Pressure mounts to end Groceries Order

The Groceries Order, which has been in place since 1987, is coming under intense pressure and may be soon set for abolition.

Escalating inflation has brought the issue into sharp focus.

After all, if bank charges and the price of a pint were to be targeted what was the sense in preventing cheaper food from being sold in the supermarkets?

The Groceries Order was introduced during a period of serious turmoil in the market, and at a time when State intervention was commonplace. A price war between supermarket chains had resulted in the demise of the H. Williams group, and 2,000 small grocers had gone out of business between 1978 and 1988. The Order was introduced to bring stability back to the market.

But a ban on below net invoice selling, and not below cost selling as it is often called, is now more difficult to justify in a marketplace where competition is god.

The order effectively prevents supermarkets and other retailers from selling goods at below the net invoice price. In practice, this means that the producer can offer any level of invoice discounts, bringing down the cost of the goods to the retailer and protecting the margins of both retailers and producers, while keeping prices up for consumers.

Both the food retailers' group RGDATA and the employers' group IBEC argue vociferously that this is in the consumers' favour. The Competition Authority on the other hand has been arguing for almost a decade that it is anti-competitive. Consumers Association director Mr Peter Dargan says he believes the order should be abolished. "The consumer needs competition and not the fig leaf of price controls. We need more bars and taxis as well. The only problem would be the viability of some outlets in small towns."

The economic case against the Groceries Order is simple. There is little reason why the State should intervene in the marketplace to protect the interest of one group of producers rather than another. As Dr Dan McLaughlin, chief economist at ABN Amro, points out, the State has often protected producers over consumers. The producers have had a much more vocal lobby then consumers and thus their interests have often been paramount. Areas where this is evident include the taxi licensing system, the licensed trade, the farming sector, and, until recently, semiState companies.

Dr McLaughlin also points out that while Irish food inflation is currently running at about 3 per cent, euro zone food inflation is close to zero while UK prices are actually falling. It is simple, he says - the fresh food marketplace is quite similar in Britain and the Republic - and is affected by the same sort of weather patterns and food issues. There is little reason for that difference in inflation.

In contrast, clothing and footwear inflation is negative, with prices falling by more than 5 per cent last year, particularly because of huge amounts of competition among UK retailers.

According to the Competition Authority, Irish food price inflation is the second highest in the EU, behind Greece. Between 1995 and 1999 food prices here rose 10.3 per cent, compared with an EU average of 4.6 per cent in the same period.

The director of IBEC's Food and Drink Federation, Mr Ciaran FitzGerald, argues that this is only a snapshot in time and is affected by other variables such as beef and the strength of sterling. According to Mr FitzGerald, food industry costs have increased on average by 3 per cent since the beginning of the year, due mainly to increases in fuel, labour costs, packaging costs and raw material costs as well as the strength of sterling.

But all sorts of other statistics have been bandied about in recent weeks in support of one side of the argument or the other. Mr FitzGerald repeatedly points out that the price inflation for those products covered by the Groceries Order is lower than the price increases recorded for products not covered by the Order.

But according to the Competition Authority, between 1994 and 1999 prices of groceries under the order increased by 7.8 per cent, compared to 4.5 per cent for items not covered by it. RGDATA and IBEC use a different start date and argue that from 1987 to 1999 prices for goods under the Order rose 13.81 per cent, while those not covered by it rose 19.83 per cent.

RGDATA also points to the number of grocery shops that it believes could be lost if the order were abolished. Around 2,000 grocers closed between 1978 and 1988. Between 1988 and 2000 around 1,500 have disappeared but some have been replaced by garage outlets.

But the Competition Authority counters that specialist food stores such as butchers, greengrocers and fishmongers, that sell goods not covered by the Order have not seen any reduction in their numbers over the past decade.

Faced with this, Mr FitzGerald's argument is simple. The legislation, he says, has been in place since 1987 and the onus ought to be on the Competition Authority or the Department of Enterprise, Trade and Employment to demonstrate how much better things would be if it was abolished.