The impacts of supermarket price decisions on the dairy industry
Senate Inquiry into milk price wars
Inquiry home page
Referred to Senate Economics Committee on 10 February.
Submissions due: 28 February 2011
Reporting date: 15 April 2011 (extended to 20 April 2011). Note, a brief interim report was released on 20 April and a second interim report was released on 9 May. A final report was promised by 1 October but has been delayed - on 22 September the Senate granted an extension of time for reporting until 1 November 2011.
View first interim report (released 20 April 2011)
Government response to first interim report
Brief one page acknowledgment in May 2011.
Final report (released 3 November)
Senator Kroger presented the final report of the Economics Reference Committee on the The impacts of supermarket price decisions on the dairy industry to the Senate on 3 November (View Hansard - pages 29-35).
In part, the Report recommends that an independent review of the Competition and Consumer Act be initiated (recommendation 5). This recommendation is not supported by the Government (see Senator Bishop's comments and 'Government Senators' Additional Comments' in the final report). View all recommendations.
Additional comments to the report are also made by Senators Xenophon, Williams, Heffernan, Madigan and Milne, recommending - amongst other things - a re-introduction of price signalling laws and general divestiture powers.
The report observes (page xiii, Summary and Recommendations)
The circumstances which gave rise to this inquiry appear unusual in many respects. In recent years, public debate about the competitiveness of the supermarket sector has been focused on concerns about food price inflation and grocery prices being too high. In conducting this inquiry, the committee has been troubled that the benefits gained by consumers have not received sufficient attention in the debate about milk prices. In general, price discounting is likely to be pro-competitive and of benefit to consumers. Provided it does not constitute predatory pricing, a retail price cut should not be discouraged. The January 2011 price cuts in a staple product is undoubtedly good news for consumers in the short-term. Attempting to predict with any certainty any longer-term impact on overall consumer welfare is difficult, if not impossible.
Government response to final report
Released February 2012
Terms of reference
The impact on the Australian dairy industry supply chain of the recent decision by Coles supermarket (followed by Woolworths, Aldi and Franklins) to heavily discount the price of milk (to $1 per litre) and other dairy products on the Australian dairy industry, with particular reference to:
(a) farm gate, wholesale and retail milk prices;
(b) the decrease in Australian production of milk from 11 billion litres in 2004 to 9 billion litres in 2011, of which only 25 per cent is drinking milk;
(c) whether such a price reduction is anti-competitive;
(d) the suitability of the framework contained in the Horticulture Code of Conduct to the Australian dairy industry;
(e) the recommendations of the 2010 Economics References Committee report, Milking it for all it’s worth - competition and pricing in the Australian dairy industry and how these have progressed;
(f) the need for any legislative amendments; and
(g) any other related matters.
Reference to Committee
The following extract from p 36 of the Senate Hansard, Thursday 10 February, sets out the details of the inquiry.
Senator XENOPHON (South Australia) (12.07pm) - I, and also on behalf of Senators Colbeck and Milne, move:
That the following matter be referred to the Economics References Committee for inquiry and report by 15 April 2011:
The impact on the Australian dairy industry supply chain by the recent decision by Coles supermarket (followed by Woolworths, Aldi and Franklins) to heavily discount the price of milk (to $1 per litre) and other dairy products on the Australian dairy industry, with particular reference to:
(a) wholesale milk prices;
(b) the decrease in Australian production of milk from 11 billion litres in 2004 to 9 billion litres in 2011, of which only 25 per cent is drinking milk;
(c) whether such a price reduction is anti-competitive;
(d) the suitability of the framework contained in the Horticulture Code of Conduct to the Australian dairy industry;
(e) the recommendations of the 2010 Economics References Committee report, Milking it for all it’s worth - competition and pricing in the Australian dairy industry and how these have progressed;
(f) the need for any legislative amendments; and
(g) any other related matters.
Senator NASH (New South Wales) (12.08 pm) - by leave - I move as an amendment to the motion:
Omit paragraph (a), substitute: (a) farm gate, wholesale and retail milk prices;
Amendment agreed to. Original question, as amended, agreed to.
House Hansard Reference (12 May 2011)
The House called on the ACCC to examine the market power of 'big' supermarkets' and to support the Senate inquiry. The following motion was brought and agreed to in the House of Representatives (Hansard pp 71-72):
That this House: (1) notes with concern the impact on the Dairy Industry of the Coles milk pricing strategy and that: (a) dairy farmers around the country are today seriously questioning their future having suffered through one of the worst decades in memory including droughts, floods, price cuts and rising cost of inputs such as energy and feed; (b) unsustainable retail milk prices will, over time, compel processors to renegotiate contracts with dairy farmers and the prospect that these contracts will be below the cost of production may force many to leave the industry; (c) the fact that supermarkets are now selling milk cheaper than many varieties of bottled water will be the straw that finally breaks the camel's back for many dairy farmers; and (d) the risk of other potential impacts includes: (i) decreased competition as name brands are forced from the shelves; and (ii) the possible loss of fresh milk supplies to some parts of the country as local fresh milk industries become unviable; and (2) calls on the Government to: (a) ask the ACCC to immediately examine the big supermarkets and milk wholesalers after recent price cuts to ensure they do not have too much market power and are not anti-competitive in their behaviour; and (b) support the new Senate inquiry into the ongoing milk price war between the country's major supermarket chains'.
The final report makes the following recommendations:
5.43 The committee urges processors to make their pricing structures for sourcing drinking milk:
- reflect the volume they estimate they require to meet their total commitments;
- offer more stability in prices rather than changing frequently; and
- not be dependent on the final retail sales of branded versus private label milk.
5.45 The committee recommends that contracts with dairy farmers should offer a clear, consistent formula for milk pricing with unambiguous conditions.
5.47 The committee recommends that the Government commission a study of the dairy industries in Queensland, New South Wales and Western Australia. The study should focus on the future sustainability of the dairy industry in each of these states and their capacity to meet future local consumer demand. The report of the study should also examine possible policy options and be tabled in the Senate.
6.58 The committee recommends that the Australian Competition and Consumer Commission (ACCC) review its approach to publicly releasing information about its investigations, with a view to providing greater general information about its current enforcement activities and relevant issues of particular public concern.
6.59 This recommendation is subject to the proviso that such action would not deny procedural fairness to the parties involved or threaten the integrity of the ACCC's investigations.
7.100 The committee recommends that the Government initiate an independent review of the competition provisions of the Competition and Consumer Act 2010.
8.9 The committee recommends that the Government review the effectiveness of collective bargaining laws and arrangements for agricultural industries, with a view to strengthening that framework to create a more equitable balance of power between the negotiating parties and to otherwise improve their operation.
