Tuesday, 13 December 2005
Competition (Amendment) Bill 2005: Second Stage.
I am particularly pleased to have the opportunity to bring this Bill before the Seanad at this time. On 8 November last, I announced that the Government had decided to revoke the Restrictive Practices (Groceries) Order in its entirety. This decision can only be implemented by means of an Act of the Oireachtas. Thus, the revocation of the groceries order is one of the principal purposes of this Bill. I also announced on 8 November that I intended to bring forward changes to the Competition Act 2002 to deal with certain practices in the grocery trade including resale price maintenance, unfair discrimination, advertising allowances and what is termed "hello money". These matters are all addressed in the Bill.
I am particularly pleased that it has been possible to introduce this Bill a little over a month after the announcement of the Government's decision to revoke the groceries order. It is in the interests of both the public and participants in the grocery business that the regulatory situation in the trade is clarified quickly following the decision to revoke the groceries order. Any element of uncertainty regarding the regulatory regime and its enforcement is detrimental not only to the public interest but also to the principle of better regulation.
However, before I explain in detail the structure and scope of the Competition (Amendment) Bill, I would like to say something about the background to the Bill. The groceries order has been with us in one form or another since 1956 and, for the best part of 50 years, it has been a source of controversy and heated debate. That debate intensified in the period since 1987, when the order was amended to introduce a ban on grocery retailers selling products below their net invoice price.
During that time, trade representatives and business interests have trenchantly defended the order on the grounds that it provided a level playing pitch and a stable business environment that enabled even the smallest suppliers and retailers to survive alongside the major international multiple operators. On the other hand, those representing the interests of consumers, including the Competition Authority and, more recently, the new National Consumer Agency have argued strongly for the removal of the order on the basis that it was anti-competitive and acted against the interests of consumers. Other independent groups, such as the Competition and Mergers Review Group in 2000, recommended the repeal of the order on competition grounds.
The issue was brought into sharp focus last March as a result of the report of the Consumer Strategy Group, which made a series of recommendations for the development of a coherent national consumer policy in Ireland. The CSG recommended the repeal of the groceries order in its entirety on the basis that it was not, as it was almost always described by its supporters, a ban on below-cost selling. According to the CSG, the order operated as a ban on selling below net invoice price and, in so doing, kept the prices of our grocery goods higher than they might be otherwise. Supporters of the groceries order were vehemently opposed to this recommendation and described the CSG report as flawed and the evidence and analysis presented by the group as flimsy.
It was against this background that I decided to engage in a public consultation process in order to ascertain the detailed views of all those who might have an interest in the matter. I was concerned to ensure that we would have a structured debate on the future of the order. I also wanted to ensure that we had as much hard evidence as possible on the impact the order was having on one of the most critical sectors of the economy. What happens in the grocery trade has consequences for the supply chain from the consumer and the retailer through the distribution network to the suppliers and primary producers.
Following the consultation process, my Department prepared its report and review of the groceries order. Where specialist economic expertise was required to assist in assessing the 600 or so submissions received, my Department ensured that this was available to them through one of the country's largest universities. Legal advice on issues arising was available through the Attorney General's office.
My Department's final report constituted a comprehensive review of legislation which has been with us for almost 50 years. The report explored in detail the history of the groceries order in terms of how and why it had come into being. It analysed the legal structure of the order and compared what it actually did with the claims that had been made for it over the years. It described the structure of the grocery trade, particularly over the years since 1987 when the ban on selling below net invoice price had been introduced. It analysed the impact on prices and inflation and compared trends in that regard with other European countries. It looked at the regulatory regimes throughout Europe and further afield, and examined the situation in the UK where no ban on below-cost selling exists. A claim made almost universally by those who supported retention of the order was that one of its greatest benefits was to prohibit predatory pricing in the grocery trade. Consequently, in a critically important chapter, the report examined in detail the phenomenon of selling below cost and explained in depth what predatory pricing means. The evidence, argumentation, analysis, conclusions and recommendations set out in the report, are the basis for the changes proposed in the Bill before the House today. It is appropriate, therefore, that I outline briefly some of the key findings of the report.
The groceries order does not and has never operated as a ban on below-cost selling but is a ban on selling below net invoice price. The difference is crucial because the Irish grocery trade operates on the basis of substantial discounts and rebates paid to retailers, which are never placed on the invoice in the first place. Such discounts and rebates cannot, therefore, be passed on to the consumers in the form of lower prices. No one in the trade was prepared, as part of the public consultation process, to reveal the full extent of such discounts. This clearly underlines the secretive way in which they operate and the way in which they are regarded as critical by the trade.
Furthermore, the terminology used in the order to ban selling below net invoice price was found to have no economic rationale whatsoever. It was no more than an administrative convenience. This is extraordinary given the impact the order was having on the trade and on consumer welfare generally. More important, the term "invoice price" as defined in the order has no relationship to cost price. In fact, the order makes no attempt whatsoever to define cost price. For that reason, the order was simply incapable of addressing the issue of predatory pricing, which is all about selling below cost price. Thus one of the greatest so-called benefits of the groceries order has been shown to be nothing more than an illusion.
It had been argued that the H. Williams Group, which went of business in the 1980s, was a victim of predatory pricing and that the groceries order had been introduced as a direct result of the company's closure and as a means of protecting smaller retailers from the power of the multiples. This argument ignores the fact that H. Williams was itself a multiple. It is clear from media reports and contributions made to the Oireachtas at the time, and from later evidence given to the Restrictive Practices Commission, that the closure of the H. Williams Group was as much the result of its weak financial position as it was of any price war. The groceries order was actually made some months before the company went out of business.
In the 15 years after the 1987 order came into being, there was a decline of some 20% in the number of grocery stores in the country. Almost 2,500 stores had closed by 2002. In the meantime, the market became more concentrated as a result of the significant growth of the symbol groups, the Spars, Centras and so on. The order was not protecting the small independent retailers and it was not preventing market concentration. Our grocery market is more concentrated than the market in Britain where there is no groceries order.
Since the mid-1990s, the rate of food inflation in Ireland has been three times the rate in the UK and almost twice the EU average. Supporters of the order said this was the result of the higher cost of doing business in Ireland. Why then is the rate of inflation in the clothing sector virtually identical to the rate in the UK? That is not easily explained. The most obvious explanation may well be the correct one: the Irish grocery trade is protected from competition.
We have been told that if we get rid of the groceries order, we will end up like the UK where 70% of towns and villages have no shop. The report clearly demonstrates that this statistic has no basis in fact. Indeed, access to groceries in the UK is shown to be excellent. Nearly 90% of rural households in England live within four kilometres of a petrol station, most of which have a convenience store attached. Almost 80% of rural households live within four kilometres of a supermarket. The ghost-town Britain report, about which we heard so much during the debate on the order, is actually found to argue that the price of fresh meat and vegetables in edge-of-town supermarkets is often higher than in local, independently owned outlets. Ghost-town Britain is an anti-globalisation argument and has nothing to do with below-cost selling of groceries.
The further one delves into the depths of the order, the more one discovers that, far from the successes that are claimed for it, the order actually put a floor under the price of groceries and drove all vestiges of price competition out of the grocery trade. Far from providing a level playing pitch, the order has encouraged a highly secretive, arbitrary and discriminatory system of discounts in the grocery trade by which those retailers with the most muscle got the best deals but were unable to pass on the benefits of that buying power to consumers because the law said it would be illegal to do so. Far from encouraging a better deal for consumers, the order protected the grocery trade from competition and eliminated every possible incentive to save costs, generate efficiencies and deliver value for money.
For the past 18 years, Irish consumers were denied the benefits of competition by a system that allowed manufacturers and wholesalers to determine, often inadvertently, the minimum resale price of the goods supplied to retail customers. This was the case because the law said that the price on the invoice was the minimum price that retailers could charge the public for the products in question. This system was exacerbated by a system of off-invoice discounts that could not be passed on to consumers. And all of this was happening despite the fact that resale price maintenance had been illegal in this country since 1958.
It is against this background that I bring the Competition (Amendment) Bill before the House. The Bill will improve consumer welfare and offer all of us a better deal for the future. The groceries order did more than control the price of grocery goods. As my Department's report acknowledges, it sought to limit certain practices in the grocery trade which might be considered to be unfair. That is why, in addition to revoking the groceries order, the Bill proposes to amend the Competition Act 2002 to deal with practices such as unfair discrimination, advertising allowances and what is termed "hello money". The provisions of the Bill apply only to the grocery sector.
By way of background, I should explain that the Competition Act 2002 prohibits anti-competitive behaviour in the economy generally. It is enforced by the Competition Authority. Prohibitions in the Act are divided into two categories. Section 4 prohibits agreements and concerted practices that have the effect of distorting competition. The undertakings participating in such activity do not have to be dominant for their activity or conduct to be captured by the provisions of section 4. Section 5 prohibits similar unilateral conduct, where no agreement or concerted practice is necessary, on the part of dominant undertakings.
The purpose of the amendments contained in the Competition (Amendment) Bill 2005 is to strengthen the existing provisions of the 2002 Act by prohibiting certain unilateral conduct on the part of non-dominant undertakings in the grocery trade. These are practices which it is feared might emerge following revocation of the groceries order and which might not be captured by either section 4 of the 2002 Act or by section 5 because they are not the conduct of a dominant undertaking.
Section 1 inserts new sections into the 2002 Act. Section 15A includes new definitions. Grocery goods are defined as food and drink for human consumption, including alcohol but excluding anything sold in a restaurant or bar. This definition will cover the vast bulk of products sold in conventional grocery stores. A grocery goods undertaking is defined as any undertaking engaged in the production, supply or distribution of grocery goods. A retailer is defined as anyone who sells grocery goods to the public.
Section 15B(1) prohibits resale price maintenance in regard to the supply of grocery goods. Resale price maintenance is the practice whereby manufacturers or suppliers specify the minimum prices at which their goods may be resold. This practice was prohibited by section 3 of the groceries order. Notwithstanding this, however, the provisions of the order preventing sale below invoice price actually legitimised the practice, a contradiction which my Department's report suggested had the potential to bring the Statute Book into disrepute. This section simply restates a prohibition that has been around since 1958.
Section 15B(2) is designed to prohibit unfair discrimination in regard to the supply of grocery goods. This means that a supplier cannot offer preferential terms to one buyer over another when the transactions involved are equivalent in nature. This simple provision replaces the hugely convoluted and ineffective provisions in the groceries order that did not operate as intended and allowed discrimination into the trade by means of secretive and arbitrary payment of off-invoice discounts. The language used in section 15B(2) is based on language already in section 4 of the 2002 Act. Section 15B(3) prevents an undertaking from forcing another to pay for the advertising or display of grocery goods. Article 18 of the groceries order prevented the payment of such advertising allowances in all cases. This Bill takes a slightly different approach by preventing any undertaking from being forced into making such payments. This would not prevent collaborative advertising arrangements which are mutually beneficial to the participants and which promote competition by bringing the availability of grocery goods to the attention of consumers.
