How much supermarkets could be fined for breaking rules aimed at improving competition

Supermarkets could be on the line for large sums if they don't play ball with incoming regulatory requirements. Photo / Getty Images

Supermarkets could be fined several millions of dollars if they don't comply with proposed government rules aimed at improving competition in the sector.

Cabinet in August agreed to a set of penalties large supermarkets could face if they don't open their wholesale arms to competitors.

Commerce and Consumer Affairs Minister David Clark fears potential new entrants to the supermarket sector, as well as smaller incumbents, are disadvantaged because they can't enjoy the savings of buying bulk to the extent the country's two major players – Foodstuffs and Woolworths – can.

So, in May he announced the Government would require the big companies to make goods available to competitors at wholesale for a fair price.

He decided to go further than the Commerce Commission suggested and legislate this requirement. A bill is expected to be introduced to Parliament before the end of the year. It will likely be enacted in 2023.

Cabinet agreed to establish a "quasi-regulatory regime" under which major grocery retailers would negotiate wholesale offerings on commercial terms.

It also agreed to create a "regulatory backstop" which would enable it to crack down harder on grocery retailers if they don't play ball, or if their offerings "are not consistent with what would be expected in a workably competitive wholesale market".

Papers, released by the Government, show that in August Cabinet signed off on a set of penalties to accompany the regime.

Different types of non-compliance – either in relation to the quasi or the full regime – would solicit different types of penalties.

Penalties could be capped at a fixed amount or calculated in relation to how much the supermarket made by doing the thing it shouldn't have done, or in relation to its turnover.

The most egregious breach – "failure to comply with non-discriminatory supply obligations" – could see a culpable individual fined $500,000 or a culpable entity fined $10 million.

An entity could also be fined up to three times the value of the commercial gain made by the breach, or it could be made to pay the equivalent of up to 10 per cent of its annual turnover in New Zealand for every year the contravention occurred.

The method that solicits the greatest penalty could be used.

Cabinet agreed to a set of additional daily penalties that could be applied if a supermarket failed to follow instructions. These range from $30,000 to $100,000 a day.

The proposal is for the penalties to operate on a similar basis to those outlined in the Commerce Act.

Cabinet also agreed the bill should create a toolkit government could use to put pressure on supermarkets to comply.

One of these powers would be to enable the Commerce and Consumer Affairs Minister to seek an Order in Council to require major grocery retailers to "supply wholesale customers with a range of products at regulated prices and terms".

The minister could do this after considering recommendations by a to-be-appointed grocery commissioner.

Cabinet in August also ironed out how it would enable suppliers (ie of a particular fruit or vegetable) to collectively bargain with powerful grocery retailers.

It agreed the exemption be made by way of secondary legislation to parts of the Commerce Act that make collective bargaining illegal.

The Government has already updated the Commerce Act to stop supermarkets buying up land or dictating the terms of leases to block their competitors from getting a foothold in a neighbourhood.

The suite of new rules follows a market study the Commerce Commission did on the supermarket sector.