Seanad Éireann debate -
Thursday, 30 Mar 2000

Vol. 162 No. 20

Adjournment Matters. - Below Cost Selling.

Mr. Finneran

I thank you, a Chathaoirligh, for accepting this matter, the implications of which I know you understand. I also welcome the Minister, Deputy Dermot Ahern. The matter calls for the Minister for Enterprise, Trade and Employment to retain the ban on below cost selling in the grocery trade.

The ban to which I refer is the Restrictive Practices (Groceries) Order, 1987, which places a ban on below cost selling in the grocery trade. I understand the Minister for Enterprise, Trade and Employment will shortly receive a report from the Competition and Mergers Review Group which will recommend that the ban on below cost selling in the grocery trade should end. The review group has come to this conclusion without an in-depth study of the issues involved and without meeting representatives of retailers, suppliers or consumer groups. The review group was unable to show any adverse effect of the ban on below cost selling. Food prices have been less than the rate of inflation since the ban was intro duced in 1987. Retailers and suppliers are convinced that the ban on below cost selling has a significant beneficial effect.

Unlike the Republic of Ireland, there has been no ban on below cost selling in Northern Ireland or in Britain. The lack of a ban on below cost selling has not resulted in cheaper prices for consumers. In Britain, it has been calculated that 42% of villages have no grocery shop. Imagine that situation in this country. It brought about a reduction in the number of competitors and, therefore, increased concentration in the market. This, in turn, brought about the need for an in-depth study of the supermarket trade.

Recently, the UK Competition Commission has been examining the supermarket trade there. The commission announced it was considering a ban on below cost selling as one of a number of possible remedies to practices in the trade. A ban on below cost selling exists in Germany, France, Portugal, Belgium and in many other countries.

In general, the opposition to the ban on below cost selling comes from economic theorists. The arguments put forward by some academics have been found to be flawed. Nearly all the participants in the grocery trade favour the retention of the ban. Some multiples consider it would advantageous for them to have the ban removed, and we know the reason. Consumer interests have not asked for the ban to be removed and the Director of Consumer Affairs has not found it anti-competitive or anti-consumer. It has not restricted entry to the market, as evidence by the arrival of Tesco, Iceland, Aldi, Lidl and perhaps Walmart. All of those have found that they can enter the market here.

If the ban on below cost selling is removed, many independent retailers will cease to trade. This will bring about a reduction in the number of competitors in the market and, therefore, a reduction in competition. Suppliers will lose competitiveness because of below cost selling and they will face increasing buying power from a small number of multiples retailers. The removal of the ban in the grocery trade will have adverse consequences for off-licences, clothing, gardening, hardware, newsagents, toys, the sale of toiletries and other retailers. Consumers will suffer because of less competition and fewer choices of outlets. The closure of shops will have adverse social consequences.

The ban on below cost selling has been in place since 1988 and no adverse effects have been found by those opposed to it. The ban is pro-competition and pro-consumer. I understand the Oireachtas Committee on Enterprise and Small Business has unanimously decided that the ban on below cost selling should be retained and we should heed that.

I did a small survey in my constituency. From my investigation of the trade, I have come to the conclusion that 1,000 jobs are at risk in the constituency of Longford-Roscommon. It has been pointed out to me that in the five towns of Ballaghaderreen, Boyle, Castlerea, Roscommon and Carrick-on-Shannon 400 jobs are at stake. These are examples of what can happen in our towns and villages.

I mentioned towns in only two counties. The lifting of the ban would have an enormous impact on the midlands, the west and on rural areas generally. If the ban was repealed, it would lead to the closure of local shops. It would have a disastrous effect on local suppliers and a serious adverse impact on local employment. The crunch would be that suppliers of local shops would also go out of business. In many cases the suppliers' businesses developed through the agricultural industry or through off farm employment. For many years the Government and the European Union encouraged farmers to avail of alternative employment opportunities. Many have done so and many of those suppliers are in business as a result of grants provided through various boards. If the ban on below cost selling was removed and the multinationals move in and effectively put the local shops out of business, the small suppliers will also go out of business.

Customers would not gain significantly from the removal of the ban. If it was removed and the competition from local shops wiped out, the price of goods in the large multiples would increase. It is a case of the old story, put one's competitor out of business and then increase one's prices. The opposite cannot happen. I do not understand why it is necessary to repeal the ban. During the time it has been in place, many multinationals have located here. If it was removed, they would cut their prices to a level which effectively would put local shops out of business and once that happens they would be able to dictate prices to their advantage.

Many local shops have invested heavily in their premises. They have increased employment and provide a service second to none. It would be a poor day for this country if we enacted legislation or introduced a regulation that would favour multinationals and disown and exclude the people who provided a service to families in towns and villages down through the years. I recommend that the ban remains in place. That would be in the best interest of the independent grocery trade. The knock on effect of the removal of the ban would have far reaching repercussions throughout the country.

