Dáil Éireann debate -
Tuesday, 9 Dec 2003

Vol. 576 No. 5

Priority Questions. - Price Inflation.

Eamon Ryan

Question:

60 Mr. Eamon Ryan asked the Tánaiste and Minister for Enterprise, Trade and Employment the research her Department has carried out on the supply chain for food, drinks, fashion and footwear prior to and since Ireland joined the euro; her views on the fact that some prices may be inflated as certain retailers still treat the Irish market as being part of the sterling area with products from the euro economies being inflated by unnecessary currency transaction costs; and if she will request the Competition Authority to investigate whether informal market restrictions may be in place which discourage the direct importation of products from the euro currency area. [30111/03]

Ms Harney:

Research into price behaviour during the euro changeover period was carried out by Forfás last year, at my request. A report which was published in June 2002 can be accessed on the Forfás website, www.forfas.ie The report concluded that the euro changeover had not been used as an opportunity to introduce excessive price increases, generally speaking. There are grounds for concern, however, as a consequence of price increases in the non-traded sector. This sector consists of businesses that do not face direct foreign competition. Further Forfás research earlier this year highlighted this sector as a significant driver of inflation in recent years.

While some price pressure may be associated with the rapid pace of economic growth in recent years, it is possible that deeper structural factors, such as informal restrictions inhibiting imports, may exist. I have asked Forfás to focus on a small number of selected product or service areas as part of the next phase of its price investigation work. This work will complement the competition enforcement activities of the Competition Authority. My Department has drawn the matter to the attention of the authority. I am not aware of current practice relating to inappropriate currency transaction charges in connection with products imported from other eurozone countries.

Mr. Eamon Ryan:

I thank the Tánaiste. This is an important issue. A great deal of attention has been paid to price inflation in the food and drink sectors, as well as the general retail sector, in recent times. The fact that 60% of goods sold in this country are imported from the UK, rather than the eurozone, is startling. I am concerned that this statistic may have contributed to inflation in recent years, particularly when products are imported from Europe, via the UK, into Ireland. A series of currency transactions occurs in the supply chain in such circumstances. We know that businesses making such currency transactions are often very conservative. It is therefore adding to the price quite significantly.

The Tánaiste said she has asked Forfás to examine informal restrictions that may be in place. In the news earlier this week concern was expressed that certain retailers were considering restricting themselves to exclusively Irish suppliers and no longer dealing directly with other retail stores. I was more concerned with instances where an agency or product supplied from Europe could not be sold into the Irish market, except through a UK distributor. Perhaps the Tánaiste could provide more specific details. Is that the type of informal restriction about which she is concerned? What are the exact powers of Forfás in the area? Would it not be more appropriate, if there are such informal restrictions, to have the Competition Authority investigate the matter, given that I assume the companies concerned are in breach of European competition rules? It is less of a problem, since our inflation rate has dropped dramatically following the rise of the euro over sterling. However, it could have very important long-term consequences.

Is the Tánaiste concerned that Ireland is increasingly seen as part of the British market in consumer goods, and, in particular, part of the Manchester market? Ireland is seen as an add-on to that distribution chain. That Manchester market usually has quite a high mark-up in the UK, and that is worsened by exchange rate differences. Is the Tánaiste concerned that the Irish market is now seen by many UK suppliers in that light?

Ms Harney:

I share the Deputy's concern at the rapid price increases in some product categories, particularly in the food sector, which is among the areas which I have asked Forfás to examine. For example, that Lidl and Aldi have gained such a major share of the Irish market so quickly indicates that there is great scope for competition and that consumers are voting with their feet. Prices in some of those categories seem to be substantially lower in Northern Ireland than in the Republic. However, those are among the issues I have asked Forfás to examine.

There are competition rules that apply within the Single Market, but since we have not completed it in many respects, several directives are under discussion regarding sales promotion and unfair trading practices that may have an impact here. Unfair barriers or requirements that people must purchase from a certain importer are among the issues we must examine to ensure they are removed. I hope the change in the value of the currency will be passed on to consumers. It has had a major impact in reducing inflation over the last few months. During the years when the currency was at a different rate, we were constantly told it was the reason for higher prices. I hope we see the benefit now that it is the other way around. I repeat what I have said in many fora: the most effective way to get prices down across all sectors is enhanced competition, and, quite honestly, one cannot have enough of it.

Mr. Eamon Ryan:

Regarding the informal restrictions that may be in place and the Tánaiste's request that Forfás investigate them, perhaps she might outline where those concerns were raised with her. Was it regarding individual companies, or were certain suppliers coming to her saying they were unable to access specific products owing to such restrictions? Has the Tánaiste asked Forfás to investigate specific examples?

Ms Harney:

We have given it quite an open agenda. Obviously they must be category-specific. I do not want them going all over the shop. I want some quite specific hard data that might help us take whatever action we can at domestic level. Some may be on distribution and some, as the Deputy suggests, on import restrictions through certain companies. In some sectors many companies see Ireland and Britain as one market. They certainly see the island of Ireland as one market, but that does not cause the difficulty we are discussing here, because prices in Northern Ireland are substantially lower for many of the same product categories. I do not accept that all differences are accounted for by higher costs here.