Greens Divestiture proposed laws could result in higher grocery prices

The peak retail body, Australian Retailers Association (ARA) says the Greens’ proposed bill for divestiture laws targeting supermarkets is a poorly conceived idea that could escalate grocery prices for consumers.

ARA CEO Paul Zahra said the rushed piece of legislation gives little consideration to the true ramifications on consumers and the retail sector.

“Large supermarkets operate with high fixed costs and intricate supply chains. The most likely outcome of any forced divestment would be to disrupt the economies of scale retailers have painstakingly built,” he said.

Mr Zahra said Australian business is not directly comparable to other regions due to its large geographic size – coupled with a relatively small population – which makes achieving economies of scale an ongoing challenge.

“The ARA supports initiatives aimed at enhancing market competition, but divestiture is not a workable proposition for a market the size of Australia and may have unintended consequences for Australian consumers,” he said.

“We recognise the current political focus is to single out supermarkets during a cost-of-living crunch. However, if we applied this divestiture logic to business sectors outside of supermarkets, this would set a dangerous precedent in Australia,” he said.

“The Productivity Commission in its submission to last year’s inquiry into promoting economic dynamism, competition and business formation said our supermarkets were ‘highly competitive’”.

Mr Zahra said as just one example of increased competition, in 2008, Aldi had about 170 stores in Australia, across four states/territories. The ACCC found that “Aldi has been a significant influence on Australian grocery retailing.” Now, it has 590 stores, across every state and territory except Tasmania and the Northern Territory, and an annual turnover of nearly $12 billion.

The recent Senate Inquiry hearing in Melbourne on March 13 saw opposition to divestiture from key agricultural bodies with the National Farmers’ Federation (NFF) and AUSVEG voicing concerns regarding the proposed legislation.

During the Senate Inquiry hearing in Melbourne last week on 13 March, the NFF and AUSVEG both opposed divestitures. Their comments are below.

Mr Young (NFF): It is not NFF policy to support divestiture of retail assets. As I mentioned, we have argued for decades that, if you get the competition policy settings right, we think the market will then function properly. So, no, it is not our policy. I know that differs from some of our members, which is fine. We are a federation, a membership body, but that is not our policy.

Mr Coote (AUSVEG): We’ve got a concern around the divestiture power piece. If we did end up in a scenario where marginal or unprofitable regional outlets were closed—similar to rural banking et cetera—that potentially ends in a scenario that’s not good for suppliers or consumers. We support the threat of divestiture powers and the ability to address the market share issues that exist, but it has to be done cautiously. We don’t want any of these current inquiries and processes that are looking into retailers to result in any unintended, negative consequences for vegetable producers, who are already doing it very tough.

Fred Harrison, Ritchies CEO: No, look, we’re not necessarily pushing for stores to be sold off by the chains.

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