I move that the Bill be now read a Second Time. The object of this Bill is to confirm and give the force of law to two Orders which have been made, under Section 9 of the Restrictive Trade Practices Act, 1953, relating to trade practices affecting the supply and distribution of grocery goods and provisions. The first of the two Orders in question was made by my predecessor in December, 1956, and the second Order, which is an amending one, was made by me last July.
Deputies will be aware that the Fair Trade Commission held a statutory inquiry in 1955 under Section 7 of the Restrictive Trade Practices Act, 1953, into the conditions which obtain in regard to the supply and distribution of grocery goods and provisions and that the commission subsequently furnished a report of the inquiry describing the conditions obtaining in the trade and indicating that, in the view of the commission, certain practices existed which interfered unfairly with competition and operated against the public interest. To facilitate the House, I propose to give a résume of the commission's report and of the recommendations which the commission made.
The report shows that a substantial proportion of home manufactured grocery goods and the bulk of imported goods reach the retail trade through wholesalers. On the other hand, the larger retailers tend to buy direct from the manufacturers, while multiple shops generally obtain their supplies direct from manufacturers and brokers. The proportion of goods supplied by manufacturers direct to the retail trade tends as a whole to increase, particularly in the Dublin area where most manufacturers are located. Certain home-produced proprietary goods are distributed on the basis of straight quantity terms which are available to all traders, that is to say, the bigger the order the lower the price to everybody. However, the terms are generally such as to ensure that only wholesalers, multiples, or retailers buying collectively, can earn the highest rates of discount.
A few home manufacturers of proprietary goods differentiate between terms to wholesalers and terms to retailers by quoting separate prices without additional quantity terms, but, in respect of a wide range of home-produced goods, manufacturers also provide for a scale of quantity terms for retailers. The commission's report indicates that, except in the case of jam, there was no evidence of collective price or collective margin fixing for home-produced proprietary goods. The Irish Jam Manufacturers' Association had, however, a common list of trade prices for the jams and marmalades produced by members, a common standard of qualifications for the grant of trade terms, a common classification of traders for the grant of these terms and also uniform quantity discounts. Retail prices were not fixed by the association.
At the time of the inquiry, there were two associations of retail grocers —the Retail Grocery, Dairy and Allied Trades Association (R.G.D.A.T.A.) and the Cash Grocers' Association. Members of R.G.D.A.T.A. were expected by their organisation to maintain retail prices fixed by manufacturers and wholesalers and approved by the association. The association aimed to secure what it considered to be fair profit margins for members and opposed what it regarded as unfair reductions of such margins. R.G.D.A.T.A. regarded as unfair such forms of trading as co-operative societies for consumers, "stamp trading," travelling shops and retail trading by muncipal bodies. The Cash Grocers' Association has a relatively small membership. It maintains that the individual retailer should determine his retail prices on the basis of the net cost of the goods to him having regard to such factors as demand and rate of turnover.
At the time of the inquiry, there was only one general wholesaling association, the Association of Wholesale Grocers, Importers and Distributors. There was also a number of associations concerned with particular commodities, such as butter, tea and salt. Most of these associations had, at one time, collectively fixed selling prices to retailers but had discontinued the practice for a considerable time prior to the inquiry.
There also existed at the time of the inquiry a number of trade associations representing manufacturers of jam, cocoa, soap, candles, polish, etc. In addition, the Irish Food Manufacturers' Federation included among its members the producers of a variety of different commodities. Most of these associations at one time or another engaged in the collective fixing of prices, but, with one exception, had discontinued the practice for a considerable time previously. The practices adopted by the Jam Manufacturers' Association, to which I referred earlier, constituted an outstanding case of collective price fixing. There was also evidence of consultations between individual manufacturers in respect of the price of cheese and margarine.
Out of 34 manufacturers who gave evidence at the inquiry, six followed the practice of suggesting or recommending prices at which wholesalers should sell to retailers. Twenty-seven of the 34 manufacturers indicated in one way or another the prices to be charged by retailers for their products. While most manufacturers had no well defined procedure for the enforcement of their suggested prices, many of them had, on occasions, either at the instance of R.G.D.A.T.A., or on the complaint of individual traders, requested price cutting retailers to maintain prices. Some of these manufacturers had stopped supplying certain retailers who declined to comply with their requests. While the associations of manufacturers and individual manufacturers who gave evidence supported retail price maintenance in principle, the associations and many of the manufacturers were prepared to concede that in certain circumstances some reductions of prices might be allowed.