Section 15B(4) prohibits a retailer from forcing a supplier to pay "hello money". This is the practice whereby a retailer demands a payment from a supplier before agreeing to stock that supplier's products. As in Article 18 of the groceries order, the circumstances in which the practice will be prohibited include on the opening of a new store, an extension to an existing store or a change of ownership of a store. However, this Bill seeks to amend a serious flaw in the order by specifying a period of time, 60 days, during which the prohibition applies.
Section 15B(5) replicates language already used in section 4 of the 2002 Act and states that the conduct described is only prohibited when it has the object or effect of preventing, restricting or distorting competition in the grocery trade, either in the State or in any part of the State.
Section 15C provides a right of action for any party aggrieved by prohibited conduct. Such a right allows the party to apply to the Circuit Court or the High Court for injunctive relief and damages, including exemplary damages. The Competition Authority will have a right of action under this section. That completes the new part being added to the Competition Act.
Section 2 of the Bill applies section 30 of the Competition Act 2002 in respect of the right of action specified under section 15C of the Bill which I have already outlined. Specifically, it applies to section 30(4)(b) which does not allow the Authority to delegate the power to initiate legal proceedings to a member of the authority or a member of staff of the authority. Section 3 applies section 45 of the Competition Act 2002, which contains provisions in respect of authorised officers of the Competition Authority and their warrants of appointment. Section 4(1) of the Bill then revokes the Restrictive Practices (Groceries) Order 1987. Subsections (2) to (4), inclusive, apply standard interpretation provisions. Such provisions will also be part of the new Interpretation Act that comes into force on 1 January next. They are replicated here for avoidance of any doubt.
Section 5 contains further repeal provisions in respect of the statutes listed in the Schedule to the Bill. These statutes are confirming Acts in respect of orders made under the former restrictive practices Acts and which are now redundant. Section 6 contains standard provisions in regard to Short Title, collective citation and commencement.
I will now address the issue of predatory pricing. There is no reference or prohibition on predatory pricing in this Bill for the good and simple reason that predatory pricing is a practice already prohibited by section 5 of the Competition Act 2002. Any debate on this topic must be predicated on the basis that when we talk about predatory pricing, we are all talking about the same issue. Predatory pricing is below-cost selling on a persistent basis by a dominant firm with the purpose and intent of trying to eliminate or damage competitors. Predatory pricing is wrong. It is illegal and is punishable under the Competition Act by fines of up to €4 million, or 10% of turnover, and imprisonment for up to five years.
Those who criticise the 2002 Act and argue it is incapable of tackling predatory behaviour forget that the law is much stronger and broader than simply the words written in the legislative text. The Competition Act 2002 is designed to be analogous to Articles 81 and 82 of the EU treaty. European case law supports the use of these analogous provisions to prohibit and punish instances of predatory pricing. That is the law. Consequently, any attempt to use this Bill to amend the Competition Act to define or redefine predatory pricing could seriously weaken the Act by taking such conduct outside the scope of the existing body of European case law.
With my hand on my heart, I do not believe that we, as legislators, want to go down that road. Let us call a spade a spade. We must be clear what we mean by predatory pricing. The term "predatory pricing", which has the specific meaning I have outlined, has been used by some as a type of generic term, or perhaps even a form of code, for all forms of low pricing strategies employed in the grocery trade. There are many who would be pleased to continue to make such pricing strategies illegal. This is because such strategies are the manifestation of real competition. They threaten consumers with nothing more than better value.
The argument that we must eliminate all forms of low-cost selling in order to protect the trade from predatory pricing is disingenuous. If this argument were to prevail, it would result in our replacing the provisions of the groceries order with similar provisions in the Competition Act to prevent all forms of low pricing in the grocery business. In so doing, we would run the risk of weakening the Competition Act and sacrificing the prohibition it contains on genuine predatory pricing. That would leave us all very much the poorer. We would eliminate one anti-competitive groceries order and replace it with another. In such circumstances, we, or our successors, will be back here in ten or 15 years having the same debate. The Government is opposed to introducing that type of anti-competitive measure. Our objective is to offer Irish consumers the better value they deserve.
This is a short but very important Bill. The groceries order has now been comprehensively analysed. It has been subjected to detailed legal and economic investigation. That analysis has shown that, in recent years, the order has not served the purpose for which it was intended. Whatever protectionist philosophy might once have justified its continued existence, it has long since passed into the annals of our economic history. The order is from another era. To apply an apt term, it has passed its "best before" date.
The grocery business is about more than mere grocery stores. It is about all those involved in the production and distribution chain, right back to the factory floor and the farm gate. It is also about consumers. The reality is that for industry to survive and prosper in a global economy, it must be able to compete with the best. We will not do industry any favours by continuing to protect it from competition on domestic markets. It is right and proper that we guarantee fair competition.
The way to do this is through our competition laws. We must ensure they are kept under review and enforced vigorously when needed. That is why the Government has more than doubled the resources available to the Competition Authority in the past five years. It is the reason, moreover, we have provided the authority with an additional €750,000 to boost its investigative and enforcement capacity. It is the reason we have brought forward the Competition (Amendment) Bill 2005. I commend the Bill to the House.
I welcome the Minister and thank him for outlining his perspective on this Bill. We will have to differ substantially on a number of points. I begin by expressing my concern at the speed at which this important measure is being rushed through the House. The Bill was printed and circulated yesterday. We are taking Second Stage today and Committee and Remaining Stages tomorrow. Such a timescale for the consideration and discussion of such an important measure is an affront to this House. It frustrates any meaningful consideration of the legislation in circumstances where amendments must be tabled directly at the conclusion of the Second Stage debate, with little time to take significant legal advice in regard to the implications of the proposed legislation. I am often concerned when Bills are rushed through in this manner at the end of a session that we end up with poor and ineffective legislation. I fear that will be the case in this instance, given the introduction of what is a complex piece of legislation, albeit spread over only eight sections.
The Fine Gael position on this legislation is best expressed in the motion I tabled before the House on 29 September 2005. In the context of this legislation, it is important that I restate that motion:
That Seanad Éireann believes that the groceries order should be replaced with a new law to take account of changes in the Competition Act and modern trends in the grocery trade, to include the following:
1. that all discounts appear on invoices so that the benefits of food competition can be fully passed on to consumers; and
2. that our communities are protected from predatory pricing by major multiples in order to see choice and diversity in the food sector where multiples and local shops can compete on a level playing pitch.
The Bill we are expected to consider today achieves one of these aims by revoking the groceries order, but completely fails to deal with the issue of predatory pricing.
This legislation follows on from the publication of the Consumer Strategy Group report and a public consultation process initiated by the Department. The Department then prepared a report, A Review and Report of Public Consultation Process, in October 2005, which was released by the Minister at the time he announced his decision to revoke the groceries order. He described the report as a comprehensive analysis of the issue and stated, "There really was no option available to the Government other than a decision to revoke the order".
The report of the consultation process runs to 197 pages and has 13 appendices. It amounts to an historical account of the groceries order, an assessment of the key arguments for its retention and abolition, and some final conclusions. It is important that I refer to this speech as it is pertinent to some of my comments on the Bill. The report clearly helped form the Minister's opinion on this legislation and reflects his Department's perspective on the topic. Regrettably, I must conclude that the report, as a piece of a research, has all the hallmarks of seeking to justify a previously determined conclusion, rather than presenting an objective piece of analysis. It does not take a balanced approach to the subject and tends to disproportionately favour the comments and observations of those whose arguments support the revocation of the order. The biased undercurrent in the report must be addressed as it has given rise to the introduction of the provisions in this Bill, which are reflective of a particular state of mind in both Earlsfort Terrace and Parnell Square.
In his statement yesterday, the Minister said:
The sooner we can get this legislation on the Statute Book, the sooner consumers will begin to see the benefit of greater competition in the trade in the form of lower prices.
I am surprised at the Minister's conclusion in this regard as the report prepared by his officials specifically noted that they were unable to determine the impact of the groceries order on the rate of inflation, the absolute prices of grocery goods at retail level in Ireland or the comparative prices of such goods relative to those in other jurisdictions. In particular, they were reluctant to draw a firm conclusion in regard to the impact of the order on inflation and price levels. The officials also went on to say that they could not quantify the impact of the removal of the order on prices, despite concluding that they wanted it to be removed. Since the publication of this report and the release issued by the Minister yesterday, he seems to be predicting lower prices for consumers. I would be interested to know how much he expects prices to fall as a result of the revocation of the order. Surely he must have some idea of the type of savings consumers can secure as a result of the changes he is introducing today. If so, he must clearly state this on the record.
The report also appears to adopt a tone that any submissions received from the trade in the consultation processes could somehow be discounted because they came from vested interests. This is a dangerous precedent to adopt and it ill behoves a Department to undertake such subjective analysis with trite dismissal of the views counter to those prevalent in the Department at a given time. There is a similar dismissal of the arguments presented in favour of the order by some of the charitable groups such as the Society of St. Vincent de Paul, Crosscare and Combat Poverty. The views expressed by these charities are dismissed in the report as being misguided. The overall approach emanating from the report is that "we know better". Similarly, the views expressed by MEAS about the order restraining the promotion and sale of alcohol are curtly dismissed.
The dismissive attitude of the report to policy arguments that may be used in favour of the retention of the order extends to denying there are problems in the UK in regard to adequate retail services. I was interested in the Minister's comments on the matter in his statement. The Department seems to have engaged in some sort of voodoo analysis of statistics of retail provision in parishes throughout the UK. It has determined that contrary to a general understanding, there is no problem in the provision of retail facilities in Britain.
I must take serious issue with this observation. As anyone who has travelled across Britain will know, there is a major problem with the availability of retail shops. A number of years ago, I carried out a study on behalf of the Oireachtas Committee on Enterprise and Small Business and met a whole range of groups, with the assistance of the Irish Embassy in London, to assess the impact of trading practices in the United Kingdom. I can confirm that on this aspect the Department has got it wrong. Trading practices and planning practices in the UK have caused serious difficulties with the retailing provision in the UK. I am aware of statistics produced by the UK Department of Trade and Industry in 2002, which confirmed that more than 40% of independent food, beverage and tobacco retailers had closed.
The DTI in the UK has also produced statistics on business start-ups and closures between 1994 and 2002 which indicate that 30 general food stores close every month. These statistics indicate that 2,500 food, beverage and tobacco wholesalers have ceased trading over the past decade and that 50 specialist food shops close every week. I suspect that if the Department's analysis on the impact of below cost selling in the UK was subject to robust and independent analysis, the result would be very different.
I am surprised at the tone of the report on which this legislation is based and that it seems so one-sided and predetermined in reaching a particular outcome. It is hardly surprising when one notes that the Department had engaged the services of a Trinity College academic to carry out an analysis of the submissions before the Department. That academic previously produced a report in 1999 entitled A Rationale for Repealing the Groceries Order.
