JOINT COMMITTEE ON ENTERPRISE AND SMALL BUSINESS debate -
Wednesday, 31 Aug 2005

Restrictive Practices (Groceries) Order 1987: Presentation.

Chairman

The main aim of this meeting is to ensure there is full information throughout the debate on the groceries order. With the support of members of all parties, this committee commissioned a report in July this year in order that we could make a fully informed submission to the Department of Enterprise, Trade and Employment. We have worked with our consultant, Mr. O'Reilly, whom we welcome back this morning. We used figures from the Central Statistics Office when compiling our report. However, it now seems that the Competition Authority is coming forward with conflicting figures. As Chairman of this all-party committee, I think it only responsible that we should meet, with our consultants present, to examine both sets of figures — those of the CSO and the Competition Authority.

I welcome Mr. Donal Garvey, the director general of the Central Statistics Office, Mr. Gerry O'Hanlon, a director, and Mr. Kieran Walsh, a statistician. Before asking them to commence their presentation, I draw their attention to the fact that while members of this committee have absolute privilege, the same privilege does not extend to witnesses. Members are also reminded of the long-standing parliamentary practice to the effect that members should not comment on, criticise or make charges against a person outside the House or an official by name or in such a way as to make him or her identifiable.

I thank Mr. Garvey for coming before the committee and ask him to make his submission.

Mr. Donal Garvey

The Chairman referred to my colleagues, Mr. O'Hanlon and Mr. Walsh. I have been invited to discuss issues relating to prices, the compilation of the consumer price index and the groceries order. It would be good to start with a brief description of the consumer price index. Prices are collected on the second Tuesday of each month in a panel of retail and service outlets throughout the country. More than 55,000 price observations are collected relating to a representative basket of 613 items covering approximately 1,000 varieties. The representative share of each item in the basket is proportional to the average amount purchased by all private households in the country as determined from the most recent household budget survey.

The CPI was last rebased in December 2001 on the basis of a basket of goods determined following the household budget survey of 1999-2000. The next rebasing will be to December 2006 on the basis of a basket determined following the 2004-05 household budget survey, which is currently in the field.

The consumer price index is one of the most important statistics compiled by the CSO and high priority has always been attached to all aspects of the work. In particular, as detailed already, the price collection is by far the most comprehensive exercise of its type undertaken nationally. The survey methodology is regularly reviewed to ensure that the coverage is fully representative of the situation throughout the country. In short, the index is of a very high quality, lest any of the current controversy surrounding the use and analysis of basic price data collected be mistakenly interpreted as suggesting anything to the contrary. I stress that point.

In total, approximately 152 items within the consumer price index basket are covered by the 1987 groceries order. These items account for about 14% of the overall weight in the CPI. The items impact on three different categories within the consumer price index: food and non-alcoholic beverages; alcoholic beverages and tobacco; and furnishings, household equipment and routine household maintenance. In total, there are approximately 171 food and non-alcoholic beverages items within the CPI basket, 129 of which are covered by the groceries order. These 129 items account for some 10% of the total weight in the CPI, while the food items not covered account for about 4%. The groceries order also covers intoxicating liquors not consumed on the premises, in other words off-licence sales of alcohol. These account for 11 CPI items and 3% of the weight in the CPI.

The groceries order covers household necessaries, a term which we find a little ambiguous and which has given rise to a number of legal proceedings. Our understanding suggests that a further 12 items within the CPI basket, accounting for less than 1% of the CPI weight, may be covered by this term. All but one of these items fall within furnishings, household equipment and routine household maintenance.

On the reason I suppose we are here, there has been considerable recent controversy around the issue of the impact the groceries order may or may not have on the consumer price index. I stress that the role of the CSO is to make data available in a neutral manner, not to become embroiled in controversy. I will confine myself to factual comments.

Our submitted statement includes a graph and a table. The base shown in the table is June 1987. The reason we selected June 1987 was the groceries order was signed in May 1987. It shows the evolution of the consumer price index for food and non-alcoholic beverages combined with alcohol consumed at home, distinguishing separately the trend for those items covered and not covered by the groceries order. The figures for 1988 to 2004 are annual average consumer price index figures.

The accompanying graph shows the trend for the final two columns in the table. It seems that the trends for both sets of items are broadly similar over the longer term. For nine of the 18 comparisons in the table the items not covered by the groceries order had increased by more than the set of items covered by the order, and the most recent year for which that happened was 2002. One will see from the graph that there is a smoother evolution, or less volatility, in the price changes of the items covered by the groceries order. While the price increases since 1987 for items not covered by the groceries order were higher in 2001 and 2002 than for the items covered by the order, there has been a significant divergence in the trends since then, and by July 2005 the items covered by the groceries order showed a price increase over the 18-year period which was more than nine percentage points higher than for the items not covered by the order.

Chairman

I thank Mr. Garvey. In considering the submission of the Competition Authority to assist the Minister for Enterprise, Trade and Employment in coming to his decision on the future of the Restrictive Practices (Groceries) Order, would Mr. Garvey agree that statistics have been selected by the Competition Authority to present groceries order items as being more expensive than non-groceries order items? If different base years had been selected, say in Table 3 and Table 4, would different results have been achieved? If alcohol had been excluded from Tables 3 and 4, would different results have been achieved there also? If household necessities had been included, would the results have been different? Apart from the reductions in the non-groceries order prices in the six months to June 2005, would Mr. Garvey agree that the increases in groceries order and non-groceries order food and non-alcoholic drinks have been approximately the same?

Mr. Garvey

The Chairman asked approximately ten questions.

Chairman

I asked five.

Mr. Garvey

The Chairman referred first to the Competition Authority submission. The authority came to us seeking information. The appendix to its submission contains a number of tables and the authority states that the CSO is the source for the data. I refer, for example, to Tables 2, 3 and 4. Table 3 is similar to the table to which I referred earlier. The difference between them is that the authority takes the month of June of each year, whereas we have taken the average across the years. However, the basic story is the same in both tables. In other words, over the 18-year period inflation in the items covered by the groceries order up to July 2005 was nine percentage points higher than that for other items. That is clear in the table used by the Competition Authority. There is an element of CSO data in its presentation. Different sides have drawn quite contrasting pictures from the same tables over the years. While the tables are based on CSO figures, the authority concentrated very much on the most recent period for most of its submission.

Deputy Howlin

Mr. Garvey's submission is extremely helpful to the committee because a great deal of fog surrounds this issue. Disaggregating figures and establishing a pattern is difficult for those who are not statisticians but Mr. Garvey has outlined the full picture. I refer to his table. Is it correct that, for nine of the 18 years it has been in existence, price inflation for products not covered by the groceries order has been higher than that for products it covers and that, for 16 of the 18 years, the rate of inflation for both groups was comparable? Is it also correct that the divergence in price inflation has only taken place in the past 18 months? Is that an accurate analysis?

The past 18 months were the focus of the submission made by the Competition Authority. Have alcohol products been disaggregated from the figures, given that a considerable hike in excise duty — which impacted significantly on alcohol goods during the past 18 months — was introduced in the December 2002 budget? What are the comparative figures if they are disaggregated?

Mr. Garvey

The answer to the Deputy's first question is yes. Using my table, every time the figure in the right hand column is higher than the figure in the centre column, the rate of inflation in non-groceries order items has been faster since 1987 to that point. That is the case for nine of those years. I have not counted to 16 but for most of the years, the difference was small. I am not sure which years are the exceptions. From 1995 to 1996, there was an increase of three points in the groceries order items and a drop of one and a half points in the other items.

Deputy Howlin

We should take the 18 years on balance.

