Sims’ regulation call may backfire

John Durie
March 15, 2013
The Australian

THE federal government is demanding tougher provisions in the proposed supermarket industry code, but according to Assistant Treasurer David Bradbury it is yet to decide whether to proceed with the imposition of a mandatory code.

But he made clear in an interview that the government was unhappy with some parts of the draft code presented by the industry.

In essence, the difference between a mandatory and voluntary code is semantics with one exception, the latter can by avoided by the industry at its whim.

Further, for a government intent on wrapping the economy in yet more regulation before it is thrown out of office, the option chosen will be one with the biggest political impact.

On one level, the supermarkets have only themselves to blame, given they have pushed the concept of a voluntary code in an attempt to avoid the political wrath they are on the verge of enduring.

In effect, they have handed Julia Gillard a gift on a silver plate.

Media, coal-seam gas and industrial relations have all been hit by this month’s blitzkrieg of increased regulation, presumably because the government wants to show it is doing something.

With penalty rates now locked in concrete, the banks better watch out, because they are an easy target.

Ironically, an industry code of conduct advanced by the Australian Competition & Consumer Commission and the industry is now subject to the loose cannon that is the Gillard government, and both competition chief Rod Sims and the supermarkets may soon be regretting even suggesting moving down this path.

ACCC chairman Sims advanced the cause with his statement at a Senate estimates committee hearing earlier this year, expressing concern about some supermarket behaviour and saying allegations were made that, if true, would be in breach of the law.

He even went further and endorsed the concept of a code of conduct to make it easier for him to do his job.

The way Sims sees it, the sorts of things that went into a code would be things that Wesfarmers boss Richard Goyder and Woolies boss Grant O’Brien would have no problem with, because they would say they didn’t do those things.

Which begs the question, if the code covers behaviour that doesn’t happen, why have it?

Because Sims obviously thinks the behaviour does happen and wants an extra safeguard. He wants a mandatory code.

The ACCC has pointed to behaviour such as changing contracts and other bully-boy tactics.

The real elephant in the room, of course, is that with private label sales the supermarket and supplier are increasingly competitors, which changes the whole ball game given that suppliers are reliant on competitors for sales.

Any code must cover the unequal bargaining positions of small manufacturers and retail behemoths.

Sims has advanced a regulatory path before following the normal process of an investigation and, if provable, a court hearing.

The supermarkets, the ACCC, suppliers and the government have talked since September about an industry code and drafts have been submitted.

To retrace: Sims says, if proved, some allegations may be taken to court, but before we even get to court, he and the politicians want to increase regulation.

Regulation adds cost, which means consumers pay higher prices. Surely this government doesn’t want to go to the polls as the champion of higher supermarket prices? The first question to be asked is: what would a food industry code achieve?

The British model is set on high-level process issues with no substantive changes but includes an ombudsman — what the industry wants to avoid. Goyder has Sims looking over his shoulder and will soon have an ombudsman, making life more difficult.

Lawyers will be cheering on the changes because it will increase their workload and add to costs that consumers will bear.

Sims was quoted out of context this week as saying that his potential lawsuits against suppliers would result in increased consumer prices. He would admit that statement, if correct, was nonsense because it implies that supermarkets sell everything below supplier costs.

But increased regulation can only make the whole process less productive.