Perhaps the area of most concern in terms of where the analysis in this report is reflected in the legislation relates to the treatment of predatory pricing. The report produced by the Minister's officials clearly states that they do not believe any additional measures are required in respect of predatory pricing. It concludes that predatory pricing is prohibited by the Competition Act, but notes that this prohibition only occurs where there is dominance. It suggests that a company with a market share of less than 35% is not likely to be dominant and believes that this prohibition is sufficient and does not need to be strengthened.
The report also concludes that there may be instances where persistent below-cost selling without a predatory intent may have a negative impact on market structures and place participants at a disadvantage. In doing so, such practices may act against the broader interests of consumers. Despite this finding, the report does not believe this activity should be outlawed in the Competition Act because of the risk of inhibiting genuine price competition. I find this extraordinary.
In this legislation the Minister is purporting to inhibit certain unilateral conduct on the part of non-dominant undertakings in the grocery trade, which it is feared might emerge following the revocation of the groceries order. In his statement yesterday he notes that these practices would not be captured by section 4 of the 2002 Act because the conduct did not involve agreements or concerted practices, or by section 5 because they were not the conduct of a dominant undertaking. Surely the same logic and rationale applies to the practice of predatory pricing.
The Minister has proposed to outlaw the demanding of "hello money", resale price maintenance and unfair discrimination in the retail grocery trade, on the basis that these are unilateral conducts which could be carried out by a non-dominant undertaking. What is predatory pricing when practised by a non dominant undertaking? Under the proposed legislation, any large multiple in Ireland would be free to engage in predatory pricing with impunity against a smaller competitor. None of the Irish multiples at national level has a market share approaching the 35% specified by the Department of Enterprise, Trade and Employment.
The Minister claims that dominance can also be examined at local level. When the Competition Authority assessed dominance in a recent case in Drogheda, the authority determined that a company with a market share of 65% was not dominant. The determination of the Department of Enterprise, Trade and Employment and the Competition Authority must be cold comfort to any smaller retailer trading close to or alongside a larger competitor. The approach by the Department, the authority and the Minister is to advance legislation that essentially legalises and institutionalises unfair trading in the retail grocery trade. As far as this legislation is concerned, it will distort competition by giving legal protection to the enormous market power of some of the largest players in the grocery market globally.
The Minister is wrong on this aspect. As far as the grocery trade is concerned, the Competition Act will not operate to outlaw predatory pricing. When the Minister initially introduced the legislation and announced the revocation of the order, he stated that he was doing so on the basis of a report produced by the consumer strategy group. He said he was acting to ensure that consumers receive the benefit of off-invoice discounts. Fine Gael was and is happy to support this objective.
However, the Minister's legislation does much more than what is required by the Consumer Strategy Group. I fear this legislation is so one-sided and imbalanced that it firmly tilts the playing field in favour of larger players. In his press statement yesterday, the Minister stated that he wanted to secure a new competitive environment that would be fair for all but the competitive environment that will be established once this Bill is passed in its current form will not be fair to all. In fact, the legislation will institutionalise and legalise unfairness. In doing this, the Minister is advocating legal change that is unnecessary and destructive in the context of the public policy objectives that must be addressed in this debate.
The Minister's position on this legislation also involves setting considerable store by the Competition Authority and its effectiveness. I must admit I do not share his enthusiasm for its effectiveness but rather share Senator Ross's observations last Sunday that the authority has an inflated reputation. As an entity, the Competition Authority has let down consumers. It has not produced the scalps that we are entitled to expect and seems to allow itself to become distracted with never-ending studies and costly investigations about niche areas.
I understood he was referring to the authority's reputation but the Senator is entitled to his own interpretation in that respect. If Senator Ross is listening, I am sure he will contribute to this debate.
It is also extremely worrying that three of the five positions in the authority are currently up for change. The lack of continuity and differing priorities that this will bring about is obvious. I am deeply concerned about the low productivity of the authority. The Minister constantly refers to the authority as one of the leading such authorities in the world. However, I suspect he has a big job convincing many people in business and consumer groups that it is as effective as he would like it to be. With the promise of one prosecution in a year and a handful of civil cases, it does not act as deterrent against anti-competitive activity in the economy.
I hope that one outcome from conferring on the authority responsibility for enforcing legislation directed at the grocery sector is that it will face greater pressure to perform. In this respect, I return to the report produced by the Minister's officials. The report states that they were unable to determine the impact of the groceries order on prices. However, there was a remarkable statement at the start of the relevant section of the report, which noted that different predictions on the impact of prices had been made by different groups and organisations, including the Competition Authority. As Members will recall, the authority produced statistical data during the summer to the effect that the abolition of the groceries order would save Irish consumers approximately €500 to €1,000 per year. When tested on these claims by the Oireachtas Joint Committee on Enterprise and Small Business, the veracity of the authority's statistics was placed seriously in doubt by the Central Statistics Office. It transpired that the authority had been very selective in the manner in which it had presented its data and that material presented by it was inaccurate, if not misleading.
It is interesting that the Department does not regard the authority's presentation of inaccurate and misleading data as presenting any difficulty. At the outset of the chapter on the impact of the order on prices and inflation, the Department states:
In what follows we neither make, nor imply any criticism of any party in the way in which they have presented their chosen statistics. It is in our view an entirely valid use of statistics to choose the data that best illustrates your argument or case.
I do not accept such comments from the Department in regard to the Competition Authority. The authority is a statutory agency, established by the Houses of the Oireachtas, with the purpose of advising on competition policy. It ill-behoves a statutory agency to produce selective or misleading data for any purpose. It is notable that the Department does not endorse or accept the Competition Authority's analysis of the impact of the revocation of the order on prices. I hope the Department will take a less lax attitude towards the authority and start to demand better levels of performance and accountability from it.
I have a number of specific concerns about the legislation with which I would like to deal. First, and on a general level, I note that any party that breaches the new provision of the Competition Act relating to grocery goods will not be liable to prosecution for a criminal offence, as applies to other aspects of the Act. It seems strange that there are two different regimes applicable under the Act, where some conduct that breaches the Act constitutes a criminal offence, but conduct relating to anti-competitive activity in the grocery trade does not. I am not sure of the reason for this and perhaps the Minister might enlighten us on this significant policy change. I would have thought that the same level of penalties should apply.
I also note that the definition of grocery goods contained in the Bill is far more restrictive than the definition of grocery goods provided in the groceries order. Under the order, grocery goods included food, drink and other household goods including detergents, personal hygiene items and similar goods. I do not understand the reason the Minister has narrowed the scope of these provisions to exclude such a wide category of goods. Is it not the case that suppliers and manufacturers of such products are entitled to benefit from the provisions that he is introducing today? Perhaps the Minister might enlighten us on that.
I also note that the Minister has not treated intoxicating liquors any differently from other grocery goods in this legislation. I am sure all Senators would have noticed the prevalence of advertising and promotions for intoxicating liquor by the main multiples over the past number of weeks. While low prices are of benefit to all consumers, it must be of concern if price promotions are to be based around cheap alcohol. Given the Minister's previous position in the Department of Health and Children, it would be curious and surprising if this legislative change facilitated the development of a cheap booze culture across the State. In this regard, it is important that the Minister takes account of the views expressed by a number of agencies and groups concerned about trade matters which have expressed concern.
I thank the Senators for their comments and I will quickly complete my contribution.
The main concern I have about the legislation, which I am aware is shared by many Members on all sides of this and the other House, relates to the absence of a prohibition on predatory pricing as an aspect of anti-competitive conduct in grocery goods trading. My understanding of the basis for the changes the Minister is introducing was succinctly set out in his press statement yesterday when he claimed that the measures contained in section 15B of the legislation to prohibit certain unilateral conduct on the part of non-dominant undertakings in the grocery trade were needed following the revocation of the order as they would not be captured by either section 4, because the conduct does not involve agreements or concerted practices, or section 5, because they were not the conduct of a dominant undertaking.
If that logic applies in regard to the demanding of "hello money", resale price maintenance and unfair contract terms, surely it must also apply to predatory pricing. I suspect the Minister may be concerned that any attempts to outlaw predatory pricing could have an impact on genuine price competition. This is the basis of a response to a parliamentary question he gave to Deputy Cowley on 22 November 2005.
However, careful drafting could clearly distinguish between genuine predatory pricing and normal price competition. It is farcical to think that some of the largest retailers in the world will be able to engage in predatory pricing in Ireland with impunity, in circumstances where their market scale globally is way in excess of the turnover of the grocery market. One statistic I heard recently suggested that Tesco had a turnover eight times the size of the entire grocery market in Ireland. It would be farcical if under Irish law such a retailer was able to engage in predatory pricing against a smaller player without any legal sanction. As matters stand if this legislation is enacted in its current form there will be no legal mechanism available to any retailer who is subjected to sustained predatory pricing by a non-dominant undertaking. That is grossly unjust, punishes enterprise and initiative and leads to less competition. I cannot understand the logic of failing to make provision against predatory pricing in this legislation. Many of the lawyers to whom I have spoken are adamant that the Competition Act does not prevent predatory pricing when it is carried out by a non-dominant undertaking. They have argued that if predatory pricing is carried out by a dominant undertaking, it is extremely difficult to bring a legal prosecution. It is telling that the Competition Authority has not taken any action on predatory pricing since it was given its prosecuting powers in 1996.
I am also concerned about the provisions of the proposed new section 15B(5) of the 2002 Act. Section 15B outlaws "hello money", the demanding of advertising allowances, unfair contract terms and resale price maintenance. Subsection (5) of that section negates the impact of those prohibitions, however, by stating that:
Conduct described in subsections (1) to (4) shall not be prohibited unless it has as its object or effect the prevention, restriction or distortion of competition in trade in any grocery goods in the State or in any part of the State.
This stipulation makes it extremely difficult to envisage how any determination on specific anti-competitive behaviour of the nature outlined in the first four subsections of section 15B could be effectively outlawed. I have been told by lawyers that it takes the Competition Authority an average of two to three years to investigate and conclude cases after complaints are made. If a person makes a complaint to the authority about the demanding of hello money, for example, it will need to determine whether the demanding of such money had the object or effect of preventing, restricting or distorting competition. Given the length of time that it is likely to take the authority to reach this determination on the basis of the open-ended procedures it seems to follow and the lack of clarity in the legislation, the provisions of the proposed new section 15B(5) of the 2002 Act seem to fundamentally undermine and nullify the preceding subsections so that they have little effect. In the fast-moving grocery trade, clarity is required about what is and is not allowed. In his press statement yesterday, the Minister said he believes it is critical to provide certainty to participants in the grocery business about the rules and regulations which govern that trade. I suggest that the inclusion in this Bill of the proposed new section 15B(5) of the 2002 Act does not provide clarity and certainty.
As I said earlier, I am concerned that the Minister has not made a transgression of the proposed new section 15B of the 2002 Act a criminal offence under the Competition Act. It is unacceptable that he seems to have introduced a lighter type of legal sanction in the form of civil proceedings. I have tabled amendments to address some of the concerns I have raised. While Fine Gael accepts any legislation that facilitates the passing of discounts to consumers, it is adamant that measures must be enacted to prevent predatory pricing. The Minister has ignored this aspect of the legislation. He has sought to dilute the other measures he purported to introduce to prevent anti-competitive activity following the revocation of the Restrictive Practices (Groceries) Order. While the consideration of these measures in this House will be limited, given the pace at which the reform is being pushed through, I hope the Minister will give consideration to the amendments I have tabled. This important matter should be addressed with less haste and greater consideration.