Mr. Garvey

In general, there has not been much difference in the level. I think the change occurred, and this is shown clearly in the graph, from 2001 or 2002. In the years to then, price increases of groceries order items since 1987 were less than the non-groceries order items. Now the position is quite different. The change in trend seems to me to have appeared since 2001 or 2002. If we look at the graph we see that the non-groceries items were higher than the groceries items. This was the case for about a year, but has been dropping since.

Deputy Howlin

For the past two years.

Mr. Garvey

Yes, and in 2005.

Deputy Howlin

Take us through the past three years. In 2003 the comparators were very close, from 150.9 to 149.8. There was a slight, now insignificant, divergence in 2004, from 146 to 151 and then, in the first six months of this year there was a big jump. Is that correct?

Mr. Garvey

Yes.

Deputy Howlin

We had a fairly flat pattern for most of 18 years, but a jump in the past six months. The case has been made on the basis of the past 18 years but focuses on the figures for the past six months in reality.

Mr. Garvey

The level baskets reached in 2003 was similar to previous levels, but levels started to diverge after that year.

Deputy Howlin

The year 2003 was 16 years into the process. Does Mr. Garvey agree that if we were to analyse the impact of the process over the 16 years, we would say it was fairly neutral?

Mr. Garvey

If we were sitting here two years ago examining the figures, I would agree.

Deputy Howlin

What has happened in the past two years? That is the question on which we want an explanation based on the statistics that have been provided.

Mr. Garvey

As far as the CSO is concerned, we have done exactly the same as we do every month and have measured the consumer price index. We go into the shops and measure the prices.

Deputy Howlin

If the CSO disaggregated the 20% tax on alcohol, would that make an impact?

Mr. Garvey

My colleagues have been furiously searching through the prices and I am told that if we had excluded alcohol from the table, it would make absolutely no difference. The rate of inflation would, I presume, be the same.

Deputy Howlin

Is it correct that if we exclude the excise hike, the groceries order would have had no impact on prices in terms of items covered or not covered?

Mr. Kieran Walsh

It would have made very little difference. Bearing in mind that it is a relatively small part of the overall groceries order coverage, it has made little difference to the trend being shown since that time. Both groups have risen by approximately 0.4%, whether we include or exclude alcoholic beverages.

Deputy Howlin

Thank you.

Deputy Hogan

I welcome the delegation from the Central Statistics Office. There has been much debate recently about the cost of food items, particularly in the context of the groceries order. The Competition Authority has issued a report that indicates that the groceries order contributes to higher prices and it is for this reason that we have invited the CSO delegation here today, not because of any television programme. Significant evidence presented to the committee by the chairman of the Competition Authority is at variance with some of the factors weighed up in our submission to the Minister and in our July groceries report.

There are a number of important questions. Few people compare like with like in this debate. Was the CSO given a list of products to survey by the Competition Authority or did it survey all products covered by the groceries order?

Mr. Garvey

We discussed with the Competition Authority the items covered. The groceries order makes clear exceptions in respect of fresh food and it is also quite clear with regard to off-licence alcohol. The only items in respect of which there is ambiguity are those referred to as "household necessaries". My table excludes those items because they are a very small weight, less than 1% of the total weight of the CPI basket. I am aware of cases where the courts had to decide whether household necessaries items were covered by the groceries order.

The CSO has a list of 11 or 12 items. The lists from Forfás, the Competition Authority and others are almost the same, with one or two small distinctions. My colleagues may correct me because I am speaking from memory but the CSO list includes light bulbs, which were not included in some of the other lists, and one or two lists included toilet paper, whereas ours does not. On the basis of the most recent court decision we are trying to interpret which items and household necessaries should be included but even looking at the total list, it is a very small weight of the CPI.

Deputy Hogan

Mr. Garvey has not answered my question. This is an important discussion because Government policy on a critical issue hinges on this debate. I will repeat the question. For the purposes of analysis and survey, did the Competition Authority supply the CSO with a full list of all products which, in the opinion of both organisations, are covered by the groceries order or was the list select in nature?

Mr. Garvey

I can verify this with my colleagues but with regard to food, the CSO is analysing what it believes to be the full list. I ask the Deputy to listen to me. The items are what the CSO believes to be the food items covered by the groceries order. I can ask my colleague to clarify whether the list was received ab initio or whether we compiled the list.

Chairman

Does this list include the bottle of Bacardi and the electric toothbrush?

Deputy Hogan

I want to get the answer from Mr. Walsh.

Mr. Walsh

When the Competition Authority initially approached us, it was supplied with the full list of all items we cover. With that information it made a list of the items it interpreted as being covered by the groceries order and asked the CSO to carry out the analysis. Separately, and in preparation for this meeting, we have examined the matter ourselves.

Deputy Hogan

Mr. Walsh has answered the question. The CSO was given a selected list of products that are covered by the groceries order; it was not given a list of all the products.

I have a question for Mr. Garvey. I have a list of categories of goods included under the groceries order but excluded from the Competition Authority's research on prices. I wish Mr. Garvey to inform the committee whether he believes they are covered by the groceries order. Is washing powder covered by the groceries order?

Mr. Garvey

I apologise, that level of detail——

Deputy Hogan

I ask Mr. Walsh or the relevant expert to provide the answer.

Mr. Walsh

Yes, we would regard washing powder as being covered.

Deputy Hogan

Is washing-up liquid covered?

Mr. Walsh

Yes.

Deputy Hogan

Is fabric softener covered?

Mr. Walsh

Yes.

Deputy Hogan

Are detergents covered?

Mr. Walsh

Yes.

Deputy Hogan

Are toilet rolls covered?

Mr. Walsh

As there is ambiguity, I would say they are not.

Deputy Hogan

Are toilet cleaners covered?

Mr. Walsh

Yes.

Deputy Hogan

Is soap covered?

Mr. Walsh

Yes.

Deputy Hogan

Is dishwasher powder covered?

Mr. Walsh

Yes.

Deputy Hogan

Are cleaning cloths and cleaning devices covered?

Mr. Walsh

Yes.

Deputy Hogan

Are furniture polishes covered?

Mr. Walsh

Yes.

Deputy Hogan

Are window-cleaning agents covered?

Mr. Walsh

Yes.

Deputy Hogan

Are air fresheners covered?

Mr. Walsh

Yes.

Deputy Hogan

Are personal hygiene items such as shampoos covered?

Mr. Walsh

No.

Deputy Hogan

Why were those products not covered by the Competition Authority's report or not analysed and researched when considering prices? Even though the CSO provided the raw data for the chairman of the Competition Authority, the items in question were not researched even though they are covered by the order. They are typical products purchased by any household.

Mr. Walsh

The Competition Authority got a full analysis of everything, including those items, but it focused on food and non-alcoholic beverages and alcohol consumed at home.

Deputy Hogan

Mr. Walsh is saying is that the Competition Authority did not analyse all the information on the products covered by the groceries order that the CSO gave it.

Mr. Walsh

I can say it did not highlight it in its submission.

Deputy Hogan

I know the Competition Authority's report made no reference to these issues. However, the CSO gave it the data.

Mr. Walsh

Yes, we provided the data.

Deputy Hogan

The CSO gave it the data and the authority chose to ignore it. Why do the representatives of the CSO think it did so?

Mr. Garvey

We cannot speak for the case——

(Interruptions).

Mr. Garvey

As Mr. Walsh indicated, we supplied the information for all the items.

Deputy Hogan

I understand that. Mr. Garvey referred to a number of tables when answering questions from the Chairman. The Competition Authority appears to use different starting points for its presentation of its analysis of price movements in goods. For example, in Table 2 on page 19 the starting point it used was 2000 while Table 3 starts in 2001. As Mr. Garvey is a very important statistician, can he tell us what impact would those starting points have on the analysis of these food prices?

