Grocery Industry Competition Bill

Members, we come now to the Grocery Industry Competition Bill. We come first to Part 1. The question is that Part 1 stand part.

I seek leave for all provisions to be taken as one question.

Leave is sought for that purpose. Is there any objection? There is objection.

Thank you, Mr Chair. It’s with great pleasure that I stand here today in this committee for the Grocery Industry Competition Bill. I must say, this is an important bill for the whole of New Zealand and for this Government at this time when the cost of living is front of mind. And I do want to thank the Economic Development, Science and Innovation Committee for considering the bill, and everyone who made a submission on the bill.

This bill is really about benefiting consumers at the checkout by improving competition in the grocery industry. Everyday New Zealanders are paying more for their normal weekly shop, and are being squeezed in the wallet as the largest expenses—things like housing and transport—are also rising significantly. Consumers have moved beyond skipping luxuries at the checkout and are straining just to buy the necessaries.

This Government is committed to making a grocery sector where grocery retailers have to give a fair deal both to consumers and to suppliers. We want a grocery industry that’s innovative and provides consumers with clever ways of shopping that save time and effort. And we want a grocery industry where suppliers have more grocery retailers that are interested in stocking their products and selling them to consumers. Thanks to the changes this Government has already made, and signalled it will make, we’re already seeing confidence in other players like The Warehouse investing in the grocery range and providing different offerings, and other newer internet providers trying to do things a little bit differently. I encourage new entrants to the market and encourage innovation; just different offerings so that families have choices and can help their families eat well and properly.

This bill addresses the outstanding recommendations—they are outstanding recommendations—made by the Commerce Commission’s 2022 study. Overall, the Grocery Industry Competition Bill will regulate the grocery industry to benefit consumers by providing a platform for retailers to enter and expand in the grocery industry and to compete directly with the existing duopoly. The bill will create a grocery commissioner to monitor and regulate the industry and keep the New Zealand public informed of what is happening. The bill will impose new requirements on the duopoly to facilitate commercial agreements for wholesale supply of groceries to other grocery retailers on the same advantageous terms they give their own supermarkets. And the bill will provide a flexible tool kit as a grocery supply backstop to allow the commission or the Government to impose additional regulation if improvement is needed. The bill will provide new protections to suppliers, such as a grocery supply code, to limit the ability of the duopoly to pressure suppliers into accepting contracts that are wholly one-sided. The bill also paves the way for a dispute resolution scheme to provide timely and cost-effective resolution of any issues for suppliers and wholesale customers of Foodstuffs or Woolworths.

The select committee unanimously reported this bill back to the House; that’s very gratifying. It recommended some amendments which this House accepts. The committee made some excellent adjustments—improvements to the bill—especially in the wholesale supplier space and in the supplier space with a grocery supply code. These have balanced the views of the suppliers, Foodstuffs, Woolworths, and prospective wholesale customers.

I’ll speak later about the Supplementary Order Paper that I have introduced. The Supplementary Order Paper makes four main changes to the bill as well as some editorial changes. These four changes relate to the grocery supply code, the dispute resolution scheme, the commission’s monitoring function, and the treatment of what are called “ancillary services” in the wholesale supply regime. Generally, my changes are consistent with the select committee’s intent, and in some places I needed to give effect to that intent.

I’m pleased to put the bill over to this committee of the whole House for wider discussion. Thank you.

Thank you, Madam Chair. I just acknowledge the Minister’s comments. I just think it’s worthwhile—this is obviously a very important bill, because getting better outcomes for New Zealanders when they go to buy their food and grocery items from the supermarket is really important. That’s why there is agreement across the House to make changes to this bill, with a view to trying to improve it, although there are some elements of the bill that there’s not absolute unanimous support on. None the less, I think what’s been achieved with the bill will go some way to trying to address some of the deficiencies that have been occurring in the industry.

I think one of the things I’m just quite keen to get the Minister’s view on is particularly around the commission’s functions in this Act—well, it will become an Act once the bill’s passed, of course, but particularly with regard to clause 4(2), which is a whole stack of new arrangements or functions, objectives, that were put for the commission: “understanding the current and emerging (or likely future) trends or issues in … the grocery industry … promoting transparency … supporting participants to understand and comply with [industry] regulation … contributing to a trading environment in which businesses compete effectively and consumers and businesses participate confidently … [and] improving awareness”. So just nice to hear what the overarching view of the Minister is around those particular ones, whether he thought there were others that we should be dealing with, and where he perceives there might be deficiencies in the bill that may need to be addressed in time, or, in fact, further improvements of the Act once it comes into play.