As the reservations about the removal of the Restrictive Practices (Groceries) Order 1987 which were expressed at meetings of the Joint Committee on Enterprise and Small Business have been comprehensively dealt with by the Minister, Deputy Martin, I warmly welcome the introduction of the Competition (Amendment) Bill 2005. The Minister said recently that the order had acted against the interests of consumers over the past 18 years, so it was time for consumer interests to prevail. When he announced that he had secured the approval of the Government for the repeal of the 1987 order in its entirety, he said it was an important day for Irish consumers and a liberating day for Irish competition policy. The most important reason for repealing the order is that it has kept the prices of the vast majority of grocery products at an artificially high level by allowing suppliers to specify minimum prices below which products cannot be sold. The legislation that has been published by the Government will remove our anxieties about unfair discrimination, the payment of advertising allowances and "hello money". The concerns of many people about the effect of the repeal of the order on independent outlets have also been comprehensively dealt with. I welcome the Minister's efforts to underpin his decision to repeal the order by referring to the Competition Authority's report.
The Restrictive Practices (Groceries) Order 1987 has acted against the interests of consumers. It is being repealed in a manner that will ensure that the anxieties of many people are comprehensively dealt with, as I have said. The current formation of the market means we are paying more than we should for consumer goods. As the Minister said, the prices of textiles and foodstuffs to which the 1987 order does not apply seem to be the same in the Irish market as in the European market. While there may be local reasons for some variations, there is no explanation for the differences in the price of foodstuffs. The Competition Authority has stated that it is no longer acceptable that State intervention in a key sector of our economy should be based on an administrative convenience with no economic rationale to support it.
Predatory pricing is an anti-competitive practice that is outlawed by the provisions of the existing Competition Acts. The 1987 order, which is incapable of addressing the threat of predatory pricing in a proportionate way, was designed to protect the position of the independent retail grocer. However, almost 2,500 grocery stores have closed in the first 15 years of the order's operation. It is natural that we all have anecdotal evidence in this regard. When I was in Holyhead recently, I asked a taxi driver about the circumstances of retail units in the town. He told me that many consumers in the town have started to avail of the services of a Tesco Extra shop that has opened outside the town.
I welcome the Competition (Amendment) Bill 2002. The ongoing need of consumers to uphold fair practice and competition will ensure the Bill's success. The joint committee was treated to a great deal of contradictory anecdotal evidence during its hearings. It has been claimed that 70% of the towns and villages in the UK do not have a local shop, but I am aware that almost 87% of rural households in England live within 4 km of a petrol station, most of which have a convenience store attached, and 79% of such households live within 4 km of a supermarket. There is a fear in the public consciousness that small independent retailers will be affected by the repeal of the Restrictive Practices (Groceries) Order 1987. The Minister has made it clear, however, that the evidence available to him suggests the contrary.
Predatory pricing is defined throughout the world as the act of a dominant firm. It involves the sale of products below some measure of cost for the purposes of eliminating or harming competitors. If predatory pricing is to succeed, the predator must at some point be able to increase prices to whatever level is necessary to recoup his losses. Not all low prices and certainly not all permanently low prices can be considered to be predatory. There is international case law to support the Competition Authority's conclusion, as outlined in its report, that below-cost selling for the purposes of measuring whether predation exists involves selling products below their purchase price after all discounts, rebates, allowances and suppliers' payments, however and whenever paid, have been taken into consideration. The authority's report states that the forms of low-cost or below-cost selling which are deemed to be legitimate are promotional selling, loss-leading, matching a competitor's prices, disposing of old or perishable stock and testing the market for new products. When we note such forms of activity in years to come, we will have to bear in mind that not all low-cost pricing is anti-competitive. We should be careful not to assume that prices are low for reasons other than the holding of a promotion, the disposal of perishable stock or the matching of a competitor's prices.
Off-invoice discounting, which is a prevalent practice in the retail trade, involves suppliers giving retailers discounts, rebates or allowances on the purchase price of the products they are supplying. Such payments are not shown on the invoice that accompanies the goods to the retailer's premises at the time of sale. This is probably comprehensively dealt with by the Competition Act 2002, section 4 of which prohibits agreement or concerted practices that have the effect of preventing, restricting or distorting competition. This includes price fixing, limiting supply or applying dissimilar terms to similar transactions.
Section 5 prohibits any undertaking from abusing its dominance in the market for goods in the State or any part of the State. For example, a small retailer in a rural town could be considered dominant if the market for groceries was such that consumers would not travel outside the town to buy groceries. Specific abuse prohibited included price fixing, limited supply or applying dissimilar terms to similar transactions. Predatory pricing is an abuse of dominance under section 5.
Under competition law, if a retailer believes he or she is the victim of predatory pricing, he or she has a number of legal options, including making a complaint to the Competition Authority, seeking a private injunction in the High Court or seeking compensation in the courts. The Competition Authority has extensive powers in this regard.
Another area that has been comprehensively dealt with by the Minister and for which there will be further legislation, is resale price maintenance. This is an anti-competitive practice by which suppliers seek to specify minimum prices below which their products may not be sold. It is prohibited by sections 3 and 4 of the groceries order. However, by complete contradiction, article 11 of the order legitimises the practice by specifying that a retailer cannot sell below the price on the invoice. By putting a price on the invoice a supplier effectively fixes the minimum resale price. This is the essence of resale price maintenance. Resale price maintenance would be an abuse of dominance under section 5 of the Competition Act.
A further area of concern is unfair discrimination. The groceries order permits the supplier to offer supplementary terms, effectively off-invoice discounts. The report concludes they are applied in a secretive, arbitrary and discriminatory way. Unfair discrimination would be an abuse of dominance under section 5 of the Competition Act. There was a further anxiety in regard to advertising allowances. These are anti-competitive practices by which a supplier pays a retailer for advertising, stocking or providing permanent display space for the supplier's goods. These are practices which could be regarded as an abuse of dominance under section 5 of the Competition Act.
This is a welcome Bill. Notwithstanding the public perception that the independent retailer will be severely affected, the reality in the UK is that those retailers who provide convenience stores and longer opening hours are growing by 25% per year. I look forward to the years ahead when there will be full competition backed up by legislation where the consumer can benefit.
I welcome the Minister for Enterprise, Trade and Employment, Deputy Martin, to the House. Some criticism has been made of the Bill that it is not a model of clarity. Certainly the Minister's opening statement was a model of clarity and simplicity in terms of explaining the need for the Bill and discarding some of the criticisms particularly in the area of predatory pricing.
The Bill provides for regulation. There cannot be unfettered competition in this sensitive area where food is concerned. I was always an advocate of the groceries order from the time I became a Member and consistently argued for it both within my party and on the floor of the House. When taking the Order of Business on one occasion last year I defended the groceries order once again and did so more recently in September when my party resolved that the order should be abolished. That was in accordance with the recommendations of the various reports and of the Consumer Strategy Group's recommendations and so on. The time had come for me to change my mind on the matter.
My original criticism was twofold. First, if unfettered competition was allowed, when the smaller people were out of business and the larger people dominated the market they would increase prices because they are quite ruthless in that regard. My second concern, and one that has not been mentioned so far, was the effect on the producer. It is particularly serious in the context of the supply of liquid milk. Those concerns were reasonable and needed to be expressed and I tried as far as possible to articulate them.
I also wanted to protect the local shop in the small community. It is my experience, where there is rapid development in County Kildare, that there has been an explosion in the number of convenience stores in the villages that are expanding, where there were few if any retail outlets. However, they are not independent, they are all members of multiples or groups. It is difficult to find the classical independent small retailer whom I would have been attempting to protect.
The Minister's figures have demonstrated that 2,500 such retailers left the business between 1987 and 2002. If one travels around the country, apart from the more rural parts in the west and south, it is difficult to find a small convenience store that is totally independent of the multiples or groups. The measure has passed its sell-by date. The market has moved on to a point where we had to accept that the order could no longer be valid in the interests of consumers.
Reference has been made to the matter of ghost-town Britain. I experienced that during the summer when I visited a village calling Sonning, not far from Henley-on-Thames. It is a beautiful idyllic English village of the type one sees on paintings and reads about in poems. Not only was there no food outlet there was no newspaper outlet in the village. There are societal and market reasons for that, including the fact that it is impossible to park on the tiny streets and everybody travels by car. That is the reason for the growth of outlets on the edges of towns where petrol stations sell groceries. That is happening here also where there has been an explosion in terms of the number of petrol outlets selling convenience foods and groceries. That leads me to the conclusion that petrol was not profitable but the groceries were quite profitable. It was not done for some philanthropic reason but because people realised there were profits to be made in selling those products. We have moved past the sell-by date.
There is a need for regulation, otherwise large groups will dominate the market. I saw what happened in my home town of Newbridge. Several years ago Dunnes Stores was built at one end of the town and it dragged all the trade from the other end of the town. Happily, due to the growth in population and the general economic welfare, that has changed and there is a balance. The Whitewater centre, one of the largest shopping centres outside Dublin, is locating in Newbridge. That is welcome. That was evidence of what might happen if a very large multiple was allowed to dominate.
The measures contained in the Bill deal with that issue but I wonder whether there should be a specific restriction on the level of market share that any one group, such as Tesco——
In all free markets, every government, even the most liberal in economic terms, will have some degree of control to ensure monopolies and cartels cannot develop.
There may be a need for the Bill to be more specific in some areas. It has been asserted in the United Kingdom that Boots will go out of business because of the predatory pricing policy of Tesco. All Senators were in receipt of communications from RGDATA, which has been consistent on this matter, and in the past I would have supported its position. On this occasion, the organisation states that the Competition Act does not expressly prohibit predatory pricing, or even mention the practice. However, the Minister has dealt with that point adequately in his opening remarks and will not have to rebut RGDATA's argument again at the end of the Second State debate, unless he feels inclined to do so. His key point is that below-cost selling is not the same as predatory pricing. There is a difference between the two and it is important for people to realise that. The Minister also spoke about persistent misconduct on the part of dominant players, a matter with which I have dealt.
The removal of the groceries order will introduce greater competition, be good for consumers and give retailers the freedom to determine what their prices should be. I welcome the provisions regarding so-called "hello money" and other undesirable practices within the retail sector. Attempts to enforce competition law demonstrate the difficulty of proving collusion. The recent television programme on the motor trade in Ireland showed that sweetheart deals were made, people were financially penalised if they sold vehicles below a certain threshold and there were informal arrangements within the trade. We must be vigilant and stop such practices. We are dealing with highly sophisticated and organised businesses and a degree of vigilance will be required to ensure that the excellent measures contained in the Bill are enforced and will operate to the benefit of consumers and producers.
