Peter Dutton's divestiture policy is an absolute mess
Who wants to go in with me on half a supermarket?
Few policies have divorced cause from effect more than opposition leader Peter Dutton’s supermarket, hardware store and (now) insurance firm divestiture plan.
It is amazing the benefits divestiture is supposed to deliver.1 It will:
Exert downward pressure on grocery prices by reducing “price gouging”
But it will also eliminate “anti-competitive” price discounting
At the exact same time, it will bring about “fairer” (read higher) compensation for farmers and suppliers
The policy won’t just not result in job losses (divestiture is proposed to be subject to a public interest test which is meant to protect against this) but it will actually increase employment opportunities
The targeted sectors will be more competitive, which will in turn foster innovation
It will prevent land banking, the as-yet-unproven allegation that supermarkets are buying land solely to prevent other supermarkets from setting up shop in profitable locations
Insurance companies will both reduce their premiums and honour more insurance claims
Finally, it will align Australian competition law to international standards, which, as we know, is such an important liberal-conservative value
It is baffling why the Coalition thinks that blaming high grocery prices on supermarket perfidy is good politics when the Albanese government’s inflation caused by out of control spending is sitting right there.
They are, of course, also running a campaign on that. But the supermarket plan completely mixes the Coalition’s message. Is inflation the fault of profligate spending and recklessness? Or Coles?
As the above list suggests, the policy is a mess. Its purpose is a mess and its scope is a mess. It was first announced in 2024 to apply to supermarkets and hardware. Dutton kept hinting it would expand to insurance, and his colleagues kept denying that was the plan, until the talking points changed this week.2
The whole episode seems to have sparked some anonymous grumpiness in the opposition, really for the first time. Imagine what the group chats are like.
Formally, the idea is to insert new powers into the Competition and Consumer Act that will allow courts to break up firms that have breached the act’s prohibition on the misuse of market power.
The opposition promises this new divestiture power will only be available in cases that involve supermarkets, hardware or insurance. Of course any government could add any other industry, and, for consistency, almost certainly will.
Note that the divestiture plan builds on another dramatic expansion of competition regulation from when the Coalition was last in government.
In 2017 the Turnbull government added an ‘effects’ test to the Competition and Consumer Act’s prohibition on misuse of market power. The point of the effects test is to look at impact rather than intent. Previously, regulators had to show that a firm’s actions were intended to harm competition. Now courts are encouraged to identify market power misuse by looking at the effect of business choices on competition.
It is easy to imagine how the effects test might make firms more skittish about innovation, for fear that any new innovation might be so successful that it might result in regulatory action.
To be fair, the effects test had a long history and was subject to serious policy thought. But as far as I can tell no real attempt has been made to connect the new divestiture penalty with the outcomes the Coalition seeks - other than that those outcomes might be brought about through the threat of more penalties.
Carving business units out of supermarkets won’t lower prices. Splitting Coles into Coles A and Coles B, or Bunnings into Bunnings Nursery and Bunnings Classic, is not the same as fostering competitive markets. Even if a team of ACCC lawyers can convince a court full of other lawyers that it is. Competition is a process, not an industrial structure.
Even more tenuous is the argument that divestiture will foster competition by penalising land banking. Land banking describes buying and holding land to lock out potential competitors while pretending it is for future store development.
In its supermarket report from late last year the ACCC identified a total of 152 sites that are owned and not yet developed.
Now, there are lots of other reasons a store might own land and not have developed it yet, not least including urban planning regulations. And investing in land for speculative future development is not prima facie anti-competitive.
But by my reckoning there are more than 3800 supermarkets in Australia.3 Even if all 152 sites were being used purely to exclude potential rivals, how would divestiture help?
The Coalition’s proposed supermarket commissioner is also a bad idea. It is a new Commonwealth office that will almost inevitably gather additional powers and ambitions. Does the opposition really want to launch an eSafety Commissioner for food?
There are concrete things that could be done that would help achieve the Coalition’s goals.
In 2017 the Productivity Commission released a largely ignored report into the regulation of agriculture which led with:
Farm businesses are subject to a vast and complex array of regulations. Regulations are in place at every stage of the supply chain — from land acquisition to marketing — and are applied by all levels of government. The number and complexity of regulations affecting farm businesses means that the cumulative burden of regulation on farmers is substantial.
That report specifically called for reform of things like native vegetation, biodiversity, and chemical regulations which would make a material difference to the burden placed on Australian farmers.
And what about land banking? The ACCC has noted Costco’s identification of a key business risk to their growth strategy as:
Local land use and other regulations restricting the construction and operation of our warehouses and depots, as well as local community actions opposed to the location of our warehouses or depots at specific sites and the adoption of local laws restricting our operations and environmental regulations, may impact our ability to find suitable locations and increase the cost of sites and of constructing, leasing and operating warehouses and depots.
Obviously we need a YIMBY movement for big box stores as well as cute apartment complexes with single origin coffee cafes.4
The Coalition always has to do a bit of partner management, and clearly the anti-supermarket, pro-farmer message resonates with the National Party. Supermarket crackdowns are the new dams. But in the context of the Albanese government’s inflation baggage it is so tone deaf and so distracting that it is sinking the opposition’s economic message during an economics-first election.
Think about it: the opposition wants to build seven government-owned nuclear power stations across the country but it is proposed amendments to competition law penalties that is causing them the most trouble.
This divestiture plan is a dog’s breakfast and should be scrapped.
I’m taking these benefits from: the joint press conference in July 2024, the Liberal Party’s press release, a later Nationals press release. The insurance benefits come from Peter Dutton’s statements this week.
“For the plane in the fog, the mountain is unforeseeable,
but then it is suddenly very real and inevitable.”
Coles has 840 stores, Woolworths has around 1100, ALDI has 600, and the largest, IGA, has 1,300.
Mind you, these big box stores are notorious for their incredibly tight control over their supply chain, which would clearly impact Australian farmers.