8.43 The committee recommends that the Government initiate the following:
- A review of the effectiveness of Produce and Grocery Industry Code of Conduct and mediation process undertaken through the Produce and Grocery Code Ombudsman. The review should include a consultation process regarding options to strengthen the Code, including that it captures entire supply chain relationships, and whether a revised Code should be made a prescribed mandatory industry code under the Competition and Consumer Act 2010.
- A consultation process on the need for a new statutory office to address issues regarding supply relationships in the grocery sector, and the role, powers, coverage and governance regarding such an office.
Interim report number 2
See my blog piece for a brief review of the interim report.
Interim report number 1
On 20 April 2011 the Senate Economics Committee released an interim report in which it made only one recommendation.
The Committee calls on the Government to table a formal response to the Committee's report Milking it for all it's worth - competition and pricing in the Australian dairy industry by 13 May 2011, which will be a year after it was tabled.
The Committee promised a further interim report by 10 May and a final report by 1 October.
Frank Zumbo hit the media waves supporting the inquiry, claiming that the inquiry should be 'welcomed for the purpose of shedding light on this whole issue' and to 'give Coles and Woolworths a chance to explain their behaviour' (see, eg, Patrick Stafford, 'Milk inquiry to probe Coles, Woolworths over massive discounting' (Smart Company, 11 February 2011)). Zumbo also wanted the inquiry to look at whether the Birdsville Amendment (which he drafted) has been contravened - this is not, however, part of the terms of reference of the inquiry.
There is plenty of media on this.
Reporting following conclusion of the inquiry:
- Matthew Stevens, 'Still plenty of crying as Senate inquiry into supermarket milk war closes' (The Australian, 12 October 2011)
Following the release of the second interim report see:
- Julian Drape, 'Dairy farmers need floor price: Xenophon' (9 May 2011, SMH)
- Matt Johnston, 'Green light for cheap milk' (10 May 2011, Herald Sun)
- John Durie, 'Cowboys won't beef up their stake in AACo' (see 'the Milky Way' heading) (The Australian, 10 May 2011)
(noting, correctly, that 'Liberal senator Scott Ryan was the only one to see the light')
Following the inquiry see, for example:
- Damon Kitney, 'Milk wars "not a threat to farmers", says Coles research' (The Australian, 28 April 2011)
- John Durie, 'Meddling that money can't buy' (The Australian, 16 April 2011)
- AAP, 'Senate announces inquiry into supermarket milk wars' (Herald Sun, 10 February)
- Sid Maher and Pia Akerman, 'Farmers urge milk price revolt against Coles' (The Australian, 11 February 2011)
- Michael Harvey, 'Senate announces inquiry into supermarket milk wars' (Herald Sun, 11 February)
- 'Labor rejects probe into milk price war' (ABC, 10 February)
Prior to the inquiry there was significant pressure for the inquiry - see, for example:
- AAP, 'Oppn calls in watchdog over milk debate' (SMH, 26 January)
- John Durie, 'Coles' milk price cut aimed at Woolies and Aldi, but the real victim will be processors' (The Australian).
For some blog commentary see:
There were more than 100 submissions made to this inquiry. All submissions are available here. They include submissions by the Treasury and by Coles. Some are discussed below.
Treasury submission (submission no 111)
The Treasury submission discusses the role of competition policy, the purpose and operation of s 46, including the outcomes of recent reviews, and price discrimination (including the outcome of previous reviews). It also discusses authorisation and notification, including for collective bargaining conduct. Some key quotes:
On the issue of misuse of market power
[p 11] Market power is a distinct economic concept to market share. Market share is not determinative of market power. A firm can have a substantial degree of power in a market even though its market share in that market is quite low, and despite there being a number of other significant competitors in that market. For example, the Federal Court has previously imposed penalties for misuse of market power where a corporation had only around 16-20 per cent of the share in the relevant market.
Subsection 46(3C) clarifies that a corporation may have market power even if it does not have substantial control of the market and does not have absolute freedom from constraint by the conduct of competitors, suppliers or customers.
The CCA also enables the aggregation of the market power of related companies for the purposes of assessing market power (subsection 46(2)) and enables the Court to have regard to any market power the corporation has that results from contracts, arrangements or understandings with others, or results from covenants that the corporation is entitled to the benefit of (subsection 46(3A)).
[p 13] Section 46 does not look to the effect of the firm's behaviour. If it did, there is the potential for pro-competitive conduct by firms with substantial market power to be deterred, with consequentially reduced gains in efficiency and productivity and hence economic welfare.
On the issue of price discrimination
[p 15] Only a handful of cases were brought before the courts on the reliance on the provision. In the one instance where price discrimination was proven, the conduct also amounted to contravention of the prohibition on exclusive dealing (section 47), which remains in effect.
... Since the enactment of the CCA in 1974, there have been three major independent reviews looking at the operation of the Act. All three reviews examined section 49 and ultimately recommended the repeal of section 49 for a variety of reasons.
The Trade Practices Act Review Committee (Swanson Committee) in 1976 considered that section 49 reduced price flexibility. ...
The Trade Practices Consultative Committee (Blunt review)of the CCA in 1979 noted the infrequent use of section 49 and recommended a strengthening of the section 46 prohibition on misuse of market power to ensure anti-competitive behaviour would be captured. The Blunt review regarded section 49 as detrimental to price flexibility, to consumers, big and small business. It also noted it brought about undesirable inflationary effects.
[p 16] Small business representatives considered the retention of section 49 as desirable and that the prohibition should be strengthened. The Blunt Review noted that the majority of small businesses regarded section 49 as having been of no real assistance to them, noting that those seeking relief from price discrimination were generally seeking relief from predatory pricing by powerful firms.
The National Competition Policy Review (Hilmer Report) in 1993 also highlighted the existence of sections 45 and 46 to guard against anti-competitive price discrimination and concluded that where small business required specific protection that this should be delivered through open direct assistance.
'The Committee considers that price discrimination generally enhances economic efficiency, except in cases which may be dealt with by section 45 (anti-competitive agreements) or section 46 (misuse of market power).' ...
Section 49 was subsequently repealed in 1995 through the Competition Policy Reform Act 1995. The second reading speech for the amending legislation, said:
'The prohibition against price discrimination is to be repealed as the provision is largely redundant, and the conduct it is designed to address is adequately covered by other provisions of the Act.'
Since the repeal of section 49, there has been one prominent review of the CCA. The Dawson Review in 2003 looked at the current competition provisions and their ability to address anti-competitive price discrimination.