The Competition Act of 2002 prohibits anti-competitive behaviour in the economy and this is enforced by the Competition Authority. This legislation is another step forward. Some have complained that the progress of the legislation has been very speedy. At the same time, it is a constant criticism in this House that legislation takes too long to come through. Of all the legislation that has gone through the Houses in recent times, none has involved more consultation than this. No other measure has had as much debate and discussion over such an extended period, not just in terms of the Minister's recent consultation process, but over the last ten years or more. Every year or so, this matter has been debated in the Houses. It has been debated to death and I welcome the fact that the legislation is now before us. I hope it will have a speedy passage through the Houses, will become law and have the effect that the Minister and the rest of us desire.
Exactly, Senator White, exactly.
The removal of the groceries order is a bottle of smoke. I agree with Senator Dardis that the matter has been discussed ad nauseam but it will make no difference whatsoever down the line, none whatever. I was born and raised in my mother's grocery shop and remember when Mr. Lemass's Government introduced the dreaded turnover tax in the early 1960s. RGDATA hired out the local loudspeaker and carried it about the town, telling us that town centre life would never be the same again, that every small town would be closed and could not thrive anymore. It argued that life as we knew it would end. That is the current and abiding position of RGDATA. On the other hand, we have the view from the Competition Authority that in some way we can trust the likes of Tesco, Lidl, Aldi, Dunnes Stores and others to give us back the extra profits they are making so that we will all be, as argued by Mr. Eddie Hobbs, €1,000 per household, per year, better off. That is nonsense. If every household in Ireland is €1,000 per year better off after this, I will share my mortgage with the rest of the population.
There is not the remotest chance of that happening. This is populist politics and will not make the slightest bit of difference.
I tend to agree with the legislation because it might finish the argument forever. This is no more than groups within business arguing with each other. I have argued with the chair of the Competition Authority on this issue. I have seen her arguments in favour of the removal of the groceries order, the arguments against and the paper produced by the authority on the matter. I agree with Senator Coghlan that there were issues in that paper which were clear, while others were unclear. However, ultimately for political reason, the groceries order had to go. The Minister is right about that.
However, I can see the merit in much of the argument against that course of action. The removal of the order is not the panacea people suppose. It will not introduce greater competition or lower prices. How do I know that? Let us take one company, Tesco, and compare its prices in its stores in Newry and Dundalk, which I have done. It is cheaper to import products from the United Kingdom into the Republic than into the North. Despite that, Tesco's goods are more expensive on the shelves in the South than in the North. Why? It is a simple matter of profit. What the market will bear, retailers will charge. It is a simple rule of economics that I learned from Senator Coghlan's erstwhile leader, Dr. Garret FitzGerald. It was the second rule, following on closely from the rule of supply and demand. So, let us not get carried away here——
In terms of groceries, there are contingent laws that accompany that basic one. For example, if a retailer puts up the price of cakes, he or she will increase the sales of bread because people buy cake with their marginal, left-over income. If they can no longer afford cake, they will buy more bread. I could add much more to a general discussion on the groceries business if so required.
Politicians must bear some responsibility with regard to planning. We have planned the expansion of towns without putting in the small shops that Senator Coghlan is trying to protect. I can see the matter from his point of view but we must examine the developments approved by local authorities and ask where are the centres. My own local authority, Fingal County Council, which is the subject of tribunals related to planning, is one of the best in the country. It produces villages and town centres and tries to make new developments work. There are small shops in such developments. A place like Applewood, for example, on the edge of Swords, has the small shops that Senator Coghlan talked about even though it is less than five minutes' drive from Superquinn, Dunnes Stores and another large supermarket. The village centre is thriving because it provides a service to which people can walk. Senator Dardis is correct in arguing that we tend to get into our cars to do almost everything now because we must. However, we are still willing to walk down the road to a local shop and pay more for goods than we would by shopping in Tesco, Aldi or Lidl, 15 minutes drive away.
I have no trust in the larger players. Even though I have no problem with the legislation and believe the order had to be removed, I hope nobody believes that we will get money back from the big operators. The large multiples are closing down bookshops by making the best-sellers available at lower prices on their shelves. They are closing down music shops by stocking CDs on their shelves. Senator Coghlan is correct to say they are ruthless and in that regard.
These multiples are closing down bookshops and music shops by having bestsellers and CDs on their shelves. Senator Coghlan is correct to say they are ruthless people. I rarely disagree with him but I disagree with the argument that keeping the groceries order would stop that happening. I agree with the Minister that it would not. Businesses must find different ways to prosper, perhaps by cultivating customer loyalty by providing enhanced levels of service.
How might we have made it work? If I read details of Tesco's annual accounts in the business pages I cannot, no matter how hard I try, find out how much of its profits were generated in the Republic of Ireland. They will not tell me. Does the Minister know how much it is? No. Despite all the consultations and the information his Department has, it does not know the profits made by Tesco or any other major supermarket in Ireland. The people who argue the groceries order should be abolished because it will be good for competition refuse to tell us what their profit levels are.
It is wrong. I would like the legislation to contain a provision whereby they would have to produce separate accounts for their Irish operation so we could all see where Eddie Hobbs's €1,000 per year would go. It will go to the head office in London but not to our people.
On the impact on town centre development, I will give an example. Many people say Athlone has been ruined by the development of two huge shopping centres on both ends of the town, one in Connacht and one in Leinster, called Golden Island. The centre of town suddenly died because, as Senator Dardis said, it was too awkward to get into and there was no parking. Now, as in other parts of the country, a new approach to shopping has emerged based on bijou specialist shops where people can have a cup of coffee or walk around looking for a particular item for which they do not want to go to the shopping centre. It will be like almost all of rural France, which has the highest number of hypermarchés in Europe and where thousands of villages no longer have a boulangerie, because of lack of demand and despite de Gaulle's proclamation that there would be a breadshop in every village. In that context Senator Coghlan's argument is worth examining and developing so that town centres and villages retain such facilities rather than exist solely as residential areas.
This policy is a bottle of smoke. The Minister is right to abolish the groceries order but there will be no difference for consumers. The €1,000 will go into the coffers of Tesco and Eddie Hobbs's idea that it will go the genuine shoppers of Ireland is pie in the sky.
I am grateful to Senator O'Toole for sharing his time with me. I agree with him on the impact that the multinationals have had on bookshops and record shops but such a situation came about a long time ago. Most will remember the local bakeries put out of business by these multiples. I remember how Dunnes Stores screwed its suppliers to the wall with "hello money", exclusive arrangements and by stringing them along by not paying their bills on time. Such is the predatory behaviour of these groups.
I do not necessarily see the removal of the groceries order as favouring competition. I also agree with Senator O'Toole about Eddie Hobbs. His show was very good entertainment but should not set Government policy. It was superficial and pandered to the appetite of the watching public.
We should listen to the likes of Ben Dunne. He may have an axe to grind because of his former intimate involvement with the company but he makes business sense. A few weeks ago he said he did not agree with abolishing the groceries order but that if it had to happen there should be two conditions. First, any below-cost selling should take place throughout a chain of stores, not just at one in Dublin but in Cork, Belfast or wherever they are. Second, it should be for a reasonable period of time, and not just bait to lure gullible shoppers in. The Minister may well respond with the Latin injunction caveat emptor but as we have already set out on a course intended to protect the customer, it does not apply.
In his speech the Minister refers to trade representatives and business interests who trenchantly defended the order. Curiously, unless I missed them the Minister does not mention other groups which also trenchantly argued against its abolition. Is the omission because those groups are not business interests but groups with a high standing in society who look after the welfare of the most disadvantaged, such as Combat Poverty, Crosscare and the Society of St. Vincent de Paul?
The arguments of these groups should be taken seriously.
I will ask a light question. The Minister talks about expertise being available through one of the largest university systems in the country. As Senator Leyden put it, he should "name and shame" and let us know which university it is. I presume it is UCD.
Apparently, we have the benefit of the expertise of universities.
The Minister goes on to say the groceries order does not and never has operated as a ban on below-cost selling, which may well be true. He also makes interesting points about the difference between invoice price and cost price, which leads me to the conclusion that the specific practice of below-cost selling should be prohibited. The very phrase is complete nonsense. What reasonable business will sell things below cost? It cannot make money in that way so it is only a bait, a lure.
Something should be done about predatory pricing. The Minister said that during the public consultation process no one in the trade was prepared to reveal the full extent of such discounts and that this clearly underlined the secretive way in which such discounts operated and the critical way in which they are regarded by the trade. In the absence of that information how did the Minister evaluate the position? Is it not curious and a little worrying that the multiples withheld this information from the public?
The Minister talks about stores like Spar and Centra which are a halfway house between the local shop and the multiples. He then said the report clearly demonstrated that the statistics of ghost-town Britain, showing that 70% of towns in the UK have no local shop, had no basis in fact. Instead, he says, access to groceries in the UK is excellent and nearly 90% of rural households in England live within 4 km of a petrol station, most of which have a convenience store attached. Bravo. What about people who do not have a car? What about the real poor, not just the middle classes? The Minister should be aware of this because a detailed, sophisticated argument was made by Crosscare, the Society of St. Vincent de Paul and Combat Poverty that people on the most critical margin, the most disadvantaged, would not have their needs met by this easy solution where we say there is a garage forecourt within 4 km of most rural housing.
The Minister then referred to dominant undertakings but he does not spell out what they are. They must be very dominant to be taken into account in this legislation because the Competition Authority has decided that a company at a national level must have more than 35% of the market to be dominant and that a local level a company with a market share of 65% is not dominant. Given that none of the national retailers in Ireland has a market share at a national level in excess of 27% or a local market share of more than 65%, it can do what it likes and is not regarded as dominant. What does dominant mean? If a retailer can have 65% in a certain area, surely common sense suggests this is dominant. On the basis this dominance idea is worked out, Tesco and Dunnes could take up another 40% of the market without becoming dominant. That is daft. Also, there has not been a single case taken against predatory pricing since 1991. We should address this because predatory pricing certainly exists.
Combat Poverty, the Society of St. Vincent de Paul and Crosscare in their submission to the Minister on the groceries order pointed out the planning background, where infrastructural deficits impact disproportionately on poorer people who rely on often inadequate public transport: "We write this submission to signal our belief that repealing the groceries order will have, at best, very little impact on the food-purchasing patterns, and, by extension, the food-consumption habits, of disadvantaged people living in poorly resourced locations where the type of food outlet available determines the availability and cost of food." Here I agree with Senator O'Toole, I would be surprised if these large sums of money make their way back into people's wallets, as suggested by Mr. Hobbs. The report continues: "It has been observed in several domestic studies of the groceries market in Ireland that the larger multiples tend not to enter many regional or other similarly undesirable areas where the catchment market in the surrounding areas is deemed insufficient to justify their entry." In other words, they cherry pick, and some areas of the country will not have one of the large groups, leaving the garage forecourt as the only option for the purchaser.