Mr. Garvey

I cannot answer for the approach taken by others in deciding to make a case.

Deputy Hogan

May I ask Mr. Garvey a general question?

Mr. Garvey

The Deputy may.

Deputy Hogan

As a statistician of very high repute, does Mr. Garvey believe the starting points make a difference to the analysis of these issues?

Mr. Garvey

Even in my own presentation I drew attention to the fact that there were differences in the most recent years compared with the long run of years since 1987.

Deputy Hogan

Is the answer that it would make a difference?

Mr. Garvey

Well, yes. It depends.

Deputy Hogan

I do not want Mr. Garvey to impugn his integrity. I want him to tell us the truth. I want him, as a statistician, to tell us whether a starting position of 2001 would give a different result to a starting position of 2000? Is the answer not yes?

Mr. Garvey

Yes.

Deputy Hogan

I thank Mr. Garvey.

Mr. Garvey

As a statistician——

Deputy Hogan

Could I ask another question?

Mr. Garvey

As a statistician, I could say there are some series of figures for which it would make no difference at all.

Deputy Hogan

While I understand that, I am talking about this series.

Chairman

The Deputy is inquiring about this particular one.

Deputy Hogan

The Competition Authority's statistics include a footnote stating that they are derived from the CSO data and specify in brackets that they are rebased by the Competition Authority. To what extent did the authority interpret the statistics provided by the CSO and what was the effect of the authority's reinterpretation? If Mr. Walsh wishes to join in I am sure he would be welcome to do so. In Mr. Garvey's opinion, what does rebased mean?

Senator Coghlan

Rejigged.

Mr. Garvey

I have dealt with this matter already in the sense that——

Deputy Hogan

Mr. Garvey should deal with it again.

Mr. Garvey

——the groceries order Act was signed in 1987. For the purpose of looking at the impact the groceries order may or may not have — I am not saying it has — and if one wants to try to discern whether it may have had an impact, then it is logical to start with 1987 as the starting point for the analysis, which is exactly what I have done. As I have indicated, the consumer price index is rebased every few years after the household budget survey. Rebasing to 1987 means effectively setting that as the starting point — as 100 — to enable one to look at percentage changes year by year after that. There is nothing untoward with expressing a certain year as a starting point for analysis.

Deputy Hogan

Can the CSO provide statistical data on the price movements of goods it gave the Competition Authority but which were omitted from the authority's study?

Mr. Garvey

Yes, Mr. Walsh has the details. I have a briefing page. Over the entire period the household necessaries we think are included——

Deputy Howlin

Were these not included in the report?

Mr. Garvey

We think they are covered by the groceries order.

Deputy Hogan

I want to focus on the products that were not included in the Competition Authority's study.

Mr. Garvey

Yes. The Competition Authority based its presentation on food and drink. It did not include the small number of items——

Deputy Howlin

It did not include all of the items listed by Deputy Hogan.

Mr. Garvey

Exactly. Over the entire period, since 1987, household necessaries rose by 41.2%. If a column in that table started with a figure of 100 for 1987, it would be 141.2 in 2005.

Deputy Hogan

Therefore, there would be considerably less in price rises.

Mr. Garvey

Yes, there is a smaller price rise than for those items covered by the order.

Deputy Hogan

Is it less than for those items covered by the non-groceries order?

Mr. Garvey

It would be almost identical.

Deputy Hogan

Would the director general agree these figures clearly indicate that if all of the products covered by the order were included in the Competition Authority's study, we would have a different result from that presented by the authority?

Mr. Garvey

I remind the committee of what I said in my opening statement, that the weight of these items in the consumer price index basket is very low — 1% compared to 13% for the others. If something that came to a figure of 141.1 was added to the figures that come to 151.4, there would be a slightly smaller figure. My statistician colleague is checking.

Mr. Walsh

If we show the change from June 1987 until July 2005 for all the items we see as covered by the groceries order, including household necessaries, in the basket, the change is 151.4.

Deputy Hogan

In the report of the Consumer Strategy Group items such as shaving cream, toothbrushes, razor blades and baby oil were included in its analysis of internationally branded products for which it wanted to see price comparisons. It is interesting that the Competition Authority did not focus on those items before drawing up its report.

This is a welcome meeting and it is important that the Central Statistics Office gives us the raw data. Much of the information we have been given did not appear in any report.

Chairman

On Table 4, what would be the difference in percentage terms between 2001 and 2005? Would it be more than the figure given to Deputy Hogan if household necessaries were included?

Deputy Howlin

Is that Table 4 of the Competition Authority's submission?

Chairman

Yes.

Mr. Walsh

One moment, please.

Deputy Howlin

We appreciate this.

Mr. Walsh

We have the table. If one includes the items in question, the provisional figure is 7% instead of 7.4%.

Deputy T. Dempsey

I will be brief because Deputies Howlin and Hogan have raised most of the questions I proposed to ask. I am reminded of the statements that there are lies, damned lies and statistics and that the devil could quote the Bible to support his arguments. My only interest in this matter is to get the best deal for the consumer. Does Mr. Garvey's analysis support the contention that prices for items covered by the groceries order have shown a smaller rate of increase than items excluded from the order?

Mr. Garvey

No, if one looks at my Table 1——

Deputy T. Dempsey

My question refers to the past 18 months.

Mr. Garvey

I am looking at a period of 18 years. The items covered by the groceries order appear in the middle column of Table 1. In the period from 1987 to July 2005 the price of these items increased by slightly less than 52%, while the increase in price for items not covered by the order is slightly more than 42%.

Deputy T. Dempsey

The figures relate to the period since the introduction of the groceries order whereas my question refers to a shorter period, namely, the past year and a half.

Mr. Garvey

Since 2003, prices for the items covered by the groceries order have changed very little. The table shows they have increased from 150.9 to 151.9, while items not covered by the order decreased from just under 150 to 142.

Deputy T. Dempsey

Mr. Garvey mentioned that approximately 1% of items may have been excluded from his analysis. Does he agree that these items could have a disproportionate effect on the overall result? RGDATA, for example, referred to items which were excluded from the Competition Authority analysis and for which prices have fallen. It noted that the household necessaries in question decreased in price by 4.5% between December 2001 and June 2005. Does Mr. Garvey agree that the 1% of items excluded from the analysis may have had a disproportionate effect on the overall results?

Mr. Garvey

This brings us back to a question asked by the Chairman. If my colleague has done his sums right, the 7.4% increase shown in Table 4 of the Competition Authority's submission should be 7%.

Deputy T. Dempsey

Picking and choosing which items are excluded from the groceries order may have a disproportionate effect on the final figure. Mr. Walsh, for example, stated that the Competition Authority interpreted which goods would be covered, while Mr. Garvey referred to goods which he understood to be covered. The CSO appears to have shown significant latitude in deciding which goods are covered by the groceries order legislation.

Mr. Garvey

This takes us back to some of the items reeled off by Deputy Hogan. The Central Statistics Office has a list of items — the household necessaries to which Deputy Dempsey referred — which we believe are covered by the Restrictive Practices (Groceries) Order 1987. I can ask my colleague to read out the 11 or 12 items which, in our interpretation, particularly since the most recent case, are covered by the order. As I stated, the question as to what "household necessary" means is somewhat ambiguous but we have interpreted it on the basis of legal decisions made to date. The CSO has drawn up a list of items, a copy of which I have in my briefing documents. I am sure my colleague, Mr. Walsh, will have had time to find them and perhaps he will read them out.

Chairman

Can Mr. Walsh come to the assistance of Mr. Garvey?

