Consumers must be put top of food chain in new grocery regulations
There is a danger that the proposed code would result in higher prices
THE Government is committed to introducing new regulations for doing business in the grocery sector. What form should they take? The National Consumer Agency proposes a general prohibition on what it calls unfair commercial practices in the grocery sector.
Consumers' interests are not well served by this proposal. Better solutions exist to the alleged problem of imbalance between grocery suppliers and retailers. These are more in line with the agency's motto -- 'Putting consumers first'.
The National Consumer Agency has played a valuable role in informing and empowering consumers through a series of price surveys of branded groceries and own-brand groceries.
As the chief executive of the agency stated, these surveys enable "consumers to maximise their considerable buying power and effect further competitive improvements in the grocery market".
Tanaiste and Minister for Enterprise, Trade and Employment Mary Coughlan has also tried to improve the grocery market through proposals for a 'Grocery Code'. The code would regulate the commercial relations between grocery suppliers and grocery retailers; it does not affect relations between suppliers or retailers and individual consumers.
The code is designed to achieve balance in the commercial relationships between grocery suppliers and retailers.
It prevents or discourages certain retailer practices that allegedly are unfair towards suppliers -- for example, the retailer demanding payments from a supplier for a better shelf positioning in the grocery store of the supplier's goods: unless such a payment is in relation to a promotion (eg buy one, get one free).
But it is also important to protect consumer interests and ensure that the code is not an impediment to the passing-on of lower prices to consumers. However, while the code safeguards the interests of suppliers, there are no mechanisms to safeguard consumers. Indeed, the code is likely to lead to an increase in consumer prices.
The objective of the minister's and the agency's proposals are to create balance between grocery suppliers and retailers. If retailers treat suppliers unfairly, then retailers can dictate price and other commercial terms.
The three-page response of the National Consumer Agency to the minister's proposals for a code is concerned with whether the code achieves a fair balance between suppliers and retailers, not the impact of the code on consumers.
The National Consumer Agency proposes an alternative to the Grocery Code, modelled on the Unfair Commercial Practices Directive -- a directive which is concerned with consumer rights and protection. There would be a blacklist of prohibited practices between grocery businesses. Other practices would be assessed using selected criteria such as the bargaining power of the parties and the legitimate expectations of both parties.
Ironically, the approach of the National Consumer Agency could lead to higher prices for consumers. None of the agency's selected criteria refers to consumers.
Suppose, for example, a retailer has considerable bargaining strength and is able to obtain a low price from a grocery supplier that is passed on to consumers.
There is a clear danger under the agency's proposal that the retailer's conduct would be deemed unfair. Consumers would pay more. Competition would be chilled.
The principles that underlie consumer legislation are not relevant to business-to-business dealings. Individual consumers may not be able to judge a trader's claims on product quality or understand the small print of a complicated and lengthy contract.
By contrast, businesses -- including suppliers -- are likely to be in a position, not only to evaluate such claims and contracts, but also seek redress in the courts or complain to the Competition Authority, which has considerable expertise in the grocery sector.
The Competition (Amendment) Act, 2006 already prohibits certain business practices in the grocery sector.
However, in contrast to the minister's or the agency's proposals, there is a competition test that protects the consumer interest.
If a compelling case can be made that there are business practices that damage competition and consumers in the grocery sector, then they should be included as part of the 2006 Competition Act -- that way consumers would be put first!