As I have mentioned earlier, the principal association of retail grocers— R.G.D.A.T.A.—expected its members to maintain retail prices fixed by suppliers and approved by the association. The means adopted by R.G.D.A.T.A. to enforce its policy consisted principally of requests to suppliers to withhold supplies from "offending" retailers and requests to members not to buy from suppliers who refused to discontinue supplies to such retailers. Manufacturers were asked to cut off all supplies even though their own products might not be involved. If wholesalers continued to supply price cutters, R.G.D.A.T.A. took steps to have supplies to the wholesalers cut off by the manufacturers.
Some time prior to the inquiry, R.G.D.A.T.A. had made very strenuous efforts to enforce its policy in relation to resale price maintenance in the Dublin area. Members were instructed to maintain prices of proprietary goods; to deal only with wholesalers or other suppliers who refrained from supplying traders engaging in what the association regarded as unfair trading practices; and, in particular, to refrain from dealing with such firms as the Dublin branch committee might name from time to time.
A list containing the names of 26 retailers was circulated to the manufacturers concerned requesting them to ensure that their proprietary goods were sold at the recognised prices by retailers on the list. It was indicated that if the goods in question continued to be sold at prices other than their recognised retail prices, members of R.G.D.A.T.A. would find it impossible to compete at such prices and would have to discontinue stocking those lines. In the event the efforts of the association did not prove very successful. Various discussions were held by R.G.D.A.T.A. with manufacturers' and wholesalers' associations early in 1955 but very little was achieved thereby.
The commission's report indicates that in 1954 a co-operative society entitled Allied Dublin Merchants Limited (A.D.M.) was formed by a number of Dublin retailers to conduct a wholesale grocery business. Membership of A.D.M. was open only to traders who were members of R.G.D.A.T.A. Sales were made mainly to members at cost plus a flat rate of surcharge to cover expenses. The Wholesale Grocers' Association opposed strongly the granting of wholesale terms to A.D.M. and some of the principal brokers refused to deal with the society. A number of manufacturers refused to accord wholesale terms to A.D.M. and these manufacturers appear to have been influenced largely by the refusal of wholesalers to recognise A.D.M. as a wholesaler.
I come now to the conclusions and recommendations of the commission. So far as resale price maintenance is concerned, the view of the commission is that the practice, whether enforced collectively or by individual suppliers, operates against the public interest and should, subject to certain conditions, be prohibited. The commission point out that, if the prices of proprietary goods are effectively maintained, the pressure of price competition is apt to fall with increased severity on goods the prices of which are fixed at the discretion of the retailer. Packaged and branded grocery goods are attractive to shopkeepers other than grocers and this attraction is heightened when the goods bear indicated or fixed retail prices. The existence of branded price-maintained goods tends to lead not only to the opening of new grocery shops but to the distribution of such goods through outlets outside the grocery trade. Hence, in the opinion of the commission, resale price maintenance is a factor making for an increase in the number of outlets. The price cutting of branded goods in the grocery trade in recent years stems largely from a basic maladjustment of costs and margins which arises primarily because of the effect of price maintenance in raising the margins on proprietary goods relative to those on goods the prices of which are not maintained.
The commission point out that a trader may expand his business by improving or extending the services he provides, including not only credit and delivery but also variety and range of stocks and amenities generally. However, it is also possible for a trader to increase his business by reducing the services he provides if by so doing he can offer an alternative inducement to his customers in the form of reduced prices. In the opinion of the commission, it is not fair to deny the consumer some compensation in prices where goods are paid for and taken away rather than delivered on a credit basis.
In the view of the commission if, instead of price competition applying to an ever-narrowing range of "free" goods, its scope were greatly extended by the abolition of resale price maintenance, the pressure of price competition, by being more diffused, would tend to be less severe on particular groups of commodities. Intensive price competition, if it did occur, might be expected to constitute a transitional phase only and the trade would quickly adjust itself to the new situation. In the view of the commission, there was every likelihood that the independent trader would maintain his position in the trade.
