Grocery Industry Competition Bill

I present a legislative statement on the Grocery Industry Competition Bill.

ASSISTANT SPEAKER (Hon Jacqui Dean): That legislative statement is published under the authority of the House and can be found on the Parliament website.

I move, That the Grocery Industry Competition Bill be now read a first time. I nominate the Economic Development, Science and Innovation Committee to consider the bill. At the appropriate time, I intend to move that the bill be reported to the House by 23 March 2023.

In the year to June 2019, food was the second-largest expense for New Zealand households, with an average spend of $234 per week—or 17 percent of weekly expenditure. Households with lower incomes often spend an even higher proportion of their income on groceries.

The Commerce Commission’s market study found systemic competition problems in the grocery sector. The retail grocery industry, which is dominated by the duopoly—Foodstuffs and Woolworths—is worth around $24 billion annually. The commission concluded that supermarkets are making an excess profit of between $365 million and $430 million per year. That’s $1 million per day, at the most conservative estimate, straight out of the pockets of hard-working everyday Kiwis. Put simply, consumers are not getting bang for the buck at the checkout because the duopoly avoid directly competing with each other on price. That, of course, has other flow-on effects—for example, families are missing out on new grocery products and services because businesses in the sector do not have the incentives to invest and innovate.

It’s also important to note that many suppliers are nearly powerless in negotiations with the supermarkets, because they do not have other buyers of a similar scale. Too many small grocery suppliers have had their business aspirations crushed when one or both of the duopoly has, effectively, exercised market power, steadily reducing how much they will pay and then threatening or even delisting a supplier entirely.

So the Government’s already moved decisively to improve competition in the retail grocery sector. We passed the Commerce (Grocery Sector Covenants) Amendment Act 2022, which banned competition-stifling restrictive covenants on land and exclusive covenants on leases such as in shopping malls. That should free up over 190 sites that could not previously be used for competing grocery retailers.

The Grocery Industry Competition Bill I’m introducing today is intended to further improve competition in this sector, which is important for every Kiwi family. It’ll provide a platform for more existing retailers to expand their offerings and compete with the duopoly, and also potentially for a new entrant to come into the market and compete nationwide.

I want to cover a few of the more important changes that the bill makes in a little more detail. The bill establishes the role of a Grocery Commissioner to hold the sector to account. The Grocery Commissioner will be within the Commerce Commission and will report on the state of competition, starting 12 months after the bill comes into effect, as well as monitoring the wholesale supply regime—another task that they will be required to do. That will ensure that the reforms are being implemented and consumers are getting the fairer deal that we think they should get.

The bill implements a wholesale supply regime. One of the key issues the Commerce Commission found in its retail grocery market study was that retailers are being hindered from entering the market because they couldn’t buy wholesale groceries. That inability to buy wholesale groceries means they can’t compete on price—because they can’t get them at the price that wholesale suppliers are available to others—and they also can’t supply the range because, as we know, dairies these days struggle to get the fresh fruit and vegetables at a reasonable price, as well as the range of goods, baked goods, and other things that supermarkets can provide—and if they’re not provided at a reasonable price, people stop going to those stores.

So the duopoly’s been given plenty of warning. The situation’s well known—I think New Zealanders know it; I think people in this House know it—but we have said if they fail to adequately open up their wholesale market voluntarily at fair prices, this Government will make it happen for them.

So the bill is a trigger. It will allow the Government to step in and require wholesale supply on regulated terms, if required. Creating the regulatory backstop shows just how far this Government is prepared to go to break the hold the duopoly have on Aotearoa New Zealand’s retail grocery market.

As I’ve said often, the duopoly is well advised to get on and negotiate, in good faith, wholesale arrangements that support effective competition—there’s nothing to stop them doing that today. If they don’t do that, we will have no problem stepping in to make it happen for them.

This bill also implements a range of supplier-focused protections and a dispute resolution scheme for suppliers and wholesale customers. The supplier protections include a grocery supply code, protections against the use of unfair contract terms, and the ability to allow suppliers to collectively bargain with major grocery retailers. These mechanisms should, together, stop the major grocery retailers using their bargaining power to unfairly push costs and risks that they are better placed to bear on to the suppliers of the goods that they sell.

