - Ernie Newman

The risk of any further consolidation is enormous, writes Ernie Newman. Photo / Sylvie Whinray

THREE KEY FACTS:

• Last month the Commerce Commission said it was not satisfied the proposed merger of sister supermarket co-ops, Foodstuffs North Island and Foodstuffs South Island, should proceed.
• Foodstuffs North Island recorded a $3.28 million net loss in the financial year to the end of March, its first such loss and largely due to tax changes.
• New Zealand households spend an average of about $300 a week on food, 20% of their budget, according to Stats NZ.

Ernie Newman is a semi-retired consultant in the Waikato with long experience as an industry advocate in the telecommunications and grocery sectors. He is a regular submitter to the Commerce Commission on grocery issues.

OPINION

Oliver Hartwich, in his article about supermarket competition issues, draws heavily on the wisdom of early 20th-century Austrian Friedrich Hayek, whom he describes as “one of my favourite economists”. But to be taken more seriously he needs to look through a far wider, more modern and more relevant lens.

Opposition to the proposed merger of the two Foodstuffs businesses is overwhelming.

Both the supply side (grocery manufacturers, produce suppliers and others) and demand side (consumers) have submitted persuasive arguments against – none of which Hartwich has addressed. His entire case is based on taking a hands-off approach justified by century-old Austrian musings.

It is arguably because our philosophy has been over-reliant on the “dynamic, evolving processes of discovery” that Hayek taught and Hartwich lauds, that New Zealand has got into this cripplingly expensive jar of pickles.

Allowing the merger of Foodtown with Woolworths, and letting controversial land covenants and cynical land banking slip under the radar, are examples where blind adherence to century-old theory has taken our regulatory eyes off the ball and allowed market consolidation in a field which is critically important to our economy – both in terms of our food chain as a food-producing nation, and consumer welfare.

He notes that Hayek’s concept of the “knowledge problem” requires that good economic decisions be dispersed among countless individuals.

Hear, hear to that – it’s why we need this decision to be dispersed across our community including the numerous submitters to the various Commerce Commission processes.

It absolutely must not rest with the three (soon to be two if they have their way) individuals who control almost our entire food and grocery supply line.

The risk of any further consolidation is enormous.

It’s entirely conceivable that the North/South merger could open the way for the merged entity to shed the remnants of its “co-operative” origins and be sold.

Almost certainly this would be to an international buyer attracted by our ludicrously high margins, leading to another massive fall in our national productivity ranking as well as higher consumer prices.

Hartwich has been open in declaring that Foodstuffs is a “member” of the NZ Initiative.

He could have gone further in noting that both Foodstuffs’ and Woolworths’ CEOs have seats on his board, giving them governance roles in the organisation.

And that nearly half his institute’s board members have close affiliations to the banking, supermarket or building products sectors, all of which happen to be subjects of current intense Commerce Commission scrutiny.

Competition law and regulation in this country needs to be tightened, not relaxed, in a way appropriate to 21st-century New Zealand needs.

Our current economic and social emergencies make it imperative that we have the maximum benefit of functional, transparent, open markets.

The very last outcome we need is further consolidation of control in a sector of our economy that is so clearly broken and that our society relies on for the most basic of human needs.