Small Business minister Bruce Billson and competition review head Professor Ian Harper have dismissed divestiture powers as a way of handling competition issues in the retail supply chain, caused by supermarket giants Coles and Woolworths.

At last month’s launch of the Harper competition policy review, which made 56 recommendations to the federal government, Mr Billson said many people had advocated divestiture as a public policy instrument.

But he said he was unaware of any jurisdiction in the world where a government or competition regulator can “unilaterally direct the divestment of a business or a change in its shape or structure”.

“Overwhelmingly that occurs where there have been egregious breaches of the law, and where the sanction is thought to be so needing, to be proportionate to the breach, that divestiture is brought forward,” he said.

“Or in the case of our law where our merger and acquisition proposition has been brought forward on certain terms and conditions that have not been upheld or do not accurately reflect the circumstances.”

Mr Billson said there had been plenty of discussion about Section 46 of the Competition and Consumer Act which dealt with the misuse of market power, with changes proposed in the Harper review, with some strong sanctions attached.

“We need to make sure the law is fit for purpose,” he said.

Professor Harper said the competition review panel considered the merits of divestiture powers which was an option raised in several submissions.

“When we investigated, I think it would be fair to say, we found – as the Minister has indicated – that where the possibility for divestiture does exist, for example in the United States, it is extremely rarely used,” he said.

“The other thing that we fell back on … in our thinking about this was, in the end, if there really is a very strong case based upon egregious behaviour, as the Minister has indicated, this is not beyond the Parliament to order a divestiture or break up.

“So we have, if you like, an ultimate defence in the parliament itself but short of that we did not believe that divestiture was necessary and, as the Minister has indicated, there are plenty of provisions short of that that can perform the disciplinary role we think is needed.”

Consequences of power: Harper

Professor Harper said an international conference was also held during the year-long process of writing the competition review which invited several international experts.

He said one of them, from Cornell University, was very familiar with US competition law.

“He made that point quite clear to us that yes the power exists but it is very rarely used because the consequences of using that power can be extremely unpredictable,” he said.

“One of the things he would not want to do necessarily is to break a company up only to find that none of the broken up companies becomes viable and, you know, the punishment does not fit the crime, if I could put it that way.”

Professor Harper said: “Competitors do get damaged during the process of competition; that is in part what the competitive process is about”.

But he said there is “a very positive side to the competitive process”.

“It is a two-edged sword, and that balancing act, focussing on the competitive process and its impact is where the rest of the Act generally takes you,” he said of Section 46.

Grocery Code hearing

The leaders’ comments on divestiture powers arrive with the Coalition government’s new Food and Grocery Code of Conduct regulations set to be examined at a public hearing tomorrow in Canberra.

The Senate Economics Legislation Committee’s inquiry is due to report by May 14 after the Code was tabled in federal parliament on March 2, following long-running industry consultation.

The new regulations aim to curtail market power abuse in the retail supply chain, butdisagreement has erupted between the Liberals and Nationals over whether it should be a voluntary or mandatory Code.

Queensland LNP Senator Matt Canavan pushed for the brief Senate inquiry to examine the Code amid concerns it has insufficient powers to curtail the retail dominance of Coles and Woolworths.

Senator Canavan has also called for the Competition and Consumer Act to be amended so large players can be divested if found to be abusing their immense market power.

“Divestiture powers should be rarely used but they are the ultimate deterrent against companies with market power doing the wrong thing,” he said.

“Those with market power have a privileged position in the market place and they should be held to higher responsibilities because of that position.”

Tomorrow’s hearing will see representatives quizzed from the Queensland Dairyfarmers’ Organisation, the Australian Competition and Consumer Commission, Treasury and the Mareeba District Fruit and Vegetable Growers Association.

The inquiry has taken 13 public submissions to date while the code is subject to a current disallowance period.

Mr Billson says the Code will help deliver fairer trading practices in the retail supply chain between farmers, suppliers and the supermarkets.

In its submission to the inquiry, National Farmers Federation (NFF) CEO Simon Talbot said his group maintained its support for a “mandatory, binding Code that encompasses all retailers”.

“The Food and Grocery Code as it currently stands is not perfect, but it does address several key imbalances with regard to major retailer power over suppliers,” he said.

“Clearly in recent years there has been significant concern in relation to issues of concern across the supply chain where an independent and transparent complaints and mediation process, remedies for breaches of the Code, and a requirement to act in good faith would be of assistance.

“The NFF will be monitoring how the initiative will work in practice.

“To be effective the voluntary Code must include a commitment from all major retailers.”

Extracted in full from the Stock Journal.