asked the Minister for Industry and Commerce if he intends taking any initiative to avert the closure of Kelly's Bakery, Kilcock, County Kildare, involving 134 jobs and a £1.5 million annual pay roll; if he expects the current bread price war to continue; if he intends to initiate any further investigations into the circumstances surrounding the closure of this bakery and if he will make a statement on the matter.
Private Notice Questions. - Bread Price War.
asked the Minister for Industry and Commerce if he proposes to take any action, in view of the possibility of further job losses in the bakery trade, to ensure that the present bread price war comes to an end.
asked the Minister for Industry and Commerce if he intends to take any steps to curb or control the current bread price war between a number of supermarket chains in view of the threat posed to jobs in a number of bakeries as highlighted by the closure at the weekend of Kelly's Bakery, Kilcock, with a loss of more than 100 jobs.
With your permission, a Cheann Comhairle, I propose to take the three Private Notice Questions together.
To lay the blame for the closure of a bakery exclusively at the door of temporary reductions in the price of bread is to ignore reality. The industry itself recognises that there is serious overcapacity and a need for rationalisation. I note that this has been acknowledged by the company involved in the most recent closure. New and more efficient bakeries have opened and have provided competition for the older established and less efficient operations.
A study of the industry was commissioned by the Ministers for Agriculture and Food and Industry Commerce. This study which was carried out by the Sectoral Development Committee and published last year recognised the need for rationalisation. I see no need to have further studies undertaken.
The Government provide a framework within which competition in the grocery trade can take place. The Restrictive Practices Groceries Order, 1987, bans below-cost selling for items such as bread. It does not and should not fix the price of commodities. In a previous round of competitíon in the grocery trade that centred on cutting items of high visibility such as bread, the Director of Consumer Affairs and Fair Trade investigated the matter, and the investigation led to two main conclusions. First, there was no evidence of below-cost selling as defined in the order, that is, sales by retailers were not below the net invoice price. Clearly there was no breach of the law. Secondly, it was clear that by using the most efficient methods bread could be produced economically and sold, at least in the short term, at the prices then being charged. It was clear there was neither below-cost selling in breach of the Restrictive Practices Order nor was the retail price of the standard 800 gramme pan loaf below its economic cost of production. I have no grounds for believing that if the office of the Director of Consumer Affairs and Fair Trade was to investigate the matter again the results would be different from previously. The director has responsibility for enforcing the order and will deal with any complaints which now arise.
Twice in the course of the Minister's reply he referred to the short term. Does he accept that while in the short term there may be a benefit to the consumer, in the long term if the present trend is allowed to continue unchecked and it will ultimately lead to the elimination of everybody in the production area of the baking industry, with the possible exception of three operators?
No, I do not accept that at all. If the Deputy studies the Sectoral Development Committee report he will see there is a future for quite a number of operators but not necessarily in the production of bread in the way that it has been traditionally produced in this country. The Deputy will also bear in mind, I am sure, that when many other industries were forced by market conditions and otherwise to rationalise themselves over the past ten or 15 years, the bakery industry, for better or for worse, was largely exempt from that rationalisation process, at least in part due to substantial subsidies paid by successive Governments over a long number of years. That period of rationalisation which hit many other industries as long as ten or even 20 years ago has been hitting the bakery industry in recent years and I hope it will reach an end soon.
Apart from the bakery which is about to close, to which Deputy Durkan referred, has the Minister any indication that other bakeries might be affected by the present war and may also have to close? The Director of Consumer Affairs and Fair Trade has received a complaint from RGDATA, the small grocers' association. Does the Minister propose to act on that at this stage?
The director is, of course, independent of me. He deals with complaints as he gets them and I am sure he will give that complaint full cognisance. I would remind the House that the director has inquired into this point twice in the past 18 months — first in the autumn of 1989 and again in December 1990, only two months ago—and on each occasion he found after full investigation that there was not below-cost selling. Therefore, he was not in a position to bring any prosecution.
As regards the second part of the supplementary, is there any indication that further bakeries are in imminent danger of closing?
Obviously I cannot give a guarantee but as some of the larger old-fashioned, traditional type bakeries close down new bakeries are opening up where the proprietors see the opportunity of diversification and new niches in the market. Overall the demand for the traditional type of bread that has been eaten in this country, usually the 800 gramme pan, is probably in decline whereas there is a growth in demand for more specialised breads and confectionery, and I think that is where the future lies in that industry.
