Competition watchdog chairperson Anna Rawlings responds to its critics

Friday, 1 July 2022

Commerce Commission chairperson Anna Rawlings says it is not dismissing the backlash that followed its supermarket study.

Commerce Commission chairperson Anna Rawlings says the watchdog can’t ignore recent criticism, but much of its good work goes unnoticed, and she stands behind its decision not to recommend stronger intervention in the supermarket industry.

Rawlings concluded her three-year term heading the commission at the end of May, but is staying on in the role while the Government settles on a replacement.

She agreed to front-up on the commission’s performance, 3½ months after that was requested as a result of a Stuff reader poll that suggested public approval in the watchdog’s work had taken a huge dive.

That poll, initiated in the wake of its market study into the groceries industries, indicated about 84% thought the commission was not doing a good job and was too timid.

Rawlings said she was “not dismissing the sentiment”.

“It's critical that we hear that and that we do something about it.”

But she said the disapproval was not entirely surprising given that New Zealanders were dealing with the higher cost of living and may have been looking for a “direct and immediate impact” from the commission’s study.

Her main takeaway was that the commission needed to “do a better job in articulating exactly what our role is, and what we are doing and the impacts that is having”.

“Not for the benefit of making people like us, it's nice to be liked, but what we need to do is be accountable for the value we deliver for the public money that we spend”.

* Competition watchdog should abandon building materials study and roll up sleeves

* First fuel, now food: is our competition watchdog letting us down?

Rawlings was appointed to the watchdog by the Government as a commissioner in 2014 before becoming its chairperson.

Invited to identify the single most impactful active intervention by the commission since her initial appointment, Rawlings pointed first to the work it had done to enforce rules around loan agreements, and then its crackdown on illegal practices by mobile traders.

“We undertook a range of really active investigation and enforcement activity in the credit area, in particular, in relation to the disclosure of information to borrowers at the time that they enter into loans.

“That's information that is required by statute and is required to make sure people know what they're getting themselves into when they borrow money and what to do if things go wrong.”

That work had made a material impact, she said.

But what about the elephants in the room; the seemingly excess profits being earned by many big businesses, including the banks which reported profits totalling more than $1.7 billion in the first three months of this year, and the broader complaint that so many markets are in the hands of monopolies, duopolies and oligopolies?

Rawlings noted profits weren’t always the sign of a competition problem and that the commission’s powers were limited.

“The issue here is, what are the things that the commission can actually do? And what are the levers that we can pull to influence ultimate market outcomes, because we don't control the entire market.”

The commission got one new tool in 2018, when the Government gave the watchdog sweeping powers to demand information from businesses in order for it to conduct its market studies.

It will get another in April next year, when a law change takes effect that will significantly lower the bar for prosecutions it can bring for anti-competition conduct, by removing the need for it to prove “intent”.

The commission respects the right of the Government to make different decisions, chairperson Anna Rawlings says.

But both changes are putting the commission on the spot over whether it has the resources or indeed the ambition to match its new weaponry.

The Government has announced it intends to override some of the watchdog’s key recommendations on supermarket competition, with Commerce Minister David Clark making it crystal clear that he did not think the commission’s proposals had gone far enough.

Against the commission’s advice, the Government is preparing a regulatory backstop that would require Countdown and Foodstuffs, owner of the Pak ‘n Save and New World brands, to wholesale groceries to rivals on regulated terms and conditions.

It will also consider forcing the supermarket groups to sell some of their stores to make way for a third player, which was the strongest intervention the commission canvassed during its study but which it dismissed with barely a word of explanation in its final report.

On the advice of a select committee, the Government has also beefed-up a crackdown on restrictive supermarket covenants and lease agreements that had been backed in a more limited form by the commission.

Rawlings raised eyebrows in March when she justified its recommendations by saying the commission had concluded structural reforms of Countdown and Foodstuffs would be “complex and unprecedented”.

But she clarified those weren’t the main reasons the watchdog didn’t go down that route, noting another reason the commission had given in its report was “the feasibility of maintaining an independent wholesaler”.

“There were a range of reasons why we thought that additional steps were potentially not workable.”

Rawlings said the commission respected the right of the Government to make different decisions, while also pointing out that the Government was still working on those interventions.

“I'm pretty proud of what the team achieved in that time and I think it is a good platform for the Government to then consider the findings and recommendations and make its policy decisions.”

The commission is now in the midst of conducting its third market study, this time into building supplies including Gib board, with a draft report due in early August.

