Fiery supermarket inquiry report revives competition silver bullet
The Senate committee’s final report puts sector-specific divestiture powers, a federal competition commission, and a reverse merger approvals test back on the table.
The ACCC will be granted the power to force the break up of supermarkets where they are found to have abused their market power should the government embrace the recommendations of a recent Senate inquiry.
The final report of the Senate Select Committee on Supermarket Prices also recommended a new federal prices and competition commission and a reversal of the merger approvals test.
“Australia is in the midst of a cost-of-living crisis, and yet the supermarkets – and especially the Coles and Woolworths duopoly – are making record profits,” wrote the committee.
“The supermarket duopoly in this country is operating without proper oversight and restraint, thanks to outdated and ineffectual consumer and competition law.”
The CEOs of Woolworths and Bunnings received personal criticism, the former for his refusal to engage with certain questions and the latter for not appearing in person.
Woolworths chief executive, Brad Banducci, was reminded that his refusal to provide the company’s return-on-equity data was tantamount to contempt.
“The committee can only surmise that in failing to provide the ROE, Banducci knew full well that the ROE figure would not reflect well on his company during a cost-of-living crisis and during intense public scrutiny,” wrote the committee.
It added that it would not pursue criminal or financial penalties against Banducci since Woolworths has since provided its 2023 return on equity on notice.
Divestiture powers are often vaunted as the silver bullet of competition reform, but successive competition reviews have stopped short of recommending the power.
The committee stopped short of recommending a blanket divestiture power as proposed under a bill introduced to parliament in March, agreeing only on the need for a supermarket break-up power.
Under its proposal, a divestiture could be ordered where a supermarket has been found to have misused its market power or to have engaged in unconscionable conduct.
While the government will be free to decide whether it chooses to pursue any of the committee’s recommendations, it will certainly raise the temperature on the calls for reform.
Greens Senator Nick McKim, who chaired the supermarket inquiry, has been among the loudest voices in favour of the broad divestiture power.
In his comments attached to the report, McKim wrote that an economy-wide divestiture power would provide a “powerful stick” to disincentivise price gouging and anti-competitive behaviour.
“Australia has one of the most concentrated supermarket sectors in the world, with Coles and Woolworths together holding 65 per cent share of the market,” he said.
“However, market concentration is not an issue unique to the supermarket sector, with many industries across the Australian economy becoming increasingly concentrated, including in the banking, airline, energy and telecommunications sectors.”
The committee also urged the government to reconsider its rejection of the ACCC’s proposal that the onus of proving that a merger would not be anti-competitive should reside with the merging parties.
Currently, it is up to the ACCC to prove why a potentially anti-competitive merger should not be allowed to proceed.
In its merger reform proposal released last month, Treasury rejected the idea, citing wide concern among consulted parties.
At the time, ACCC chair Gina Cass-Gottlieb told Accounting Times the watchdog was giving up on the idea, embracing the success of its other proposals.
The committee also recommended that consumer protection legislation be amended to include a new price gouging offence, similar to an existing EU instrument.
It added that price gouging allegations among the country’s biggest supermarkets had been at the “heart” of the inquiry.
To promote fairer price-setting practices, the committee also recommended the creation of a federal Commission on Prices and Competition.
The body would examine “prices and price setting practices” across industry while reviewing government policies contributing to high prices.
At least in relation to the supermarket sector, the Commission would also be empowered to make referrals to the ACCC for enforcement and to publish annual reports.
The Committee also recommended vesting the ACCC with a power to investigate and make recommendations to government to address land banking in the supermarket sector; boosted funding for the ACCC; supermarket worker health and safety reforms; mandating the food and grocery code; and more.
