Seanad Éireann díospóireacht -
Tuesday, 26 Mar 1991

Vol. 128 No. 6

Adjournment Matter. - Price of Liquid Milk.

Mr. R. Kiely

When I asked to raise this matter on the Adjournment I did not think it would be taken so late. Nevertheless, it is our function to raise matters about which we are concerned and to ensure this House justifies its existence.

I am raising this matter to ensure there is fair competition and small traders will not be put out of business by big traders. Dunnes Stores have reduced the price of a litre of milk from 54p to 45p and this move could herald the start of a price war similar to the bread price war. If others follow suit, industrial sources fear that grocers, milk roundsmen, dairy farmers and workers will be hit and many people will lose their jobs. This crazy publicity stunt by Dunnes Stores will lead to the collapse of small family run businesses, including milk delivery rounds, family grocery shops, small dairies and the milk suppliers to those dairies.

I omitted to mention at the outset that I wish to share my time with Senators Tony McKenna, Batt O'Keeffe and Paddy McGowan. I will be as brief as possible.

An Leas-Chathaoirleach

Is that agreed? Agreed.

Mr. R. Kiely

Purchases of cut price milk could lead to people losing their jobs and then being put on the dole. The sole objective of Dunnes Stores is to attract additional customers who will purchase other goods, in the process swelling the profits of the group who are in competition with other stores who use other gimmicks. It is imperative that immediate action be taken by the Government to bring this practice to an abrupt end and prevent job losses in urban and rural areas.

Since the statutory price controls were abolished in 1988 the price of milk has tended to be much the same in all retail outlets. However the dairies, and the retail trade, have always denied the allegation of price fixing. Dunnes Stores' decision to cut milk prices and risk a war with suppliers has come six weeks after the Minister's call to the supermarket chains to begin to compete with one another for the first time in the milk market. He stated in the Dáil on 12 February that there appears to be a fixed price on milk here even though the large multiple supermarkets are able to buy it at a much greater discount than small traders. He went on to say that the retail price is the same in every retail outlet in the country, that this is entirely wrong and is an indication of unnecessary profiteering by multiple supermarkets.

I would not agree that it is an indication of unnecessary profiteering by supermarkets. However, we must ensure that the suppliers to the supermarkets and the dairies do not cut the price to the big chains without at the same time cutting the price to small grocers. It is also important that the producers ensure that price cutting supermarkets do not take sales away from door to door delivery men who still account for up to 60 per cent of total sales compared with 11 per cent to the supermarkets. Those who have their milk delivered consume more milk than those who buy it from the shops because it is supplied virtually on tap. If the supermarkets are able to undercut the delivery men milk consumption will fall and the producers will lose out. Price cutting, by the big supermarkets, will definitely lead to the production of low quality milk.

A man from Ennis, now dead, who supplied high quality milk from a van around Ennis had as a slogan, "From moo to you in an hour or two". It will certainly not be delivered in an hour or two, but rather in a week or two, if Dunnes Stores continue to monopolise the liquid milk market. On the last occasion Dunnes Stores got involved in a round of price cutting my colleague Senator Seán Byrne raised the matter on the Adjournment in this House on 1 March 1989. He said the bread war started by Ben Dunne was a very unfair way with unfair competition. It was also alleged he was employing cheap labour in his outlets, was importing cheap flour and that a question mark hung over the quality of the product he was selling. There is a great danger that the milk we buy might not be produced in Ireland if this price war is allowed to continue. That would have serious consequences for employment and the economy.

I was present in the House when the Minister introduced the SFADCo Bill to facilitate the creation of indigenous industry in the mid-west but this price war could sound the death-knell for those companies. I know of a small company in my area which bought fertilisers from retailers but they cannot compete with the big co-ops and dairies who can buy the product cheaper. That company has not got a hope and that is unfair. I have no objection to the consumer buying milk as cheaply as possible.

If the retail business was not monopolised by the big supermarkets the quality of milk would be better. In my area which is a very rural area, milk is delivered from door to door. The nearest Dunnes Stores is in Limerick which is 30 miles away. I do not mind the people in the city availing of cheap milk but I would like to see the quality being maintained. The business should not be monopolised. I hope the Minister will take these matters into consideration.

Mr. McGowan

I welcome the opportunity to make some observations on this matter which is very important and fundamental for many poor people because milk forms part of their diet. I am glad the Minister has been able to come in to reply to this debate. Undoubtedly he will use this opportunity to make a statement clarifying the position.

For a long time people along the Border have been buying milk in the North at 14p and 16p a litre cheaper, and without publicity. Whether Dunnes Stores are right in what they are doing, it has brought this matter to light. That is to be welcomed. Recently I raised the question of a bakery in Letterkenny who supply bread to Dunnes Stores who in turn sold it at 39p a loaf. The very same loaf was being sold elsewhere in Donegal at 79p. I raised that matter here three weeks ago but with little result. This is a very serious matter.

