Commerce Minister says supermarket split 'difficult' but promises competition reforms won't stop

Wednesday, 15 March 2023

Competition and Consumer Affairs Minister Duncan Webb took over from former minister David Clark at the start of February

The Government does not intend to slow down competition reforms despite its decision to reset its policies in other areas, recently-appointed Commerce Minister Duncan Webb says.

But Webb voiced caution about one of the first big decisions he must make, which is whether to recommend consulting the public on perhaps requiring supermarket groups Countdown and Foodstuffs to sell of some of their stores or chains.

He also said the Government might not have time to pass a law change giving people a new “consumer data right” before the election.

The Government has dumped or shelved significant parts of its work programme since Chris Hipkins was appointed prime minister, including a proposed social insurance scheme and a reform that could have redefined many of the country’s 150,000 contractors employees.

Former commerce minister Kris Faafoi defended himself against criticism for not regulating open banking in May 2019.

* Government moves to introduce open banking

* We need a proper Commerce Commission inquiry into bank profits

* Consumers need to be given a voice to stand up to corporate power

But Webb, who succeeded David Clark as Commerce and Consumer Affairs Minister on February 1, said competition policy was one of the most powerful levers the Government could pull to influence the cost of living.

“You can't change whether the lettuces are growing in the Hawke's Bay, but if the supermarkets are an oligopoly, then we want to change the needle on that one.”

Webb said he would release draft legislation as soon as he could for a consumer data right first announced in July that would be intended to help people better shop around for services, including banking services.

The Government signalled in November that banks would be the first institutions that it would designate as needing to comply with the legislation.

That would force them to share customer data on request with intermediaries that could help customers compare prices and transfer accounts.

Monopoly Watch founder and competition advocate Tex Edwards, who is best known for founding 2degrees, said the commerce portfolio was at the front line fighting inflation and Webb’s background as a Canterbury University law professor made him well suited for the role.

But he said Webb had been dropped in at the deep end.

Edwards said there was no substitute for “bank number portability” which could let people transfer bank accounts between banks in the same way that they can currently transfer mobile phone numbers between telcos.

“’Open banking’ is term that is too wide as you don’t know where it stops or starts. You have to have a date for bank account number portability and you have to be going there,” he said.

Self-styled monopoly buster Tex Edwards said Webb had been thrown in at the deep end.

“Unless there is a perception by the customer they have instant bank account number portability then it is a fudge, and we are in the land of competition fudges.”

But Webb said he was confident that the consumer data right officials were drafting would be robust and could be “more powerful”

“The people I am working with are passionate about it and, perhaps not the Banking Association, but the wider industry is excited by it,” he said.

“I think we are not far away from a platform where you can go to a third-party app and see all of your bank accounts across multiple providers and bank seamlessly. You might have your transaction account with one bank, your mortgage with another, and a bit of a savings somewhere else.”

Webb said time might be “a bit tight” to enact the reform before the election, but he assumed it would not be politically contentious.

“The Opposition is very aligned to this. I think this will progress whatever happens.”

While Webb has high hopes the proposed consumer data right will improve competition in banking and other industries, he cautioned that people would need to exercise the rights it provided if it was to be effective, and changes would not happen overnight.

“It's a relatively long road to get all those protocols in place and the legal framework, but if we could roll that out in a number of sectors that will probably be the biggest single competitive gain we can make.

“If all we get is the millennials or younger using it, that’s not enough; this has to be second nature. The political task is to let people know this is coming and it's safe and effective and really significant gains can be obtained by it.

Webb says forcing supermarket groups Countdown and Foodstuffs to sell stores to help make way for a third competitor would take a lot of government energy.

“It also means you’ll have a more innovative and responsive finance sector because, let's face it, the banking products that are offered to us are generally pretty standard. They're not flexible. They haven't changed for years.”

Webb said he yet to decide whether to instruct the Commerce Commission to conduct a market study of the banking industry, but that was “top of mind”.

“Increasingly, people are of the view that the gap between the cost of money to banks and the rate they hand it out at needs at least some explanation.”

He was non-committal on whether the commission had the skills to effectively run such a study, but said it had the necessary powers and the ability to draw on the expertise of the Reserve Bank which could “dig down pretty deep”.

A big decision in front of Webb is whether to recommend the Government consults the public on perhaps forcing supermarket groups Countdown and Foodstuffs to sell some of their stores or chains to make way for a third “like-for-like” competitor.

Edwards has forecast that reforms short of that, such as those that are in train and aimed at encouraging wholesaling, will fail to significantly improve competition or bring about lower food prices.

That was given that the market was already quite well saturated with actual supermarket stores, which were local monopolies, making significant market entry otherwise unattractive, he said.

The Ministry of Business, Innovation and Employment (MBIE) has conducted a “cost-benefit analysis” of forced divestment and Clark had originally expected to take a recommendation to the Cabinet last October.

The ministry’s study has not yet been released, but Webb said that “what is clear is that divestment would be a difficult task”.

The modelling was extremely uncertain and divestment would require “a lot of government energy”, he said.

“The challenge is there are ‘outlier scenarios’ where everyone is worse off, so this is what we're working through.

“To decrease the wealth of the supermarkets and decrease the wealth of the consumer would be a catastrophe.”

If the Government was to have a competition regime that allowed forced divestments to break up monopolies, another question was whether that should be specific to an industry, Webb said.

“I think it's really important to do stuff like that on a principled basis.

“I am aware that we run the risk of having so much industry-specific regulation that we lose sight of the wider Commerce Act framework. This is this the academic in me coming out.”

Webb said a third focus was progressing a reform of insurance law that had been “kicking around too long”.

MBIE proposed in February last year that insurance companies should no longer been allowed to decline claims because of so-called innocent “non-disclosure”.

It also recommended barring them from including unfair terms in insurance policies and requiring they write their policies so they could be clearly understood, while imposing a duty on people seeking insurance to take reasonable care not to mislead an insurer.

Webb said the law might not be enacted before the election, but he was keen to see it progressed.