The commission indicate that evidence at the inquiry made it clear that a comprehensive system for the collective maintenance of resale prices might have been successfully established which, by eliminating price competition in proprietary goods, would have raised further the prices of those goods in areas where competition previously existed. The groundwork would have been laid for an extension of the practice to its furthest practicable limits.
A policy of trade boycotts by an association as a means of maintaining resale prices is, in the commission's view, undersirable and could operate unjustly to the detriment of particular traders. The maintenance of resale prices by an individual supplier would result in an undesirable rigidity of prices which, in the opinion of the commission, would not be in the public interest. If such maintenance received legislative sanction, it would probably be adopted more widely and practised more effectively than before. If individual resale price maintenance were permitted, a strong association of traders could induce first one manufacturer and then another to increase margins. Restrictions, once established, tend inevitably to lead to further restrictions, whereas the abolition of price maintenance would allow competition to act as a check to the extensive expansion of margins. The commission consider that competition at both the wholesale and retail levels is beneficial and should not be hindered by the maintenance of prices at either level.
The commission recommend that certain safeguards should be provided against the contingency that extreme price competition might arise for short periods in the larger cities. They propose, therefore, that a supplier be allowed to withhold supplies from a retailer who resells a branded product at a price equal to or less than its price to retailers before the deduction of any quantity discounts. Where there is no trade discount, but only a scale of quantity discounts, it is proposed that a supplier might withhold supplies if the retailer resells at a price equal to or less than the price to retailers of the minimum quantity prescribed in the scale.
In order to ensure flexibility, it is proposed that the commission may, if they think fit, require a supplier to substitute for the wholesale price of his product as defined the average price charged to one or more classes of retailers in one or more areas. The commission also propose that a supplier may withhold goods from a retailer who advertises or displays a lower price in conjunction with the supplier's suggested or recommended retail price, provided that if the supplier affixes a price to the container of the product the retailer may, within the premises where the product is exposed for sale, display a price less than the supplier's price.
The commission also recommend that a supplier should be free to withhold goods from a wholesaler who refuses to cease supplying a retailer who resells a branded product at or below the wholesale price or advertises the supplier's suggested retail price in conjunction with the retailer's own price. It is envisaged that a supplier would have to notify the commission of the withholding of supplies in any of these cases and that the commission would have the right to review the action taken.
Dealing with the question of trade terms, the commission point out in their report that quantity discounts should, as accurately as possible, reflect economies accruing to the supplier from supplying goods in quantity. The commission are of the view that there is nothing unfair or undesirable in the integration of wholesaling and retailing functions. Reasonable grounds were advanced by witnesses for distinguishing between different classes of wholesalers in the terms afforded by manufacturers and the commission see no objection to the adoption on an equitable basis of such distinctions by a manufacturer in the light of his own particular distribution problems.
They recognise, however, that a retailer may seek wholesaling status primarily to secure higher discounts for his retail business and they suggest, therefore, that manufacturers should consider allowing wholesalers' terms only in respect of goods resold to other retailers. Subject to fairness to all concerned, the commission consider that the terms to be allowed to co-operative wholesale societies and to multiple shops, having regard to their relative size and the functions they perform, should be left to the discretion of the individual supplier.
With regard to co-operative societies such as A.D.M. to which I have referred, the commission point out that, because of the risk attendant on their voluntary nature, the functions performed by such bodies are more characteristic of wholesaling than are those of a multiple shop firm. In the commission's view, there appears to be no valid justification for refusing to supply them on grounds related largely to the consideration that they represent a novel form of trading.
I should perhaps mention at this stage that, after the report of the public inquiry had been presented to the then Minister, the commission became aware of a concerted movement on the part of certain suppliers to grant unfavourable trade terms to certain co-operative societies. The commission subsequently made fair trading rules under the provisions of the Act prescribing that, subject to certain conditions, these co-operative societies should be allowed at least the most favourable terms available to a multiple shop firm not more than one-fifth of whose purchases of a supplier's goods were for resale to independent retailers. The commission have made it clear that they are prescribing a minimum status and they have emphasised that this should not be taken as indicating the maximum permissible status for such bodies and that they would not consider it unreasonable for any manufacturer to accord such a society the best wholesale terms even if they were not available to multiple shops.