Deputy T. Dempsey

It is probably not even necessary for him to read them. Would Mr. Walsh agree that the choice of items could give a misleading result?

Mr. Walsh

If that is the case, it is the groceries order legislation that is misleading. We have to select what we think is covered on the basis of the law, as it is written. It is not up to us. We have interpreted the law as we see it and we can do no more than that.

Chairman

Does Mr. Walsh want to read out the list?

Mr. Walsh

I can read the list as interpreted by the CSO. It includes light bulbs, automatic washing powder or liquid, dishwasher detergent, washing-up liquid, fabric conditioner, household cleaning creams or liquids, disinfectants, air fresheners and other items.

Chairman

That has already been covered.

Mr. Walsh

It is pretty much the list as Deputy Hogan read it.

Chairman

Was Senator Leyden Minister of State with responsibility for this area at the time?

Senator Leyden

I was Minister of State with responsibility for trade and marketing. We did not remove the groceries order during my tenure. I welcome Mr. Garvey, Mr. O'Hanlon and Mr. Walsh, the faces behind the Central Statistics Office. They do not normally have an outing. I used their figures with relish when I was Minister of State with responsibility for trade and when our trade figures were continually increasing. We received the credit, while they gave the information. They as much as ourselves or he whose name we fear to speak, namely, Mr. Hobbs are entitled to have an opinion, following all their analysis, in respect of the retention of the Restrictive Practices (Groceries) Order 1987. Their opinion is as important as that of Mr. Hobbs or any other fireside Hobbs in this country on the basis that the retention of the groceries order is in the best interests of the consumer.

Chairman

The Senator will appreciate that our deliberations this morning have nothing to do with the RTE programme.

Senator Leyden

Let us be honest, it is Hamlet without the prince.

Mr. Garvey

My answer must be known before the question was asked. I repeat that the Central Statistics Office has absolutely no opinion on whether the groceries order should be retained. It is up to us, not just in this environment but in many environments, to publish figures and make them available. This enables a good debate to take place and it is up to others to come to their decisions.

Chairman

I wish to ask Mr. Garvey about the EUROSTAT price level index for 2003. This index has been used to argue that Irish food prices are higher than in other EU countries. Will Mr. Garvey please comment on that?

Mr. Garvey

Some reference was made in the committee's report, between pages 35 to 37, inclusive, to a European price survey carried out by EUROSTAT in which prices were compared across all countries. It is clear from that survey that Ireland is among the more expensive countries. It is stated in the EUROSTAT publication that its survey is not designed to rank countries very strictly. It is meant to indicate groups of countries which are more or less expensive. In one particular EU survey on eating, drinking and smoking, it is clear that Ireland is among the most expensive countries.

On explaining price level indices, EUROSTAT states that they are not intended to rank countries strictly. In fact, they only provide an indication of the comparative order of magnitude of the price level in one country in relation to others. In its actual release, Ireland comes out pretty much on top. I could quibble with some elements of that but it is certainly clear that we are among the group of more expensive countries.

Deputy Eamon Ryan

Could Mr. Garvey provide a rough indication as to what percentage of the overall consumer price index pertains to clothing and footwear items? I know that is a bad question to ask a statistician. Will he also give a rough indication as to whether there has been a marked increase in that category in recent years as a result of imports from China? In looking at this recent change, it should be borne in mind that certain non-grocery items have reduced in price.

It was interesting to hear Mr. Garvey say there are only 11 items. I believe we will be washing our laundry here today. Whatever about the significance of these 11 items as a percentage of the overall level, they, although they come under the groceries order, are similar in the sense that they are traded internationally, whereas food might not be traded as easily internationally. These items have also been subject to a decrease. Is the decrease in the non-groceries order items, particularly in the clothing and footwear category, attributable to a significant increase in imports from lower-cost countries such as China? Is this a significant issue?

Mr. Garvey

I will start and perhaps some of my colleagues will add to my comments. The weight of clothing and footwear in the consumer price index is approximately 5%. Over the past day or two, we have all been aware of the discussions on imports involving Peter Mandelson. The Deputy has a sense of the answer to his second question. It is clear——

Deputy Eamon Ryan

What has been the extent of the increase in recent years as a result of imports from low-cost countries, particularly China?

Mr. Garvey

Unfortunately, I do not have that information. I came absolutely laden down with briefing notes on prices but not on——

Deputy Eamon Ryan

Is it Mr. Garvey's view——

Chairman

Mr. O'Hanlon wishes to make a point in respect of the Deputy's question.

Mr. Gerry O’Hanlon

It has been quite clear for a number of years that the price of clothing and footwear has been going in the opposite direction to all other prices. We are obliged, as part of our verification and validation process, to ensure that our prices are correct, are checked with many of the major stores and so on. It is clear that the reason for the downward movement in the clothing and footwear prices is the increase in imports from low-cost countries.

Deputy Eamon Ryan

Would that not also apply to other internationally traded items that make up the large part of the non-groceries order items?

Mr. O’Hanlon

Perhaps not to the same extent but prices have been driven down as a result of a very clear trend in the sourcing of clothing and footwear items in particular. The trend is not so dramatic in so far as it applies to some of the other categories that were mentioned earlier.

Deputy Eamon Ryan

Does it present a reasonable explanation for what has happened in the past two years in terms of reduced prices for those internationally traded products?

Mr. O’Hanlon

Yes. As a general point, and bearing in mind some of the other questions that were asked, there is a view that when we consider a summary figure, we are saying that everything within the groceries order area is homogenous and that everything outside it is also part of such a grouping. However, even within the groceries order items and the non-groceries order items, there are different trends emerging that can reflect other issues. For example, some of the issues have concerned basic agricultural prices. Different trends have been shown to exist between the various commodities over the years. I have not carried out the detailed analysis necessary to allow me to provide a rigorous answer. It appears, however, from simply looking at the figures that there are various reasons for variations of the type to which the Deputy refers.

Deputy Eamon Ryan

Without getting down to the level of discussing toothpaste, the general difference between groceries order and non-groceries order products, particularly food and drink, is that they are less internationally traded.

Mr. O’Hanlon

Correct. If one confines oneself to non-groceries order food items, one sees that they lean very much towards fresh livestock or vegetable products. As a result, they involve less processing. That is another factor.

Deputy Eamon Ryan

Does the Central Statistics Office reorganise the household survey based consumer price index which is announced every number of years? Is it possible to note changes in retail habits and to determine whether we shop more in supermarkets or local convenience stores? Is statistical analysis of the above available and does it feed into the work of the office as described here or can the CSO provide statistical analysis and tables by different retail category?

Mr. O’Hanlon

It is not directly surveyed. Our main source for updating the pattern of expenditure is the household budget survey. The latter is the total expenditure by household, irrespective of where money is spent. When we review our sampling methods as to where we collect our prices from, we try to take account, on the basis of information — to the extent that it is available — of the market share of the various types of retail outlets. We do not, however, have complete information with which to provide the Deputy.

Deputy Eamon Ryan

Given the number of samples the CSO takes, it should be possible to assist the debate and the Minister's decision through the provision of the same simple analysis provided here of the level of inflation within different retail categories.

Mr. Garvey

One of the issues about which we are very careful is ensuring that we do not breach confidentiality by providing information on individual entities. For example, we have rules about publishing information in categories in which a small number of corporates dominate. As each company knows its own information, one would be giving information on the others.

