Ailish Forde takes issue with the chairman of the Competition Authorityabout what constitutes barriers to trade
Direct your focus elsewhere, Dr Fingleton.
The chairman of the Competition Authority, Dr John Fingleton, recently claimed in this paper that the Retail Planning Guidelines and the Groceries Order are "undoubtedly" restrictions on competition. He argued that the Government should scrap both measures to encourage competition and lower prices.
The Competition Authority chairman frequently dismisses any view that is contrary to his on this issue as coming from "powerful" vested interests. He tars all objectors to his perspective as scare tactic terrorists - all part of an axis of evil embracing taxi-men and pharmacists. And when an independent body such as the Consumers' Association feigns to disagree with him, he dismisses them as "unrepresentative" and engaged in "voodoo economics".
Such attempts to foreclose debate and discussion on an issue of such public importance are regrettable and do much to reinforce a view that the Competition Authority is probably located in a pointy-topped ivory tower in the centre of Dublin.
Some commentators, including Dr Fingleton, have argued that if we do away with the Groceries Order and the Retail Planning Guidelines, the market will be free of restrictions. They claim that large retailers will be able to sell goods below cost to consumers and offer lower prices permanently. They also predict a form of retail utopia where large stores will be able to compete alongside small stores happily ever after. They plead that "normal planning rules" should apply in the retail sector.
Frequently they cite the benefits that competition brought to the airline sector and argue that abolishing restrictions allowed Ryanair to challenge Aer Lingus's dominance.
This of course ignores the reality that in the retail grocery trade there are 6,000 independent retailers and the German discounters continually trying to challenge the dominance of the large multiples. If the Groceries Order and the Retail Planning Guidelines are such barriers to entry, how come we have had so many new entrants to the market-place here since their introduction? The rapid growth of Aldi and Lidl puts paid to suggestions that this is a closed market.
It is easy to deal with negative comments on retail planning. The simple fact is that normal planning rules do apply in the retail sector. A planning regime by its nature involves some element of control on development. In other EU states, where there were no retail planning controls, large hypermarkets wreaked havoc on local towns and villages and created retailing deserts across countries, particularly in France. In the UK, a lax planning system has resulted in 42 per cent of UK towns and villages without a shop.
The Retail Planning Guidelines were not prepared by the Retail, Grocery, Dairy and Allied Trades' Association. They were introduced in January 2001, following careful study and assessment by five sets of independent experts appointed by the Government. They represent best practice in retail planning and concord with similar planning regimes in a host of European states.
Much of the negative focus on the Groceries Order is also misguided.
Some commentators have claimed that the rate of increase in the price of food products is a problem. But it is not. It has already been established by the Central Statistics Office that food prices are not contributing to the high rates of general inflation. The current rate of inflation in food products is 2.2 per cent, almost half the general rate of inflation at 4.3 per cent.
Other commentators have cited the recent Forfás report as evidence that food prices in Ireland are the highest in Europe. But they are not.
What the report established was that Irish food prices in 2001 were the same as those in France, Luxembourg, Finland and Sweden. Food prices in Ireland were found to be lower than those in Denmark. With Ireland's GNP in the top four in the EU, it is to be expected that our food prices would compare to these countries. Dr Fingleton claims that loss-leading is enormously pro-competitive. Fine in theory, but not in practice. Typically a large retailer funds the loss in a number of ways, either through increased pressure on the supplier, by increasing the price of other goods, or by dipping into financial reserves. It is a crude marketing tool that is not sustainable in the long run. It is also an arbitrary marketing tool, not available to all retailers - only the biggest and the largest.
By allowing large retailers to sell goods below cost, they acquire a valuable and powerful weapon to eliminate competition. And make no mistake - many smaller retailers compete head to head with the multiples for the main weekly shop in Dublin and the rest of the country.
Sure, loss-leading may reduce prices in the short term, but what happens when the competition disappears? Prices go up. This is not scaremongering. It is an illustration of what has happened previously in Ireland and in the rest of Europe when below-cost selling or predatory pricing is permitted.
And for that reason 12 out of 15 EU states have banned below-cost selling, with some introducing bans as recently as 2001.
What is interesting is that neither Finland nor Sweden has any prohibitions on below-cost selling. France has the greatest proliferation of hypermarkets in Europe. And yet, according to the Forfás survey, their food prices are the same as Irish prices.
Perhaps economists might be big enough to concede that perceived problems with the comparative cost of food in Ireland may be attributable to more complex issues other than the Groceries Order or the Retail Planning Guidelines. Could they perhaps be linked to the higher costs that all businesses in Ireland have to meet, including higher wage costs, high distribution costs, rocketing insurance costs, high indirect taxes, exorbitant energy and telecommunications costs? Or maybe they are linked to the lack of competition in certain non-traded sectors that retailers rely upon?
Now if the Competition Authority were to tackle those issues maybe we could deliver savings of €550 a year to pensioners. Any takers Dr Fingleton?
Ailish Forde is director general of the Retail, Grocery, Dairy and Allied Trades' Association (RGDATA)