Thank you. I will be pleased to return to the joint committee once it has had an opportunity to digest our lengthy and technical report. I remind members that it was compiled at the request of the Tánaiste and Minister for Enterprise, Trade and Employment, Deputy Mary Coughlan, and that the timing of its delivery to the Tánaiste and publication was outside the control of the Competition Authority. We sought to publish it as soon as we could, which was yesterday.
I will make a few introductory remarks, after which I will give an overview of the report, as the Chairman requested. I wish to bring to the attention of the joint committee certain matters concerning the record of the Competition Authority. In the past three years we have secured 31 convictions on indictment — criminal offences — in the competition area. Convictions have been secured in relation to three sets of cartels, namely, the home heating oil cartel, the Irish Ford dealers' association cartel and the Citroën dealers' association cartel. The level of fines to date has been significant by any measure and is approaching €600,000 in total.
The important point from our perspective is that judges have been very much seized with these cases and recognised that competition offences are serious crimes against consumers. In the judgment of the High Court released on 23 March last Mr. Justice William McKechnie noted that the only real and effective deterrent for those involved in this type of unlawful behaviour might have to include a prison sentence and that the serving of a custodial sentence was near at hand. He added that if the first generation of carteliers had escaped prison, the second and present generation almost certainly would not.
When I took up my position three years ago, the Irish approach to the criminalisation of competition offences was an outlier within the European Union. All other EU countries treated such offences as administrative in nature at the time. The Competition Authority was given direct decision making powers. An important sea change has been taking place throughout Europe, not only as a result of the work of the Competition Authority. The High Court judgment of 23 March has sent reverberations throughout the European Union and there is a growing interest throughout the Union in the idea that criminal sanctions and personal deterrence are essential for competition offences. We view this as an important sea change.
Convictions could not be secured without the dedication and expertise of the staff of the Competition Authority who frequently have to put themselves in difficult positions using their enforcement powers. These decisions are not taken lightly, nor are staff free to choose which cases they work on. It is due to their dedication and the great support and expertise of the Director of Public Prosecutions and the Office of the Chief State Solicitor that we have arrived at this point. A considerable amount of work remains to be done and we need to drive forward the process. Nevertheless, it is fair to note substantial progress has been made.
It is important to note that the Competition Authority's advocacy work is a statutory function. We have principal responsibility for looking after the interests of consumers and taxpayers, the groups we represent. This often brings us into significant conflict with a variety of sectoral and industry interests which are free to make robust submissions, whether privately or publicly, and do so regularly. Frequently, the authority comes under severe challenge and criticism which we accept as part of our statutory responsibility which we will continue to undertake in sometimes difficult circumstances.
I propose to provide an overview of the Competition Authority's retail related import and distribution study which was compiled at the request of the Tánaiste. I will focus briefly on the set of circumstances which gave rise to her request. It has become patently clear in the past year that a gap has opened up between the prices charged at retail level in Northern Ireland and the Republic of Ireland. There has been a significant consumer reaction to this divergence which is of great concern to us at a number of levels. It was important, therefore, to ask what was the underlying reason behind the differences in retail prices. One important hypothesis suggested was that suppliers were charging too high a price to retailers and Irish retailers could not secure access to prices and terms and conditions their counterparts in the United Kingdom or elsewhere could secure.
The terms of reference of the study we undertook were to examine the supply chain. We were given a short period in which to compile the report. We were also aware that the matter was one of great urgency. We examined three areas, the grocery, clothing and pharmaceuticals sectors, and came to certain conclusions.
What we found in the grocery sector was that there was significant reaction on the supply side as a result of the price differential that had opened up. We saw some retailers actively seeking to renegotiate terms of trade to seek better prices. Of course, this was helped in no small part by the fact that UK wholesalers were turning up in Ireland. Trucks and vans were moving between Ireland and Northern Ireland in reaction to these price changes. Many Irish retailers operated successfully in the UK and therefore had access to whatever terms of trade existed in that jurisdiction. Particularly in the grocery market, we have seen two important new entrants, Lidl and Aldi, which have chains of distribution and supply that are not so reliant upon the UK but are more focused on their continental suppliers. With this amount of flexibility in the system, we saw a lot of reaction and therefore we could not conclude that the suppliers were the source of the price differential on the grocery side.
The other way to put the argument is that significant adjustments were taking place in the market on the supply side in reaction to what was happening on the ground. After the completion of the report, we now see increased price competition at the retail level in the grocery trade, which is related in part to further adjustments on the supply side. That is welcome because we need to have a vibrant retail sector, not one that is constantly losing market share to Northern Ireland. For example, Northern Ireland retailers without any shops in Ireland have, according to the latest figures I have seen, a 3% market share of the Irish grocery market. That is simply a fact we must come to grips with.
That is what is happening in the area of groceries. If we look at the opposite end of the spectrum, which is pharmaceuticals, we see a very regulated market with less flexibility in terms of distribution and supply arrangements. We do not see the same types of adjustment taking place there. In terms of price differentials opening up at retail level, it is hard to see how the market on the supply side will adjust, simply because the retailers do not have same amount of flexibility in terms of bringing in alternative suppliers.
Clothing is between the two areas mentioned above. We must remember that many of products — in fact, almost all of them — are sourced outside the sterling zone. Therefore, it is not simply a case of the cost being directly affected by the depreciation in sterling. We see at the more generic, low-cost level that retailers have a large amount of flexibility, although for clothing there tends to be a longer time lag because of the nature of the product and the way it is sold. Thus, there will be a slower pass-through. We do not see a problem on the supply side for lower cost items, but in terms of branded products — especially higher priced products which have more limited volumes — the international brand suppliers and distributors are able to control the distribution system more tightly. In this regard, we are concerned that there could be continued market segmentation, which raises competition issues. This is something that been highlighted for the future work of the Competition Authority, perhaps not by report but by using some of our other powers.