If you can't back it up, don't say it. First published in 2020.

Competition advocate Tex Edwards has called for the commission to recommend forcing Fletcher Building to sell its Placemakers retail business and split off its Gib board business, and also for the replacement of the Building Research Association standards-setting body.

One of the soft interventions the commission has engaged in during Rawlings tenure was a 2020 campaign that advised traders: “If you can’t back it up, don’t say it”.

That now appears to be advice the commission is itself having to ponder as it works out what expectations to set in that next draft report.

Rawlings said just because it didn’t ultimately recommend structural reforms of supermarkets or petrol companies in its first two market studies, that did not preclude it doing so “in appropriate circumstances in future market studies”.

But she admitted she had “no idea” whether anyone would believe that was really a possibility if it did put that option on the table again this time round.

“Our job is to identify what we consider to be the best recommendations and to make them irrespective of whether we think we will be believed or not believed.”

Rawlings defended the outcome of the watchdog’s first market study into the petrol market.

That has resulted in petrol firms having to display the price of 95 and 98 octane premium fuels alongside 91 and diesel on their roadside price boards since February, and Z Energy, BP and Mobil having to advertising a price at which they will sell fuel to smaller petrol firms since last August.

High price premiums for higher octane fuels do not seem to have budged and BP and Mobil recently reported bumper profits of $183 million and $230m, respectively, for last year.

But Rawlings suggested the reforms the commission had recommended could have an impact over time.

“I don't think that you can look at the price board and draw conclusions about the way that competition is functioning or the effectiveness of the fuel industry actions,” she insisted.

“The Commerce Commission does not have the capacity to regulate all aspects of this sector … but what it can do is ensure that the information available to consumers is clear and accurate.”

Market studies, and legal action to police the Commerce Act and Fair Trading Act, represented the “tip of the iceberg” of the commission’s work, much of which didn’t make it into the public arena, Rawlings said.

“In the competition area, we might have a couple of cases sitting in the courts, but we might resolve more like 20 cases a year.”

Similarly, it might have 20 prosecutions under the Fair Trading Act in train at any one time, but 200 to 300 investigations that were dealt with less formally, she said.

“What we need to be communicating more clearly and assisting people to really understand, is that there is other work that is delivering value, that might not be in the headlines.

“A lot of lower level enforcement outcomes are undertaken every day, from just conveying to traders that we've received information that looks like something they should be having a look at”.

That went “all the way through to issuing them with advice that we think they need to put some attention into these areas, to warnings and through to prosecutions”.

Some improvements may be on the cards for people who take complaints to the watchdog.

Rawlings said it received about 10,000 of those a year, and she initially said her understanding and expectation was that people were “kept appraised of what was happening throughout the course of an investigation”.

But after being queried on whether that was common practice, she later clarified that people might not receive any communication from the commission beyond an initial automated response, whether or not it decided to investigate.

“We place an extremely high value on the complaints that we receive, and we are actively working on ways to improve the process and user experience,” she said.

Frustrated consumers with their myriad of complaints are not the only ones snapping at the commission’s heels.

The New Zealand Initiative blasted the commission in May, saying few of the big businesses it polled believed the commission was meeting its goals and many thought its decisions were unpredictable.

The right-leaning think-tank has the watchdog’s board governance structure firmly in its sights, arguing it is not good practice for the watchdog to be overseen by the same group of commissioners who also make its big decisions.

From a different part of the political spectrum, National Māori Authority chairperson Matthew Tukaki has reprimanded the watchdog for what he viewed was a failure to properly engage with Māori interests during its grocery market review.

The fall-out from that rebuke looks increasingly likely to result in the Government appointing at least one Māori commissioner, or assistant commissioner to the watchdog.

Rawlings said the commission’s size and budget ($84m in the last financial year) had roughly doubled in the three years she had been its chairperson and the New Zealand Initiative’s observations were “important to take on board when we're thinking about how we govern the expanding organisation”.

But she said it had the capacity to manage the matters the think-tank raised.

She is taking Tukaki’s comments on the chin.

“We accept that we could have consulted with Māori much earlier in the process.

“We are very supportive of finding Māori representation for our board, and we've been working with the Ministry of Business, Innovation and Employment and the minister through a recent recruitment round in continuing to do that.”

The perspective of Māori would become even more important if the commission assumed a role in the economic regulation of water as a result of the Three Waters reforms, Rawlings said.

“I don't think it would necessarily change outcomes, but we need to be more reflective of the communities we serve, and the commission hasn’t been, traditionally.”