With me are Dr. Eoin Gahan, chairman of the Forfás secretariat which helps the Consumer Strategy Group, and Mr. Ed Shinnick from UCC, who is on the group and who is now also on the interim board of the NCA.
I thank the Chairman and the members of the committee for inviting me here today. We are delighted to have the opportunity to share the outcome of the Consumer Strategy Group's work with the members of the committee. I propose, with the agreement of the committee, to read a statement on the work of the CSG and will be happy to take questions from the members of the committee.
Prices in Ireland have risen rapidly in recent years. In 1995, Ireland was the eighth most expensive country for consumer goods and services among the current eurozone members; by 2003, it was virtually the most expensive. In the latter year, Ireland ranked as the most expensive country in the eurozone in respect of food, retail, non-alcoholic beverages, tobacco and housing rentals and as the second most expensive in terms of alcoholic beverages, off-licence, restaurants and pubs. The consequence of this has been a widespread perception among Irish consumers that they are being continually overcharged and there have been further cries of "rip-off Ireland". In conjunction with this has been an understandable growing public concern that consumers are not getting a fair deal.
During the past decade it has become apparent that consumer power is weak in Ireland compared with other highly-developed countries. In many areas of commercial and public decision-making, the consumer has no voice. Similarly in many areas of daily life, consumers feel powerless. Internationally, however, it is widely accepted that informed and empowered consumers are a powerful social and economic force. They can improve the overall standard of living in a country and drive innovation in the enterprise sector. Confident, well informed consumers are not only more willing to spend their money, they are also more likely to favour progressive suppliers that offer more choice, better quality, superior service and innovative products and services at fair prices. These are also the businesses that are most likely to succeed on export markets.
The catalyst for setting up the group was a combination of the issues I have outlined, namely, widespread concerns being expressed in respect of the effectiveness of current consumer policy in Ireland; the increasing international focus on the empowerment of consumers; and the strongly held belief of consumers and various media and economic commentators that Irish consumers were not getting a fair deal. The Minister for Enterprise, Trade and Employment set up the Consumer Strategy Group in March 2004 and described the move as "a significant initiative designed to improve and promote consumer rights in Ireland".
The CSG was asked to advise and make recommendations in respect of developing a national consumer strategy to provide consumers with knowledge, information and confidence to be demanding of quality, service and value; ensuring that consumers are well informed of their rights and have effective means of redress; giving consumers a powerful voice at national and local level; ensuring that the views of consumers are heard and taken into account; and promoting best practice among product and service providers.
In approaching its work, and its very broad remit, the CSG kept to the fore the following key questions. Where is the consumer voice? What is its impact and how can it be empowered and strengthened?
There has been increased focus internationally on consumer empowerment. This is as a result of the acknowledgement that the effective implementation of a good consumer strategy will lead to more competitive markets, lower prices and better quality products and services for consumers. This is good for business and promotes innovation, responsiveness and competitiveness. Ireland has been slow in acknowledging this and consequently is lagging behind its international counterparts in this regard. Another important component of a good consumer strategy is consumer protection and redress in the event of a complaint or dissatisfaction. Without good consumer protection systems consumers will suffer losses, particularly those who lack the skills to make good buying decisions or those on low incomes who can least afford to make wrong decisions. Good consumer protection systems increase the likelihood of the right decisions being made and help to increase living standards overall. Successful and confident consumers feel more in control of their own lives and better able to articulate their service and quality needs.
CSG research revealed that there is a passive consumer culture in Ireland and that this costs money, estimated at an annual cost of €810 million, or £8.7 billion sterling. This research represents the largest body of such research ever carried out into consumer policy in Ireland. In carrying out its work, the Consumer Strategy Group focused on a number of different activities. In that context, submissions were sought from the general public and trade bodies, public and state sector bodies and Government Departments and regulators. In addition, a consumer attitudes survey was carried out to ascertain consumer perceptions and attitudes, international best practice and experience in consumer policy and institutions were examined and a number of key sectors were also researched from a consumer perspective.