[p 16] The review concluded that section 46 provides an appropriate means to tackle anti-competitive price discrimination. The review considered and rejected a proposal to introduce an effects test to section 46 to address concerns regarding price discrimination.
Law Council of Australia (submission no 115)
The Law Council of Australia made an excellent submission to this inquiry. It focussed on price discrimination and misuse of market power reform.
The LCA opposed reintroduction of a general price discrimination law, noting (at p 2):
the reintroduction of a general price discrimination law across the economy has not found support from any of the numerous previous inquiries and reviews into the CCA, and cannot be reconciled with the objects of the CCA supporting effective competition, the efficiency of the Australian economy and the welfare of Australians generally. ...
[The LCA elaborated on its concerns (at pp 3-5) and summarised other committee concerns and highlighted concerns expressed by Professor Corones who notes, in particular, that differential pricing generally enhances economic efficiency by, for example, 'allowing some customers to acquire products that would otherwise not have been available to them at prices they were willing to pay, thereby enabling those customers to enjoy the benefits of consuming that good or service. Price discrimination occurs widely across the economy and does not depend on the possession of substantial market power.' (at p 4)
It opposed a market share based presumption of market power (p 3):
the provisions of section 46 of the CCA (which deal with conduct of firms possessing substantial market power) have been extensively reviewed and clarified in recent years to address ACCC concerns. A number of those recent reforms appear not to have been considered by the 2010 Inquiry;
it is still too early for the full effect of these changes to be confirmed, and so it is important that the ACCC be given the opportunity to test those new powers before further reform of section 46 is considered;
a market share test is not an appropriate proxy for determining whether a firm possesses (or takes advantage of) a substantial degree of market power. Whilst market share may be an indicator of a firm having market power, it is neither the most reliable indicator of market power, nor is it determinative. There are several other well recognised criteria which are more indicative of the presence (or absence) of market power, particularly the existence of substantial entry barriers, and the relative freedom from constraints imposed on a firm by its competitors and customers, which should be considered in order to determine a firm's market power. The effective operation of the CCA would be undermined by seeking to oversimplify the analysis of those matters;
[In relation to this point, the LCA also notes, at p 7: 'This Committee does not support any presumptions based on market share and does not believe such a reform would be consistent with best international practice, as suggested in the 2010 Report, or the objects of the CCA. ... It is widely accepted internationally that market share is not a good indicator of market power. ... market share is neither the most reliable indicator of market power, nor is it determinative. Further, its quantification is dependent upon often very subjective and debatable views on market definition. [5.8] There are several other well recognised criteria which are much more indicative of whether there is market power, particularly the existence of substantial entry barriers, and relative freedom from constraints imposed on a firm by its competitors and customers. These are the factors to which primary regard should be had in order to determine whether a firm possesses substantial market power, along with other factors such as market shares. [5.9] The effective operation of the CCA would be profoundly undermined by seeking to simplify the analysis of whether a firm possesses substantial market power to having regard only to its market share.']
It further opposed separating the ACCC into two separate entities (p 3):
separating the ACCC into two separate entities would be likely to produce less efficient outcomes, increase costs for the Government (as well as for persons interacting with the ACCC), and raise the possibility of inconsistent approaches emerging which may weaken the ACCC. It is notable that currently the UK Government is proceeding in the opposite direction by announcing the merger of its 2 competition agencies, the Office of Fair Trading and the Competition Commission.
Transcripts from public hearings are available here. Some notable extracts (either because they are controversial, particularly pertinent, or provide a good explanation of relevant law) and some commentary follows.
Mr Marcus Bezzi (Executive General Manager, Enforcement and Compliance, ACCC, Sydney, 9 March 2011)
Mr Brian Cassidy (Chief Executive Officer, ACCC, Sydney, 9 March 2011)
Mr Tim Grimwade (Executive General Manager, Mergers and Acquisitions, ACCC, Sydney, 9 March 2011)
Mr Mark Pearson (Deputy Chief Executive Officer, ACCC, Sydney, 9 March 2011)
Mr Cassidy: 'Predatory pricing has two key elements to it. Firstly, there has to be a target. There must be an intention to predate someone. That is different to someone suffering loss or harm as a result of the competitive process. What the company with market power does must be targeted at a competitor. It could be a particular competitor, it could be more than one competitor but it must be targeted at someone. Secondly, it must have the purpose of damaging whoever it is targeted at. It could be an existing competitor, or it could be a potential new competitor. They are the two key ingredients that we look for and what is in the legislation is really an embellishment of those key ingredients.' [page E19]
Senator Colbeck: '... how do you go about the process of determining it? Let me use an example: our motive in all of this is to provide cheaper milk to our customers. That is the stated motive that is put on the public record. How do you go about determining what is effectively the action versus what is the stated action?' [E20]
Mr Cassidy: 'We would look at it in general terms. We would look at the action taken and whether in all likelihood it is about delivering cheaper prices for consumers or whether the action that was taken and the way it was taken was really more likely to be about damaging a particular competitor where whatever benefits were offered to the consumer were probably a byproduct rather than being the prime objective. Let me give you a hypothetical example. If a firm with market power, with the ability to do it, was selling products at below cost and choosing the particular outlets in which to sell the products and the outlets just happened to be sitting alongside a particular competitor, you might say that is getting lower prices to consumers but if that is the objective why are they just doing it in these particular outlets? You would start to form a suspicion that what the conduct is really about is damaging the competitor rather than providing lower prices to consumers.' [E20]
Senator Heffernan: 'How do you determine what is cost?' [E20]
Mr Cassidy: 'The relevant cost is the cost of whoever it is who is alleged to be undertaking the predatory behaviour. If the allegation is—and this is a common mistake that people make— that, say, Senator Colbeck is undertaking predatory pricing then the cost that is relevant is his cost. If he is selling below what happens to be your cost of supply, that is not relevant because the relevant cost is whether he is selling below his cost of supply.' [E20]
Senator Colbeck: '... how do you determine what cost is, and what powers do you have to seek out information to determine what cost is?'
Mr Cassidy: 'The wording of the act is ‘reason to believe’ that there may have been a breach of the act. That is a fairly low threshold if you think about it. So if we have such a reason we have our formal information gathering powers. We can get information from a company - essentially we can get all their books. We can see what their supply costs are and what they are paying their suppliers. We can get the company’s full accounts, including the sort of internal information that would not normally be made public, in order to get to the issue of what their cost of supply is.'
Senator Colbeck: 'But to go down that path you first have to satisfy yourselves of intention to predate and a purpose of damaging a particular target within the market?'