As I’ve mentioned, the Commerce Commission found that the major grocery retailers are earning excess profits due to a lack of competition, of at least $1 million a day. These are profits beyond the ordinary profits you’d expect a business to make. It’s excess profits; excess return on capital. It’s, effectively, a wealth transfer coming out of the pockets of everyday Kiwis. That’s $1 million, let’s remember, each and every day coming out of ordinary Kiwis’ pockets and going into the hands of the duopoly and those fortunate enough to be in the duopoly club.

This bill signals how serious the Government is and how far we will go to see a more competitive market with new grocery retailers. We’ve already ensured that grocery retailers can be set up now—they can set up shop; new grocery retailers can come in—by having access to suitable sites. And now we’re making sure they can buy the wholesale groceries they need to stock the shelves in those new sites that they can set up.

We are putting in place an effective regulatory regime and a Grocery Commissioner with the powers necessary to monitor the conduct of the duopoly, promote competition, and take enforcement action where needed. These are important steps for ensuring Kiwis can buy groceries at affordable prices and can shop for the range of products they demand.

I very much look forward to the committee’s consideration and their report back to the House on this bill. I’m very proud of the work that has been done on this bill. I want to thank the officials who have so actively engaged already on it. As I’ve said, I do very much look forward to the committee’s work.

I look forward to this whole Parliament supporting a bill which will address what we see as an anomaly—currently—a situation where ordinary Kiwis are deprived of money that should be in their pockets, due to excess profiteering by the duopoly. We’re determined to make this change, and so I commend this bill to the House.

The question is that the motion be agreed to.

Thank you, Madam Speaker. It’s a pleasure to be talking on the Grocery Industry Competition Bill first reading. I suppose the only concern is that here we are, talking at quarter to 12 at night, when people won’t be listening to this. Only a very few will be listening to this. It’s a shame that this bill is being dealt with and handled under urgency. But, anyway, it is what it is.

This bill is an important step in terms of making sure that New Zealanders can get access to a full range of grocery products at an appropriate price. It’s very appropriate in a day that follows yesterday, with the Reserve Bank increasing the official cash rate by 0.75 percent—75 basis points; a record increase—and New Zealand facing a cost of living crisis. Part of it, as the Minister referred to, comes from food inflation, but by no means only that. Certainly, the Reserve Bank Governor was talking about the significant impacts of very constrained labour arrangements and also fiscal policies of the Government. Come what may, this bill is about making sure that people can have the choice, and we are concerned about the cost of living increases on New Zealanders as they go about their business.

We will support this bill, but we do have some concerns, particularly with what’s referred to as the wholesale regulatory backstop. The Minister’s talked to some extent on it, and I will cover off on that shortly.

First of all, I think it’s worthwhile just talking about the main elements of the bill. The first bit really deals with the grocery supply code of conduct. This is about imposing duties on regulated grocery retailers, and they’re a defined term—that means Countdown and the two Foodstuffs organisations; there’s a North Island one and a South Island one. Those two entities must put in place a grocery supply code of conduct, and you would expect it would be in place. Most industries do it, and this is a way of enshrining it and making sure that that takes place. The purpose of the code is to promote fair conduct and practices, and we believe that’s an important component in making sure that where there is significant power exercised by one side of a transaction, there should be clarity and transparency around the code of conduct. There are rules if that’s not complied with, and I’ll talk about those penalties in due course.

The second thing deals with the establishment of a Grocery Commissioner, and this person will have the power to request quite a significant amount of information from grocery retailers, with a view to making sure that New Zealanders can get access to the full range of products at an appropriate price. This is an important step. It’s pretty unusual for New Zealand, but it is more common overseas. We support the idea of a Grocery Commissioner. Our public comments have been that if you are going down this route—if this is the route we are choosing to go down, and we’re supporting this—it is important that the commissioner has sufficient powers to undertake their duties and to be able to conduct and actually bring about change if that is necessary.

The third thing relates to this issue of wholesale supply of groceries. The Minister alluded to it. There have been problems in the industry where smaller players cannot get access to suppliers because they don’t have the scale, and, in fact, end up buying their products, like many of us here in Parliament who go to the supermarket, actually going to a Pak ‘N Save—that’s a common one—and buying products and then taking them back perhaps to their dairy or whatever operation they have. That means that they are having to compete using a higher retail price rather than a wholesale price, and what this part of the bill is about is making sure that wholesale providers of groceries—and there are smaller players like Night ‘n Day, which is one example—who do offer competition to the large supermarket chains will be able, under these provisions in this bill, to get access to products at a wholesale price. Again, we think that that’s not an unreasonable request and, actually, it’s something that will help promote competition.

