Supermarkets could be on the line for significant sums if they don’t play along with the new regulatory requirements. Photo/Getty Images
Supermarkets could be fined millions of dollars if they fail to comply with proposed government rules aimed at improving competition in the sector.
Cabinet in August agreed on a set of penalties that large supermarkets could
face if they don’t open their wholesale arms to competitors.
Trade and Consumer Affairs Minister David Clark fears that potential new entrants into the supermarket sector, as well as smaller incumbents, are at a disadvantage as they cannot take advantage of the savings made by buying in bulk to the extent where the two major players in the country – Foodstuffs and Woolworths – can.
So in May he announced that the government would require large companies to make goods available to wholesale competitors at a fair price.
He decided to go further than the Commerce Commission suggested and legislate this requirement. A bill should be presented to Parliament before the end of the year. It will probably be enacted in 2023.
Cabinet agreed to establish a “quasi-regulatory regime” under which major food retailers would negotiate wholesale deals on commercial terms.
He also agreed to create a ‘regulatory backstop’ that would allow him to crack down harder on food retailers if they don’t play ball or if their offerings ‘do not conform to what would be expected in a market. truly competitive wholesale”.
Documents released by the government show that in August the Cabinet approved a package of sanctions to accompany the regime.
Different types of non-compliance – whether related to the near-full regime or the full regime – would result in different types of penalties.
Penalties could be capped at a fixed amount or calculated in relation to what the supermarket earned by doing what it shouldn’t have done, or in relation to its turnover.
The most egregious violation – “failure to meet non-discriminatory sourcing obligations” – could result in a $500,000 fine for a guilty individual or a $10 million fine for a guilty entity.
An entity could also be fined up to three times the value of the commercial gain realized by the violation, or it could be obliged to pay the equivalent of up to 10% of its annual turnover in New Zealand for each year the breach occurred.
The method that solicits the greatest penalty could be used.
Cabinet agreed on a set of additional daily penalties that could be applied if a supermarket fails to follow the instructions. These range from $30,000 to $100,000 per day.
The proposal is that the sanctions operate on a similar basis to those described in the Commerce Act.
Cabinet also agreed the bill should create a toolkit the government could use to pressure supermarkets into compliance.
One such power would be to allow the Minister for Trade and Consumer Affairs to seek an Order in Council to require large food retailers to “supply wholesale customers with a range of products at regulated prices and conditions”.
The minister could do so after considering the recommendations of a grocery commissioner who will be appointed.
The Cabinet in August also clarified how it would allow suppliers (i.e. of a particular fruit or vegetable) to bargain collectively with powerful food retailers.
He agreed that the exemption should be made by way of secondary legislation to those parts of the Commerce Act which make collective bargaining illegal.
The government has already updated the Commerce Act to prevent supermarkets from buying land or dictating the terms of leases to prevent competitors from setting up shop in an area.
The set of new rules follows market research by the Commerce Commission into the supermarket sector.