Mr Cassidy: 'According to the wording in the act, we have to have a reason to believe not necessarily that there has been a breach but a reason to believe that there may have been a breach of the law or predation. We cannot just do it off the top of our hats; we do need to have some basis to form our suspicion. We have been challenged on this in court on occasions over a period of time. It is a fairly large threshold but we do need to have something.'
... 'we are not sitting on our hands. We are engaged with the parties involved in this. I do not want to go into the details of exactly what we are doing or what we have done, but I have to say to you at this point that we have no evidence that Coles is selling below cost. If someone has got that evidence ... because there are some fairly wild claims being made—then we would certainly like to have it. But on the basis of what we have got, we have no evidence.' [E23]
Senator Heffernan [demonstrating a complete lack of understanding of the ACCC's role]: '... But to save time the question is: what is cost? If the genuine cost to the milk vendors out there is 80c a litre more than Coles, Aldi or anyone else, then they can screw the consolidated processor down because of market power, which eventually puts the vendors out of business. You say that is not damaging' [E23]
Mr Bezzi: 'It is different. What you have talked about is not relevant to our assessment.' [E23]
Senator Heffernan: 'It bloody well ought to be.' [E23]
Mr Bezzi: 'We are bound by the provision in the Competition and Consumer Act and our focus -' [E23]
Senator Heffernan: 'Try explaining that to a milk vendor.' [E23]
Mr Bezzi: 'is on the cost to the corporation that is making the supply.' [E23]
Senator Heffernan: 'Do you agree that in Australia there is a monopoly situation in milk processing?' [E23]
Mr Cassidy: 'No.' [E23]
Senator Heffernan: 'You think three is enough?' [E23]
Senator O’Brien: 'I want to ask some questions which arise from evidence we received yesterday. Does the ACCC engage in consultation with business about what is permitted under trade practices law in terms of their operation in markets? For example, could a company come to the ACCC and say: ‘We’re not sure if this particular practice falls within the law. What is your view?’' [E24]
Mr Cassidy: 'We do not normally provide legal advice, if I can put it that way, in the sense of the law enforcer because that is not our role and it can place us in an awkward position. We do -' [E24]
Senator O’Brien: 'You do not normally provide legal advice.' [E24]
Mr Cassidy: 'We do spend a reasonable amount of our time and effort in trying to explain it all to parties generally, be they big businesses, small businesses or consumers. If someone has specific conduct that they want to undertake, unless they want to approach us, say for arguments sake, authorisation for that conduct, then they need to seek their own advice on whether that specific conduct is likely to breach the law or not.' [E24]
Senator O’Brien: 'It was suggested to us that Coles would have gone to the ACCC to seek their view as to the legitimacy of their arrangements with processors in reducing milk prices and engaging in what some would say is a very extreme form of competition. Did they do that?' [E24]
Mr Cassidy: 'No, that is flatly wrong - they did not approach us.' [E24]
Senator O’Brien: 'So they have not come to the ACCC about this before?' [E24]
Mr Cassidy: 'They did not approach us before; they have not approached us since. That is just flatly wrong.' [E24]
Senator O'Brien: '... The other issue I wanted to raise arises from a submission we have about previous section 49 and the different test applied to that section. It is suggested that the test for section 49 was an effects test rather than a purpose test. I wonder whether you could confirm, if you know, that that is the case, that there was a differentiation between that and other existing provisions in the act which you have spoken about in your evidence today - that is, the purpose of certain conduct. And can you tell us of any other provisions in the Trade Practices Act that are tested against the effect of conduct rather than the purpose of conduct?' [E25]
Mr Cassidy: 'The usual formulation that you find in the competition provisions of the act normally refer to purpose and/or effect, so it covers both. Section 46, which deals with abuse of market power - predatory behaviour - is couched purely in terms of purpose. Some of the secondary boycott provisions are couched in terms of purpose and effect. It is true that the old section 49 on price discrimination was couched purely in terms of effect.
Senator O'Brien: 'The parliament repealed section 49 on the basis of the advice of Professor Hilmer’s committee that sections 45 or 46 would do the same job, and that therefore section 49 was unnecessary. Have those sections dealt with the issue of price discrimination on the same product between businesses?' [E27]
Mr Cassidy: 'As you would know, we have had a number of problems with section 46 arising out of a number of High Court cases where the law was not clarified until 2007. I would probably take it on notice, if I could, just to check. I will say that to the best of my knowledge and recollection, there was never a successful case under section 49.' [E27]
Mr Cassidy: 'If you look at section 49, basically it said price discrimination is unlawful if it has the effect of ‘substantially lessening competition’. Then there were a couple of exclusions, which included price discrimination because of differing costs and price discrimination in order to match a competitor. When you took all of that into account you had to be able to establish that there was the effect of substantial lessening of competition. Various types of pricing were excluded. So you ended up with a fairly small set of pricing behaviours which potentially would have fallen under that section for consideration.' [E27]
Mr Cassidy: 'I think a certain amount of the argument and what has been put around is basically coming from what are some very well-heeled vested interests, if I can put it that way— in particular, the processors and, I have to say, Woolworths. They are not small entities.' [E30]
Mr Cassidy: 'At the present time, I think all the major retailers have indicated that they are absorbing the cost of the discounting, and -' [E32]
Senator Xenophon: [interrupting for the umpteenth time] 'No, that is wrong, Mr Cassidy.'
Mr Cassidy: 'I would like to finish my answers and to insist on that.'
Chair: 'That is fair, Senator Xenophon.'
Mr Cassidy: 'Again, we have no evidence to the contrary on that. I go back to 2000, when Woolworths changed the arrangements for purchasing home brand milk. They moved to a national tender, which drove down the price that they were paying for their home brand milk, and that flowed straight through the chain and ended up with the farmer. That is the sort of history I refer to, but that is not happening at the present time.'
[After some back and forth Mr Cassidy tries to explain to Senator Xenophon, who seems hung up on the fact that nobody from the ACCC attended the previous day's hearings (perhaps forgetting that while politicians seem to have all the time in the world talking about things they don't understand, the ACCC has other commitments), that he really doesn't have a clue what he's talking about; he was a little more dignified than that though]
Mr Cassidy: 'No, let us be clear: I said there was no evidence that the cost of the discounting - in other words, the money that Coles, Woolworths and whoever else is currently not getting on their home brand milk - is being passed down the chain. There is simply no evidence of that, and they have each said they are not going to do it.' [E33]
Senator Xenophon: 'Maybe, if you had been at the Senate hearing yesterday, you would have heard that.'
[Mr Cassidy once again tries to set Senator Xenophon straight, but he's does not appear inclined to listen ... for example ...]
