Former ACCC Chairman argues laws restrict competition

Posted by Daniel Palmer on 19th May 2008

Shoppers are paying far too much for their groceries because of restrictive out-of-date planning laws, according to a report by former ACCC Chairman, Professor Allan Fels.
Professor Fels claims an overhaul of the State Government’s Shopping Centres’ Policy would allow greater competition, leading to consumers paying up to 18 per cent less for basic food items and up to 28 per cent less for other household products.

Professor Fels warns that under the present planning regime “Governments appear to be up-holding anti-competitive processes that elsewhere would potentially considered to be contravening the Trade Practices Act.”

The report by Professor Fels and Concept Economics is the most detailed analysis of the impact of planning policies on retail competition ever produced in Australia.

“The planning system should be about protecting the community from congestion, noise and the loss of cultural and environmental assets,” Professor Fels said. “Instead planning laws are protecting existing retail landlords from the threat of competition.”

“New supermarkets and larger food stores are being denied the opportunity to compete with existing shopping centres,” he stated. “Less choice means higher prices for groceries and everyday household goods.”

The report was commissioned by the Urban Taskforce of Australia, a prominent property development industry group. The Taskforce’s Chief Executive, Aaron Gadiel, says under the NSW planning system, supermarkets and larger food stores are one of the most heavily regulated sectors of the economy, alongside mines, casinos and brothels.

“The planning system imposes a quota on the number of supermarkets that will be approved -limiting opportunities for competition and new entrants,” Mr Gadiel said.

Mr Gadiel believes the hardest hit by the laws are shoppers in Sydney’s west and other outer suburbs.

“Struggling families in Sydney’s west will be the big winners if there is more competition. They will save thousands of dollars off their supermarket bills,” he added. “They are already penalised by having to travel greater distances to do their shopping and they need a greater choice nearer their homes.”

Other key findings of the Fels “Choice Free Zone” report included:

– Reform of the system could amount to $78 billion in extra income for the NSW economy and $296 billion Australia-wide.

– 147,000 jobs nationally and 47,000 jobs in NSW could be created via proposed reforms.

– Major retail landlords in existing shopping centres were taking between 17 and 21 per cent of retail turnover as rent. This compares with 9 to 12 per cent in other countries.

– Current planning policies are not flexible enough to deal with Sydney’s projected population increase of 1.1 million people to 5.3 million by 2031. A 50 per cent increase in current retail space will be required to meet demand.

Professor Fels argues retail developments should be encouraged outside established shopping centres, easing the transport burden and encouraging more “pedestrian friendly” communities.

The release of the report follows the launch of a grocery price enquiry by the ACCC and a number of recent complaints by industry groups about supermarket competition. Woolworths boss Michael Luscombe, meanwhile, outlined last week that he believes food retail in Australia is a very competitive industry. Mr Luscombe suggested at the Australia-Israel Chamber of Commerce lunch that food price inflation would have been much higher “if it wasn’t for high levels of competition in food retailing.”