Maria Kovacic (NSW, Liberal Party) Share this | Hansard source

In relation to divestiture and the current supermarket sector in our country, there are a lot of competing issues here. The coalition senators' dissenting report of the Senate Select Committee on Supermarket Prices, of which I was a member, said:

Australia's supermarket sector remains dominated by two large players for a variety of reasons ranging from competition policy, investment settings, planning laws, transport, energy and industrial relations costs, and economies of scale. It is important that those companies do not abuse that market position and that appropriate safeguards are put in place to ensure the disincentives are substantial should they treat their producers or consumers unfairly. It is important Australia's competition regulator be empowered to act where this occurs, and for producers to have access to reasonable, affordable, and fair dispute mechanisms without fear or the threat of reprisals.

We heard some very broad evidence throughout that inquiry about a lot of the practical problems that we have in this sector. Some of the things that I want to talk about specifically relate to small business growers and farmers.

The coalition first called for a statutory review of the Food and Grocery Code of Conduct to be brought forward in late 2022. The government didn't act until January 2024. The statutory review of the food and grocery code was scheduled to commence in October 2023, three years after the commencement of the previous reforms to the code, but it took the government almost a hundred days to appoint a reviewer, in January 2024. In November 2023, the coalition also called for the ACCC to undertake a price inquiry, armed with tough powers, into meat and fresh produce, to investigate the supermarkets and to deal with the spiralling cost-of-living crisis in this country. That crisis was being felt by Australians not just with their mortgage repayments and not just with their rent but also at the supermarket checkout. Under section 95 of the Competition and Consumer Act, the Treasurer has legislated power to direct the ACCC and give it strong powers to compel information. But it wasn't until 25 January 2024 that the government directed the ACCC to conduct an inquiry into Australia's supermarket sector, including the pricing practices of the supermarkets and the relationship between wholesale—including farmgate—and retail prices. Again the government was slow to act.

What did the committee find out? The committee heard substantial evidence about the disparity of relationships between growers, suppliers and the supermarkets and its harmful impact particularly on the horticultural sector. We heard examples of Dutch auctions with no capacity to bargain on price, inconsistent and non-uniform product standards being used, risk and cost being passed down the supply chain, extended payment timeframes of up to 184 days, informal contracting arrangements that leave producers with excess product and give supermarkets an ability to set the price, and the lack of alternative markets particularly for fresh produce to sell surplus product to. But one thing that I was disappointed about was that we didn't get a proper opportunity to challenge the large multinationals and investigate what effects they have on supermarket prices. For some reason, they didn't have to come in front of the inquiry in the same way that Woolworths, Coles and Aldi did. I don't think that's particularly reasonable, given the scale of the cost-of-living issues that Australians are facing in this country. The question we need to ask ourselves is: does divestiture actually solve this problem, and how?

On 6 February 2024, Professor Allan Fels AO released his final report of an inquiry into price gouging and unfair pricing practices. During the inquiry I asked him a number of questions, including about his views on divestiture. I want to share comments from his independent report. It says, 'If forced divestiture resulted in a supermarket selling some of its stores to another large incumbent supermarket chain, the result could easily be greater concentration.' That's not more players in the market; that's greater concentration. If large incumbent supermarket chains were prohibited from buying the divested stores, that would leave only smaller supermarket chains and foreign supermarkets as potential buyers. Further, if these smaller chains were not interested or were not in a position to buy, the stores would be forced to close. This would be at the cost of the jobs of the workers in those stores and of inconvenience to local shoppers, who would need to go somewhere else to buy their groceries. If any business is forced to divest or get rid of part of its business, it's quite likely that the parts they will get rid of are the bits that aren't profitable. It is likely that the stores that are less profitable for large supermarket chains are those where they have greater difficulty getting to and from the store and where they have fewer customers. Those stores would primarily be in our remote and regional communities. A potential unintended consequence could well be that forcing divestiture powers into this sector without proper consideration could end up harming the people that we are attempting to protect, particularly in remote and regional communities, where they already pay more for their groceries than their metropolitan counterparts. We could create an environment where groceries become even more expensive, so that's something we really need to have a think about.

