Supermarket break-ups: important to keep all options on table, says Finance Minister

Wednesday, 8 May 2024

An OECD report could help NZ minimise the fall-out from any forced business break-ups on its international reputation.

ANALYSIS: Big businesses and especially supermarket groups Foodstuffs and Woolworths NZ would be entitled to feel a bit rattled by the Organisation for Economic Co-operation and Development’s biennial report on the New Zealand economy.

The macro-economic forecasts in its report released on Monday are essentially just another forecast from just another group of pundits, and throw up no huge surprises.

The OECD appears to expect unemployment to peak a bit below 5% this year, lower than some economists are expecting, and for inflation to come down a bit more slowly than the Reserve Bank is predicting

It may or may not be right.

Much of the advice in the OECD’s report, such as its call for New Zealand to revisit the merits of more comprehensively taxing capital gains and to reduce its reliance on pine forests to meet emissions-reduction targets, is potentially of more interest.

But none of that is anything Kiwis couldn’t have heard eloquent and detailed arguments made for before.

The advice it gave that businesses, including the country’s supermarket duopoly, might need to be broken up to improve competition and boost the country’ lagging productivity is more significant.

To recap, the OECD stated that in some industries, market concentration could be so high that regulation would not be enough to improve competition and breaking-up big businesses could be warranted “although as a measure of last resort”.

It went a little further in the case of supermarkets by making clear its view that current reforms, such as a supermarket wholesale regime imposed by the former government last year might not be sufficient.

A “forced sell-up” of supermarket brands would be intrusive and complex but could eventually prove warranted, it advised.

Again, that is just another opinion from the arguably relatively-interventionist Paris based body.

Finance Minister Nicola Willis says the OECD provides some useful guidance.

But its importance lies that it would help give cover to any government that did decide to go down that road.

It is hard to argue that a forced sell-off of Woolworth’s Fresh Choice stores or Foodstuffs’ Pak’nSave or FourSquare chains would trash the country’s reputation with international investors when the world’s developed-countries club suggests that kind of intervention could be justified.

Finance Minister Nicola Wills indicated on Tuesday that the Government was in sync with the OECD’s advice, saying it was “reflecting an observation that I've also had, which is that in a small market like New Zealand it's particularly important we take the right steps to ensure there's good competition”.

She agreed with the OECD that the break-up of big businesses, including supermarkets specifically, should be considered as a last resort if the Government was unable to address competition problems in other ways, she confirmed.

“We have to keep all options on the table. It's incredibly important we get good competition in the grocery industry,” she said.

Both Willis and the OECD have made it very clear there would be downsides to such a huge intervention.

“Of course, there's always a balance we need to strike to make sure that people looking at investing in New Zealand think this is a ‘certain’ place to invest,” Willis said.

“I wouldn't want a future supermarket to be put off investing here because they think there would be government overreach, so we've got to strike that balance and I think the OECD provides some useful guidance about how we could do that.”

So all very sensible and measured views, but ones which leave calls for a break-up of the supermarkets difficult to simply rubbish or dismiss out of turn.