Recently the manager of a major co-op in Ireland stated that he is no longer interested in selling liquid milk. He is no longer interested in investing in Ireland. That same co-op is getting State funding to the extent of over £7 million to keep its products on the shelves in Europe but at home it is producing only dairy spreads. This matter has to be looked at. I would urge the Minister to take advantage of the fact that it has been brought into the open. It is quite a major issue and the public are interested in it. The farmers and producers are not gaining because there is too big a margin between the production price and the selling price of milk. I hope the Minister recognises that. I am glad to see co-operatives and creameries flourishing, but I would not like to see them become giants who are totally independent, investing their money outside the State and dictating to the State. This is an opportunity for the Minister to take positive action to regularise the whole area of milk and bread prices. These are basic items of food for families who have to live on a tight income. I want to thank Senator Rory Kiely for giving me an opportunity to express my views on this matter.

Mr. McKenna

I will be very brief as I appreciate the lateness of the hour. I support Senator Kiely's motion in relation to this particular difficulty. I have experience of supermarkets and their whole attitude specifically to the bakery industry. As someone with a personal interest in the bakery business I know the difficulties that have emanated from the price war in that business. Numerous small bakeries are experiencing extreme difficulties or have gone out of business altogether. In the short term there is an advantage to the consumer in terms of cheaper prices but in the long term I would be very concerned that numerous small retail stores would not be in a position to supply milk at the same price as the large supermarkets. I can appreciate the difficulty the Minister has in relation to below cost selling and in proving that it exists, either in relation to the sale of bread or milk.

I would ask the Minister to consider strongly this development. The muscle of the supermarkets in terms of finance, the huge discounts they can demand and the terms of credit they can organise leaves the small retailer in a very difficult position, to the extent that to all intents and purposes they really cannot survive. That leads to the question of the service being provided in substantial areas throughout the country where these large supermarkets are not available. As Senator Kiely has said, milk is a product that should be sold on the day it is produced.

Senator Kiely made an important point in relation to deliveries, milk rounds and so on. People drink less milk if it is not delivered to their door because they do not take the trouble to go out and buy it. This is another matter in relation to the whole retail business that I am very concerned about. I would ask the Minister to take a serious look at this and to ensure that there is fair play in the whole area of retail, whether it be of milk bread or whatever. I know the Minister is concerned about this whole question. I thank Senator Kiely for the opportunity to say a few words on the matter.

Mr. O'Keeffe

I would ask whether a price war in relation to milk is a good thing. There is a dilemma for those of us who represent urban and rural areas in that we can understand that the person who delivers milk to our door in the morning has to charge a certain price but at the same time, as consumers, we realise the difference involved in being able to get milk in the supermarket at 9p a litre cheaper. Obviously the consumer would welcome that. People who have milk delivered to their door probably wonder why they should pay extra for it, but my personal view is that they should. I would ask what are the reasons behind this price war with Dunnes. My three previous colleagues have amply addressed the question as to whether this is of benefit to the customer in the long term. Certainly in the short term Dunnes hope to increase the amount of milk they sell across the counter. They hope there will be a cutback in the amount of milk, delivered to the door, but at the end of the day what are we left with? Will we be left with fewer people delivering milk, accommodating us, giving us the type of service we would like and for which we are willing to pay an extra price? Can we be assured that the Dunne organisation and the other multiples in Ireland will continue to sell milk at their present rate? The Minister has a difficult task. He has always been concerned about the co-ops and the prices they charged the consumers. Let us look at the price the farmers are getting for their milk at present. Will the farmer charging reduced prices to consumers be affected? Not in the short term. There has been an extraordinary mark-up in the price of milk delivered to the door up to now, perhaps this price war is good in that it brings in the element of competition.

I compliment the Minister on producing a Competition Bill which will resolve many of the questions posed here with regard to the price of milk, bread and other factors. Senator Rory Kiely's motion is timely but it should be examined to see how the consumer and farmer will benefit. Will the person who is giving us a personal service at the door be affected in the long term for the wrong reason?

Minister for Industry and Commerce (Mr. O'Malley)

I have frequently argued in favour of increased competition in the grocery sector and in our economy in general. Developments relating to pricing in the grocery sector have attracted the most attention for the very simple reason that competition is directly related to the welfare of the consumer. Nowhere is this more evident than at the level of grocery retailing. It is an opportunity to exercise choice and where the basic economics of demand and supply come into play. There have been many welcome developments in the grocery sector, the growth in the number of smaller retail outlets and the expansion of the independent groups, for example. These groups now appear to be regaining part of the market share held previously by the multiples. This suggests that we have a basically sound competitive structure in the retail sector. Although there are large prominent multiples, there is still room for smaller units to enter the market and to compete.

Regrettably, however, there are a few persistent and worrying features which act to deprive consumers of real choice which quite simply defy justification. An example of this has been brought to the fore in recent days. I am speaking about what happened when a major retail multiple reduced the price of milk to the consumer. Since this may be the subject of legal proceedings I do not want to say too much here. I will confine myself to repeating a general comment that I have made before, namely, that if goods can be put in the hands of the consumer at a lower price than previously and the price is not below cost, then it should be welcomed.