The government delivered an interim report of the Independent Review of the Food and Grocery Code of Conduct in the middle of the supermarkets inquiry. Despite it making clear recommendations, there was no indication from witnesses, including the ACCC, that there was an immediate urgency to act on this. The government needs to act faster to strengthen the food and grocery code and respond to the serious concerns of our horticultural sector, as delegated legislation to make the code mandatory does not require legislation to pass parliament but rather requires the political will of Treasury. To ensure complete supply chain protection, the Food and Grocery Code of Conduct must seamlessly intersect with the horticulture and dairy codes of conduct. This should occur by having the horticulture and dairy codes as schedules of the Food and Grocery Code of Conduct, and that was included in our recommendations. We also recommended that price transparency policy should be carefully designed to ensure maximum benefit to consumers, with a minimum compliance burden on companies, and delivered through the ACCC rather than through new bodies. We don't need additional layers of regulation when we already have the ACCC. We have to enable the ACCC to do their job. The government should create clearer pathways for small producers and growers to apply for ACCC exemptions to share information. That was another one of our recommendations in this report.

The committee heard a lot of evidence about the need for more competition in this sector. What we didn't hear was a lot of evidence about the need for divestiture. Aldi was one of the witnesses, and, as a relatively new entrant into the supermarket sector, it didn't consider divestiture to be a part of a solution to the problems being faced. In the line of questioning with Aldi, when asked what their greatest barriers to entry were, it wasn't their competitors; it was land and planning and the ability to find suitable sites to open their supermarkets.

Last week CHOICE released a survey result about the price of a basket of groceries, and it discovered that the basic bundle is about $18 cheaper at Aldi than it was at Coles and Woolworths. That tells us that Aldi, as a market entrant who now holds around 10 per cent of the market share of the supermarkets, is delivering the competition that the market needs. This is what we need; we need broader competition. Divestiture in itself doesn't guarantee greater competition; what divestiture does is provide a blunt tool in relation to misconduct. The challenge that we have is that it takes a very long time to enforce. And, in the current cost-of-living crisis in which Australians are suffering significantly with their mortgage repayments, rent and energy prices, and at the checkout, the solution is to ensure that competitive practices are in place that will give us more choice, as Aldi has provided literally and figuratively through the CHOICE survey—not by throwing in another layer of legal and procedural obligations.

If a regulator found that a supermarket had, in fact, breached its obligations, there would be legal proceedings, there would be challenges to legal proceedings, there would be an enforcement order in relation to divestiture and there would be a period of time for that enforcement to take place. During evidence in the supermarket inquiry, Professor Fels made the comment that that would take years; we all know that that would take years. These aren't problems that are going to be simply solved. If you have a legal proceeding in the supermarket sector that takes years and years, there is a cost attached to that. Who will bear the cost? That cost will flow on to the consumer. That is the very thing that we are trying to avoid—what has been called price gouging: that is, prices that are too high and unfair practices. Putting in a layer that isn't properly formed of divestiture could make those prices even higher.

In the same report, the recommendation that we made in relation to divestiture is that we didn't believe that the committee persuasively found that divestiture would work in this case, but we didn't say that they shouldn't be pursued at all. They should be targeted to sectors of concern with appropriate safeguards for regional jobs and services, and they must meet a clear public benefit test. That is the big problem. There needs to be clear guidance on how and when it can be applied, and it must have appropriate safeguards in place, which this bill doesn't have. That is our particular concern: it doesn't do what it should do in terms of meeting those concerns.

Nobody wants to see Australians pay more at the supermarket than they need to pay. Nobody wants to see small growers and suppliers suffer because of power imbalances. Australians are already struggling enough in a cost-of-living crisis, but we cannot put mechanisms in place that don't solve the particular problem at hand, and unfortunately, this bill doesn't solve the problem. This bill doesn't create fair and reasonable protections. What it does do is use a blunt tool to address a broader problem.

It is a crucial first step that the government's merger reforms create an adequate regime to counter the issue of creeping acquisitions and land banking. That was another part of our recommendations, and that is something that hasn't been addressed to date and that we need to look at. We need to understand that having new market entrants, more competition, is the most effective way to bring down prices. Recent new market entrants have helped support competition in the sector, and that is what is needed to lower grocery prices. New entrants have adopted different approaches for dealing with suppliers, leveraging opportunities and streamlining business models to deliver mutual benefits for both customers and suppliers.