Mr Cassidy: '... I repeat: I am simply not going to sit here and start going into the details of our current activities on this. Apart from anything else, that could have an adverse bearing on our ability to take action if we need to somewhere down the track. That is a fairly basic investigative issue.' [E36]
Mr Bezzi: 'We have to protect our enforcement processes. I have to protect my staff.
Senator Xenophon: 'I know you want to protect your staff and your enforcement processes. There are dairy farmers that are on the edge -'
Senator Williams: 'They want to protect their livelihood as well.
Senator Xenophon: '- and they want to protect their livelihood.'
Mr Bezzi: 'We have a job to do, which is to enforce the act. We have to be careful that we are in a position to do that.'
Senator Xenophon: 'Hang on a second: you reckon you have to enforce the act. You have a situation where the Chairman of the ACCC goes on about protestations. You have Mr Cassidy, the chief executive, saying that wild claims are being made. Haven’t you already prejudged this issue?'
Mr Cassidy: 'Not at all.'
Senator Xenophon: 'Are you sure?'
Mr Cassidy: 'Yes, I am positive. If we have prejudged it then the resources that we have on this would be somewhere else.'
Senator Xenophon: 'Why do you talk about wild claims? Isn’t that prejudging an issue? Isn’t that unwise?'
Mr Cassidy: 'You do not need to look at some of the claims for very long, as I said earlier, to realise that they are not coming from the farmers; they are coming from other players in the industry. That is the point I was making.'
... [E43] ...
Senator Ryan: 'Mr Cassidy, I would like to give you the chance to put on record a response to my summation of a couple of issues that have been raised by the submitters. There is a regulatory reluctance by the ACCC and its predecessor agencies to pursue abuse of market power issues through the courts. A substantial number of instances of alleged predatory pricing or abuse of market power are brought to the ACCC but there is a reluctance to pursue these, in a legal way, in this retail grocery and other sectors. I would like your response to that.'
Mr Cassidy: 'It would probably not surprise you if I said I do not agree with that. We did have a problem with the law for a period of time after the Boral case in 2003, the Metway [sic] case, the Rural Press case and the Northern Territory power case. They all went to the High Court which, basically, said that the law was different to what we thought it was. That was not remedied until 2007. But there has been no reluctance on our part and I have answered this question previously. We currently have 12 detailed investigations underway in relation to section 46 conduct. The problem we had up until 2007 was that, even though we might have had six, seven or eight investigations underway at any one time, when we got to external legal advisers, [E44] which we were required to do, the advice was that the case we had would not meet the sorts of thresholds the High Court had set, and that has been our problem.'
Mr Bezzi: 'Having said that, we have had one successful predatory pricing case that we concluded in recent months, which we are very pleased about - I have to put this on the record. We feel that the result we got in that was a very good result and it sent a strong signal to industry that we are serious about pursuing predatory pricing cases. There was a very substantial penalty imposed. It was a difficult case. It was an industry where there were substantial resources arrayed against us, but we pursued it and we got, I think, a very good result.'
Mr Cassidy: 'That was Cabcharge, and we are awaiting judgment on another case in the courts at the moment.'
... [E45] ...
Senator Williams: 'Mr Cassidy, we heard earlier today that most countries, perhaps all countries excluding New Zealand and Australia, have a section 49 or equivalent. Are you aware of that? Which jurisdictions have a trade practices provision similar to section 49? We are told that it exists in Europe, Canada and the USA.'
Mr Cassidy: 'Canada does not. The USA has the Robinson-Patman act, although there have been a number of recommendations that it be repealed. I think there is still on the books a provision in European law, article 85(1)d, which prohibits agreements that apply dissimilar conditions to equivalent transactions with other trading parties - there is a competition test - thereby placing them at a competitive disadvantage. That sort of law does exist in some countries, although I would not agree with your proposition that most countries have it, because those sorts of laws have been repealed in a number of countries in recent years.'
Senator Williams: 'Why was it removed in Australia? Was it simply because sections 45 and 46 could have done the job, or was there a particular reason?'
Mr Cassidy: 'The logic of it goes back to the Hilmer inquiry - the National Competition Policy Review Committee. They observed that anticompetitive price discrimination almost invariably involves a firm with market power. You have to have market power to make it stick. Alternatively, a group of suppliers has to get together and agree on the price discrimination; otherwise, it just does not work. The point the committee made was that if it is a use of market power then that is what section 46 is about. If it is a group of suppliers getting together and deciding on the anticompetitive price discrimination, then that is what section 45 is about. ...'
Frank Zumbo (private capacity)
Zumbo blames everything on 'the failure of the ACCC to stop the increasing consolidation of these markets' which he claims has led to oligopolies operating as cosy clubs [E48]. He then goes on to talk about the Birdsville Amendment on predatory pricing (which he drafted: see Birdsville commentary) [E49] He further complains that there remains a 'major problem with section 46 generally.' In particular, he wants it to be remedied in relation to 'anticompetitive price discrimination'.
Zumbo again claims that Australia has 'some of the weakest competition laws in the world' and criticises the ACCC as taking 'a long time to investigate' and suggests we need an inquiry into the ACCC. He then suggests there is a need for an "office of the Australian small business and farming commissioner" (E50).
Zumbo also wants big supermarkets to be forced to put all of their prices online - "full price transparency" (he is later picked up on this by Senator Ryan who seems to suggest (E60-61) that the most regular visitors to those sort of information sites are competitors and not consumers so that the regulatory burden may be greater than the 'information benefit to the consumer' - he notes "I do not know how often consumers are going to find it particularly useful to check the price of vegemite ...' (E61)). Zumbo responds by stating that Coles and Woolworths 'may even be swapping price files. Who knows?' (E61) but still wants the consumer to have the information.
Zumbo claims other jurisdictions have express price discrimination prohibitions and so should we.
He also claims that Australia needs general divestiture powers, claiming Australia is 'out of step' with international best practice.
Xenophon then encouraged Zumbo in relation to Coles' advertisements claiming they will keep prices 'down, down and staying down'. (Xenophon has vigorously defended Zumbo previously claiming that Zumbo has done an enormous amount of work to advance debate on competition law in Australia) Xenophon asked if this might breach the Act. Zumbo stated that it may raise issues of misleading conduct and claimed that Coles have 'backed themselves into a corner in that whenever the price goes below cost price there may be issues under the Birdsville amendment'. [E55]
Xenophon then asks whether, because on his assessment information Coles' had previously given on pricing seemed to suggest they might now be below cost pricing, this 'should be setting off alarm bells for the ACCC to investigate?' Zumbo replied 'clearly'. [E56].