Thank you very much, Madam Chair. I actually echo my colleague Andrew Bayly’s thanks to the Minister of Commerce and Consumer Affairs for laying out his vision. My question to the Minister is, I guess, in clause 3, in the purpose statement: “The purpose of this Act is to promote competition and efficiency in the grocery industry for the long-term benefit of consumers in New Zealand.” I mean, that is a lofty goal and I think it’s something that we should all aim for. But when you consider the fact that this basically gives powers to the Commerce Commission to monitor competition and efficiency in the grocery industry, how quickly he actually believes this will have an impact for the benefit of the consumers, considering the fact that there is a cost of living crisis at the moment. Every day when our families go to the supermarket and try and fill their trolleys—well, actually, they can’t fill their trolleys because it is so expensive and grocery costs have gone extraordinarily high. Food prices, even when you stick to food that is in season—for example, the vegetables and fruit, you buy it in season—it’s supposed to be cheaper, but the cost of grocery shopping is astronomically high. I often hear from constituents how expensive it is, and how quickly does the Minister think that this bill will have an impact on the cost of doing our groceries and shopping to promote the so-called competition? How quickly will that have an impact on daily shopping?

Oh good—I’m just waiting for the Minister the Hon Dr Duncan Webb to gather his thoughts. But, related to what my colleague Melissa Lee has just been talking about, I suppose the overriding concern from market participants—and, ultimately, consumers—is what certainty or assurance the Minister can give that the Commerce Commission will have the proper skills and expertise to actually do the number of express purposes set out in clause 4, and more generally in clause 3, to ensure that best market behaviours are put in place and that adverse market behaviours do not occur and are stopped if they occur.

So my question is about the resourcing and the appointment of a commissioner. What assurance can the Minister provide as to making sure that the commission appoints the right commissioner—and, obviously, the supporting staff that will underpin that function? We know that function is estimated to cost between $10 million and $12 million a year, and so, without a proper and well-experienced commissioner, a lot of these reforms will be academic in nature—

Order! I’m just going to pull the member back a bit. I’ve just been having a quick look at the bill, and the appointment of a grocery commissioner, in my reading, comes under Part 5. I’m very happy for the member to reference the Grocery Commissioner, but the member has Part 5 to be more fulsome around the Grocery Commissioner.

Thank you, Madam Chair. To the Minister, just around Part 1, clause 3, “Purpose”, which has the definition of promoting “competition and efficiency in the grocery industry for the long-term benefit of the consumers in New Zealand.”, how does he see the day when this market is operating well, and what are the criteria around the purpose of this bill to actually guarantee that the market is fully functional and is being competitive?

Thank you, Madam Chair. In respect of Mr Bayly’s first comment relating to clause 4(2), the monitoring and reporting function of the commission is actually a critical part of this bill because we know that information really is power in this kind of situation. We absolutely want to make sure that that information is properly gathered and that it is gathered in a fulsome way, and then, of course, important to that is its analysis and provision to the public so that there is transparency around exactly what’s going on in the market, what profits are being made, and where they’re being made. So I think that’s a really important part of those objectives.

Equally, in supporting participants to comply with and understand industry regulation, that’s also of course an important function of the commission. This bill does contain civil penalties, but by far and away the best way to get compliance is to encourage people to understand the regime and understand its detail of how to comply, and then what you’ll get is a much better-functioning market.

Then, of course, we will get a functional market where people can compete effectively and can have confidence when they compete with each other that they’re doing it on an even playing field. The member Melissa Lee asked how quickly. Good news: now. The fact that this bill is imminent and this legislation is going through the House has clearly influenced the market. We’ve already seen the major grocery retailers open up their wholesale network to others. We’ve seen competitors enter the market in anticipation of it becoming more competitive—like Costco, Circle K, and, of course, The Warehouse is having a dabble around the edges as well.

Mr Bayly referred to the Grocery Commissioner, and when we get to the relevant part, I’ll address those questions, unless, of course, the member would like to take the whole bill as one part. In terms of Mr Damien Smith’s question, essentially I think the question from Mr Smith was how we will know when we see success. That is why we have the Commerce Commission, because the grocery sector is complex. We need a high degree of expertise to measure the market and determine whether it is acting competitively, and that doesn’t just mean price competition.