Deputy Eamon Ryan

Let us take a two-way break. While I am not sure of the figures, the CSO could divide retail spaces of between 2,000 and 5,000 sq. ft. to provide some form of analysis to assist the committee. Mr. Garvey said he is concerned that there might be a breach of confidentiality. If a small number of large supermarket chains feel they would be exposed in that regard, it raises a concern about competition. Given the samples in its possession, it should be possible for the CSO to provide easily and quickly the breakdown of the figures I suggest to make a very broad analysis which I cannot imagine would reveal confidential information about a particular store. As Deputy Hogan asked, is the answer yes or no?

Mr. O’Hanlon

We would have to check how we have organised our data from the point of view of how we collect it. While we go into all the stores, we cannot do what the Deputy suggests unless we have an identifier on our records. We might not be clear as to the store to which a data tag attaches on the category to which it belongs. Perhaps we can revert to the committee on the matter rather than make a categorical statement. In theory, what the Deputy says is true. If we have identified the various categories of stores and put a tag on them, we should be able to identify the information. I think we may have a problem due to the way we organise our data.

Deputy Eamon Ryan

I would appreciate it if the CSO could revert to the committee as soon as possible.

Senator Coghlan

We are very grateful to the Central Statistics Office for the information supplied this morning which is helpful to the committee. We now know conclusively that the Competition Authority asked the CSO to supply details of a selected list of products. It would be unfair of us to ask the CSO why it thinks that was done. It would be helpful, however, if it could supply the committee with the list of products identified by the Competition Authority.

Mr. Garvey

I have no difficulty with that. I was prepared to allow my colleague to read out the list.

Senator Coghlan

It can be circulated to the committee.

Chairman

This is the final contribution by a member. We will then proceed to engage with our consultant whom members may question about the submission by the Competition Authority. Some members of the media are keen to know whether this will happen. It will take place after Deputy Gilmore's round of questions to the CSO.

Deputy Gilmore

Since 2003 there has been significant focus on the price divergence between items covered by the groceries order and those not covered. The greatest jump in prices since 1987 occurred during the period between 2000 and 2002, in both grocery and non-grocery items. In the case of groceries, the increase was of the order of 13% over those two years and the non-grocery items rose by 18%. What was happening in that period that caused such a rise in prices generally, particularly in those for non-grocery items? Much attention has focused on the drop in price on those items since 2002 but there was a very sharp rise in the two preceding years.

The CSO told us that the prices are collected on the second Tuesday of each month and the list is known. If the day and the list are known is there some way to double check that the prices have not been influenced? Is a check made in respect of surveys on other dates?

Is a special offer on meat or other products with a short sell-by date factored into the survey or accounted for in some other way?

Mr. Garvey

Deputy Gilmore asked three questions and I am alerting my colleagues to deal with the third one, which I am sure they have dealt with many times before. I do not know why items covered and not covered by the groceries order increased in price over the couple of years Deputy Gilmore referred to do, but we sent pricers to the shops. The CSO cannot comment on price rises. We measure the prices.

Deputy Eamon Ryan

Would the pumping of money into the country by Fianna Fáil before an election have had an effect?

Chairman

This committee has always operated on an independent basis. I know the Deputy is new to the committee this morning but such a comment has not been made here during the past three years and I do not wish to begin hearing it again from him. New young members must take a little time.

Mr. Garvey

As I say, it is not our role to comment on the matter mentioned. Our role is to measure prices. I have forgotten Deputy Gilmore's second set of questions.

Deputy Gilmore

Could the witness's office be influenced?

Mr. Garvey

If there was any kind of systematic attempt to influence the office, I would find myself paying for shopping on a Tuesday rather than on any other day. The notion is rather fanciful. If such a systematic attempt were made, I would expect quite a heavy volume of traffic through the checkouts on the Tuesday on which we check the prices.

Mr. O’Hanlon

The consumer price index puts great effort into comparing like with like. Regarding the example given — the price of meat which is perhaps being sold off because it is beginning to be dated compared to the price of similar fresh meat — in terms of the consumer price index that would be seen as a quality issue. We would certainly make arrangements to ensure that we compare old meat with old meat and freshest meat with freshest meat. This is a very important check, not just in the meat area but in every aspect of the pricing operation. The quality dimension has to be given the greatest attention.

Chairman

On behalf of the committee I thank Mr. Garvey, Mr. O'Hanlon and Mr. Walsh for attending and assisting the committee in a substantial manner in its efforts to ascertain the correct figures. I thank them for their co-operation and I look forward to working with them for the remainder of the lifetime of the Government in the appropriate manner they have adopted this morning.

Mr. Garvey

We might have some interest in the ensuing discussion.

Chairman

The witnesses may remain if they wish. We will now consider the draft response to the Competition Authority submission to the Minister for Enterprise, Trade and Employment on the groceries order. The draft response has been circulated by e-mail to members. Hard copies have also been circulated. I invite Mr. Myles O'Reilly, the consultant, to make some introductory remarks on the response and open the discussion to members.

Deputy Howlin

The way to proceed would be for Mr. O'Reilly to take us through the document, with questions then arising. The committee clerk might also be asked to create the document as a document of this committee in order that it can be released. I propose we go ahead with whatever procedure is necessary in order that this can be done.

Chairman

If the document as circulated is agreed to, it can then be released.

Deputy Howlin

I propose that this be done.

Chairman

The proposal by Deputy Howlin is seconded by Deputy Hogan. Is it agreed? Agreed.

Mr. Myles O’Reilly

I obtained a copy of the submission by the Competition Authority to the Minister for Enterprise, Trade and Employment and examined it in detail. The document contains several assertions regarding the groceries order. I have commented on each of those assertions and given a detailed response. In addition, statistics were put forward by the Competition Authority in support of its case. In that regard, I obtained from the Central Statistics Office the information that it had provided for the Competition Authority and examined it in great detail. I have no issue or argument whatsoever with the statistics provided by the Central Statistics Office. My concern was with the use of those statistics by the Competition Authority and, perhaps, their selection to suit the case that it was making.

Perhaps we might start on page 4, which deals with Table 2 from the Competition Authority. It refers to the use of the position in 2000 and 2004, comparing overall prices of food and alcoholic beverages, along with clothing, footwear, durables and household goods. I found it interesting that the Competition Authority chose to compare food and non-alcoholic beverages only, whereas other tables had dealt with food, non-alcoholic and alcoholic beverages. This table has a starting point of 2000, whereas the others started in 2001.

Based on the information I had received from the CSO, I found that the actual increase in the price of food and non-alcoholic beverages between 2000 and 2004 had been higher, rather than lower, than that stated by the Competition Authority. In comparing it with clothing and footwear, it seemed that there have undoubtedly been substantial decreases in those areas but that we are not comparing like with like because the situation of clothing and footwear and durable household goods is quite different. Almost all those products are imported into the country and there have been reductions owing to all kinds of factors, including the actions of the World Trade Organisation, particularly in clothing and footwear, but one cannot compare the pricing of those goods with the pricing of food and non-alcoholic beverages, most of which are produced in Ireland. The Competition Authority seems to hold out clothing and footwear and durable household goods as models of how pricing should be happening within the economy. However, if the entire economy were based on those, everything would be imported. That would not be a desirable situation.

Perhaps we might turn to Table 3, in which the Competition Authority showed the position each year from June 1987. Mr. Garvey stated that the groceries order commenced in June 1987 but that is not correct. Although the order was made in May 1987, it did not enter force until January 1988. Strictly speaking, any comparisons should be from December 1987 rather than June 1987. I have not examined what effect that would have but it would certainly have some impact. The Competition Authority showed that from 1987 there had been an increase of 51.4%, or 42.2% for non-groceries order products. It dealt with food, drink and alcohol consumed at home. Selecting January 2005 exaggerates the lower prices for non-groceries order products. In the first six months of this year, the price of groceries order products fell by 0.2% but the price of non-groceries order products fell by 3.3%. By including alcoholic drink, the exceptional increases that took place in late 2002 and 2003 — because of increases in excise duty on spirits and cider — have been shown as being due to the groceries order. It certainly would have been better to leave alcohol products out of the picture entirely, it seems.