Does the Minister not agree that rather than rationalisation of the industry what we are seeing here is the use of bread as a commercial weapon in this price war in order to give a larger share of the market to the supermarket chains? Only yesterday a statement from the parent company of Kelly's in Kilcock very clearly commented on the absence of any control of the structure of bread pricing as contributing to the present position, and probably to more job losses in the future. The Minister referred to the report of the sectoral committee on the Irish bakery industry. Is he not ignoring the recommendations made by that committee in order to invoke European rules to protect free competition to save the Irish bakery industry from coming under the control of the supermarkets, which at the end of the day will lead to higher bread prices anyway for the consumer?
I would appeal for brevity, please.
I am not prepared to introduce, for example, the concept of a minimum price or to fix a minimum price, and I have no powers under the Prices Acts or any other legislation to do so. I do not think it would be anyone's interest to do that. I accept, at least in part, what the Deputy has said about bread and certain other high visibility items being used in the competitive struggle between different supermarket chains. It is a pity that they pick on bread all the time. I would invite them, for example, to begin to compete with one another for the first time ever on milk, on which there appears to be a fixed price. Even though the larger multiple supermarkets are able to buy milk at a much greater discount than small traders, the retail price is the same in every retail outlet in the country. That is entirely wrong and is an indication of unnecessary profiteering by multiple supermarkets. If they were interested in giving value to the consumer they would begin to compete on items such as milk and other products where there is not the same strenuous competition as bread.
I would ask the Minister to apply the theory on which his answer seems to be based to the following facts: first, the firm we are talking about which is about to close has been through a very substantial rationalisation and modernisation programme in recent years and, secondly, that firm can bake, freeze and export bread to France at a profit but still cannot sell bread on the Irish market at a profit because of the price structure. Could the Minister also apply his theory of market fixing and price fixing to variations in price of up to 25 per cent on an individual item over a short period, to the position where the price, having gone down by 25 per cent, from 49p to 39p per loaf, gradually goes back up over a period? Does the Minister believe that that is a normal part of what we should expect to see in the market for a mass commodity?
I am well aware that prices go up and down quite a lot and I do not think it makes a great deal of sense. This practice is carried on by supermarkets in order to gain publicity. Whenever the price comes down we immediately see headlines to the effect that there is a price war, and that gets people very excited. If we had genuine competition across the whole range of grocery and household items, it would be much healthier.
I cannot comment on the individual company concerned because I have no details on their financial performance, and even if I had, I do not think it would be appropriate to comment on it.
I want to reach finality on these questions. A brief question from Deputy Barry and then I will call Deputy Durkan.
In the peculiar circumstances of this case where the major supermarket chain is also the owner of a bakery, will the Minister state whether the Director of Consumer Affairs is satisfied in that case that costs are not being transferred from one to the other to bring about a false price floor which has the effect of destroying jobs in other bakeries? Nobody objects to competition — it is a very good thing — but there is a danger that that may be happening.
I am sure the director would have been aware of the ownership of the bakery concerned and I have no doubt that in the course of his two investigations he took that into account. I will certainly again draw his attention to that fact. At the moment he is in the process of making a report to the Fair Trade Commission on how the 1987 Groceries Order has operated and I will invite him to look at that aspect of it in the course of making his report. No doubt, the commission will also take that into account.
A final question from Deputy Durkan.
Is the Minister aware of the fact that almost 2,000 jobs have already been lost in the baking industry during the course of the so-called rationalisation and that they have not been replaced? The Minister indicated to the House his intention of introducing a Bill in regard to competition. Will the bread industry be encompassed within the controls he envisages in that Bill? Will the Minister tell the House whether he expects bread prices to remain consistently low or does he foresee a rise when the competition has been eliminated from the production area?
I very much regret that jobs have been lost in this industry. However, I would have to point out to the Deputy that, over the past 20 years, tens of thousands of jobs in many traditional industries have been lost. Perhaps the bakery industry were fortunate in that they were able to delay the day of reckoning much longer than others and we are now seeing in that industry what happened in quite a number of other industries ten, 15 or 20 years ago.
Tell that to the people in Kilcock.
The competition Bill deals generally with the principles involved in trading and the question of the abuse of a dominant position. If it was found that there was abuse of a dominant position by somebody in the bakery industry, then it is open to people who feel aggrieved by that to take proceedings in the High Court for damages and to seek an injunction to put a stop to it.
Deputy Rabbitte rose.
I am sorry, Deputy Rabbitte, that disposes of questions for today. I am now proceeding to other business, to information in respect of Adjournment debates.