Labour went into the 2020 election promising to break up the supermarket duopoly and bring down the price of food. This policy is now essentially dead.
The Commerce Commission’s final report into New Zealand’s uncompetitive supermarket sector lets the Government off the hook for taking on the supermarkets and forcing transformational change to this crucial retail sector. Minister of Commerce David Clark has talked up how much the supermarkets will change their own behaviour, but ultimately this report gives the Government justification to only tinker.
In contrast, the Commerce Commission’s interim report, released mid last year, was greeted with horror by the supermarkets, because it recommended bringing in significant new regulation, breaking up the duopoly, and potentially even setting up a new state-owned supermarket chain to force change.
Although that 2021 report was universally praised, and its radicalism welcomed, the Commerce Commission and Government have since done a major U-turn, shying away from anything that might significantly reduce supermarket profits. Supermarkets and their lobbyists have done a good job of convincing authorities that such a shakeup would be too difficult. And the supermarkets have made it clear to the Commerce Commission and Government that attempts to implement stronger reforms would lead to lengthy legal battles.
The consensus amongst commentators is that Labour is relieved to have a report that means that they don’t have to take on the difficult task of dismantling the supermarket duopoly or setting up a new “KiwiMarket” retail chain.
The ComCom report is useful in its diagnosis that this retail sector is uncompetitive, which is leading to seriously poor outcomes for consumers, food suppliers, and supermarket workers. Profits are shown to be about $1m a day above what they should be – twice what they would otherwise be if the market was a healthy level playing field.
This doesn’t mean that nothing will change. There are 14 recommendations in the report, and some might even lead to important improvements in the sector. In particular, banning the supermarkets from land banking and using legal means to block potential competitors from getting sites for new stores should be welcomed by those who want to see a less outrageously distorted market.
But most of the recommendations are favourable towards supermarkets and food suppliers. The status quo is to effectively continue, and the super profits – which the Commission estimates as being $430 million a year greater than they should – will continue to be accumulated as before. Unsurprisingly, owners from both the retail and food supply sectors have welcomed the Commerce Commission report and are extremely happy to have dodged a bullet. As Hamish Rutherford says in his analysis of the new report: “Supermarket owners across New Zealand are likely to be breathing a little easier”.
The outcome is much like many of the other dysfunctional markets that were promised reform by this Government: banking, petrol, and housing. In fact, financial journalist Bernard Hickey suggests that the Government’s response to the food sector is much the same as their response to the provision of housing – one in which the rich owners have once again got their way.
Hickey suggests that, yet again, state bureaucrats have been captured by vested interests, and the likelihood is that the recommended new regulator will be too. This is partly by design, he says: “Accidentally on purpose, Aotearoa has found itself held hostage by uncompetitive markets and dominant market players for two of the basics of life: food and shelter. A series of accidents of political history tied to a naive three-decade-long assumption that free markets would always provide the basics and the luxuries of life both efficiently and fairly has made our housing and groceries some of the most expensive in the world.”
If Labour lacks the courage to deal with the supermarkets, what do other parties say? The Greens are sticking with their demands for a state-owned supermarket, while National says “I think they have gone far enough for the moment”, backing Labour’s “wait and see” approach, and yet another review in three years’ time.
The big problem for Labour is that this lack of action on supermarket reform comes just when the political battle on the cost of living is seriously heating up. And so, as with housing, Labour will be accused of sitting on its hands, leaving the rich to get richer and the poor to get poorer. It’s opening itself up to the growing idea that this is a “Government of advice” rather than one that reforms, and perhaps worse than that, a “Government of bureaucrats, for the bureaucrats”.
By Dr Bryce Edwards, republished from Democracy Project under CC BY-ND 4.0.