This is the hottest political issue that has come up for debate in either House of the Oireachtas this year and it will prove to be that before the year is out. This is only the start of that debate. The number of representations, letters and telephone calls I received on this matter during the past week is unbelievable. I understand that other Members of the Oireachtas and local representa tives have also been inundated with representations. This is the start of a campaign and it is one of which we should take cognisance. We should take note of what is happening across Europe in this area. We should not listen to what members of the Competition Authority or the mergers authority say on this issue, but consider what is in the national interest.

Mr. D. Ahern

I am pleased to speak on the subject raised by the Senator. I apologise that neither the Minister nor Minister of State is present to take this matter and I do so on their behalf. I also have been lobbied on this matter in my constituency. I have spoken to the Minister on it and given her the views of the constituents whom I represent in this respect.

The ban on below lost selling is contained in the Restrictive Practices (Groceries) Order, 1987, generally known as the groceries order. The order was made following the submission of a report by the then Restrictive Practices Commission, which had made certain recommendations pertaining to the elimination of restrictive practices and the establishment of fair trading rules in the groceries sector.

This sector has been the subject of Restrictive Practices Orders since 1956. Previous orders regulating the sector were made in 1956, 1958, 1973 and 1981. Each of these orders was designed to regulate practices emerging in the sector which could be regarded as restrictive, anti-competitive or unfair.

Enforcement of the order is the responsibility of the Director of Consumer Affairs. The order covers all grocery goods as well as intoxicating liquor and other household goods ordinarily sold in grocery shops. However, certain items – fresh fruit and vegetables, fresh and frozen meat and fish – are exempted from the below cost selling prohibition in the order.

The order prohibits below cost selling, "hello" money, resale price maintenance and discriminatory treatment by suppliers. It also requires suppliers to publish the terms on which they are prepared to trade and requires retailers to comply with the published terms.

The groceries order is the only remnant of the corpus of restrictive practices legislation. All other orders under that legislation were repealed by the Competition Act, 1991. The intention was that the Competition Act would be the sole mechanism for tackling anti-competitive practices in all areas of the economy. When the possible repeal of the groceries order, along with other restrictive practices orders, was being considered, supporters of the order argued that, whereas the Director of Consumer Affairs enforced the order, the Competition Act made no provision for a public authority to enforce its provisions. Accordingly, a person adversely affected by a breach of competition legislation would be forced to initiate a private legal action to seek a remedy. This deficiency was remedied by the Competition (Amendment) Act, 1996, which provided for public enforcement of competition legislation by the Competition Authority and created the position of Director of Competition Enforcement to carry out investigations in respect to complaints or on his or her initiative.

It seems to have been recognised that the retention of this one remnant of the restrictive practices legislation was something of an anomaly as the decision to do so was made subject to an ongoing review. Twice, in 1993 and 1995, the then Minister decided to continue the order in force but to maintain the review. In September 1996 the then Minister established the Competition and Mergers Review Group, under the chairmanship of Michael Collins, SC., to carry out a wide ranging review of the law on competition and mergers and it was decided to include a review of the groceries order in the group's terms of reference.

The review group carried out extensive inquiries into the order in the course of which they retained DKM Consultants to carry out a study of the order and its effects. Last December, the group published a discussion document Proposals for Discussion in relation to the Restrictive Practices (Groceries) Order, 1987 which contained a detailed analysis of the issues and suggested tentative conclusions. Submissions were invited from interested parties.

The review group submitted its final report to the Minister earlier this month. The report contains 40 recommendations relating to competition and mergers law, certain recommendations of the Newspaper Commission and the groceries order. In relation to the groceries order, the group recommended that the groceries order be repealed; any legislation or regulation introduced in relation to the grocery trade should not include a ban on below cost selling; and some form of regulation should be introduced in relation to the grocery trade which would require retailers, in particular, to publish the terms on which they are prepared to trade with retailers, require retailers to honour the credit terms on which suppliers are prepared to trade with them, ban "hello" money and require retailers not to discriminate between classes of customers in respect of the products they sell.

In effect, the group recommended that the prohibition on below cost selling should be repealed but that other aspects of the groceries order be retained. The recommended prohibition on retailers discriminating between classes of customers would be a new provision, the apparent purpose of which would be to enable small retailers to obtain supplies of a heavily discounted item from a multiple where the discounted price is lower than the price for which those retailers can obtain the same item from their regular suppliers.

The Minister is currently examining the report and will indicate her response to the recommendations in due course. The groceries order raises complex issues and there is considerable debate among experts and interested parties as to its impact and effects. The Minister proposes to examine the report more fully and to make further comments on this matter within the next two weeks.

I thank Senator Finneran for raising this issue for debate and his interesting contribution will provide a valuable input to the Minister's consideration of this matter.

The Seanad adjourned at 2.10 p.m. until 2.30 p.m. on Tuesday, 4 April 2000.