Deputy Martin Cullen has been given permission to raise on the Adjournment the question of the price war and how it is affecting employment in the bakeries.
Adjournment Debate. - Bread Prices.
I thank the Ceann Comhairle for allowing this matter to be raised on the Adjournment tonight. It is a matter of the utmost importance and needs to be dealt with urgently in this House and by the Minister for Industry and Commerce.
The current behaviour of Dunnes Stores in selling bread at 39p and below this price is a clear case of predatory pricing and an absolute abuse of their dominant position in the marketplace. Their intention in doing this is to put as many bakeries as possible out of business and to gain control of the retailing of bread. This is not in the interests of the consumer or the bakery industry as a whole.
In some way this pricing problem that has arisen, which is being serious, is being called a price war, perhaps for want of a better word, but we need to be very careful to distinguish between price wars that spring up over time in all sectors of industry, many of which are as a result of real competition in the marketplace and a desire by one company or another to increase their market share, thereby increasing their profit and hoping to expand their business and increase employment. The distinction should be made between what I have just outlined as a price war and what we are seeing here in the last few weeks. In this instance we are seeing a very clear and absolute abuse of a dominant position by a company in the marketplace. That is the kernel of the issue. It is not what it appears to be in simplistic terms, some kind of price war happening out there.
The average price of bread in Dunnes Stores in 1987 through 1988 was 58p to 59p. This was on their own St. Bernard brand. When the price of an 800 gramme loaf fell to 35p the Minister for Industry and Commerce made an order which restored the price of bread to 55p. At that time he stated he felt 55p was a fair price that represented the cost of producing a loaf of bread and allowed a reasonable margin at retail level. Very quickly he removed this order, somehow satisfied that 55p was a reasonable price. The immediate response from Dunnes Stores, however, was to reduce the price of bread to 49p. To my amazement and that of the Progressive Democrats there were some mumblings or ramblings that suddenly 45p was a reasonable price in the marketplace. This represented a 10p difference over a few weeks and a 25 per cent difference on the original price set by the Minister. After this the immediate response, quite interestingly, from Dunnes Stores, was to reduce the price of bread to 35p. The company were flying totally and utterly in the face of the Minister and the Department of Industry and Commerce. Obviously they feel under no constraint to pay any attention to what the Department and the Minister have to say. That is a very serious course of action for this company to adopt and it behoves us here to look very closely at the matter.
Serious inconsistencies emanate from the Minister himself in that he has in the space of four to five weeks made contradictory statements and now his response is to await a report from the Director of Consumer Affairs. This is certainly not a satisfactory course of action. If the Minister is to wait for some indefinite time and hide behind the report from the Director of Consumer Affairs he is in a sense abdicating his responsibility in this matter. I do not believe any Minister in a Government should behave in this manner.
The bakery industry in now being brought to its knees and the Government seem to be standing by and somehow allowing this to happen. The object of the exercise, I believe the Minister is fully aware, is to ride roughshod over the whole industry to its total detriment with no concern for the jobs involved, the livelihood of the people employed in that industry and the general consequences of such a course of action. The Minister must bear in mind that a huge range of bakeries operate throughout the country. Many small towns and villages are very dependent on them for their livelihood. In the context of what we are talking about it is not acceptable for any Minister to allow this course of action to continue. This type of short-term price is most certainly not in the interest of the consumer. If Dunnes Stores are successful in gaining control of the market the price of bread could easily rocket up to as much as 90p and of course the consumer at this point will have nowhere to turn because the competition will effectively have been eliminated from the marketplace. I cannot believe this is the course of action this Government and this Minister want to see pursued.
I accept there is a need for rationalisation in the bakery industry. The Minister knows well it is happening at present and a large number of bakeries have already closed their doors. Companies such as O'Rourkes, Bolands, M & B, Brennans of Arklow, Downes Bakery in Finglas, one of the largest with 300 jobs, have gone, and I am sure further rationalisation will take place within the industry. I do not believe that what Dunnes Stores are about is to become the role model for rationalisation within an industry. The whole process is to be telescoped into two or three weeks for the benefit of one company, not for the benefit of the consumer or the industry either at retail, milling or wholesale levels. One company have sought to abuse totally their position in the marketplace.
As regards the rationalisation of the industry, it is worth bearing in mind how and why this course of action occurred. Between 1975 and 1986 the cost of the Government's subsidy to the bakery industry totalled £247 million. This brought about huge growth in the industry. I am surprised to find in some counties — I do not want to pick on any county in particular — there were more bakeries than are in the whole city and county of Dublin. That is extraordinary. This was brought about by the subsidy that was in operation. The tragedy is that the consumer never benefited from the subsidy. That is one reason why rationalisation is necessary and is taking place. Rationalisation has some distance to go but it must take place in an orderly fashion.
