Consumers are the ones who will suffer if the ban on below-cost selling is lifted, writes Rosemary Garth.
Picture a small town in the west of Ireland in five years. What was once a bustling town centre with a number of local village shops now has buildings with boarded-up windows.
The younger people with families have moved out to be nearer the large town with the superstore, and the older generation are left with no option but to get a taxi to travel the 10 miles to the nearest supermarket to buy their loaf of bread and pint of milk.
This scenario is not just a product of the imagination: it will be the reality for every small town in Ireland if the groceries order and the ban on below-cost selling are removed. In fact it has happened in Britain, where 42 per cent of villages no longer have a local shop.
At the core of the groceries order is the ban on below-cost selling, essentially a tactic whereby retailers lure consumers into their stores on the basis of selling known-value items at knock-down prices, while recouping any loss in margin through adjusting prices elsewhere in the store on less well-known lines.
This practice was banned in 1987 when, following a campaign of below-cost, the H Williams group went into receivership owing over £40 million to suppliers, most of which was never paid.
If this practice was to be allowed again a similar situation would result. Large retailers would reduce the prices of some products to ultimately unsustainable levels. Their deep pockets would allow them to suffer losses in a particular product and/or geographic area for long enough to wipe out smaller retailers or to compel suppliers to continue to supply to them at a loss.
Consumer choice will disappear, and the irony is that the consumers' basket of goods will be no cheaper even in the short term as retailers increase prices on less sensitive items. In the long term, of course, the consumer will have less choice and therefore be forced to pay whatever price the remaining retailers can get away with.
Retailers with super-strong purchasing power will put pressure on suppliers to supply at below the cost of production. Any short-term gains for the consumer will be quickly lost, as the small local supplier goes out of business with consequent loss of jobs.
Again there is a movement towards less choice.
Critics of the order tend to base their opinions on abstract economic theory which fails to model accurately the reality of life today.
In particular, they assume retailers and suppliers have an equal relationship. Yet the reality of the grocery market is that the balance of power has shifted in recent years, so that it is now strongly weighted in favour of the retailers. The groceries order acts as a counterbalance to retailer power.
There are no facts to sustain the argument that the groceries order leads to higher food prices.
Shopping for food and other needs is an important part of our lives, and it is about time we had political leaders who understand the Irish market and have the honesty to state the real reason prices are high in Ireland: the truth is that all business costs - pay, waste collection, insurance, rents, energy, transportation, warehousing, local authority charges and others - have risen much faster in Ireland that elsewhere in the eurozone.
Whether it is in a multiple supermarket or a corner shop, the retailer and producer must pay higher charges in Ireland than in other countries. Honesty and a bit of joined-up thinking are what we need, not ideological "quick fixes" that will do nothing for the consumer.
Retailers can in fact already sell some goods at below cost, but rarely do. The order does not apply to fresh meat, fruit and vegetables. Yet since April 1994 inflation in this category of products has been 20 per cent higher than in the category of goods to which the order does apply. Why is this so?
Is it because retailers will only engage in below-cost selling as a means of forcing competitors out of business? The order protects against this. It offers a level of protection to consumers because, without it, choice is reduced and prices would be higher.
Analysis by Forfás in 2001 and 2003 showed that the lowest-priced countries for groceries in the then 15 member states were Spain, Portugal and Greece. These countries all have bans on below-cost selling, as do seven other of the 15 states.
If we really want to address the issue of high prices, we need to face and tackle our rapidly deteriorating competitiveness. The recommendation last week by the Oireachtas Committee on Enterprise and Small Business, that a business-costs group be established to address this issue, has a far greater chance of delivering lower prices to consumers.
We need to make a choice about what kind of country we want to live in - a collection of vibrant communities or retail deserts in which those of us who do not live in a city will have to travel 10 miles to buy a pint from the county megastore.
Rosemary Garth is director of Ibec's Food and Drink Industry Ireland