Supermarkets should be first off the blocks for a competition study
Move over the Duke of Sussex. This week our Commerce and Consumer Affairs Minister Kris Faafoi takes on several new titles. He's just been appointed as a Fellow of Fleecing and crowned the Duke of Dupe.
Our very own Commerce Commission might even make you their Prince of Pricing, Kris.
You handed the regulator some important powers last week, enabling them to instigate a competition study if they feel New Zealanders aren't getting fair prices. Businesses will now be compelled to provide price and margin information to the regulator.
The new law allows us to put supermarkets, power providers, and petrol stations under the microscope.
Why is it so important for consumers to know if prices are fair?
First, because perception is reality and we all suspect we live in rip-off New Zealand. So we need to stop guessing and get some proof.
Every time I see a tin of British Baked Beans for 25p in Tesco (NZ50c) it reminds me of why one of the world's most astute investors, Warren Buffet, now owns Watties (via Berkshire Hathaway buying Heinz).
Where else in the world can you get $1.79 for a tin of beans? Add some slimy pork sausages and Tesco put the price up to 70p.
Wily Warren's sell for $3.49 at Countdown.
That said, my bean survey won't hold up to academic scrutiny. It's far more complex than a simple cross-border price comparison. I'd much rather the Commerce Commission told me our low population, freight, storage, wages and land values explained some of the anomaly. If there's an element of excess profits and margins, they can suggest what regulation we need to counter that.
Second, when New Zealanders pay too much for food, power, petrol, insurance, bank fees and construction materials, our savings rate falls.
When prices are fair, the more we can put into KiwiSaver, which powers the sharemarket. Growing companies fatten the tax-take and fund our superannuation, hospitals and schools. Fair pricing for consumers is the route to our future success.
The National Party whimpered and whined in Parliament last week and thought only the minister should have the power to call for a market study. The Commerce Commission should await instructions or ask permission. This is despite being the regulator we make our complaints to. Small businesses will suffer additional admin costs if we demand too much information on the prices consumers pay, moaned the Nats.
It's no secret I veer more towards blue than red, but this gives rise to a deviation. Businesses must suck it up.
Do we whine when Inland Revenue decide to audit swathes of self-employed people or landlords? No, we expect everyone to provide the information and sit under the microscope. Do we weep when financial companies undertake anti-money laundering checks and reports? No, we want them to co-operate with their regulator.
Does the forestry industry bleat when WorkSafe New Zealand demand inspections? No, because we all want accident rates to fall. Remaining honest, fair and safe comes at a price.
I have absolutely no problem with the Commerce Commission having a bit more bite. But right now it seems their dentures will remain fairly muzzled. The budget they've been given to check on fair pricing is $1.5 million a year. Estimates seem to range between $400,000 and $1m for a single market study. It seems pretty unlikely they'll launch investigations willy-nilly on that money.
The government is driving the decision on the first investigation and will tell us by Christmas which industry is the target. My bet is petrol, given all the fuss. In reality, with large international price drivers and exchange rates the outcome could be fuzzy.
We spend $7.4 billion on fuel and $23b at the supermarket, so I know where I'd like the Prince of Pricing to direct his pointy finger.
Even then, there's unlikely to be any grand fleecing announcements from a market study. When Shane Jones accused Countdown of bullying suppliers (under parliamentary privilege), the Commerce Commission said nothing unlawful took place and asked Countdown to communicate better.
What we really need to consider is whether our laws are specific enough and set at the right height for consumer fairness. How would our supermarkets measure up under UK law? Their Groceries Supply Code of Practice has some interesting clauses about payments for marketing costs, shelf placement and how products are de-listed to name a few. A Groceries Code Adjudicator (supermarket ombudsman) oversees this.
It was the Competition Commission in the UK that investigated supermarkets and recommended to government that the ombudsman scheme was set up. The 10 largest supermarkets must comply with the code. Only one (Aldi) supported its introduction. Market giants Sainsbury's and Tesco didn't.
Lets hope our own regulator gets the same sort of teeth and provides us with clarity about whether the layer of fleece in our markets is real, imagined, or just too woolly to pinpoint.
They should pitch their commentary at how to improve pricing for consumers rather than having to prove unlawful behaviour – a tall order under current laws.
Janine Starks is a financial commentator with expertise in banking, personal finance and funds management. Opinions in this column represent her personal views. They are general in nature and are not a recommendation, opinion or guidance to any individuals in relation to acquiring or disposing of a financial product. Readers should not rely on these opinions and should always seek specific independent financial advice appropriate to their own individual circumstances.