I move: "That the Bill be now read a Second Time."
The object of the Bill is to confirm the Restrictive Practices (Groceries) Order, 1981 which was made by the Minister for Industry, Commerce and Tourism on 4 March under section 8 of the Restrictive Practices Act, 1972.
This order implements the recommendations of the Restrictive Practices Commission in the report of their inquiry into the retail sale of grocery goods below cost. The Minister for Industry, Commerce and Tourism requested the commission to hold this inquiry because the unease at the time in relationships between suppliers, wholesalers and manufacturers centred on the question of below cost selling and it was considered that this practice should be subjected to detailed examination.
The commission in their report of their inquiry do not recommend a ban on below cost selling. They consider that such a ban would only be justified if grave danger to the common good would result from the practice. Such a ban would be a radical interference with freedom to trade and would constitute a form of official resale price maintenance representing a reversal of State policy which had brought progress to the trade and great benefits to the consumer. On the evidence at the inquiry, the commission concluded that the adverse effects which below cost selling can have on manufacturers, distributors and consumers was not at present so great as to be a grave danger to the common good. Their conclusion that a prohibition on below cost selling would not be justified is strongly reinforced by the numerous points of difficulty which prohibition would entail.
In arriving at the conclusion that a prohibition on below cost selling could not be justified, the commission considered the incidence of below cost selling and its impact on Irish manufacturers, the distributive trade and the consumers.
As regards the manufacturers, the commission accept the evidence of manufacturers that the practice of below cost selling has created difficulties which have absorbed considerable management time and energy and sometimes led to bad relations with their customers. Concern was expressed on behalf of the manufacturers that below cost selling was an encouragement to imports and that loss of sales to imported goods could lead to significant job losses. However, no evidence was produced that the practice has led, in the past, to any significant loss of market to imports and while reasons were given why it might do so in the future, equally persuasive reasons were given for the contrary view that imports would be encouraged by a ban on below cost selling. The commission concluded that the present and foreseeable circumstances of the food industry did not justify the prohibition of the practice.
In relation to the distributive sector, the commission concluded that below cost selling has been a very powerful weapon in the hands of the multiples in competing with independent competitors and that it has undoubtedly been, on occasion, an important and maybe decisive factor in causing the close down of individual shops. However, it cannot be regarded as being largely responsible by itself for the decline in the number of grocery outlets over the years. This decline has followed a similar pattern in other EEC countries and is the result of developments in the trade and society generally. It would have happened in any event, had there been no such thing as below cost selling.
The commission's conclusion in relation to consumers is that it would not be in their interests to recommend an abatement of present competition. There was no call on behalf of the consumer for a ban on below cost selling. The one body representing consumers at the inquiry considered that below cost prices were a worthwhile help in keeping prices down in a time of inflation. They rejected the idea that below cost prices are misleading, saying that shoppers, in general, have a very good idea of prices and would not be misled as to the overall level of prices in the store. Another body representative of consumer interests said in a letter to the commission that they support the general principle of competition in trade and would object to any restriction which would interfere with this. The commission note the point that, since items sold below cost are usually staple goods, or at least goods in very wide demand, reductions in their price should often particularly benefit poorer customers.
The adverse effects for manufacturers and distributors, while they would not justify the prohibition of below cost selling, were considered by the commission to justify the retention of the constraints on the practice in existing legislation, namely the power to withhold supplies from retailers who sell below cost and the prohibition of advertising below cost. These constraints can be very effective in practice and must have an important effect in limiting the extent to which below cost selling is practised. The commission have made recommendations for the amendment of these two provisions which would have the effect of extending and strengthening the present regime. The order which the Minister made on 4 March is to implement the commission's recommendations in this regard and also their recommendations for the consolidation of the existing orders and that coverage of all provisions should apply to the same range of goods, that is, foodstuffs with certain exceptions and nonfood groceries.
Before deciding to accept the commission's recommendations, very careful consideration was given to the conclusions and recommendations in the commission's report. As regards the various sectors involved, I consider that there is as much evidence to support the argument that a ban on below cost selling would actually lead to increased imports as there is in support of the case that it would improve the position of Irish manufacturers. The commission's conclusion that the present and foreseeable circumstances of the Irish food manufacturing industry do not justify the prohibition was one to which particular importance was attached.
In so far as the distributive trades are concerned, the commission's view that while below cost selling has, on occasion, been an important and perhaps decisive factor in causing the closedown of individual shops, it could not be regarded as being largely responsible, by itself, for the decline in the number of independent grocery outlets is accepted. There is no doubt but that the advances made in this country over the past number of decades have had great implications for the distribution trade. These advances have manifested themselves in the manner of preparation and presentation and sale of foodstuffs, in the social fabric of our society, entailing certain changes in the pattern of distribution of population, higher standards of living and altered consumer attitudes and expectations. These are normal forces of change, whose effects would have been felt even if there were no below cost selling.