Zumbo is then asked about s 46 again - he claims that 'in relation to the Birdsville amendment and predatory pricing ... section 46 is effective' (E56) but the rest of section 46 needs work. In particular, he thinks substantial market power in the rest of s 46 should be replaced with substantial market share (used in the Birdsville provision).
His criticism of the market power threshold continues.
Zumbo then notes that the ACCC claims to have no evidence of predatory pricing (in the terms required by the Act) and then claims it is up to them to 'get the evidence' [E58] (the underlying assumption appears to be that it does exist, they just have not looked hard enough). Senator Heffernan then jumped in and remarked that he had had enough of the ACCC because they 'talk a whole lot of mumbo jumbo' [E58] and they must be wrong because there is no doubt the prices are too low.
Mr Bradford Archer, Principal Adviser, Infrastructure, Competition and Consumer Division, Department of the Treasury, Canberra, 10 March 2011
Mr John Burch, Manager, Infrastructure, Competition and Consumer Division, Department of the Treasury, Canberra, 10 March 2011
Mr Andrew Deitz, Manager, Infrastructure, Competition and Consumer Division, Department of the Treasury, Canberra, 10 March 2011
Mr Simon Writer, Manager, Competition and Consumer Policy Division, Department of the Treasury, Canberra, 10 March 2011
Members of the Treasury were first to give evidence on 10 March. There was discussion about the purpose of competition policy. Mr Archer noted:
Competition is not an end in itself and the benefits of competition are many. They include that it provides incentives for businesses to prepare their products at least cost, to innovate and to meet the desires of consumers. Producing goods at least cost is what we refer to as technical efficiency. Also the competitive process that engenders resources flowing to those parts of the economy where they are most highly valued is what we refer to as allocative efficiency, in economic textbook terms. There is also the concept of dynamic efficiency, which goes to that point about innovation over time and incentives for firms to innovate to gain a competitive advantage in the marketplace.
Senator Ryan (who stood out as the only Senator to make consistently sensible comments throughout the hearing) expressed some concern that the reintroduction of an anti-competitive price discrimination provision was that "theoretically that could lead to higher prices for consumers as it effectively prohibits a greater degree of price discrimination". Mr Archer acknowledged that was a concern, noting that several reviews had recommended against price discrimination provisions. Senator Ryan also queried whether or not Australia was one of only a few comparable nations or developed economies without such a provision, an idea propagated by Frank Zumbo in particular. Mr Deitz responded:
I think it is fair to suggest that, while it can be present in some of the overseas jurisdictions, it is not necessarily a feature at enforcement level that is consistently utilised at this time. With respect to some of the evidence in terms of overseas jurisdictions, it is fair to suggest the trend is probably towards repeal of these provisions rather than the reinstatement or the continuation of them. In 2009 Canada repealed the provisions that it had for specific anticompetitive price discrimination.
There is the Robinson-Patman Act, from somewhere in the 1930s, in the US which has been recommended for appeal multiple times but that has not been given effect to. There is also in Europe a subsection under the abuse of dominance provisions - which are comparable to our section 46 for misuse of market power - which specifically talks about discriminatory terms between sellers and buyers as a form of abuse of dominance. But that in some senses reflects the characterization of its treatment here in Australia which is that it is considered to be - and is treated a - a form of misuse of market power. So to some extent there are provisions overseas on the face of some statutes where it does exist but the extent to which it is treated differently here in Australia is probably not that great in practice. [p E3]
To clarify, Senator Ryan asked whether the 'direction of some is towards repeal and where it is not it is not a particularly active provision' - Mr Deitz agreed that that was a fair suggestion.
Senator Heffernan then went on a (bizarre) rant about globalisation generally:
Isn’t the problem that the global position, due to modern travel, modern transport and modern communications, sovereign funds, multinationals, free trade agreements and a world trade organisation which is overpowering the capacity of a lot of countries to control their own sovereignty and destiny. Isn’t it just with the milk guys simply market power? You win a contract with Coles and Woolies and you go home to the missus that night and you get drunk and say, 'Beauty, we have won the contract.' Three years later you want to slash your wrists and jump off the Gap because they have screwed the backside out of you. Isn’t that the case? [p E4]
[Note, there are more rants about sovereignty and fear-mongering that we are 'losing our sovereignty' on p E36]
He further insults Treasury:
The law is out of date; I mean, get with it. You spend too long buried in Treasury, I think - get out and have a look about. [E4]
Mr Archer responds diplomatically: 'I am not sure of your question'.
Then concern is raised again, by the Chair, of the possibility of Australia turning into the UK and largely selling UHT milk.
Certainly the supermarkets, on the face of it, appear in the context of the current debate to be making statements that they recognise that their customers demand and value the supply of fresh drinking milk. I do not know if that is right. I think that there is no reason to disbelieve that at the present time. That being the case, it would be an interesting strategy for a supermarket to attempt to steer things in a direction where they are not supplying that milk while others continue to do so. They could be taking themselves out of a market which continues to reflect customer demand.
After some discussion of the law on misuse of market power, Senator Colbeck suggests that people (he clearly inferences the Treasury and ACCC) may have been 'captured or seduced by what the key protagonist [Coles] is saying'. The senators clearly believe everyone but themselves to be idiots.
Then it's Senator Xenophon's turn to go on the attack (clearly feeling particularly aggressive toward Treasury), telling Treasury it is their role to 'advise the government on competition issues' (at E8] and asking whether they give any thought to long term effects of conduct rather than short term benefits (he also seems to think the Treasury and ACCC are comprised of morons). Mr Archer assures him that they do take a broader view (though Xenophon clearly does not believe him).
Senator Milne turned the inquiry back to issues of policy - Mr Archer responded:
One of the aims of competition policy is to improve productivity and to get better performance from industry. It is about promoting consumer welfare. I said in my earlier remarks that competition policy is not about pursuing competition for its own sake. That is reflected in the law and in the policy statements that have been made by governments ... [at E11]
He is interrupted by Senator Milne, who seems concerned that the Treasury specifically listed consumer welfare and income distribution as matters of interest. She expresses concern again that Treasury might be focussed on short term consumer benefit and not the long term risk of an increase in supply of UHT milk. Mr Archer responds:
I am not sure that I am best placed to speak here for what would be in the public interest in terms of the milk products which are available to consumers. What we are aiming for is a well-functioning dairy market where consumer preferences are reflected in the products that are being offered by producers. So I guess if it were the case that consumers continued to have a preference for fresh drinking milk the market should be working to provide that. [at E11]
Senator Milne doesn't seem to get it, responding:
You are saying it is in the interests of the nation to have a well-functioning dairy sector, but the bias is consumer welfare and income distribution - and that seems to be always defined as a cheap product to the consumer is the net positive benefit. What I am saying is that there does not seem to be any policy consideration of what is the long-term benefit of having a functioning industry which provides fresh milk. Is Treasury actually considering that, as Senator Xenophon asked a moment ago, in your consideration of these policy contexts? Let me put it this way: would Treasury regard it as market failure if there ceased to be a fresh milk market in Australia?
