Andrew Leigh

E&OE TRANSCRIPT
RADIO INTERVIEW
ABC SYDNEY DRIVE WITH RICHARD GLOVER
TUESDAY, 27 FEBRUARY 2024

SUBJECTS: Boosting competition in the supermarket sector.

RICHARD GLOVER: Well, there's been a lot of discussion, hasn't there, especially in the last couple of weeks since that Four Corners program about adequate market competition in Australia. Do we have a serious problem when you can refer to a majority of the supermarket industry with the portmanteau term, Colesworth?

Well, the Assistant Minister for Competition, Andrew Leigh, says we may be becoming the land of the duopoly, and the solution must be reached through the cooperation of federal, state and local governments. And Andrew Leigh joins us here on Drive.

Good afternoon.

ASSISTANT MINISTER FOR COMPETITION, CHARITIES, TREASURY AND EMPLOYMENT ANDREW LEIGH: Good afternoon, Richard. Great to be with you and your listeners.

GLOVER: We're all agreed we need to do something about this?

LEIGH: Absolutely. And the story is there in Australia's history. If you look at the 1990s, it was a decade of strong productivity growth and big increases in living standards. And one of the drivers of that were the competition reforms that started the decade, kicked off by Fred Hilmer and initiated by Paul Keating, that put an average of $5,000 into the pockets of the typical Australian household through a set of state, Commonwealth and territory reforms which turbocharged competition.

GLOVER: Why have we become - because a lot of people paint this picture, Hawke, Keating, Howard, a period of great reform, and then it suddenly comes crashing to a halt under successive Labor and Coalition governments. Why do you think that happened?

LEIGH: Well, it's like exercise, Richard. If you don't stay active, then you get less fit. So unless you're constantly thinking about the next competition reform, your economy becomes flabby. What we've seen over the last couple of decades is an increase in market concentration, an increase in markups, a decline in the job switching rate, and a decline in the rate in which we're creating employing small businesses.

That's one of the reasons why the last decade was the lousiest decade of productivity growth in the postwar era and had the slowest wage growth. Competition isn't just about creating a more dynamic economy. It's also one of the best ways of ensuring consumers get a good deal, workers have a choice about where to work, and the economy continues to create well-paying jobs.

GLOVER: Well, let's use supermarkets as an example since most of us use them, and are aware of the problem. How can you increase competition when there are two such dominant players?

LEIGH: One of the things we've tasked CHOICE with quarterly price monitoring to make sure consumers know where they can get the best basket of groceries. That's going to start in the next couple of months and will be an important way of putting pressure on the supermarkets to do the right thing. We know that the entry of Aldi into the supermarket industry reduced prices for consumers, and we understand the importance of making sure supermarkets do the right thing. Treasurer Jim Chalmers has tasked the competition watchdog with doing a review of the supermarkets from a consumer perspective and we've got Craig Emerson reviewing the Food and Grocery Code of Conduct from a supplier perspective because the supermarkets are alleged to have squeezed on both ends.

GLOVER: Now, that's going to work unless there's real competition. You mentioned Aldi, and that's providing some competition. But the last time another of the big Germans came to set up shop in Australia, they sort of gave up after a while. They decided it was just too hard.

LEIGH: That's right. So, Kaufland's attempt to break into the market wasn't successful. And one of the stories about that is that perhaps it had to do with them not being able to get suitable land. So, that's one of the reasons we're really excited that states and territories have agreed to step up and revamp National Competition Policy.

This is part of the Hilmer reforms that made them so successful in the 1990s and early 2000s. We're doing it again today because we understand that many of the policy levers lie with states and territories. NSW has been terrific on this, Daniel Mookhey understands the power of competition to boost living standards and he's willing to work with the Commonwealth on pro-competitive reform.

GLOVER: But this ends up coming down to, doesn't it, some local council saying, "Okay, there's going to be local opposition to this, but we're going to allow you to build those ten houses here so you can build a big supermarket."

LEIGH: It's not just about whether or not you build a supermarket, Richard. It's also about which supermarket has access to the land. So, you can get monopoly lock-in if the same retailer is able to get multiple sites, and they lock their competitors out. What's really important is when you're considering these planning and zoning decisions, that you're considering the virtues of supermarket competition, because most of us aren't going to drive an hour in order to buy our groceries, so we need that local-level competition.

GLOVER: But in a capitalist system, can you really say - I've got a block of land, and I want to sell it to the highest bidder, of course I do. Can you really say to me, "You're not allowed to sell it to Coles. You've got to sell it to Aldi?"