The agencies go on to state:
For households in areas that are considered undesirable to enter by larger multiples, transport to and from supermarket/multiples — often located in out-of-town sites with poor or no public transport — is often not feasible. They are forced by their circumstances to shop close to their homes, usually in the aforementioned 'symbol' category of retail outlets or the garage forecourt type of outlet where healthy food is more expensive and less available.
This has an impact not just on the domestic economy of the poorest people but also on their dietary habits. The document asserts:
The loss of competitiveness that would most likely arise among independent shop-owners following the repeal of the groceries order could have very detrimental effects as regards accessibility of food for households in poorer and/or rural areas which larger multiples may find less desirable to enter. Thus, the groceries order will not be welfare-improving to wider society if it leads to a reduction in the (already restricted) options currently available for households in low-income and low-density areas.
This is the view of Combat Poverty. It makes the point that the forecourts stock fat enriched foods, the least healthy of all.
The order must be examined but differently from the Minister's approach. I am a discordant voice in this; it is not good for the consumer. If it is, it is good for the middle classes, who are over-represented in this House. We must take into consideration the views of those organisations in our society that seek to protect the most vulnerable. I am not convinced this legislation will do that.
Listening to the debate, I begin to think I am surrounded by Luddites talking about negative aspects of shopping centres. There were predictions that all of the shops in Dundrum would go out of business but the new shopping centre in Dundrum is scintillating. It is like a community centre, packed with locals and those from the outer suburbs. It is exciting and thrilling to be in and people throng through Dundrum village who had never been there before. They are coming to the Dundrum centre on the Luas and going back on it. It is fantastic to see the physical transformation of the village. Everyone I speak to loves the shopping centre.
I am in an anti-competitive environment and although I do not have more experience than anyone else, I am experienced in dealing with retailers. The Enterprise Strategy Group document, Ahead of the Curve, Ireland's Place in the Global Economy, quotes Mr. Peter Drucker, the ultimate source of knowledge on these matters, on page 85: "A country's global competitiveness has as much to do with effective government as it has with effective corporations." The government job has been done by putting this groceries order to bed.
The Enterprise Strategy Group, on page 60 of its publication, states that the food, drink and tobacco indigenous industries recorded "little or no sales growth in real terms over the past decade". It continues, "Given that economic conditions were perfectly favourable, this lack of sales growth highlights a serious weakness". We are getting excited about the food and drink suppliers but over the lifetime of the groceries order, they have shown no growth. That is serious.
The food industry employs 50,000 people and the distribution sector 60,000 people. The industry is in trouble — why is that? The groceries order did not help those companies in any way because competition is the spice of life. All of us in this Chamber only perform in a non-protectionist environment if we compete. We are at our best when we are competing.
The Minister made one of the best speeches ever in this House. It succinctly analysed all the discussions and advice, legal and professional. It brought together the Consumers Association and the Competition Authority, which both want the groceries order put to bed. Everyone had a reason for H. Williams going out of business but the Minister pointed out it was because of the poor financial state of the company.
As a producer who started from nothing, our business would not have grown but for the multiples. In 20 years I was never exploited by a multiple. Nobody will hand one business on a plate but if one is wide awake and on the ball, these retailers will give one opportunities to grow one's business. The Enterprise Strategy Group report states there is no growth in the food and drinks industry but if people perform, they will get opportunities to grow.
The Minister said this Government has more than doubled the resources available to the Competition Authority in the past five years and that is why in 2006 it has provided the authority with an additional €0.75 million to boost its investigative and enforcement capacity. It is very important that once there is a whisper of a complaint, the Competition Authority takes action immediately. It should not dawdle when people have the courage to complain about unfair practices. That was the most critical part of the Minister's contribution, which I thoroughly enjoyed. Immediate intervention is required by the Competition Authority.
Some people working in the multiples are not as good as others. It is all about the person one meets in the company. Some may be engaged in sharp practices but if one deals with a trustworthy person, one can grow one's business. However, in order to protect oneself, one must be on the ball and juggle non stop. There are challenges and opportunities in dealing with the retailers.
Last week there was a critical report about Tesco and its treatment of suppliers on the front page of the Financial Times. I am not here to defend Tesco but Lucy Neville-Rolfe, Tesco's corporate affairs director, pointed out that the Office of Fair Trading in the UK recently concluded, after detailed study, that Tesco and its rivals — Asda, etc. — treated their suppliers fairly and paid promptly.
When we started in business first it was great to be in with the multiples because they had a large number of stores and we got access to many customers. When we got a cheque for £30,000 there was excitement that we could pay the wages the following week. I am not exonerating everybody, or saying everyone is a saint. In any business, including in Leinster House, there are people who will not act with integrity, so one must be wide awake.
I fully support the rescinding of the groceries order. I compliment the Minister because he needed guts to do this. I heard people in our party rooms who were against it. The Minister needed courage to drive it through but that was what he was being asked to do by the consumers' association, acting on behalf of consumers, and the Competition Authority.
Senator O'Toole talked about the price of goods in small shops. We get an exotic variety of goods from all over the world. The consumer has choice. Why are people queuing up outside Aldi and Lidl? I go through the newspapers on a Sunday to read the advertisements. I then telephone my daughter to tell her fabulous binoculars, or whatever, are on offer for €20 or €9. I tell her to go to Lidl or Aldi on a Monday morning for the special offers. Why are people queuing up to go to these shops? The people are dying to be in the shops. Members of the Houses are supposed to have vision. It is inevitable that business will change and retailing is changing dramatically.
I referred previously to indigenous industry. Some 82% of our exports is from multinationals. It is much more difficult to develop indigenous industry but we need to examine it to find out why it is not performing. We need also to find out why the food and drinks industry is not growing because we need it for the agricultural sector. It would be ideal for farmers to move into the food and drinks industry. Every business starts small, including Baileys, which is a world icon. There are potential little Baileys in our agriculture sector. Innovation is the name of the game and that applies to retailers as well.
When we started out in business I learned much from dealing with Superquinn and Quinnsworth, which is now Tesco. I learned from their efficiency and how they ran their businesses. They are incredible and the manner in which they conduct their businesses is a lesson in management.
Cuirim fáilte roimh an Aire. Is annamh a fheicimid anois é. Nuair a bhí sé ina Aire Sláinte agus Leanaí bhíodh sé anseo go minic agus nuair a bhí sé ina Aire Oideachais agus Eolaíochta, bhíodh sé anseo níos minice fós. An rud is annamh is iontach.
Over the years I have learned to be a little wary of whatever is the dominant ideology or idea of the moment. I remember in the 1980s the overwhelming view in respect of Northern Ireland was that the one thing one could never do was talk to the political leaders of the organisation carrying out quite dreadful attacks. It was only when somebody challenged that and through a circuitous route began to talk that we made progress.
I like Galbraith's famous quote that the purpose of economics is to provide jobs for economists and I genuinely believe one must be wary of all professionals who are in a business where, if their ideas are taken up, they become richer. That is part of any understanding of a competitive market too, that is, there should be challenges to people who have a monopoly on wisdom.
The point I make is that in the past number of years, particularly with the make up of the present Government, there has been an almost ideological passion for competitive markets. I was intrigued to hear Senator White speak. Her contribution was in many ways interesting and I would probably agree with her on exotic choice. Anybody who shops in Tesco will increasingly realise that the exotic choice is Tesco's own brand of this or that. The dominant thing in multiples, particularly the multinational ones, is own brand at a price which is very enticing unless one has a very clear taste. I am always a little sceptical about the perception that large retail outlets promote choice. They promote choice in those goods which can be produced in a commodity fashion but they reduce choice in any area where there is a need for any artisan skills, including in food preparation, although know the Minister will make the point that does not apply here.
Artisan bakeries are now making a comeback because people, after charging off towards supermarkets, as Senator White said, are beginning to realise there is more to choice than simply the convenience of driving into a gargantuan multiple.
I am also a bit wary because, whatever the claims of economists they do not know how a market will operate if there is less than perfect competition. All their models are about perfect competition. Once there is deviation from the equilibria involved in a perfect situation one is into instability. I say this as a scientist who knows a bit about equilibria in other areas. As soon as one gets away from equilibrium one is into instability and there is no way of knowing where it will go. The first assumption of a perfectly competitive market, which is the only one economists can really talk about, is that the withdrawal of any participant should not affect the market. If the market is affected by the withdrawal of any participant, then the individual participant is not subject to the rigours of a completely competitive market. No economist yet knows what will happen in such a situation. Economists are getting Nobel prizes because of their attempts to model less than perfect competition. The reason they can get Nobel prizes is because there is such a vast area of uncertainty. Any scientist dealing with equilibrium in the physical sciences can tell one, that once one moves away from equilibrium and into instability one does not know what will happen. Therefore, I am a bit sceptical because in the area we are talking about here, one most certainly does not have a perfect market. We have three or four dominant players, the withdrawal of any one of which would destabilise the whole market. There is no doubt about that. I am recording my scepticism even though I do not have a great objection to what we are doing.
The second point to remember is that what may be good here, especially in terms of commodified groceries — products that can be mass produced — is that not all of the things people like to eat or drink can be produced as commodities because there are individual judgments and individual tastes. I take issue with the previous speaker on this matter. I am very sceptical about what, if any, role competitive markets can play, for instance, in the provision of health care, energy supply and so on. The United States is spending nearly $1 in every $6 of its entire gross national product to produce a health care system that has a lower life expectancy and a higher infant mortality rate than is the case here or in many European countries. Let us not charge down the road of competitive markets. I will return to this topic in a moment.
The idea that there is a competitive market model which could make our education system better is a load of nonsense. I am also very sceptical of the notion of competition in areas in which we have powerful monopolies. For example, every second article I read on the subject has a different view of energy and electricity prices in Ireland. If we are to use competition as an instrument to make sure people are not overcharged then we ought to have a Competition Authority that does more than write ideologically driven reports. It ought to do something. There is a quite legitimate concern among the public at large that the Competition Authority is much better at talking than it is at acting. I am not sure why. I do not claim to be an expert on this area but what I do know is that after years in existence the Competition Authority is still predominantly involved in expressing opinions.
Incidentally, I am very grateful that we have strong trade union regulation because it is quite clear from the utterances of at least one senior figure in that movement — maybe it is a former senior figure — that if we did not have the right to form trade unions the Competition Authority would take the view that trade unions were profoundly anti-competitive and would have dealt with them all because where people are not clearly entitled to organise in a trade union it has found a number of targets. The joke is that nothing is done on issues where the public desperately needs it, such as the extraordinary behaviour of the banks during the conversion to the single currency where everybody, including the Director of Consumer Affairs, rolled over and accepted the banks' argument that they had to be allowed to rip people off in another way to make up for the way they were ripping them off in foreign currency. It took the active and vigorous intervention of the European Commission, including raids on bank headquarters, to persuade the banks that they really did not have to charge as much as they were charging for a whole range of things to do with foreign currencies after the foreign exchange risk was gone.
