Big Food backs changes to s.36 of Commerce Act to curtail power of big supermarkets

The review grew out of the Productivity Commission's recommendations in May 2014 and the 2015 Business Growth Agenda.

The Food & Grocery Council says New Zealand's main law to tackle anti-competitive behaviour, section 36 of the Commerce Act, should be amended to include an "effects test" and the Commerce Commission be given expanded remedies including an "unconscionability provision".

The council, whose members include Nestle, Fonterra Cooperative Group, and Goodman Fielder, made the comments in its submission to the Ministry of Business, Innovation & Employment's targeted review of the Commerce Act. It confined its comments to the supermarket sector, where it says s. 36 in its current form doesn't prevent abuse of market power by the two dominant chains, Progressive Enterprises and Foodstuffs, which have 98 percent of the market.

The review grew out of the Productivity Commission's recommendations in May 2014 and the 2015 Business Growth Agenda that followed and including the government's intention to review the misuse of market power prohibition and related matters such as market studies and the cease and desist regime in the Commerce Act.

MBIE's preliminary view was that the operation of s. 36 hasn't been satisfactory because it fails to maximise the long-term benefit to consumers by failing to punish anti-competitive behaviour by powerful firms, is too complex to be cost-effective and timely, and is misaligned with other prohibitions in the Commerce Act and with comparable regimes in other countries, especially Australia, which is reviewing its own law..

One of the key parts of s. 36 up for debate is the "taking advantage" element, where in order to determine whether behaviour is anti-competitive the courts use the following test - does a firm have substantial market power; is it using it for an anti-competitive purpose; and would it be acting that way in a competitive market.

The FGC and other submitters in favour of change want the "taking advantage", or purpose test replaced with an "effects test" which would consider the actual impact of that conduct in reducing competition in the market. The FGC also proposes the ministry adopt a broader range of remedies to address abuse of market power by supermarkets including the introduction of am unconscionable behaviour provision and a supermarket code of conduct.

The FGC cited the decision of the Australian Competition and Consumer Commission to use Australia's unconscionability provisions rather than that country's equivalent of s. 36 to bring proceedings against Coles Supermarkets and Woolworths for their conduct toward suppliers.

"Supermarkets wield substantial bargaining power over their suppliers," the FGC says. Instances of abuse of power go unreported because of "the fear of consequences". Under the status quo, s. 36 of the Commerce Act "is not operating to address abuses of market power in the supermarket sector."

The FGC's submission is among 39 posted on the MBIE website, with views broadly divided between those favouring the status quo and those calling for change. For example, Retail NZ, which represents about 5,000 retailers including the supermarket chains, strongly opposes changing to an "effects test", saying it would "require businesses to predict the real world results of an action which would be very difficult, or impossible".

"The overall result will be a chilling of innovation and risk taking," Retail NZ said in its submission. "New Zealand with many markets serviced by a number of large firms is not an appropriate guinea pig for an untested and uncertain effects test."

Air New Zealand also opposes change, arguing that it would "create costs for both business and government, without any clear benefit over and above the current regulatory regimes". Such changes could also result in companies making "unnecessarily conservative business decisions". Chorus said in its submission that the current s. 36 "has well-established case law that parties have been able to understand, take advice on, implement and rely on."

"The line between permissible vigorous competition and anti-competitive conduct is widely acknowledged as being a difficult area of the law," Chorus said. "Having a clear, predictable test in this environment is all the more important given the consequences of erring on the wrong side of the law."

However, companies without a dominant market position were more likely to advocate change.

"We support the ministry's preliminary view that the operation of section 36 has not been satisfactory and that alternatives, including the potential to shift to an effects test, merit further consideration," said mobile phone company 2 Degrees. It also supports giving the Commerce Commission the power to undertake market studies, which many of its counterparts overseas can already do.

Cross-submissions close on July 21.