The CSG research into consumer attitudes revealed that, in terms of prices and value for money, 87% of consumers feel they are frequently overcharged and 65% believe the price they pay is different from what they expected. Consumers feel overwhelmingly that they do not get value for money, price, quality, etc. Consumers find the area of consumer rights both complex and confusing. Nine out of ten people feel they need to be better educated about their rights. Awareness of consumer organisations in Ireland is very low. In terms of complaints and redress, 67% believe the complaints process is lengthy and expensive, while 83% believe they should complain more but do not know where to go.
The CSG examined a number of other countries to ascertain best practice in the area of consumer policy. The group examined Denmark, the Netherlands, the United Kingdom and Northern Ireland. It emerged that consumers in these countries behave and are supported differently from those in Ireland. These countries spend less on protection and enforcement and more on championing the consumer's cause. The key principle underlying consumer policies in these countries is that empowered consumers can make better choices and hence drive the marketplace. Information and awareness are priorities and the state plays an important role in providing services for consumers. Businesses in these countries play a greater role in consumer affairs and benefit from the improved relationship. The business sector recognises the importance of good consumer policy, works closely with consumer institutions and operates sectoral codes of practice and dispute resolution procedures.
The CSG research revealed a serious lack of consumer voice, a lack of focus on consumer issues — on the part of both the State and businesses — significant gaps in consumer policy in Ireland and an emphasis on enforcement. It also highlighted that there is little emphasis on education, awareness, advocacy and empowerment of consumers.
The CSG also developed a number of key principles which it considered underpinned a good consumer policy. These include access — market information, choice, price and quality; safeguards — health and safety issues to include health regulations, terms and conditions relating to specific aspects of transactions; advice and support — information; redress — informal, legal and alternative dispute resolution; and consumer voice — a strengthened consumer voice which would make a research input into various sector or policies that impact on it.
There are a number of functions needed to support these principles. The first of these is advocacy. A strong and consistent voice for Irish consumers is needed at many levels in public debate in the State system and by way of influencing legislation. Intervention at policy level, or as necessary in the media, is particularly important to support the need of disadvantaged consumers. Support is also needed for organisations that provide advice and information to consumers. The promotion of codes of conduct and redress procedures is another part of the advocacy function.
The second function revolves around information and advice. To make the right choices, and even to know what is available, consumers need information targeted to their specific needs in terms that are readily understood. There are a number of sources of such information, including the media, advertising, consumer groups and voluntary organisations. However, there is still a deficit. More targeted information is needed to focus on both consumer rights and protection and price and quality.
The third function relates to enforcement. There are many laws and regulations in place to protect consumers. These range from requirements relating to the quality and safety of products such a food, toys and electrical equipment to regulations on the display of prices. The CSG considered that the existing enforcement functions of ODCA can be built on and has recommended the introduction of a system of on-the-spot fines and powers to close down rogue traders. The group also considers that much more can be done to inform consumers of the legislation that is designed to protect and to empower them to become active participants in the enforcement of some of that legislation.
The fifth function involves education and awareness. Developing consumer thinking is an essential step in fostering a consumer culture, where consumer rights and obligations matter and are well understood by business and consumers. The education and awareness function covers important areas of activity such as the encouragement of basic consumer education in schools, teaching and researching on consumer issues in third level institutions and the development of more general consumer consciousness through awareness campaigns. Interpreting and publicising consumer-related issues that arise from legislative and regulatory changes at national and EU level is also an important aspect of this function.
The final function relates to research. Underpinning all the other functions, well founded and well integrated research is an essential activity and this needs to cover areas such as monitoring levels of consumer awareness and satisfaction and maintaining a continuous overview of the concerns of consumers as a guide to identifying policy priorities; analysing the consumer implications of proposed regulatory and legislative change; preparing inputs into national policy formation in key sectors and areas that are related to consumer interests; and analysing key markets to identify areas of particular consumer concern. In summary, a researched and well-founded consumer voice can make a very valuable contribution to society and to our economic welfare.
The current approach to consumer issues in Ireland places a heavy emphasis on consumer protection, with a top-down approach from Government. Unlike other countries, there is little involvement from business in dispute resolution. There is a distinct absence of planned, regular programmes of consumer information, of research into the needs of consumers and of advocacy on their behalf. There are, however, exceptions to this, including the areas of financial services and food safety.