The commission state in their report that there was no evidence that entry to the trade at any level was limited or controlled by collective arrangement or that membership of a trade organisation was made the condition of the supply of the goods. Nevertheless, the commission deem it prudent to recommend that control of entry to the trade should not be exercised by any association or group of suppliers or traders. The commission also consider that it is contrary to the public interest for any organisation to take action to prevent development of new methods of trading. With regard to the attitude adopted by R.G.D.A.T.A. towards certain co-operative societies, the commission conclude that collective action to exclude a co-operative society from trading at any level constitutes a restraint of trade which is unfair and operates against the public interest and they recommend that it should be prohibited.
The commission consider that the collective fixing of prices and margins is not in the public interest, and they recommend that such arrangements should be prohibited. It is the view of the commission that, in a small market such as ours, partial or total removal, by concerted action, of price competition is liable to lead to stagnation, by removing a stimulus to the development of more efficient methods of production or distribution.
With the object of removing the abuses which exist and restoring conditions of free and fair competition in the trade, the commission recommend in their report that an Order should be made prohibiting the particular practices which are considered to be harmful to the public interest. They recommend that, subject to the adoption of safeguards against the contingency of excessive price competition, resale price maintenance should be prohibited and that it should be made possible for retailers to determine their own selling prices in the light of their own operating costs. They recommend also that there should be a prohibition on the collective fixing of suppliers' and wholesalers' selling prices, and that it should be unlawful for a supplier to withhold supplies from any trader on the grounds that he is or is not a member of a particular organisation or association or because his name does not appear on an "approved" list. The commission recommend furthermore that no trade association should be permitted to coerce a supplier to withhold supplies from any person and that no association should be allowed to prepare or publish lists of "approved" or "non-approved" persons which are likely to restrict entry to the trade or to be used as a basis for regulating or influencing the supply and distribution of grocery goods or the terms and conditions on which the goods will be supplied.
There are, finally, two recommendations by the commission regarding the imposition by individual suppliers of terms and conditions for the acceptance of orders. Firstly, it is recommended that there should be a prohibition against a supplier exercising unfair discrimination in respect of the supply and distribution of the goods. Secondly, it is recommended that a supplier should be permitted to impose conditions covering such matters as the size and frequency of orders. The only reservations are that these conditions should be reasonable, that they should be applied equitably to all persons seeking supplies and that, where the commission so require, they should be filed with the commission. The commission do not consider that a supplier should be prevented from advertising or specifying a maximum resale price for a branded product or from withholding supplies from traders who sell at a price in excess of such maximum price. Any such specified maximum price should not, however, be binding on traders as a minimum price.
I gave careful consideration to the recommendations of the Fair Trade Commission and I came to the conclusion that the commission were fully justified in making the recommendations which are contained in their report. I am satisfied that it is contrary to the public interest that competition should be restricted by the operation of arrangements for the enforcement of resale prices. I consider also that it is wrong that vested interests should, by a policy of trade boycotts or otherwise, attempt to enforce resale prices or to prevent the supply of goods to any trader or influence the terms and conditions on which the goods will be supplied.
The Order which was made in 1956 by my predecessor was designed to give effect to the recommendations contained in the report of the Fair Trade Commission. As Deputies are aware the Restrictive Trade Practices Act, 1953, provides that an Order of this kind shall not have effect unless and until it is confirmed by an Act of the Oireachtas. The necessary Bill to confirm the 1956 Order was not introduced because my predecessor decided to leave the matter over until after an event due to take place in March last year.
As a result of a study which I made of the Order, I came to the conclusion that it required amendment in some respects to render a number of its provisions more equitable. I accordingly made an amending Order which involves three main amendments in the original Order. Firstly, it will permit a trade association to bring to the notice of a supplier any case in which a retailer resells a branded product at or below a specified wholesale price or sets out to contrast his own lower price with the supplier's recommended price for such a product. I should like to emphasise, however, that an association availing of this provision will be prohibited from exerting any pressure whatever on the supplier to withhold supplies from, or otherwise discriminate against, the retailer.