Below cost selling has, indeed, an element of unfairness in it which affects mostly the independent sector. However, the commission make the point that, even if the practice were to be prohibited, alternative and equally damaging forms of competition would still be open to the larger traders. Furthermore, below cost selling is not a weapon against which the individual trader has no defence. It is clear that, even at its fullest development, the multiple sector needs to be supplemented by independent outlets. The attractions offered by the independents, such as extended hours of business and personal service and their ability to develop and to exploit local opportunities as they occur, should ensure their continued existence. While some further diminution of numbers may occur, due to the operation of the forces mentioned, I do not believe that there is any danger that independent grocers will disappear from the scene.
I cannot see that the prohibition of below cost selling would be justified in any way by the consumer interest. The commission's view that such a ban would be a radical interference with the freedom of trade and would constitute a form of official resale price maintenance which would represent, up to a point, a reversal of a State policy which had brought rapid progress to the trade and benefits to the consumer is fully accepted. Following the enactment of the Restrictive Trade Practices Act, 1953, the area of the supply and distribution of grocery goods was one of the first sectors to benefit and individual or collective resale price maintenance was the first practice prohibited by order under the Act.
It is of interest to recall here the words of the then Minister for Industry and Commerce, Mr. Seán Lemass, on the introduction of the proposed restrictive practices legislation in 1952, which were that "the aim of policy must be to foster competition wherever possible and to introduce that element of risk into every trade which will force those engaged in it to strive towards maximum efficiency at all times". This policy has underlain all restrictive practices legislation in the intervening years and we have seen the fruits of it in the elimination of such practices as widespread resale price maintenance and the strengthening of competition to the benefit of all those involved in the sector, including the consumer. The outlawing of below cost selling would be a backward step in this policy which could only be justified if there was the clearest evidence to support the backward step. No such evidence has been produced.
The general conclusion of the commission is that "the fact that the commission has not recommended the prohibition of below cost selling is due, not to any belief that there are not quite serious problems in the grocery tade, but to a belief that the problems have comparatively little to do with below cost selling" and it suggests that the real cause must be looked for in such areas as unequal power relationships and discriminatory application of terms and conditions of supply. Having regard to this and to various proposals which have been made regarding problems in the sector, it has been decided to request the Restrictive Practices Commission to hold such an inquiry into the supply and distribution of grocery goods as would allow of treating all issues which are considered relevant to the overall problems of the sector.
I would like now to refer briefly to the provisions of the order which serve to strengthen existing controls, which are the power of suppliers to withhold supplies from retailers who sell below cost and the prohibition on advertising below cost. In the existing provisions relating to both of these controls the cost price is determined by net invoice price, including VAT, at which the goods were purchased. For the purposes of the new order ‘net invoice price' is to be calculated from the latest invoice relating to the delivery of like goods. This amendment will get over the problem previously experienced of associating a particular invoice with particular goods and is expected to increase the effectiveness of both controls. It will also be of particular benefit in enforcing the prohibition on advertising below cost.
There has also been incorporated into the order a provision for the application of a ‘four week rule' in respect of stocks, which will also apply to both the power to withhold goods and the prohibition on advertising. Under this rule, in the case of stocks sold by a retailer more than four weeks after the date on which a supplier's price list for like goods has been altered, the cost price of the goods is to be calculated by reference to the supplier's current best list price and not the net invoice price. This rule is intended to deal with a situation where traders who had stocks laid in would be free to sell more cheaply and would be likely to make the most of their publicity in regard to these items. There would then be increased temptation to other traders to break the law and match the cheaper prices. The rule should also help to lessen the disparity in prices between different retailers.
These are the main provisions in the order for the strengthening of the existing constraints on below cost selling. The order also extends the power to withhold goods to own label goods and the prohibition on advertising below cost to special offers that is, offers which have the effect of reducing the average price of goods below net invoice price including VAT, even though the prices of individual items might not be below that level. Advertising on behalf of as well as by retailers will be prohibited under the new legislation.
It will be seen accordingly that the order has the effect of strengthening the existing constraints on below cost selling, making them more effective, and will facilitate enforcement. The order, being in consolidated form, will lead to greater ease of interpretation. In accordance with section 8 (3) of the Restrictive Practices Act, 1972, it must be confirmed by an Act of the Oireachtas, and I have no hesitation in recommending the confirming Bill to the House.