Chairman

That is in Table 3.

Mr. O’Reilly

That is correct. If the measurement is for the years to June 2004, the divergence between grocery and non-grocery products, even with alcoholic drinks included, is quite small. If the committee just looks at the table, from June 1987 to June 2004, the figure for items covered by the order is 151.6 as against 149 for items not covered by the order. Over an 18-year period, that is not a divergence of any significance. All of the divergence, essentially, has occurred within the past year.

The next table refers to the price index of food and drinks consumed at home and again alcohol is included. The starting point here is 2001. The committee may recall there were substantial changes in non-groceries order items in 2000. It seems that the Competition Authority selected 2001 rather than 2000 as the starting point because it best suits its case. It also excluded household necessaries. While household necessaries over the long period, as Mr. Walsh said, may have had little effect, there were actually substantial reductions in this category between 2001 and 2005 and by omitting them the picture has again been exaggerated to some extent. I emphasise that most of that change has taken place in the year ended June 2005. If alcoholic drink is taken out of the picture and one starts with 2000, between that year and 2004 one sees the non-groceries order products increased by a greater amount than the groceries order products.

In general, by selecting different product categories, food and non-alcoholic beverages, on the one hand, and food plus alcohol, on the other, and leaving out household necessaries, a particular picture has been painted. Again, by taking different starting years, 2000 for one table and 2001 for another, for example, a different position has been portrayed. In addition, by selecting the end date as June 2005, there is no doubt that in the first six months of this year prices of non-groceries order products have reduced significantly. That has helped the portrayal of its case by the Competition Authority.

Since December 2001 when the table was last rebased, the overall increase in food and non-alcoholic drinks has only been 2%, which is 0.5% per annum. Increases of groceries order items during that 42-month period were 4%, equivalent to 1.14% per annum. There was a decrease of 3.7% in non-groceries order items since December 2001. Overall inflation increased by 11.3%. The inflation rate for food items was only 2% and items covered by the groceries order increased by only 4% during the 42-month period when inflation increased by 11.3% overall.

If we consider the table further and compare the price of food and non-alcoholic drinks in the 15 European Union states from 2001 to July 2005, we will note that Irish prices rose by 4% whereas prices in the other countries increased by 6%. The EUROSTAT report shows that in the past year Irish prices fell by 1.4% whereas prices increased by 0.4% in the eurozone, by 0.3% in the enlarged European Union of 25 States and by 2.2% in the United Kingdom.

Chairman

Am I correct in saying that the figures in the EUROSTAT report are in respect of the past 12 months?

Mr. O’Reilly

Yes. These are my views on the statistics. I have commented also on the assertions made in the Competition Authority document. Do members wish to ask questions on the statistics?

Deputy Howlin

No.

Mr. O’Reilly

Would the committee prefer that I continue to comment on the document?

Chairman

We should allow Mr. O'Reilly to continue to outline his report. In Chapter 4, he comments on the assertions in the submission from the Competition Authority.

Mr. O’Reilly

The Competition Authority states that the groceries order is a relic from an era of protectionism, weak economic performance and national insecurity, when protection from competition measures were clung to as a safety blanket. In my view, that presents an exaggerated picture. In 1987, Ireland was a member of the European Union, EU competition law applied here and there is nothing in the groceries order that is incompatible with EU competition law. The groceries order provides for the same prohibitions on agreements between competitors, on resale price maintenance, as does the Competition Act. The groceries order was never designed to protect business from competition and does not do so.

The Competition Authority states that the prosecution of two supermarkets for providing discounts on baby food is a perfect example of why the groceries order needs to be abolished. One can always choose a particular case and this is what the Competition Authority has done to make its point. However, a ban on below cost selling must be policed by prosecuting those who breach it. The report by Farrell, Grant Sparks prepared for the consumer strategy group shows that most EU countries have bans on below cost selling. Ireland is by no means unique in having such a ban. If there was a ban on below cost selling in the clothing trade, the post Christmas sales would be a criminal activity. The clothing trade is different from the food trade and a detailed case has been made for the ban on below cost selling in the grocery trade but not in any other sector. There is no suggestion of such a ban in the clothing trade.

The Competition Authority states the groceries order makes it illegal for retailers to pass on substantial discounts to their customers and gives legitimacy to practices that would otherwise be illegal under competition law. The joint committee has stated already that discounts should be capable of being passed on to the consumer. The fact that some retailers are not able to pass on off-invoice discounts does not have the impact that the Competition Authority thinks it does on the overall shopping basket of goods. The groceries order prohibits resale price maintenance and in so far as the case could be made that off-invoice discounts are a form of resale price maintenance, the suppliers concerned could be prosecuted under the groceries order.

Deputy Hogan

They have already allowed the Director of Consumer Affairs to investigate the matter of passing on discounts under Article 14.2.

Mr. O’Reilly

The Director of Consumer Affairs could investigate it. In its submission to the Minister, the joint committee suggested that the Director of Consumer Affairs should obtain information.

Deputy Hogan

Is Mr. O'Reilly saying that the Director of Consumer Affairs has the legal power to prosecute suppliers who do not pass on discounts to the consumer?

Mr. O’Reilly

No. The Office of the Director of Consumer Affairs has the legal power to prosecute suppliers who are engaging in resale price maintenance.

The Competition Authority makes the point that removing the order would save Irish consumers up to €577 million. I think the calculation is wrong and I will return to that point later.

Chairman

Is Mr. O'Reilly of the opinion that the figure is incorrect?

Mr. O’Reilly

It is incorrect. The Competition Authority makes the point that the protectionism of the groceries order undermines the competitiveness of the Irish food industry and hinders employment. As there is no protection in the groceries order and there is no lack of competition in the groceries trade, that remark does not hold up. The Competition Authority has not shown how employment in the Irish food industry is hindered. The authority referred to the debates on the groceries order in the Dáil in 1987 and stated that its intention was to interfere in competition. However, the groceries order was recommended by the restrictive practices commission. The order was made by the Minister and it was then brought before the Dáil. The Dáil's role was either to accept or not to accept the order. It was not changed as a result of debate in the Dáil.

The Competition Authority stated that the restrictive practices commission highlighted the direct benefits for manufacturers and shop owners. Without reading out the report, I think it can be shown that it is misleading to state that such was the view of the commission at the time. The authority also states that the groceries order promotes commercial behaviour that is generally illegal under Irish and EU competition law. My view is that none of the provisions is incompatible with either Irish or EU competition law and the Competition Authority can intervene in the grocery trade to enforce competition law. The authority argues that the loudest voices in support of retaining the order have a direct vested interest. Representatives of RGDATA and IBEC are able to speak for themselves but it is not surprising that those who have direct experience in the operation of the order would be the loudest in asking to have it retained.

The authority refers to a resale price maintenance case in Europe of the net book agreement. The net book agreement controls the selling price of books in bookshops, whereas the net invoice prices under the groceries order are always below the recommended prices of the supplier. As it is more akin to cost price than to selling price, the net book agreement analogy is not a valid one.

The authority makes the point that there are a number of bodies that have come out in the past against the groceries order. That is undoubtedly true but the Competition Authority has had some influence in the views of those bodies. It has tended to make representations to various inquiries and reviews and it has made the point that the groceries order should be revoked.