LEIGH: Sometimes the land will be in government hands. That's not infrequent that a block of land large enough to put a supermarket on it is already held by the government. In other cases, it'll be a question of rezoning, and part of that rezoning question will be, "Who'll take it on?" But all -

GLOVER: Sorry, can I just ask about that? You can say that in zoning you can say this will be a retail site, but not one that will go to one of the two big players?

LEIGH: Well, it's a question of whether you're opening it up for an open sale as well, or whether you've already locked in a particular buyer. We're really keen that the states and territories -- I mean you've pointed to some of the complexity of this, Richard, I'm not pretending it's straightforward -- but if they've got a competition lens that makes a big difference. And that holds for a whole lot of decisions that states and territories will be making, including about occupational licencing, these non-compete clauses. A lot of that policy work will happen in conjunction with states and territories. If we have a competition lens looking at privatisations, that may well prevent the situation in which we see an asset being privatised, garnering a big sale price, but with an ongoing cost to future consumers through locking in higher monopoly prices.

GLOVER: Well, that's often why they get the big prices that their financial plans say, "Oh, once we're all together, we can charge higher fees." What about David Littleproud's idea that - he didn't mention Tamworth, I'm making that up - but say there's a town like Tamworth and you've got two Woolworths that you just simply force them to sell one of them away and give it to one of their competitors?

LEIGH: David Littleproud's all hat and no cattle on this. He had nine years in office to do something about competition, and nothing happened. As I mentioned before, we’ve had the lousiest decade for productivity growth in the postwar era. So, he might have some thought bubbles right now. But the fact is we're practically getting on with a whole range of reforms.

We've increased the penalties for anti-competitive conduct, we've banned unfair contract terms, we've set up the Competition Taskforce in Treasury, which is looking at issues like mergers, non-compete clauses, domestic aviation competition. We're getting on with the job of building a more dynamic and competitive economy, Richard, because we know how important that is to the living standards of all of your listeners.

GLOVER: Well, a lot of listeners are responding with particular examples. John says in Balmain, "We suffer from having two Woolies, both hopeless, and a couple of tiny IGA's why can't we have more competition?" Another, in Double Bay, "Woolworths took over the supermarket directly underneath it, which was Whole Foods. Now there are two Woolworths stores in the same building." Emma says, how can this be allowed? But you're saying competition policy, and together with local planning laws, can prevent these outcomes.

LEIGH: Certainly, they can be written in that way and I hear the stories that your listeners are recounting. Reminds me of that lovely scene from Shrek in which everyone's at a Starbucks, and it gets knocked down by the bad guy, and they all run across the road into the other Starbucks on the other side of the road. That lack of competition really is a problem and sometimes, Richard, you get this faux competition. So that you look at the beer market, for example, you've got all of these faux craft beers, White Rabbit, Little Creatures, Kosciuszko, Knappstein, Furphy, Matilda Bay, but really owned by big brewers. A lot of our markets are concentrated, not just banking and supermarkets, but also everything from baby food to beer. So, we're looking at the economy as a whole. We're aware of the potential to turbocharge the economy if we've got policies that allow new entrants to come in, challenge the incumbents and boost living standards in the process.

GLOVER: Another local example, a huge local mail sorting centre was sold in Frenchs Forest in the past year or two, and a monster Bunnings is going on it. We have two Bunnings already five kilometres from the new site. That was an example of failed competition, wasn't it? When Woolworths thought - it was called Masters, wasn't it? We'll set up a competition to Bunnings, and again it didn't seem to work, and they had a lot of muscle behind that.

LEIGH: That's right. So, they weren't able to break into that market, which means if you're buying, for example, potted plants, you've got Bunnings controlling more than half the market. I was meeting with suppliers of potted plants today, talking about some of the challenges that they face. This is a big challenge right across the economy, because the more choices you have, the more likely that you're going to earn what you're worth.

This is an insight that goes back to Adam Smith: the virtue of competition. And the risk, as Adam Smith famously put it, when people of the same trade get together, that they may be conniving against the public interest. Strong competition laws are essential to a dynamic economy, just in the same way as good competition principles are vital to our favourite sports. What I, as an economist, want for the economy is exactly what a sporting fan wants for the game. Plenty of good competition going on, and the best person winning at the end of the day.

​GLOVER: Well, good on you. Good luck in strengthening Adam Smith's hidden hand, and we'll see how you go. Hey, Andrew Leigh. Thank you very much for your time this afternoon.

LEIGH: Thanks so much.

GLOVER: There's Andrew Leigh. I should actually mention to him, someone says they got his book for Christmas and loved it. So, there you go. He's got a short history of economics that's just out a month or two ago.