So there are four types of additional regulation. The first one is a requirement to establish, implement, and maintain a wholesale framework for supplying groceries; the second one is to comply with the wholesale code; thirdly, to supply groceries on non-discriminatory terms; and to supply groceries in accordance with specified terms.

The big part about this is making sure that if there are wholesale arrangements that a big grocery chain has put in place, then those same, equivalent terms should be available to significant competitors in the market, because not everyone can assemble the array of competitiveness and range from a whole stack of suppliers, and there have been allegations made that in many cases—or, well, in a number of cases, the large chains have restricted the access of competitors to some of the supplies. Whether that’s true or not, and some believe it is, this will mean that those second-tier—if I can use that term—competitors can get access to products at a wholesale price.

The other part of this is enforcement and dispute resolution. There is dispute resolution so that the entities and suppliers, for instance, can go through a process of making sure that they are getting reasonable terms with the large chains.

Then, in terms of the enforcements, there are actually four tiers, and it’s referred to in the bill—and this is something that we’ll be keen to explore in the select committee stage—as to what tier 1, 2, 3, and 4 means. But if you are a tier 1 organisation, which I presume is a large retailer, the maximum penalty is up to $500,000 for an individual or $10 million for a body corporate, whereas for tier 2 it reduces to $200,000 or $3 million. Again, we would like to understand what does that mean, what is the rationale for those penalties, and why are those particular monetary amounts viewed as being appropriate.

The last part is the amendment to the Fair Trading Act, and this is going to make sure that these types of contracts are dealt with and can be captured under the Fair Trading Act. So the Fair Trading Act will be amended to include grocery supply contracts with an annual value threshold of up to $1 million when the relationship first arises.

So those are the key elements of it. From our perspective, we do have some concerns—as I said at the outset—around the wholesale regulatory backstop. We will want to understand what that means. We want to make sure that it is appropriate and it is something that should be put in place and that it is not an overreach, but at the moment it’s slightly unclear in the bill, and we’re looking forward to exploring that further in the select committee stage.

But this is an important bill. We think it’s important for New Zealanders, and that is why we are supporting this bill to select committee, but with some concerns that we will seek to get clarification on during the course of the select committee stage.

Kia ora, Madam Speaker. Thank you for indulging me this evening to reflect on this important piece of legislation, as the previous speaker spoke about. I want to thank the Hon Dr David Clark for his thoughtfulness in much of the legislation that he’s brought into the House not only today but in recent weeks and months. I know it is late, and I’m not sure if you want me to go down this path, but I’m sure we all know about Maslow’s hierarchy of needs. I’m not sure we want a social work lesson at this time of night, but I’m willing to give it, because that’s the sort of person I am!

The importance of physiological care, in terms of that pyramid, it’s around air, it’s around water, it’s around shelter, and it’s around food. This piece of legislation is saying we need to look at how our homes, how our whānau, are fed and cared for. This is why it’s important that we reflect on our supermarket industry in Aotearoa New Zealand and reflect on how we ensure, whether you live in the leafy suburbs, whether you live in the provinces, or whether you live with very little, that when you go to a supermarket or corner store, you have access to quality products, but quality products that are of value and that haven’t been overinflated because of that duopoly that the Minister has already talked about this evening.

I am excited to be on the select committee that will consider this piece of legislation, and I look forward to hearing from submitters around how we, as a nation, ensure Maslow’s hierarchy of needs: that people have shelter and are fed, clothed, and well looked after. I commend this bill to the House.

Members, this debate is interrupted. But before we go, I want to extend our thanks to the Chamber staff, who’ve looked after us so well for three days—one to go, guys!—the Office of the Clerk, as always, Office of the Speaker, and, of course, the techies up in the booth and everybody else on the precinct who has been supporting our work. There we are. The House will resume at 9 a.m. tomorrow.

Debate interrupted.

Sitting suspended from 11.56 p.m. to 9 a.m. (Friday)