The authority states that Ireland is one of the most expensive places in the eurozone in which to buy food. Mr. Garvey seemed to agree with us earlier. My own view is that the 2003 survey cannot be used as a basis for saying that Irish prices are the highest in the eurozone for a number of reasons given in our report of March 2005. Unfortunately, that EUROSTAT survey is constantly used as an argument against the grocery trade. For the reasons we have set out in the report and the reasons given by the CSO that are detailed in the report, it is not reasonable to use that EUROSTAT survey to state——

Deputy Hogan

Will Mr. O'Reilly explain that point?

Mr. O’Reilly

For example, the EUROSTAT survey referred to Dublin prices only, not prices elsewhere in the country, although prices outside Dublin are lower. In addition, the survey to some extent takes into account not just prices but spending power. For example, if an Irish consumer chooses an added value product such as cooked chicken rather than uncooked chicken, that difference is reflected in the price. However, as the Irish consumer is making a choice in this case, it does not mean the price of uncooked chicken is higher or lower than in other countries.

A number of other points are listed in the report. One is that the resources devoted by the CSO and EUROSTAT generally to the cross-European survey were very limited because the survey had a limited role. It was never intended for the purpose for which it is being used, which is to state that Irish prices are 80% higher than the EU average.

Chairman

Is it the case that all the CSO figures are based on Dublin prices?

Mr. Garvey

Yes.

Chairman

That is dreadful.

Mr. Garvey

The consumer price index covers the whole country, encompassing 55,000 prices in outlets in large and small towns. The particular survey referred to is a different type of survey carried out for a macroeconomic reason. Its broad purpose is to draw conclusions about GDP per head at a macro level. It is not designed to measure prices. As I stated when asked by the committee, the EU——

Deputy Howlin

Is Mr. Garvey stating that a price analysis is not to measure prices?

Mr. Garvey

The survey is designed to measure purchasing power parities, which is a very complex area. It is designed to link factors such as prices to purchasing capability in national currencies.

Deputy Howlin

In that case, should it be used in a league table to compare prices internationally, as has been done in every newspaper in the land in the past six months?

Mr. Garvey

I have drawn attention to the fact that even EUROSTAT states the survey should not be used to rank countries strictly in order. However, while there are flaws in the survey, it would be wrong to dismiss the broad trends too easily.

Chairman

Would Mr. Garvey agree that for the purposes of our business today — the groceries order — the survey is not a reliable source of information?

Mr. Garvey

One of the conclusions the committee may have drawn in its submission to the Minister might have been a bit too strong.

Chairman

We will return to that point. At this stage, we are examining Mr. O'Reilly on his advice to the committee.

Mr. O’Hanlon

As Mr. Garvey stated, the survey is complex. However, the broadest conclusion one can make — EUROSTAT goes no further than this — is to categorise Ireland as among the higher priced countries. There is nothing either Mr. O'Reilly or committee members have said that will detract from this conclusion. Ireland is among a group of higher priced countries which includes the Nordic states and, to some extent, the UK. This stands up to a general plausibility test.

The other point in regard to Dublin is that the survey as it has been set up by EUROSTAT over many years involves a comparison of prices in capital cities. Some countries are making adjustments to reflect the variation in prices within their jurisdiction. We have not yet done this. Members are aware that for several years, the CSO has published a range of comparisons between prices in Dublin and other locations in the State. However, the use of Dublin prices rather than an average all-Ireland price would not take away from the general conclusion I have made. It might lower our relative position somewhat, but not to the extent of removing us from inclusion in the group of higher priced countries.

Chairman

The issue of concern today is the groceries order. There is undoubtedly a significant difference between prices in Longford or Mullingar and those in Dublin.

Deputy Gilmore

It is a question of comparing like with like. Is that not the point?

Chairman

Yes. However, in terms of the groceries order, we are not comparing like with like.

Deputy Gilmore

The essential point — as supported by the EUROSTAT surveys — that this country is one of the most expensive in Europe is shared by everybody returning to Ireland from holidays abroad——

Chairman

The Deputy seems to be making a Second Stage contribution.

Deputy Gilmore

No, I wish to establish this point. It seemed cold water was thrown on the EUROSTAT information earlier in our discussion and that Mr. O'Reilly added to this. Is it not the case, notwithstanding the use of prices in capital cities for comparison purposes, that the EUROSTAT survey is ultimately the best and most reliable information available for comparing prices in this country with those in other European states?

Senator Dooley

My question has been partially answered by Mr. O'Hanlon. Is it the case that capital cities are compared with each other in terms of price? Mr. O'Hanlon indicated some countries had found a better method of spreading data collection for the purpose of the EUROSTAT data feed but that we had not yet reached this point. Is the report in question based on direct comparisons between capital cities?

Mr. O’Hanlon

In the majority of cases, the survey involved a comparison of prices in capital cities. I understand two or three states are moving towards making some adjustment to their capital city prices. However, this is not so significant a factor as to determine that Irish prices are distorted relative to those of other countries. That is not the case.

Deputy Howlin

I supported the conclusion we made in our report earlier this year on the basis of the information given at that time. There are two parallel issues for consideration. One involves an analysis of a shopping basket across the euro zone to discover which countries are more or less expensive. On the basis of that snapshot, Ireland is among the higher priced countries. However, one of the problems is that, as I understand it, a typical shopping basket included a bottle of Bacardi and an electric toothbrush which together constituted close to one third of the value of the basket. Is this correct?

Mr. O’Hanlon

I cannot comment on this specific survey without examining it.

Chairman

Mr. O'Reilly may be able to respond to the Deputy's query.

Mr. O’Reilly

The table to which Deputy Howlin refers was produced by Forfás for the Consumer Strategy Group. It included a list of branded products but I do not believe this has anything to do with the CSO——

Deputy Howlin

Are we referring to EUROSTAT in general?

Mr. O’Hanlon

The measurement process is complicated because there are variations and it is done on a paired basis. Effectively, they try to identify a range of products from across the spectrum which are commonly available in both countries being compared. These can range from the common teabag to something which might be regarded as a delicacy in Ireland but common in another country. A total of some 335 different items were priced. We do not take a simple average, rather we attempt to reflect the relative importance of the particular commodities within the expenditure patterns of the various countries. The process is highly complex.

Chairman

We will return to Mr. O'Reilly.

Mr. O’Reilly

As time is moving on I will be somewhat selective in what I cover. On page 15 of the report, the Competition Authority states that the price of food has stabilised since the arrival of Aldi and Lidl but only because of increased competition with regard to items not covered by the groceries order. Items covered by the order continue to increase in price, but prices are falling where competition is allowed. Aldi and Lidl are also competing with groceries order products and this competition is leading to lower levels of price increases for branded goods where there are off-invoice discounts.

The Competition Authority states that the price of food has stabilised. It has actually been falling over the past 18 months. With regard to Aldi and Lidl, the groceries order has facilitated their entry to the Irish market. Had the order not been in place, they could have been taken out of the market, as it were, by Tesco and Dunnes. A similar situation occurred in the UK where the presence of Aldi and Lidl is not as significant as it is in this country.

Off-invoice discounts do not apply to non-groceries order or own-brand goods. Marks and Spencer, Aldi and Lidl mainly sell own-brand goods, as do Dunnes and Tescos. The level of competition where the off-invoice discount does not apply is quite significant.

The Competition Authority makes the point that the Office of the Director of Consumer Affairs must divert resources from legitimate consumer protection action to enforce the groceries order. However, a proportion of the resources granted by the Oireachtas to the Office of Consumer Affairs is for the enforcement of the order and there is no question of diversion of resources. Businesses do not have to spend a lot of time complying with the groceries because it is largely self-enforcing.