The current system in Ireland does not reflect the fact that consumer issues and problems do not readily fall into neat boxes. They range across most sectors of business and Departments. They cannot be compartmentalised. The group's main recommendation is the establishment of a new independent statutory national consumer agency, subsuming ODCA. The national consumer agency will raise the profile of consumer issues and present a strong consumer voice. The agency will give Ireland a comprehensive and forceful consumer policy. This body will champion the cause of the consumer and, for the first time, consumer interests will be brought to the forefront of national and local decision-making.
In light of the broad remit of the proposed agency — it will be free to comment on, criticise and suggest improvements to all aspects of the economy, including those relating to the Government and local authorities — it is imperative that it be distanced from a Department, although funded by the Exchequer.
The CSG also feels it is important that the agency have a board, with the freedom to recruit its own staff and chief executive. The agency will also develop a partnership approach with Government, regulators, business, consumer organisations and unions in promoting and safeguarding the interests of consumers. It is important that it be, and be seen to be, constructive while keeping the interests of consumers to the forefront at all times.
I mentioned that the CSG had also carried out a number of sectoral studies. These included an examination of developments in the retail sector including in the areas of groceries, because these represent a basic component of consumer expenditure; pharmaceuticals, because of known price disparities between Ireland and other countries; and transport and planning, because of their influence on consumer access to goods and services.
I am aware the committee has a particular interest in the groceries order. For that reason, I will focus on the order in this presentation. I am, of course, happy to respond to questions on this and on the other studies carried out by the group. Given the remit of the CSG to address the issue of high prices, it was only natural that we would look at the groceries order in the context of our examination of various sectors from a consumer perspective. It is interesting that we did not mention the groceries order specifically in the advertisement we placed in the newspapers seeking submissions and input into the work of the CSG. Nor had we engaged consultants to examine the retail trade at that stage. However, all except one of the submissions we received from the retail trade and the representatives of producers focused, to a considerable degree, on the order and argued for its retention. All referred to it as a ban on below cost selling.
The groceries order has been in existence since 1987 — almost 20 years. In that period, the Ireland we live in has changed enormously. It is now a wealthy nation, in a way that we would not have envisaged even ten years ago. However, we also have some very poor people among us. While those of us who have some money can tolerate high prices, higher than necessary prices in the groceries area impact heavily on the less fortunate who spend much more of their income on food and household necessities.
As individual consumers, we are also time poor. Long commutes, longer working hours, the stresses of a fast moving society are all factors that have changed the way we shop. The retail environment has also changed considerably. The number of genuinely independent grocery shops has continued to decline by 40% over a 25-year period, which predates the introduction of the order. The trade has become more concentrated, both at retail and distributor level. We have a vibrant retail grocery sector in terms of the number and types of outlets and our economic structures are such that they will continue to be vibrant. The growth in the convenience grocery sector is testament to our busy lifestyles. Some competition has come into the market since the advent of Aldi and Lidl but there is potential for far more.
On a broader front, we are in danger of becoming less competitive across many sectors of the economy. This is a factor which, if unchecked, will threaten our new found wealth. The Ireland we live in today is in sharp contrast to that of 1987, when the groceries order was introduced. Ireland was then a poor country. Small retailers and producers felt under pressure from the multiples of the time. H. Williams had gone bust, probably for a variety of reasons, but the price war which preceded this was an important factor in the creation of a perception that below cost selling was to blame. There were fears of enhanced competition from the UK. The result, as members are aware, was a ban commonly known as the ban on below cost selling.
When the CSG members began to research and discuss the groceries order, we all presumed it was genuinely a ban on below cost selling. To us, as reasonable people, that meant a ban on selling a good below the real, actual price which a retailer had paid for it. To say that we were astounded when we learned of the existence of off-invoice discounts is an understatement. I am being candid with the committee when I say that we could not — and still cannot — understand how this law remains in existence. It is inconceivable to us that the law can forbid a retailer from passing on directly to consumers discounts which he or she received but which are not reflected on an invoice.