The second amendment is designed to make it clear that a supplier or a wholesaler, or a combination of wholesalers, may divide customers— that is to say wholesalers or retailers —into different classes for the purpose of applying, to the acceptance of orders for goods, different terms and conditions to each class. The effect of this provision will be that individual suppliers and wholesalers will be free to classify their customers in accordance with the functions which they perform or the quantities of goods which they purchase. It may be observed that combinations of wholesalers, not being trade associations, will be permitted to do the same thing. The object of this is to facilitate the formation of what are known as voluntary chains of retailers.
These voluntary chains are formed by one or more wholesalers entering into an agreement or arrangement with a number of retailers under which the retailers make all their purchases of selected products from the wholesalers concerned and the wholesalers in turn accord special trade terms to the retailers and co-operate with the retailers in such matters as joint advertising. I understand that this form of trading has developed in certain continental countries, and I am of opinion that its growth in this country should not be discouraged.
Deputies will note that the classification accorded to any wholesaler or retailer will be capable of being reviewed by the commission and, if the commission are of opinion that the classification is unfair, the supplier will be obliged to make whatever alterations the commission may require. The third amendment effected by the Order which I made last July is designed to permit an individual manufacturer to adopt a schedule of rates of discount prepared by a trade association of which he is a member and to relate quantity discounts for a particular product to the total purchases of that product made from all manufacturers who are members of the association. It will, however, be unlawful for any association to coerce a manufacturer into adopting any such schedule of rates; and the commission will be entitled to review any schedule of rates prepared by an association and to require the association to make whatever alterations the commission see fit.
Since the Orders were published, it has been represented to me that they are unfair to certain sections of the trade and that they will, when confirmed, have adverse effects on the trade as a whole. It has been represented, for example, that the Orders favour the large trader at the expense of the small and that, with the growth of competition, the tendency will be for the small and medium sized trader to be eliminated. It is claimed that the Orders interfere in an unwarranted fashion with the rights of traders to combine for the purpose of protecting their interests.
With regard to these criticisms, I must point out that in their report of the public inquiry the Fair Trade Commission adverted to the argument that the abolition of the maintenance of resale prices would lead to the elimination of the small independent trader. Having examined the matter in all its aspects, the commission came to the conclusion that in the long run there was every likelihood that the small independent trader would maintain his position in the trade.
As regards the right of grocers to combine for the protection of their interests, I would like to point out that there is no objection to their exercising that right, provided they do not act at the same time against the public interest. I want to make it perfectly clear, however, that the Government will not tolerate action designed to maintain artificially high profit margins in relation to food products purchased by every household in the country.
It has been represented to me that under the Orders it will be possible for large wholesale-retail combines to use their special position to drive small traders out of business. It has been suggested that, by working on their wholesale margins only, these large firms will be able to sell retail at a lower price than the small grocer can buy from wholesalers. The amending Order which I made last July provides that the Fair Trade Commission, on its own initiative, or following a complaint, may investigate the terms and conditions imposed by suppliers or wholesalers and, if the commission think that these terms and conditions are unfair, they may direct the supplier or wholesaler concerned to make whatever alterations in the terms and conditions may be considered necessary by the commission. I am perfectly satisfied that this provision will enable the commission to deal with any complaints of inequalities in the buying power of grocers of different classes.
It has been strongly urged that resale price maintenance at the retail level should not only be permitted but be made enforceable by law, or, alternatively, that the law should provide that all retailers must take a minimum margin of profit on wholesale prices. I must make it clear that I reject both of these proposals. I think that the case for resale price maintenance in the grocery trade has been very thoroughly demolished by the Fair Trade Commission and I agree entirely with the commission's view that this practice is contrary to the public interest and that it should be prohibited. I am satisfied also that the notion of a legal mark-up on wholesale prices is completely impracticable. I cannot conceive of any system to be enforced by law which would work and which would be fair to all concerned.
The Bill which is now before the House is the Confirmation Bill which is necessary to give the force of law to the two Orders which have been made. In the case of Confirmation Bills of this kind, the arrangement is that the Orders which it is proposed to confirm are not capable of being amended by the House but must be accepted or rejected as they stand. The matters dealt with in the present Orders have been the subject of a detailed public inquiry by the Fair Trade Commission and the evidence and views of the commission are set out very fully in their report. I recommend that the House should approve of this Bill which, on enactment, will, I trust, put an end to unfair restrictive practices in the grocery trade.