The authority makes the point that the groceries order inhibits rather than fosters employment in Ireland. There is no evidence for that whatsoever. It makes the important point that the 1987 order is no longer necessary to protect consumers and businesses from anti-competitive behaviour. This assertion suggests that the Competition Act would prohibit predatory pricing but it would not do so in the Irish grocery trade because no court would consider any of the retailers to be in a dominant position.

Point 22 states that the groceries order was introduced as a protectionist measure following the demise of H. Williams and this point was also made in the Consumer Strategy Group. However, the sequence of events was different. The order was recommended by the Restrictive Practices Commission and made before H. Williams went out of business. It was undoubtedly passed by the Oireachtas, following the demise of H. Williams, but the order had already been tabled. The report then states that a clear intention of the law was that by keeping prices high, specific jobs would be protected. Nothing could be further from the truth. There was no question of either keeping prices high or protecting any jobs.

The report makes the point that it is not surprising to see that the enterprise strategy group highlights problems in the performance of the country's food sector. This ties in with the authority's view that the groceries trade is not competitive. It appears that the food sector is essentially an indigenous manufacturing sector and like other similar sectors, there are weaknesses to be addressed. To suggest that these weaknesses are caused by the ban on below-cost selling cannot be supported. If the performance of the food sector is compared with that of the clothing and footwear sectors, the food sector's performance has been excellent by any measure because almost all employment in the clothing and footwear sectors has left the country. There is no basis for the argument that it inhibits rather than fosters employment.

The report makes the point that research from the Consumer Strategy Group indicates that discounts as high as 18% can be received by retailers who are prohibited from passing these savings on to consumers. It appears that some suppliers may have been giving off-invoice discounts as high as 18%. This is an issue that perhaps should be investigated by the Director of Consumer Affairs. If the purpose of these off-invoice discounts is to maintain resale prices, they are illegal. This committee has recommended that off-invoice discounts be passed on to consumers.

The point is made at the end of page 20 that the Competition Act specifically prohibits anti-competitive pricing strategies such as predatory pricing but the Act does not do so. The report also asserts that the Competition Act prohibits abuse of buyer power such as demands for hello money. Again, there is nothing in the Act that prohibits demands for hello money.

The point is made on page 21 of the report that smaller convenience shops and larger multiple outlets are not in the same relevant market. It appears that this is an argument used by the Competition Authority against the ban on below-cost selling. The real situation is much more complex. We received a very detailed letter at our request from the chief executive of BWP — the Spar group — in which he showed there was a considerable overlap between multiple supermarkets, symbol stores and independent stores. The Competition Authority asserts that all the evidence is that consumer preference is shifting towards convenience retail rather than away from it, which is based on statements made by the Consumer Strategy Group. This assertion appears to be incorrect because the multiples' share of the groceries market is increasing rather than falling.

The Competition Authority argues that comparisons between Ireland and the UK by industry lobby groups are misleading but it does not state why these comparisons are misleading. It appears that many small villages throughout the UK have no grocery retail shops. The authority makes the further point that consumers flock across the Border to take advantage of lower prices. First, there is a difference in both VAT rates and excise duty rates, and prices in Northern Ireland are influenced because many British suppliers supply the Northern Ireland market at the same price as British urban areas. It has nothing to do with the Restrictive Practices (Groceries) Order.

It makes the point that, rather than relying on a ban on below-cost selling, one could achieve similar objectives by integrated planning, public transport provision and targeted intervention in specific areas. This would bring far greater interference in the market than a ban on below-cost selling.

The report concludes: "At a deeper level the groceries order also adversely affects national competitiveness and, ultimately, the best interests of the Irish economy". This argument does not stand up. I draw the committee's attention to the fact that since December 2001, food prices have increased by only 2% whereas the prices of housing, water and electricity have risen by 19%, health by 28%, transport by 16%, education by 26%, restaurants and hotels by 20% and miscellaneous goods and services by 7.4%. Why focus on the food and grocery trade where prices have only gone up by 2%?

On the matter of the saving of €577 million for all consumers, it might have been useful to get the CSO's view of Table 5. There is an error in the table in so far as it has assumed there will be a reduction of 9.2% in the average family's food costs. The highest figure I could find is that non-groceries order products fell by 4.6%. At most, the overall saving would be 4.4% if the same reduction in prices that applies to non-groceries order products also applied to groceries order products. Saying that Irish food prices would fall by 4.4% is just not credible. We already have the second lowest rate of inflation of the 25 EU countries. Food price inflation in Britain is running at 2.2%. To say that by removing the groceries order, the prices of groceries order products would fall by 4.4% does not make sense. It is a reality that the reductions in the prices of the known groceries order products are part of the general battle within the grocery trade. If discounts are received on groceries order products, they can be passed on through reducing the cost of non-groceries order products. One cannot simply divorce groceries order and non-groceries order products. If our inflation in food prices were the same as the UK's, Irish consumers would be paying €226 million more. There is a difference of 3.6% between the rates of inflation in Ireland and the UK.

Chairman

Over the 42-week period.

Mr. O’Reilly

Over the past year.

Chairman

The committee thanks Mr. O'Reilly for a very comprehensive report, which has been proposed by Deputy Howlin and seconded by Deputy Hogan.

Deputy Callanan

I wish to make a couple of comments. Mr. O'Reilly's last point was very strong. There seems to be an obsession with the groceries order. Since 2001, inflation has only been at 2% compared to the health, transport and education areas he mentioned. We should determine the reason for this. I feel that for a producer, such as a farmer, it is important to retain below-cost selling.

Chairman

Does the Deputy mean the ban on below-cost selling?

Deputy Callanan

Yes. If the big multiples take over, they will put pressure on producers. They will also put great pressure on small shops, which would wipe them out completely. At the end of the day and as we have seen through the years, when those people take over the trade and have no competition whatsoever, prices will rise again. It is important that we examine this point and not just what will happen next year. We must look further down the road.

Deputy Howlin

Mr. O'Reilly made an important point. We are fortunate to have the CSO experts here. I am interested to hear their comments and observations on the methodology of calculation used in Table 5 of the Competition Authority's submission.

Mr. Garvey

That table is the one least based on CSO figures in the sense that it contains many assumptions. If one accepts the assumptions, the arithmetic is correct. I would not necessarily defend this table as strongly as some of the other tables which are clearly signalled as being based on and derived from our data. The submission states the first line of the table contains "the amount spent on food and drinks consumed at home in June 2005 (Derived from CSO Household Budget Survey 1999-2000 increased by inflation on food and drinks consumed at home between January 2000 and June 2005)".

That is fair enough. We checked that and it is close to the figures we came up with ourselves. For some reason some of the figures in line B are derived from prices in June 2001. Something interesting happened between January 2000 and June 2001 and, for consistency, if one also derived the second line from January 2000 one might get quite different figures. It is a set of assumptions——

Deputy Hogan

Would it be possible for Mr. Garvey to do an analysis of these assertions for the committee's next meeting and give us a professional approach in tabular form?

Deputy Howlin

A statistical analysis.

Mr. Garvey

I am in a difficult position. I do not want to make judgments on one group as against another. As I stated assumptions are made in this table. If the committee asks me whether we could recalculate the table working from January 2000 from the second line onwards we could attempt to do so and see what results it would yield.

Chairman

I thank Mr. O'Reilly, Mr. Garvey, Mr. O'Hanlon, Mr. Walsh and committee members for attending today. I also thank members of the press for attending and showing such interest in this matter. As there is no further business, the committee stands adjourned until 11 a.m. on Tuesday, 13 September, when Mr. John Fingleton, chairman of the Competition Authority, will come before it.

The joint committee adjourned at 1.25 p.m. until 11 a.m. on Tuesday, 13 September 2005.