In examining the retail trade, including the groceries order, we were conscious of a number of factors including high prices in Ireland and, equally, the high cost of doing business in Ireland. In respect of prices, we purchased research from AC Neilson and compared 40 branded products — 20 internationally branded and 20 locally branded — across the eurozone. We discovered that, allowing for all taxes, the internationally branded products were almost 23% more expensive in Ireland than in the other eurozone countries. We found that the locally branded products were 3% higher after taxes. We found these very major differences difficult to believe. In an effort to understand them better, and conscious of our high cost environment, we also examined ten input costs across the eurozone.
While Ireland is an expensive place to do business, we found that it is not the highest across the eurozone in terms of all input costs. We also took into account the fact that we have the lowest rate of corporation tax in the eurozone. We could only conclude that there is an unexplained gap in respect of Irish prices. We believe that the groceries order is contributing to some of these high price levels. In summary, we believe that Irish consumers are not getting a fair deal.
Everyone is aware that the practice of off-invoice discounting is rife throughout the grocery trade. This, in our view, has the effect of placing upward pressure on grocery prices. That possibility was recognised when the order was made and in the many reviews of the order which have taken place. The Restrictive Practices Commission, under the chairmanship of Mr. Myles O'Reilly, issued its Report of Review of Restrictive Practices (Groceries) Order 1981, which led to the introduction of the 1987 groceries order. In the review, Mr. O'Reilly stated:
In general, while the invoice conforms to the price list it does not show all of the additional rebates. If this practice were to continue, a prohibition on selling below net invoice price would, as the 1980 Report feared would happen, be allowing the manufacturer to fix a price below which his products could not be sold but which was not the true cost. This would be a form of resale price maintenance.
The then Minister for Industry and Commerce, in speaking to the legislation establishing the order in 1987, expressed the view that the multiples would ensure all discounts, rebates, etc., would be reflected on the invoice so that they could have a competitive edge over other retailers. That never happened.
The 1991 review of the Fair Trade Commission report on the 1987 groceries order, under the chairmanship of Mr. Patrick Lyons, concluded, with a minority view from Mr. O'Reilly, that the order should be abolished. Mr. Lyons and Mr. Massey, the third member of the commission, considered that, "there is persuasive evidence that the ban on below cost selling has resulted in higher prices, a decrease in price competition and an increase in margins." The two members also considered that "off-invoice discounts appear to be quite significant in some cases, and to have increased in magnitude since the introduction of the ban". The net invoice price now prescribes the minimum resale price. They regarded "this practice, which amounts to resale once maintenance and which could grow in extent, as being a serious abuse of the legislation".
The minority view, expressed by Mr. O'Reilly, was that "the present definition of cost i.e net invoice price, cannot be permitted to continue". While he believed that little damage had so far been suffered by consumers or by trade participants as a result of the present definition, he asserted, nevertheless, that the definition might lead to abuse by some sectors of the trade in the future. Mr. O'Reilly recommended that the order be retained but that the definition of cost be changed to include all discounts and rebates. As we are aware, however, the order has remained unchanged despite subsequent reviews which recommended its abolition. We are also aware that this committee has recently recommended retention of the order.
The group's analysis of the groceries order found that it has the effect of placing upward pressure on grocery prices and thereby adversely affects consumers. The group believes that free competition in markets is the most effective way to protect consumers. Markets should function in the interests of both consumers and producers and should not be solely concerned with protecting producers or retailers, as has been the case in Ireland. The importance of striking a balance between consumers and industry is crucial for the long-term prosperity of this sector. The CSG does not believe that the groceries order strikes such a balance.
The report of the CSG was launched on 18 May 2005. At the launch, the Minister for Enterprise, Trade and Employment, Deputy Martin, announced his intention to establish a new consumer agency. The Minister also announced that a board of the new national consumer agency would be established immediately on an interim basis until such time as the necessary legislation could be enacted to establish it on a statutory footing. The interim board is now established and the first meeting of the interim board will take place shortly. It is envisaged that the interim board will carry out further consumer research and act as an advocate for consumers in the interim.
An issue requiring immediate attention by the board is the submission to the Department of Enterprise, Trade and Employment consultation process on the groceries order. The interim board of the national consumer agency will be building on the work of the CSG and will make a submission to the Minister for Enterprise Trade and Employment on the groceries order. In doing so, the interim board will have one overriding objective, namely, to ensure a fair deal for consumers.