It’s great to see prices going down, and if you shop around, Melissa Lee—and when you’re filling your supermarket trolley, do shop around because that’s the best way to effect competition. But it’s also seeing good innovation, a good range of services, and a good range of products, and seeing them delivered to the consumer in a different way.

Now, when that happens, that’s when the Commerce Commission will be able to look and report, using those functions in clause 4 to come back to us and say, “We think we’ve improved competition.” But can I also add this: competition is something we will always be striving for, and it’s an ongoing struggle to make sure markets remain competitive.

Thank you, Madam Chair. Thank you for the response. I suppose the overarching consideration: can the Minister just give us assurance that the monitoring powers and the recommendation powers that are laid out in these early sections are similar to, or if not enhanced, when compared to other functions that the Commerce Commission currently undertakes, such as in respect of airports, fuel, and other such activities? So is this the functions and powers of being able to undertake inquiries—there’s a list of them here, reports, etc.—are they exactly the same as the Commerce Commission has in other jurisdictions? That would be useful.

The other thing is just moving on slightly around the issue of designated regulator grocery retailers. The issue around that, which relates back to all this, is how do we know when you’re applying these powers that we have the right jurisdiction around who’s to be covered by these aspects as they relate to the grocery trade going forward? Because one of the things about making sure, when you’re looking at these powers, about understanding the current and emerging trends, you have to have regard to where future competition’s going to come into play. So that just comes back to my reference around particularly clause 4(2)(a).

Thank you. I thank the Minister of Commerce and Consumer Affairs for suggesting that things will actually start to get cheaper from now. But it is ironic that the examples that he actually gave, in terms of Costco and other competitors coming in, they actually began before this bill has come into force, so I think the competition has already begun before this bill. So I think using this bill as an example of actually creating more competition is rather an empty answer.

I wonder if the Minister could look at the role of the Commerce Commission in Part 1, clause 4(2)(d), I think, it was. It, basically, talks about the Commerce “Commission’s objective in performing its monitoring and reporting functions under this Act is to promote the purpose of this Act, including by … (d) contributing to a trading environment in which businesses compete effectively and consumers and businesses participate confidentially”.

The Minister talked about the best way for someone to actually try and get cheaper groceries is, potentially, looking around. Having said that, I think everyone does nowadays, considering how expensive it is—whether it’s Countdown, New World, Pak ’N Save, Costco, or even the local markets in our communities. But it is so very expensive. So the question that I actually ask is: how will this promote that? I’m not so sure if the Minister actually answered that. Providing wholesale supply to other competitors is one way, but I’m not quite sure that it has immediate effect.

The question that I would like to ask is in terms of the trading environment and promoting competition effectively, in terms of the Commerce Commission being triggered when there actually is a complaint about a bad activity. Before someone complains about it, how will those bad behaviours be brought in line? So it’s based on somebody complaining. So whatever we’re doing here, yes, that’s usually the case, but immediately it has no impact or effect on consumers who are literally crying out for cheaper products at our supermarkets. I’m not so sure if it is actually quite the answer.

Thank you, Madam Chair. This is a debate on the preliminary provisions at the moment, so it’s not appropriate for me to get into the detail of the substantive matters raised.

In terms of clause 4(2), which both members identified, they’re the objectives of the commission. The further provisions are how those are achieved, and it’s appropriate to debate those when we examine them.

In terms of designation, which was Mr Bayly’s other point, that isn’t in Part 1 either.

It clearly is appropriate for the commission to have the objective, as Melissa Lee identified, to contribute to a trading environment in which businesses compete effectively, and consumers and businesses participate confidently. If the member wants to debate whether that’s a good objective or not, I’m happy to do so, but I would be surprised if she thought otherwise.

Similarly, Mr Bayly referred to, I think it was, clause 4(2)(b) “promoting transparency”, that also is an excellent objective. I’d be surprised if he were to debate that that wasn’t the case.

But the time for debating the substance of the issues is when we get to the substantive parts.

