The Business Council does not support the Coalition’s proposed divestiture legislation to forcibly break up supermarkets and hardware businesses because, if used, it could push up prices for consumers, while negatively impacting investment, regional jobs and suppliers.
BCA Chief Executive Bran Black said the recent Emerson Review did not support a divestment power, and the previous three major Government initiated competition reviews – the Harper Review (2015), the Dawson Review (2003) and the Hilmer Review (1993) – all also rejected divestment powers.
“Independent experts looked closely at this power and recommended against it because it could – counterproductively – hurt consumers and risk making the relevant assets unviable,” Mr Black said.
“We are certainly yet to see evidence to show how it would lower prices for consumers.
“Australia is a small market with a large land area compared with other countries, and our supermarkets operate efficiently and effectively by making the most of economies of scale, with consumers benefiting by having the same price of cereal in Warwick as in Western Sydney.
“While the Coalition’s policy has more guardrails than the divestment legislation introduced by the Greens earlier this year, if implemented, it would risk an array of unintended negative consequences for businesses, impacting regional communities, suppliers and supply chains, while also hurting consumers.
“The likely consequence is less scale, less competitiveness and higher prices. It is an example of populist politics that does little to generate better outcomes for consumers.
“A key practical problem with the proposed powers is that the ACCC and the courts have no experience splitting up companies.
“It’s unclear how a business would be broken up, which stores would need to be divested including in what locations, who would acquire them, whether a buyer could run them cost effectively, what the buyer’s supply chain costs are, and what happens if a buyer can’t be found?
“If a divested store was not as successful under new ownership as a result of not being able to rely on economies of scale, it may reduce its range, operations and employment and it could be a less reliable and affordable source of everyday needs for its local community.”
Mr Black said divestment powers in other countries were focused on merger activity, with this kind of scrutiny already available in Australia.
“Divestment arrangements in most other jurisdictions are in the context of mergers, and that’s a comparable approach to Australia’s existing competition law and practice which enables divestment to be agreed in the merger process to facilitate a merger proceeding.
“In the countries in which a general divestment power is available, it is rarely used. The last time a company was broken up in the United States was in the 1980s (AT&T).”
The Business Council is actively participating in the merger reform process that is underway in the Parliament to help ensure the merger regime is an appropriate way to manage competition.
“The BCA supports enhancing competition policy through strengthening merger laws, rather than introducing a divestment power.
“Similarly, the BCA supports customers, farmers and businesses to get a fair deal, and making the Food and Grocery Code of Conduct mandatory for supermarkets is an appropriate step to take, with penalties attached for the first time.”