There have been efforts to introduce price competition for other products in the grocery sector in the recent past; bread was one such product. At the time of the so called bread war, I suggested that this type of competitive pricing should be extended to other areas. I gave the example of milk as being one area where there appeared no reasonable explanation for the existence of a uniform price throughout the country. I can only welcome these recent developments which go some way towards reversing this tendency. There has been, I suggest, for too long a cynical disregard for the rights and interests of the consumer.

Business interests have taken advantage of their size, their position in the market and their relationship within the production and supply process to deprive the consumer of the welfare advantages which could be passed on. Equally, and perhaps something which is not always appreciated, business which behaves like this can itself suffer in so far as it will be deprived of the incentive to improve methods of production and to develop new products. Any awakening in recognition of these facts should be supported and encouraged.

On a more general level, it is my firm intention to eliminate the form of business activity that is based on these cynical assumptions. Not only does the consumer suffer, there is a real danger for business that this form of activity can contain the seeds of its own destruction. I will speak in a few minutes about the need for legislation in this area and the role of the Competition Bill in filling this gap. I feel there should be some explanagtion and clarification required about the regulations currently in force relating to the grocery sector.

The grocery trade is already subject to regulation by means of the Restrictive Practices (Groceries) Order, 1987. The Director of Consumer Affairs and Fair Trade is responsible for enforcing this order. This order is comprehensive legislation; many people will be aware that it prohibits below cost selling of most nonperishable groceries and bans the payment or receipt of what is called "hello money". But there is more to the groceries order than these two well publicised features. The order also deals with supply and credit terms. Under the order a supplier or wholesaler may not induce a retailer, directly or indirectly, by withholding supplies or otherwise discriminating against the retailer, to sell grocery goods at a fixed price specified by the supplier or by the wholesaler. The order does not stop the supplier from recommending a retail price but such a price is not binding on the retailer as a minimum retail price. The order prohibits collusion on the part of suppliers of grocery goods as to the prices at which they will supply goods or the terms on which goods may be supplied.

It also prohibits trade associations or other representative bodies from attempting to force suppliers to withhold goods from any wholesaler or retailer or discriminate against them as to the terms in which goods may be supplied to them. The order also deals with ensuring that entry to trade in any grocery goods is not restricted. Further, the order prohibits actions designed to secure a boycott against anyone involved in the grocery trade because of the prices charged by them or the terms and conditions on which goods are supplied by them. In other words, a retailer should not be discriminated against and denied a supply of goods because of the prices which he charges.

The House will agree that the order is quite wideranging in its regulation of the grocery trade and that it provides a framework within which competition in the grocery trade can take place. However, it does not and should not fix the price of goods. Any suggestion to control prices implies that one is seeking to avoid competition. It has always been my view that free competition in price is the best way to protect against the undesirable and damaging effects of monopoly power which can arise without it.

When the order was made a review of its operation was promised and this is being carried out at present by the Fair Trade Commission. One of the reasons for the promise of the review was the serious interference which the ban on below cost selling constitutes to market forces. Competition is best achieved by allowing free market forces to operate. The less interference in the marketplace, the greater the degree of competition. Therefore, I cannot agree with the call for the introduction of price control in supermarkets. Such action would not ensure price competition, on the contrary price control is by nature anti-competitive. Fixing a single price on a given product does not stimulate competition. Competition is stimulated most effectively by market forces.

The Groceries Order was made pursuant to the Restrictive Practices Acts, 1972 and 1987. Under those Acts a separate order must be made for every sector found to require regulation. This is a long drawn out process involving studies and investigation, formulation of the order and subsequent confirmation by an Act of the Oireachtas. The Restrictive Practices Orders currently in force do not cover every sector of the economy. Indeed they cover a surprisingly small percentage of total economic activity here. As I said, fair competitive business practices and behaviour are vitally important to the welfare of the consumer and, equally, to the life blood of business.

I have given long and serious thought to the entire problem of competition policy in Ireland. The Competition Bill which I hope to introduce in the Dáil during the next term will meet the requirements of our modernising and increasingly complex economy. It will set out clear rules governing business behaviour. It will explicitly prohibit anti-competitive business practices and the abuse of a dominant position in the market. The Bill will be closely based on Articles 85 and 86 of the Treaty of Rome. The provisions of these Articles will not be unfamiliar to firms already engaged in trade with our Community partners. The same rules apply to trade between member states. Our intention is to extend these rules to domestic business and trade. The Competition Bill is an important arm of the Government's policy to strengthen competition and the recently agreed Programme for Economic and Social Progress also gave its support to this objective.

The era of systematic price control which was based on artificial notions of how to protect the consumer has been passed over for an era of more soundly based policy. The idea is not to control business but to regulate the way in which business is done. It is a formula which will ensure the least interference by the State while affording the maximum protection to the consumer and the interests of fair competition.

The Seanad adjourned at 11.15 p.m. until 2.30 p.m. on Wednesday, 17 April 1991.