After some back and forth, Mr Archer states:
The submission talks about consumer welfare and you have noted income distribution. It is not an exhaustive list of the factors that are relevant in considering competition policy. But consumer welfare also goes beyond simply the short-term price that is available to consumers in the market at a given point in time. It goes back to my earlier comment about consumer preferences. If consumer preferences are that there is fresh drinking milk available for them to purchase, then a well-functioning market will deliver that product, hopefully efficiently and at an efficient price. I am not sure how else to respond to your question.
It's then Senator O'Brien's turn to insult the ACCC, claiming that its conclusions about aspects of the market being workably competitive are perhaps a bit dishonest and self interested because it 'decides how many processors there are by ruling over which acquisitions take place'.
Back to concern that there will not be any fresh milk produced in Australia in the future and we have a sensible interjection from Senator Ryan. He notes that:
It is fair to say that consumers are free to pay more for a fresh milk product, isn't it? At the moment fresh milk costs more than UHT and that market signal plays a critical role in maintaining access to fresh milk in places where it might be more expensive to provide. That is just part of the market settling process, isn't it? [E17]
Mr Archer agrees and Senator Ryan continues:
So in essence the welfare of consumers is in their own hands. If fresh milk access is at risk because of unsustainable pricing in part of Australia - as we understand it there are multiple brands on offer, some more expensive than others - consumers can determine their own welfare simply through what they purchase at the store.
Mr Archer agrees again. But this prompts Senator Heffernan into action - time for another barely comprehensible attack on the Treasury (and globalisation more generally):
Briefly, has Treasury been alerted to the fact that while milk is on the table at the moment, bread is to follow and a whole range of other things? ... are you too dry an organisation to give consideration to the terms of reference which Senator Milne is familiar with: how do we in the future produce food that is affordable to the consumer? That means, do we have to reconfigure the household budget and put more of it towards the food in the longer term, ... We have to do that against the background of losing the sense of sovereignty globally and free trade agreements, modern communications and non-market currencies. ...
Have you got a concept? I know you are a dry organisation. You allegedly give advice to the government and whoever, but I hope it is better than the advice of this morning, with great respect. Is it something you should get your mind around against the background of what is the planet these days, what is sovereignty, coping with the euro - the whole thing? How in the hell, in the long term, do we produce food that is affordable to the consumer - you cannot blame the consumer for wanting his tucker as cheap as he can get it ...
Fortunately the Chair interjects so that Treasury are not called upon to respond. After some questions on notice from Senator Xenophon, the Treasury officials are free to escape.
Mr Paul Morris, Deputy Executive Director, Australian Bureau of Agricultural and Resource Economics and Sciences, 10 March 2011, Canberra
Mr Simon Murnane, General Manager, Livestock Industries and Animal Welfare Branch, Agricultural Productivity, Department of Agriculture, Fisheries and Forestry, 10 March 2011, Canberra
Just some brief comments about this evidence - a lot of focus was given to the risk of increased 'UHT' milk to replace fresh milk. Mr Morris notes, repeatedly, the Australia is the third or fourth largest dairy product exporter and thus well placed internationally.
After a bit of a rant from Senator Xenophon Senator Heffernan wemt on the attack, asking:
Does the department see the broader context? I bring to the committee’s notice an ad in today’s Australian that I will table. It reads, 'Ensuring environmentally sustainable ethical food production for the world’s growing population.' It mentions another ploy by Coles, which is this so-called HGP-free beef thing, which privately Coles will admit and have admitted to me is a con-job on consumers.
Senator O'Brien interjected, stating 'You are not verballing Coles, are you?'. Heffernan certainly is and is happy to admit it under the protection of Parliamentary privilege
I certainly am. As you know, it is just a tick in the box at the saleyards. They say that it is a marketing ploy that they hope will work well. ...
The Chair repeatedly asks Heffernan to restrict his questioning to the scope of the inquiry
How will we produce food that is affordable by the consumer in a way in which that sustains the environment and is viable for the farmer? Do you blokes have a sit down and have a think about that? Obviously, it is a serious problem.
A bit more policy discussion follows and the session is brought to a close.
Stephen King gives an opening statement on pp E42-E43 that is worth a read. A few key points:
... I think it is useful to break dairy farmers into two groups, particularly post deregulation. They are the group where the farm gate price is pretty much set by the export parity price, which applies mainly to the farmers in southern Australia and particularly in Victoria, and the farmers who are in areas that are not so involved in the export market, so their marginal sales of milk are much more closely aligned with supplying fresh milk to the local markets. I will give Queensland as an example of that. ...
For the Victorian dairy farmers where the farm gate price follows the international price, there is likely to be little if any effect from the discounting by Coles. That is not likely to affect the international price in any way, and it is the international price that is driving the farm gate price. That is where the marginal milk goes in Victoria. ...
Let us turn to those farmers who are much more exposed in the domestic fresh milk market. There are two obvious possibilities here. The first is that the milk-pricing strategy of Coles is sustainable and is a long-term strategy. The second is that it is unsustainable and is a short-term marketing gimmick which will be gone within a year. I have no idea which of those is true, so let me start with one and then I will consider whether things change under the alternative. Let us think about this as being a sustainable strategy. Fresh home brand milk is going to be in the class of products along with things like Coca-Cola and nappies - the products that are regularly used as what I will call ‘loss leaders’ ... they are products that are priced very cheaply and that the supermarkets use to entice people into their stores ...
Let us assume that is where Coles is going. In that situation, the one fact that stands out in the strategy of Coles is that Coles is certainly not going to need less fresh milk; almost certainly it is going to need more fresh milk. ... As other sellers of milk products are forced to lower their prices to match Coles to keep their customers, you would expect total milk sales to go up. Sales may not go up by very much in the short term; demand may be fairly insensitive in the short term. But you would expect over the longer term that there would be some, possibly small, increase in milk sales. That means the milk has to come from somewhere, and the only place that the milk can come from is from dairy farmers in Australia.
How are the dairy farmers going to be given the incentives to provide the extra milk? As far as I can tell, dairy farming is not an industry where people are making substantial profits. In fact, as far as I can tell, the marginal dairy farmer, quite frankly, is doing it very tough. .... If their farm gate price drops, chances are that, maybe not in the next month or in the next three or four months but over a longer period of time, that farmer will go bankrupt and will exit the industry.