I am not sure what our Competition Authority is for because it does not appear to do any of the things that consumers would expect of it. It is like the character in the song who marched up to the walls of the lawyer's castle, made a speech and then walked back again and did nothing. Nothing has been done. There is still an extraordinary monopoly on legal practice and a mythological process in terms of the alleged benefits of legal education. I am involved in the education of young chemical engineers who after four years will go to work with the most demanding multinationals in the world, the US pharmaceutical companies in Cork, be paid €25,000 a year and be able to make money for that company, under proper supervision, literally within a month of having arrived there. The legal profession believes that if even if a person studies law in college he or she will have to do more exams supervised by the legal profession, which sets its own standards and is operating a closed shop, after which he or she will have to get an apprenticeship, train with somebody else and be paid buttons. I find this whole thing quite ridiculous. If somebody wants to deal with monopolies and anti-competitive practices, let us start with the biggest closed shop in the country — the legal profession. The Competition Authority and the Government backed off from dealing with this formidable force in society.
The Minister, Deputy Martin, deserves credit because he took on another formidable force, the vintners, on the smoking ban. He demolished a lobby once and for all. Nobody will be afraid of the vintners again in the way people were before. The Minister deserves to be complimented on that.
I have said this publicly before. This is a major issue and the Minister was very effective, both in terms of public health and also in taking on an extraordinarily virulent lobby.
This is why I am so wary of competition. As far as I am aware, the Competition Authority has done two things; it has attempted to bring to an end the agreement between the Voluntary Health Insurance and BUPA and hospital consultants for a fixed fee. This simplifies matters and means that individuals do not have to pay the hospital, they have to pay the consultants. It was decided that was anti-competitive. Apparently, the Competition Authority is of the opinion that if people do not have this deal they will shop around for the cheapest consultant. I shop around a bit for the cheapest petrol but like most people if I am sick, my natural instinct is to believe that the most expensive consultant is the best one. It is a perverse interpretation of human nature for the Competition Authority to imagine that forcing people to shop around for a hospital consultant when they are sick will improve the quality of care and the price they have to pay. That is absolute and utter nonsense which only an economist reading and writing books could believe.
The other achievement of the Competition Authority is the whole nonsense of its attempt to prevent Irish Equity representing the acting profession, most of whom are semi-permanently unemployed and very few of whom make a decent living from acting aside from the Colin Farrell's of this world. Competition for commodities in a commodity market or for things that can be commodified is probably the best way to balance the interests of producers and consumers and get the best price for the consumer. If competition is properly run it can be of use but in many areas it can be very destructive. A couple of elements of the Bill give me cause for concern. I am sure that everybody else has, like me, received a letter from RGDATA. The Minister's speech does not address the fundamental question it raises, although he does address the issue of predatory pricing. I am somewhat confused because he said, possibly correctly, that the groceries order did not work, never did what it was supposed to do and effectively prevented multiples from passing on to customers the discounts they received. He must have a benevolent view of Tesco and the others if he believes they were waiting to hand over discounts to their customers but were prevented from exercising their generosity by the nasty and malevolent State.
For years, Senator Quinn demanded the end of the groceries order because he believed it inhibited his ability to compete with multinationals. However, the Minister claimed that the order facilitated companies and was not doing what it was supposed to do. I do not entirely understand why its abolition is so important if it was not doing what it was supposed to, unless it is because the Minister believes a benevolent mood exists among multiples and supermarkets to the effect that they will further reduce prices if they are permitted to do so. They are just waiting and, in the meantime, accumulating an extra bit of money because of the order. However, many of them have asked for the abolition of the groceries order, which implies that they believe they will benefit from such an action. They are not benevolent charities that want to help consumers. Why do multiples want an end to the groceries order, if it means that discounts they do not have to account for will suddenly be passed on to consumers? I am not persuaded by that argument, nor of the point of the groceries order.
I take issue with the Minister on predatory pricing because markets need to be regulated. While I accept his point that it is not an easy concept to define, identifying, labelling and preventing dominance in the market is a core concern. RGDATA claims that the Competition Authority, about which my views are on record, thinks that a market share of less than 35% or, at local level, a company with a market share of 65% is not dominant. I am not pushed about predatory pricing but I consider it a means to an end.
However, if one supermarket has 65% of the entire market in a rural town, it is predatory by definition. By its very existence, it can squeeze other shops out of business because it will look at the products sold, such as, newspapers or petrol. Reports in British newspapers describe the degree to which bookshops and independent petrol retailers are threatened by Tesco's dominance. However, I have experience of Tesco's involvement in the petrol business in a major holiday town not far from Cork, where petrol prices were notoriously high. Tesco arrived and, all of a sudden, prices descended to the level of the rest of the country.
What part of this Bill will address the issue of dominance? Does the Minister accept the figures which state that dominance is defined by a market share of more than 35% nationally and more than 65% locally? That is the basis of his argument about predatory pricing. While I have no great desire to retain the order, the impact of tolerating that level of dominance will be disproportionate on smaller shops and the diminishing numbers of local independent retailers. The disappearance of small shops will have negative cultural, social and economic effects for people who live outside big cities.
I welcome the Minister and his officials and commend them on the speed with which they brought forward this legislation. It was promised a few months ago, is already before this House and will hopefully be passed before the Christmas recess.
The aim of the Bill is to revoke the 1987 groceries order and to strengthen certain elements of the existing Competition Act so as to prevent unfair trading practices in the grocery trade. The decision to revoke the anti-competitive groceries order will save the average household almost €500 per year.
The Joint Committee on Enterprise and Small Business discussed this matter on many occasions and came to the conclusion that if it was not broken, it should not be fixed because members feared the potential consequences.
The Minister commissioned an excellent report, for which 500 submissions were received, including two from Members of the Oireachtas, and had no alternative but to act on its recommendation that legislation be introduced. That took courage because it is difficult to introduce change. I am aware that Senator Coghlan has been nominated to this House by RGDATA. I commend him on that and hope that he is renominated because, as a good representative of RGDATA, he deserves it.
I have great time for RGDATA and the way it puts forward its case. However, it should be borne in mind that RGDATA represents other multinational companies, such as Supervalu and Centra. They are important players in the business and are owned by Musgraves, an excellent company based in Cork which imports a significant quantity of grocery products.
Much has been said on this matter and I will not bore the Minister with the views that have been expressed. However, I ask the Minister and his officials, once this legislation enters force, to track the detailed list of products covered by the groceries order. Before the Bill is enacted, the prices of the products should be recorded so that changes may be tracked.
At this point in time, something is not quite right. If the Minister believes the Bill is not serving consumers, he should have the ability to reverse it. Although he considers that he has provided for competition, he should be able to review the recommendations with regard to their effects on the economy and small shopkeepers. It is not beyond the capability of the Department and the Competition Authority to closely monitor the list over the next year.
The Minister estimates a saving for consumers of €500 over the year, which is a reasonable figure. I do not know whether the Minister or the authority made that estimate. While he has not specified an amount, the Minister feels the Bill will save consumers money, otherwise he would not have brought it forward. If everything was perfect he would not have done so; that is important.
Some 500 submissions were made on this Bill — one of the largest numbers of submissions ever made to a public appeal. An enormous amount of work went into preparing the report on the public consultation process. People are concerned and the Minister has been clear that predatory pricing is wrong, illegal and punishable under the Competition Act by fines of up to €4 million or 10% of turnover and a prison sentence of up to five years, so he will monitor it carefully. The bottom line is that we want fair competition across the board between the large multinationals and the small shopkeepers, and no monopoly in the trade by one company.
Roscommon was a small rural town and over the last few months Tesco and Dunnes have set up there and Aldi or Lidl will arrive soon. The town is thriving and that is encouraging. Tesco and Dunnes Stores are within walking distance of the centre of the town and this is an advantage from a planning point of view. I was a member of the county council that designated areas within walking distance of the main street for supermarkets. I have not received many complaints from small shopkeepers since Tesco arrived a few months ago and Dunnes Stores opened in the last ten days. Between them they have created approximately 250 jobs — an enormous number. They have had no major impact on the existing shops, which have developed and expanded. There may be an impact in the rural areas — we do not know the extent — because people tend to shop in the towns where there is more choice and availability. That is a concern, but I have told the small shopkeepers that they are local, convenient and available when other shops may not be, and I hope they thrive.
Competition is important. From driving around the country the Minister knows about the difference in fuel prices. A small filling station outside Ballymahon is charging 98.9 cent per litre for diesel and petrol. The shop has increased its turnover dramatically because it has kept its prices tight. One sees different prices in different areas around the country and it is difficult to compare like with like. During my "name and shame" campaign I found some companies had arrangements with oil companies to pay back loans to refurbish their shops, filling stations or forecourts. It is difficult to compare them with an outright owner of a property who can buy oil on the open market. While we must bear that in mind, price displays on forecourts mean people know the price and react accordingly. The trade is reacting dramatically to this. On the way to Nenagh yesterday an oil depot far from the main road was selling fuel at 99.9 cent per litre and was very busy as a result. That is healthy competition.
I am a convert to the Minister's point of view and am impressed by the way he presented his arguments. I previously agreed with Senator Coughlan; we are both members of the Joint Committee on Enterprise and Small Business. After reading the Minister's submission I feel he has been most persuasive. Bearing in mind the submissions and the concerns about predatory pricing, the Competition Authority and the Department of Enterprise, Trade and Employment must monitor the outcome of the legislation.
As the Government made the decision based on the Minister's recommendation I am confident he will ensure there is fair and honest competition and as far as possible protect the right of small retailers to buy at a competitive price. The Minister will ensure there will be no predatory pricing to squeeze small retailers out of the business, that the multinationals will not try to squeeze out competition by offering special prices in certain areas for a limited period. The Minister is aware of that possibility. I commend the Bill and I believe it will receive unanimous support in the House.
I welcome the Minister to the House. With this Bill the Minister hopes to lower the cost of groceries. I hope he is successful but I am concerned for the small traders trying to compete. I come from a small town in the west and over the last ten years, notwithstanding the groceries order, I have seen eight small corner shops close. Three shops have invested very heavily just to stay in business. A Member of this House has invested over €1 million just to stay in business because of competition. Rightly so, I suppose. Standards have risen and everybody has to be at the races fully, but that costs a lot of money.
There is no doubt but that shops have improved. In small towns like mine they have been the main employers, particularly up to four or five years ago. Like Senator Leyden I would not like to see them wiped out. As he said, it is important that these small shops get a fair chance to survive and that the jobs they provide are protected.
Many speakers have mentioned the multiples such as Tesco, which are now targeting smaller towns such as Manorhamilton and Boyle with four sizes of shops down to approximately 15,000 sq ft. Multiples have massive buying and advertising power; four or five market leaders advertise at peak time on television and a small independent retailer cannot compete with that. The Minister is to beef up the Competition Authority and give it more funding but RGDATA has pointed out that in the past ten years the authority has not taken any case for predatory pricing. If that is true there is something wrong because there have been reasons for the authority to get involved and take cases. In certain other businesses there seems to be no competition.
