OPEN YOUR WALLETS FOR THE FOODSTUFFS MERGER APPEAL FUND

19 November 2024

(This Op-Ed appeared on Stuff.co.nz on 19 November - repeated here for those who cant get past the Stuff paywall.)

OPEN YOUR WALLETS FOR THE FOODSTUFFS MERGER APPEAL FUND

By Ernie Newman

Ernie Newman is a semi-retired consultant in Waikato and an industry advocate in the telecommunications and grocery sectors. He is a regular submitter to the Commerce Commission on competition issues.

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Its outrageous, but predictable in the light of history. Foodstuffs North Island (a private company) and Foodstuffs South Island (a cooperative) have appealed against the Commerce Commission’s decision to decline their merger application.

And make no mistake – you and I will pick up the tabs. This will be a hugely expensive appeal, involving top legal minds nationally and globally.

As if the country didn’t have enough on its plate already. Or perhaps, Foodstuffs’ announcement was timed carefully to fly under the radar of Treaty protests and political mayhem?

We will all pay in three ways.

First, we’ll pay Foodstuffs legal bills. That will hit us in the pocket every time we shop. It will be added on to charges. Rest assured the owners won’t be absorbing this from margins – why would they given their massive market power?

Second, we’ll pay the Commission’s legal bills through our taxes - as well as foregoing some of the good work the Commission does to protect consumers in other markets as top staff get diverted to defend the Foodstuffs case.

Third, if (and it’s a big “If”) the appeal succeeds, control of our food chain will rest with two businesses instead of three, with a major consolidation of power – adding to the duopoly premium we already pay.

Spare a thought too for our grocery suppliers. Ranging from growers of fruit and vegetables, farmers, poultry farmers, and major multinational brands, they will be quaking in their shoes. Masses of them submitted against the merger proposal – some of them under cover. They, especially the smaller local ones, are just as much disadvantaged as consumers.

The Commission didn’t just toss a coin to make this decision. Many months of deliberation, conferences, economic analysis, culminated in a thorough and comprehensive 220-page Report. It made a compelling economic and social case to support its rejection. Very sensible.

The trouble is that once the appeal process is invoked economic logic, societal needs and common sense go out the window. Lawyers consider fine nuances of legal semantics sometimes without regard to the substance.

Kiwi consumers have suffered from very poor legal decisions against our competition regulators in the past. In one especially relevant decision the Privy Council overturned a Commission decision to decline the application by Woolworths Australia to buy Foodtown, reducing our supermarket sector from effectively three players to two – for which grocery shoppers have paid a price ever since.

Surely lawyers should stick to playing in their sandpit which is all about the law, and leave market economics to other disciplines who have the expertise?

An aggravating feature of the Foodstuffs application is their ongoing mis-description of their businesses as "co-operatives". Even their press statement this week, and their home page, describe themselves that way.

The reality is Foodstuffs North Island is a private company controlled by four directors. Sometime in the 2010s, without fanfare, ownership was removed from individual stores and consolidated in an off-the-radar business called “Strategic Interchange Ltd.” What they describe as their friendly local owners, these days may be just franchisees or managers.

That raises three questions.

First, why do they continue to present themselves as a cooperative when demonstrably they are not?

Second, why would you trust a business that blatantly pretends to be something that it is not?

And third, how can you merge a genuine cooperative like Foodstuffs South Island with a private company like Foodstuffs North Island – it feels like mating a cat with a walrus. Is it the intent to reduce the South Island “owners” to franchisees also?

The Commerce Commission has looked thoroughly at all these angles. It has reached a decision that is right for consumers.

Shame on Foodstuffs, and its Boards for failing to read the room and accept the Commission’s decision. Someone must have a huge amount of money at stake for you to go to these lengths. And please stop misleading us with the “Co-op” term from now on.