Dunnes Stores are at present selling bread in Northern Ireland at the equivalent of IR67p and if that is a reasonable price there there must be something wrong with the price of IR39p in the Republic. I am sure the Minister is aware that large quantities of flour are purchased in the UK. It is surplus to requirements and amounts to a form of dumping on the Irish market. That is undermining the Irish milling industry. I do not want to be accused of being a person who is not prepared to accept that companies have the right to purchase their raw materials at the best price because that is not the idea behind purchasing flour in the UK. The intention is to gain total control of the market without any regard for consumers or the Irish milling industry which has gone through some difficult times and has had to adopt a programme of rationalisation. It would be wrong of us if we did not ask why they should be put under further unfair pressure as a result of anti-competitive behaviour and an abuse of a dominant position. It is important to stress those facts tonight. I do not want the Minister to describe this as a type of price war in competitive areas because I will not accept that view. Consumers and retailers will not accept it because it is not the case. An attempt is being made to gain control of the market and the Minister cannot close his eyes to that. He must take immediate action.
What is most regretable about this is that the Minister in the last two weeks vehemently opposed the Enterprise (Competition and Consumer Protection) Bill, 1989 which was introduced by the Progressive Democrats. If the House had passed that Bill, and its provisions were passed into law, we would not be discussing these problems. Dunnes Stores would be deterred from these practices because they could be prosecuted and, if found guilty, forced to pay substantial damages to injured parties. They would have been liable to prosecution under that Bill for an abuse of their dominant position and disregard for normal competitive practices. The pro-competitive elements must outweigh all anti-competitive practices and our Bill would have done that, If it had been adopted we would have been rid of this behaviour once and for all. Unfortunately, the Minister and the Government, for pretty reasons and without putting up one solid argument — they only pointed to some drafting errors — opposed what was a worthwhile piece of legislation.
It is with great regret that I must call on the Minister to look at the system of pricing bread. It is because of the blatant disregard for the Minister's attempts to permit the companies involved to regulate the price of bread that he must, as a short term measure, introduce a minimum price. I do not see that as a long term solution. The Minister should take a proper course of action at a later stage based on what the Director of Consumer Affairs has to say in regard to the price of bread. In my view, and I believe it is a view that is shared by the Minister and those involved in the business the only solution to this problem is for the Minister to introduce legislation along the lines of our Bill which was defeated in the Dáil last night. He will have to introduce into domestic law a general ban on anti-competitive practices and abuses of dominant positions. There is no other course of action open to him. I could spend the next hour expanding on the needs for such action. The Minister is aware of why it is necessary but we have another example of the Government failing to face reality. The people who are suffering as a result of Government inaction are those who are trying to run small businesses. The Government are refusing to produce clear competition laws covering all sectors of the economy and why they refuse to do that is something I cannot understand. I hope the Minister will respond positively to what I have said and will take action to benefit retailers, producers, whesalers and millers who are waiting for it. It behoves him, as Minister for Industry and Commerce, to take appropriate action.
We have heard the ultimate in hypocrisy from Deputy Cullen, representing I presume, his party. For the last two weeks we have listened to the bleeding hearts of the Progressive Democrats for the consumer. They called for competition but tonight they want me to introduce ministerial orders in regard to the price of bread. The Deputy referred to abuse of a dominant position but I should like to know how anybody can say that a business in the retail trade has a dominant position when there are so many operators, including various multiples. They are not the characteristics of a market that is dominated by one undertaking.
There have been positive developments in recent years in the bakery industry. New technology, working methods and marketing approaches have brought about improvements. The benefits of these improvements need to be shared with consumers. The high retail price of bread at the top of the range does not appear to reflect any real sharing of benefits with the consumer.
It is not part of Government policy to interfere in the day to day operation of the market place. Our policy is to provide the legislative and economic framework that will allow competition in the market place to operate in a free and fair manner. The Restrictive Practices (Groceries) Order, 1987, which bans below cost selling, among other things, provides such a framework in the retail grocery trade.
Where an undertaking avails of the opportunities to produce and market commodities according to the most efficient methods it cannot be argued that the consumer should be deprived of any benefits. So long as the undertaking does not operate in an unfair manner its use of new methods, where it results in a price or quality advantage in the market, will act as a legitimate spur to others in the industry to match its efforts. A policy that stifles legitimate competition will result in continued stagnation in the economic sector concerned. Such competition cannot be held back in the long term. The more it is held back the greater the shock when free and fair market forces are allowed to operate.