This is not about the protection of any sector but about fair play. It is about giving indigenous Irish retailers and their suppliers, which include farmers, the chance to compete with some of the biggest retailers in Europe. Most of all, it is about local shops and communities, and keeping the latter alive. I ask the Minister to use whatever powers he has to ensure that the Competition Authority closely monitors the grocery trade in the future. If that is not done, the small operators will be wiped out. I have no doubt the Minister will ensure the trade is closely monitored and that whatever action is needed will be taken to protect very small, vulnerable communities.
I thank the Senators for the comprehensive debate on the Bill. They have made a number of points with which I will try to deal separately.
It is important that we focus clearly on the subject matter of the Bill, which is about the removal of the groceries order and issues such as "hello money", resale price maintenance, unfair practices and so on. Some Senators, including Senator Leyden, noted that planning context also has a significant bearing on where shops are located. However, we can only deal with so much in the context of this legislation.
As I said, 2,500 stores have closed since the introduction of the groceries order in 1987. The groceries order did not stop the move towards a greater concentration of the Irish market. That is the bottom line. As I also pointed out, the groceries order was also shoddy legislation even in terms of how it dealt with "hello money". As we set about drafting the current Bill, it became clear to us that the groceries order was not of a very high standard, and did not achieve what people have claimed for it. It created a floor below which prices could not go and banned below-net-invoice price, but did not ban below-cost prices in general.
With regard to issues like dominance, Senator Ryan pointed out that a firm is dominant when it can act unilaterally, without regard to its customers or competitors. People have referred to market shares of 60%, 65%, 35% and so on. Market share is only one criterion for determining dominance. In some cases a firm might be considered dominant with a relatively small market share. A firm with a 20% market share could be dominant in a situation where everyone else has only a 1% share of the market. To my knowledge, no competition law in any jurisdiction defines a precise market share for determining and defining dominance.
In that context it is important that the law is flexible and can be applied in given situations. Every situation can be different and one has to assess its set of circumstances and factors. The case in Drogheda where the Competition Authority determined that a company with a market share of 65% was not dominant, was a particular case. Taking all the factors into account, the authority made a finding in that instance. It would be wrong to extrapolate from that a kind of universal, uniform, determining criterion to be applied everywhere. That is not the case. It is mischievous and disingenuous to promote that as a credible argument.
Senator Coghlan also raised the planning context issue and made some remarks about the report prepared. It was not prepared with a view to a predetermined outcome. Arguments were not dismissed. For example, the views of the Society of St. Vincent de Paul, Crosscare and so on were considered and a chapter of the report was devoted to the submissions made by those organisations. The report did not agree with their conclusions, and nor would I. If one looks at what has happened, it is not true to say that multiples do no locate adjacent to areas of economic disadvantage. That does not stand up. Looking at where some of the major multiples have located around the country, it is not a universal truism, though some Senators, included Senator Norris, suggested it was. I do not accept that.
Senator Norris also spoke about garage forecourts. In many of those one will not get competitive pricing. They provide convenience shopping. People go there because they are close by, which suits them. They do not go in for price, but because it suits. I have done so myself.
I assure Senator Coghlan that every argument was analysed in full. The pros and cons were articulated within the context of the report and conclusions were drawn based on an evidential approach to the issue.
The report said that the groceries order put a floor under grocery prices — it did predict lower prices — but refused to be drawn on their extent or the speed at which they would occur. In my own press releases and statements I have said that I have not been drawn, and will not be lured into the trap of giving a sum and — in the style perhaps of Eddie Hobbs, or the Competition Authority — saying it will do X by a particular time. There are other factors and variables contributing to price variations and controls. What I have said is that the groceries order kept prices artificially high and that if we left it in place it would continue to do so.
I am intrigued by Senator O'Toole's comments, since he is the son of Dingle retailers. I take on board the comments of someone with such experience and with the innate wisdom given at birth to those born in Dingle.
I have met so many such people in my lifetime and I take Senator O'Toole's comments on board. That is probably why he was such a good negotiator for the INTO through the years. He always seemed to know what the market would bear in that respect too.
Yes. Clearly there is a legislative predisposition there to the French lifestyle. It is interesting that France has a groceries order, or a similar below-cost selling provision, yet that has not prevented the demise of the French boulangerie or bakery. Perhaps we need to do more analysis of the status of the French bakery in rural France. However, just around the corner from me in my own built-up area in Ballinlough there is a wonderful little bakery established for the past few years. It has withstood all the competition from the multiples and if one wants to get the best brown soda bread, one has to go to Ross's bakery in Temple Hill.
This kind of development is happening in Ireland. Senator Ryan alluded to niche products, with certain types of facilities reopening and developing. The little bakery I mentioned has a very substantial clientele because people want what is being provided there. It is not commodity-based but deals in different types of products. That is happening across the country and perhaps reflects the economic trends and the way things are moving in terms of income generation. There is a far different market now than would have been there 25 or 30 years ago. We currently have a range of choice within the market, from the symbol groups to the multiples, the Aldi and Lidl discount stores and the convenience stores. From all the analysis it seems that the convenience store is the real growth sector.
Senator Leyden mentioned the petrol prices in Ballymahon, which are assuming legendary status. That illustrates once again that people can buck the trend. They can do things differently through innovation, in the way they provide their services and the choices they make in their offerings to the public. The public often responds to this approach.
The legislation is sufficiently flexible to deal with the key issue, which is not merely about dominance but rather the abuse of same. There must be a legislative template to deal with that abuse, which is the core issue. Setting unfair prices is an abuse. If one attempts to define predatory pricing in an overly prescriptive fashion in primary legislation, an entire range of loopholes might be created through which businesses could escape. This would serve to dilute the strength of the legislation, which I outlined clearly in my opening address. I repeat that predatory pricing is wrong, illegal and punishable under the Competition Act 2002 by fines of up to €4 million, or 10% of turnover. That Act is designed to be analogous to Articles 81 and 82 of the EU treaty. European case law supports the use of these analogous provisions to prohibit and punish instances of predatory pricing.
That is the law. We received advice on that in advance of and during the drafting of this legislation. We do not want to amend the relevant section of the Bill in a manner that dilutes its strength in terms of the prohibition on predatory pricing. I reiterate that the Competition Authority has not been inundated with complaints about predatory pricing. International research indicates it is a relatively rare practice. It is not something in which businesses wish to indulge on a regular basis because it is a costly exercise. It is a matter of taking out one's competitor in a predatory way. As soon as one competitor is eliminated, however, another will arrive in its place. I do not contend that it does not, cannot or will not happen. Someone made the point that there has been no significant prosecution in this regard.
I understand there were a small number of complaints to the authority. These were investigated and found not to be examples of predatory pricing in the marketplace.
Senator O'Toole contended that the removal of the groceries order is a bottle of smoke, a populist measure that will make no difference. This is not a question of populist politics. I understand the Senator believes the order should be removed. Even from the minimum perspective of better regulation, therefore, he would agree it should be removed and that we should move on. He has a healthy cynicism in regard to the market and the degree to which business interests will try to get the better of the consumer.
It is our job, through the various agencies and through good legislation, to protect the consumer.
In regard to the Eddie Hobbs phenomenon and the associated discussion of the level of profits enjoyed by business, I am somewhat amused by the freedom with which Senators O'Toole and Norris can pour scorn on Mr. Hobbs. When one backbencher and one Senator from the Government side made reference to him at the time his programme was broadcast, the world nearly collapsed in a fury. This indicates how people can get excited about these issues. Mr. Hobbs made a reasonable contribution to the national debate in terms of focussing on these issues and generating greater awareness of the groceries order, of which not many people were well informed before the publication of the report of the Consumer Strategy Group. The public is now much more aware of the issues.
It is well accepted that there is a need for vigilance, as observed by Senators Leyden and Dardis. I will ask the Competition Authority to monitor the trade, particularly following the enactment of this legislation, presuming it passes successfully through both Houses. We will keep that under review and take into account the views of Members.
Senator Coghlan voiced concerns about the timeframe assigned to the Bill. However, we have had much debate on this matter. It has been discussed at length by the Joint Committee on Enterprise and Small Business on two occasions. I appreciate the Seanad taking the Bill in the next two days. A month will elapse before it is considered by the Dáil. There is ample time, therefore, to deal with the specifics of what is a short Bill.
It is important to inform Members that the Department did not dismiss submissions from the trade, nor did the Consumer Strategy Group do so in compiling its report. I acknowledge that the trade has a genuine interest and a right to make submissions. Moreover, I went further in this matter by meeting personally with many of the parties and companies involved, including organisations such as RGDATA, and teasing out the arguments with them.
Senator Dardis mentioned farmers and other food producers. My Department met representatives of the IFA to discuss this matter. It was clear to me that the groceries order did not protect farmers and producers in the sense that multiples could still dictate the amount of the discount that the producer was obliged to give. Nobody knew what was going on in this regard. Moreover, there was a certain degree of acknowledgement of that reality by many of the interested parties.
I thank Senator White for her kind comments about the quality of my introductory contribution and for giving us the benefit of her experience in an unvarnished way. It is always interesting to hear from Members who have frontline experience in this matter, particularly in dealing with what have been described as the "dreaded multiples". Senator White made the point that, for her, they were not so dreaded at all but had facilitated the expansion of a particular indigenous company. In my work with Enterprise Ireland, I seek to get Irish goods, across all sectors, on the shelves of many of these companies. We must be conscious that we now operate in a global economy.
Senator Ryan raised the dominance issue and made a lengthy contribution in terms of competition within the marketplace. I understand from this that he had no great regard for the groceries order, nor, however, does he seem to have any great regard for free market policies. I have dealt with the issue he raised regarding dominance and it can be examined again on Committee Stage.
Senator Coghlan pointed to United Kingdom statistics in regard to retail provision. I stand over the research and analysis undertaken for the Consumer Strategy Group's report. There are issues in regard to the research undertaken by the United Kingdom Government body in terms of how it came about and how it was "manhandled" and changed to suit a particular end. The Department takes the view that it was an inaccurate analysis of the reality. Senator Coghlan mentioned the report of a third party, Paul Walsh, which is an analysis of product differentiation between multiples and convenience stores. It is perfectly valid research which I recommend to Members.
Senator Coghlan spoke about the delay in determining the anti-competitive nature of "hello money" and also referred to the issue of criminal and civil offences. There is no delay in this regard. To date, any delays have related to the higher bar of proof required in the context and process of trying to prove anti-competitive behaviour to a criminal level. The Department has good reasons for going the civil route in regard to transgressions of these additional amendments to the Competition Act 2002. It will lead to quicker redress and interventions. It is important to point out that some of the existing criminal sanctions deal with what we would call hard-core, cartel-type conduct, which is regarded as among the most serious of anti-competitive offences. The existing legislation deals with those in a strong way in terms of penalties and so on.
The range of offences for which we provide in this Bill are not of the same order as those I mentioned. In this context, the civil prohibition has the advantage of allowing aggrieved parties or the Competition Authority itself to proceed quickly in court to challenge any suspect conduct or practice. It makes sense to take this approach and it would be inappropriate to criminalise all conduct, particularly that which is not prohibited in all circumstances. The Department is very clear on this issue.
I look forward to Committee Stage and I thank Members for their interest and contributions.