If Coles wants this as a sustainable strategy, that means there will be more fresh milk sold in Australia. If that then flows through to lower prices at the farm gate, then all that will happen is that there will be less milk sold, because there will be less milk produced. Those two things cannot exist together. The only way that Coles and other sellers of milk are going to be able to sustain the lower prices in the longer term - and remember I am taking the initial assumption that this is sustainable - is if they push up the farm gate price, ... The farm gate price is not going to go down. If it goes down, that will just cause farmers to go bankrupt and will mean that you end up with stock-outs of milk occurring in the supermarkets. Stock-outs of milk in supermarkets is not a sustainable marketing strategy. It is the best way to get your customers upset.
If we are talking about sustainable strategy from Coles, simple economics says that the farmers will probably benefit. ...
After some discussion with Senator Xenophon regarding short-run v long-run conduct, Senator Heffernan, always upset when someone offers an opinion different from his own, however expert that opinion might by, interjects (with another disgraceful, but parliamentary privilege protected outburst):
You are not on Coles’ payroll are you, Professor? [E45]
Fortunately everyone else ignores the statement and it's back to Xenophon who asks whether King as made an assumption that Coles is concerned about what the impact will be on the dairy industry. King replies that he has not made that assumption, but that his assumption is that "Coles is running this as a marketing campaign to maximise its own profits. It cannot do that unless it gets hold of the milk to be able to sell."
Heffernan interjects again:
That is rubbish, they can load the price of other things. I think you are hallucinating.
Professor King diplomatically assures Heffernan that he is welcome to his opinion, but otherwise does not respond.
Senator Colbeck then states that he thinks 'we all get the pure economics of this' (from various comments made this is clearly a gross overstatement). He states (at E45-E46) "I think the pure economics are obvious, but it is the effect and boundaries of those pure economics that we are trying to concern ourselves with."
Professor King replies that he understands; but this does not really alter anything. He notes that it is undeniable that processors will be hurt, but that will not hurt dairy farmers - at least directly.
Heffernan then tells Prof King to "hang on" and asks if he's taken into consideration the switch to non-market milk, which after prompting he defines as 'manufactured milk'. King responds that he can't understand why lower prices for fresh milk would 'lead to customers switching to manufactured milk'. Heffernan replies that it is because of the 'global market' (I'm not sure anyone understood what he was on about) - Heffernan continued:
Your so-called headline here, 'sell cheaper milk and you will sell more milk,' is garbage. You do not reflect the position of the subsidised milk situation and the protection of farmers overseas. The great proportion of our milk that goes overseas, especially from northern Victoria, is manufactured milk. [E47]
King them observes:
As I said at the beginning, if the farmers are having their farm gate price set by the export market, which is dry processed milk and UHT milk, and they will probably be completely unaffected by this. [E47]
Heffernan tries to continue with his rant but the Chair interrupts.
Then (fortunately) it's Senator Ryan's turn (Heffernan interjects periodically, but by now it seems everyone is just ignoring him).
What I am trying to get at is that this is being driven at the consumer level by people actually switching to buying cheap milk. If they wanted to protect the branded milk or the processors they could actually, if they so chose, pay for more expensive milk, couldn’t they? [E48]
If the consumers wish to keep on buying the branded milk they could, but at obviously the higher price. That is where the substitution will come from: consumers switching from branded to home brand, and also increased sales as consumers may have been willing to buy something else - say, UHT - and are switching across to the fresh milk. [E48]
Heffernan interjects 'You've taught him to dream as well!' (in reference to the fact that Senator Ryan acknowledged having been taught economics by Prof King)
Senator Ryan smartly responds:
Senator Heffernan, I have just learnt that when people ask for exceptions from theories of economics, the consumer generally has to grab their wallet in the history of this country. So based on your argument, Professor King, it is no coincidence that some of the strongest arguments about the potential damage of this Coles pricing policy have been made by other milk processors, given that you outline that milk processors are probably the ones at the greatest risk here of losing profit margin? [E48]
Prof King agrees. Ryan continues:
One of the theories put to the committee about this has been that this is a temporary price cut and then afterwards, as the branded milks disappear, there will be price increases and the consumer will not have as much choice. We have three major players in the grocery sector plus a series of independent players. Do you have a view on the likelihood or possibility of that in the retail market for fresh milk? [E48]
I think it is unlikely. The reason I think it is unlikely is that it is a collusion type of strategy. Coles, Woolworths and Metcash - because you just simply would not be able to do it alone as Coles - would have to be following a strategy of being able to drive out the branded milks so that they could make more profit eventually pushing up the price of generic milk. That sort of thing is not infeasible, but if they were doing that then they would clearly be colluding and should be prosecuted under the Australian competition and consumer law. [E49]
And the fact that at the moment the Coles price cut was immediately matched by Woolworths and ALDI and some other independent players is actually a sign that we do have a degree of competition in the retail grocery sector? [E49]
Assuming they are not actually sitting in a smoke-filled room and colluding, yes.
After a bit more discussion, then Heffernan decides he has to have the final word:
Have you ever been on a dairy farm? Any time, mate. I’ll take you out.
Toward the end of the hearings on 9 March Mr Paton (from Amalgamated Milk Vendors Association) refers to the US Robinson-Patman Act (price discrimination - never used there, never likely to be) and suggests that it may be worthwhile looking at. The Chair replies:
'This committee is very concerned and has been for a long time about competition issues and market share issues, so that is probably something that this committee would regard as a sensible piece of legislation. We need something like that in Australia..
Senator Hurley states notably: 'Speak for yourself, Chair!'. Thank you Senator Hurley ...
On 11 March at p E71 Heffernan again uses Parliamentary privilege to attach the ACCC - in a discussion about alleged abuse of power conduct he states:
So that could be described as fairly predatory. Yet the ACCC in the little social wine group they involve themselves in cannot see that.
The Senate subsequently released a report traversing some of the same ground:
The recommendations relating to competition have not been enacted (yet) - they included reinstating specific anti-price discrimination provisions, inhibiting firms achieving market power through takeovers or abusing market power (because they didn't think ss 46 and/or 50 were effective in achieving this) and expressly defining 'market power' "so that it is less than market dominance and does not require a firm to have unfettered power to set prices" (apparently they were unfamiliar with the 2007 amendments to s 46). They also suggested that a "specific market share, such as, for example, one third (based on international practice), could be presumed to confer market power unless there is strong evidence to the contrary."