Thank you very much, Madam Chair—only a short contribution from me. I was just interested in the Minister’s statutory interpretation skills. I know that’s something he’ll be interested in engaging with me on. The definition of “groceries”, within clause 5 of Part 1, lists among other product categories “non-alcoholic drinks”. I wonder if the Minister can just confirm that alcoholic drinks are deliberately and specifically excluded, and I wonder if, given the misleading name, the item known as Pub Mix from Costco would be included or not, noticing that it seems alcohol isn’t included in that. And the other one—while I’m on my feet—I notice, also within the definition of groceries product categories, there’s “meat, seafood, or meat-substitutes”, and I just wonder if seafood substitutes would be included as well.

I’m not familiar with the products sold by Costco, so I can’t address that, but alcohol is explicitly excluded. One of the things this Government certainly does not want—and I hope other members will agree—is to have price competition around alcohol and have a drive for people to find where they can get their cheapest drink. So that was explicitly excluded. It is, however, noted that if alcohol is being used in an anti-competitive way, perhaps to draw consumers in, it can be captured as part of the information study done by the Commerce Commission.

Thank you. I’d like to invite the Minister to Costco with me and we can have a look around. Just on Part 1, clause 4(2)(d), which he mentioned, which I think is very appropriate contributing to trading environments, it seems to be that the current strategy is to just get existing box shops to add on extensions of their business models. But does the Minister believe that this function of the commission actually looks at innovation and allows new entrants to bring new business models to New Zealand, which is packaged up with overseas investment sanction and local regulatory fast-track approvals? So I guess the question is, if they are comparing to a trading environment, if we want to bring in a Lidl here and they want to have two big stores and everything’s ordered over the internet and it drops off at your house and it’s all in different boxes, does that get covered in that clause?

I just want to turn to clause 4(1)(f). I know the Commerce Commission had a view that it shouldn’t be involved in making or providing advice on policy, and that’s why the word “policies” has been struck out twice in that subclause.

None the less, I just want to get to the Minister’s understanding of what might happen. Because in practice, what’s going to happen is, hopefully, we’ll end up with a very experienced Grocery Commissioner who understands what current practices and trends are, and that that may be an evolving process over time. But as a result of that, obviously there’ll be a lot of learnt experience that the commissioner will hold as a result of that experience.

What I’m seeking from the Minister is: what might be his understanding, whilst we obviously don’t want the Commerce Commission to be determining policy—to what extent would the Minister engage with the Commerce Commission when considering new policies?

Because otherwise it might run the risk of coming up with policies that are divorced from reality—and current reality or likely reality—and I think my question is: does he see a role of the Commerce Commission providing some input on policy, albeit not being the primary driver of that development of new policy?

I’m very happy to go shopping with Damien Smith; I think that would be a fun outing. In terms of what I think was the thrust of his question, which is: what about overseas investment coming into New Zealand—what barriers there are. My view is—and it’s certainly the intention of this legislation to make it a more attractive place. What we can say is that for the past long time, there have not been overseas entrants into the grocery sector. So this change will be a change for the better there.

In terms of any amendment to the Overseas Investment Act, that wasn’t considered necessary. There is a balance to be struck. Supermarkets are important parts of our infrastructure, as recent disasters in the East Coast have shown us, and making sure that we have a responsible owner of a supermarket chain would be an important question. So that’s why the Overseas Investment Act still remains important.

In terms of Mr Bayly’s point, which relates to the function of the commission and keeping the law in practice under review, clearly there is a relationship that any Minister in a role like I’m currently holding has in engaging with the commission. And the commission has a huge amount of expertise in terms of how law hits the ground, so to speak, and what effects it has and whether it’s effective. It also has a huge amount of expertise in the practice of competition and in implementing competition policy overseas.

Obviously those things inform the policy discussion because whether something can or can’t be effectively implemented is an important part of that discussion, and they will have expertise in that. But clearly the question of policy is a question for the Government of the day, and that’s why that really doesn’t appear in that situation.

Just back to clause 4(2)(d), one of the things that we found out is that one of the levers for actually reducing prices is to put some pressure on the big brands that are in stores, which are stocked reasonably lazily by the duopoly to actually offer the customer better value. One of the things that is missing, I think, from this is the duopolies also searching for product development and new products to provide price competition. Has the Minister thought about how—I’ll use soap powder as an example—if a New Zealand manufacturer wants to get involved with that game, that there’s a free and open market to do that?

The question is that the Minister’s amendments to Part 1 set out on Supplementary Order Paper 353 be agreed to.