New Zealand lacks adequate competition in key industries, including the grocery sector.
New Zealand lacks adequate competition in key industries, including the grocery sector.
Opinion by Liam Dann
Liam Dann, Business Editor at Large for New Zealand’s Herald, works as a writer, columnist, radio commentator and as a presenter and producer of videos and podcasts.
When it comes to maintaining competition in the sectors that Kiwis really care about, the Commerce Commission has been a terrible failure.
Across the past 22 years, it has allowed major consolidation levels in the three sectors that account for the biggest costs in our lives -our groceries, mortgages and petrol.
Major players have been allowed to buy their rivals despite (in every case) public opposition and fears that these moves would lessen competition and cost consumers in the long run.
Now the “long run” has arrived, with inflation adding an extra layer of public concern and urgency around prices, the Government is desperately trying to get more competition into these sectors.
It wants to merge its North Island and South Island co-operatives into a single national business which it says will bring cost savings which it will be able to pass on to consumers.
In other words: trust us, we’ll look after consumers.
A look back at the big decisions of the past two decades suggests the Commerce Commission has been all too ready to do just that.
In 2016, Z Energy was allowed to buy Caltex - dropping the number of major nationwide players in petrol retailing from four to three.
At the time Matt Goodson, managing director at Salt Funds Management, said the deal was good for Z but bad for consumers.
Goodson, who as a sharemarket investor might have been biased towards the deal, was very honest about the implications of the Commerce Commission’s decision.
“It’s certainly a major win for some very capable management at Z Energy, and a significant loss for the New Zealand consumer, given the very sharp movement in petrol margins in recent years and the fact that massive vertical integration remains in place.”
Just two years later, the Commerce Commission began a market study into fuel pricing. In December 2019 it released findings, concluding: “Fuel companies have been making persistently higher profits over the past decade than we would expect in a competitive market.”
It also found the three major fuel companies’ joint infrastructure network and supply relationships give them an advantage over other fuel importers.
Our banks have been making record profits in the past few years. They cashed in on the pandemic stimulus housing market boom in 2020 and 2021.
They keep warning that times will get tougher, but the latest round of results have seen healthy profits with higher wholesale interest rates allowing more room for banks to widen the margins they are charging mortgage holders.
Back in 2003 when ANZ was allowed to buy National Bank to form New Zealand’s largest banking group, it was accepted that the move breached Commerce Commission “safe harbour” thresholds in several areas (including the mortgage market).
The move consolidated more market share than the legislation allowed for any one player without an exemption from the Commerce Commission.
It still went through.
“The commission is satisfied that the proposed acquisition would not have, nor would be likely to have, the effect of substantially lessening competition in the relevant markets due to the competition provided by other major banks,” commission acting general manager Geoff Thorn said at the time.
Caltex is now owned by Z Energy. Photo / NZME
The mortgage market was described as having sufficient competition to counter any abuse of market power by the merged entity, and Kiwibank, TSB and PSIS are seen as alternatives for transaction-based customers.
At the time, Massey University senior banking lecturer David Tripe described the decision as disappointing.
“It doesn’t appear to understand the full cost of switching,” he said of the commission’s decision.
With all the talk about failed grocery operator Supie and of attracting another major international player like Aldi, it is galling to recall that our supermarket landscape was also more competitive once upon a time.
In 2001, the Commerce Commission gave Progressive Enterprises permission to by rival Woolworths.
Even the commission conceded allowing a duopoly would substantially lessen competition.
It found that it would result in the number of supermarket chains shrinking from three to two, and market concentration would rise.
It also found that, because barriers to entry into the supermarket market were high, the two incumbents would not be constrained by the threat of new competition.
But the commission’s hands were tied in this case because the application by Progressive was filed just ahead of new legislation designed to toughen up the Commerce Act.
Attempts to retrospectively include the Progressive bid under the new rules landed everyone in court.
The case went all the way to the Privy Council in London, where a bunch of British law lords decided to allow it to proceed.
New Zealand ditched the Privy Council in 2003.
The new Government has promised to bring more competition to the grocery sector. But it has a hard job ahead.
Unless it is prepared to legislate the break-up of big players - and I don’t think it is - then the Commerce Commission really has no teeth.
Its only real power is as a defensive player - blocking new moves towards consolidation and industry dominance.
Unfortunately, when it comes to the industries that really matter, the horse has well and truly bolted.