Attention has been drawn to the alleged below-cost selling of bread by some of the major multiples and to the possibility of job losses in the bakery industry resulting from this practice. These complaints centred on the sale of the 800 gramme white and brown sliced pans by some of the major multiples at prices which might be in breach of the Restrictive Practices (Groceries) Order, 1987.
As the House will be aware this order, which came into effect on 11 December 1987, prohibits the selling, or advertising for sale, of grocery goods — including alcoholic beverages — below cost price. The order also prohibits payment or receipt of "hello money". Grocery goods are defined in the order as meaning grocery goods for human consumption — excluding fresh fruit, fresh vegetables, fresh and frozen meat, fresh fish and frozen fish which has undergone no processing other than freezing with or without the addition of preservatives — and intoxicating liquors not for consumption on the premises and such household necessities — other than foodstuffs — as are ordinarily sold in grocery shops. The order includes grocery goods designated as "own label", "generic" or other similar descriptions.
When this matter was first brought to our attention in early January, the Director of Consumer Affairs and Fair Trade, who has responsibility for the investigation of such complaints under the order and for its enforcement, was immediately requested by me to undertake an investigation into the matter.
I would like to inform the House that the director's investigation produced no evidence of a breach of the groceries order by the multiples concerned and therefore there was no basis for him to institute a prosecution. The director did, however, consider it appropriate to undertake an investigation into the true production costs of an 800 gramme sliced pan. This would enable him to establish the prices at which an economic return can be made from the production of bread. It will be some weeks before this complex exercise can be completed. Preliminary indications are, however, that modern methods can lead to the production of bread and its retail sale at levels below those which have obtained in the marketplace before this.
Because the Director of Consumer Affairs and Fair Trade was still investigating whether there was a breach of the Groceries Order, I considered it desirable — because of the fears expressed of considerable jobs losses in the bakery industry and the failure to achieve a voluntary pause — to introduce the Retail Prices (Bread) Order, 1989. The effect of this order was to restore the price of the 800 gramme sliced pan to the level obtaining before Christmas and to bring about a pause in the apparent instability in the market. The order brought about a degree of stability and enabled the situation to be further investigated by the Director.
By order dated 3 February 1989 I revoked the Retail Prices (Bread) Order, 1989. I considered that the order, in the particular circumstances in which it had been introduced, had produced the degree of stability that was necessary to ensure that while the matter was being investigated there would not be undesirable and uncontrolled developments. The long term continuation of such an order would produce a degree of rigidity in the marketplace which would be inappropriate and unfair to the consumer whose interests we have heard defended here at great length over the past couple of weeks and rightly so. The order was not, as has been asserted by some, a minimum price order. What it did was to freeze prices so that there could be no upward or downward movement in relation to the prices charged on 20 December last.
This type of order is necessarily inflexible. Deputies will appreciate that on 20 December the actual prices being charged varied as between outlets. This meant that where one outlet was charging a lower price than another it was not possible for the competitor to adjust his price.
By so revoking the order the forces of competition were allowed to operate and I understood that the Progressive Democrats were in favour of the forces of competition. I am aware that under these market conditions the price of the 800 gramme sliced pan has since been reduced to 39p by some multiples. I must point out that there is no evidence that there is any breach of the below-cost selling order at this price.
Indeed, I would ask why any manufacturer should be restricted from placing his product, whether it be the sliced pan or any other product, on the market at the most competitive price consistent with an efficient operation. I do not believe that he should, nor do I accept that it would be a healthy state of affairs, for any requirement on a manufacturer to have to sell a product at a particular price as a result of State intervention, except in the highly unusual circumstances that prevailed in early January. This Government believe in the minimum level of interference in the marketplace. Efficiency of production is central to this issue.
I have no argument with that.
Inefficiency on the part of some bakeries — and I think it is generally accepted that there are inefficient bakeries in the industry — must not be allowed to prevent the benefits flowing through to the consumer from free competition.
I have no argument with that.
The Deputy argued for 20 minutes to drive the price up.
I know what the Minister is saying. He is doing nothing for the consumer or the industry.
It is my belief that many of the present difficulties have been brought about by a failure of some firms in the industry to make use of the most efficient means of production. I strongly urge those in the industry to modernise in their own long term interests and that of their employees. It may also reflect that excessive margins were being enjoyed at the production or distribution level. If this means that the consumer has failed to benefit I do not consider that a continuation of this situation should be encouraged.
I am amazed that a party who would portray themselves as the saviours of free enterprise would endeavour to defend such a situation, as was done by Deputy Cullen in his contribution here this evening. I am sure that Deputies on all sides of the House, other than the Progressive Democrats, would agree with me on this point.
The Dáil adjourned at 8.30 p.m. until 2.30 p.m., Tuesday, 21 February 1989.