Anti-competitive Groceries Order costs average household almost €500 a year

Irish
Anti-competitive Groceries Order costs average household almost €500 a year
By Finfacts Team
Aug 10, 2005, 13:31

The Competition Authority today published its submission to the Minister for Enterprise, Trade & Employment recommending the removal of the Groceries Order. Analysis of food prices undertaken for the submission estimates that this regulation costs Irish consumers up to €577 million (between June 2004 & June 2005). This is the equivalent of €481 for the average Irish household.

According to John Fingleton, Chair of The Competition Authority, “The Groceries Order pushes up food prices in Ireland, and is against the interest of consumers and the economy.

“The successful prosecution of two supermarkets in January 2004 for providing discounts on baby food is a perfect example of why the Groceries Order needs to be abolished. If this logic was applied in other sectors, for example clothes, it would make post-Christmas sales a criminal activity.

“We are urging the Minister to take the opportunity to remove one of the most anti-competitive and protectionist devices from the Irish statute book.”

High food prices in Ireland are not explained by business costs

Figure 1: Irish food prices rise while clothing, footwear and household goods prices fall

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Ireland has become one of the most expensive countries in the Euro-zone for food shopping. Figure 1 (above) demonstrates that high prices for food in Ireland are in stark contrast to other retail sectors where prices have fallen.

Between 2000 and 2004 the rise of food prices compared to the reduction in clothing and household goods prices was:

Food and non-alcoholic drink + 9.6%
Clothing and footwear - 15.9%
Household durables - 3.9% (furnishings and white goods)

Therefore rising business costs common across all retail sectors - such as rents, insurance, waste charges, electricity, and wages – do not explain why Ireland is so expensive for food. Neither are farm gate prices to blame, as they have remained stable over the same period.

Figure 1 also demonstrates that in recent years the price of food has stabilised (although at a higher level than other EU countries). This stabilisation coincides with increased competition following the arrival of Aldi and Lidl in Ireland.

Closer examination reveals that inflation on items protected by the Groceries Order is significantly higher than inflation on food items not covered by the Order. This shows that recent competition on price has been limited to items not covered by the Groceries Order.

Figure 2: Food covered by Groceries Order rises in price while food not covered falls

Figure 2 below shows that since June 2001, food items covered by the Groceries Order have increased in price (+ 7.4%) whereas food items not covered by the Order have decreased over the last 4 years (- 5.1%).

Food prices covered by Groceries Order + 7.4%
Food prices NOT covered by Groceries Order - 5.1%

Where competition is allowed food prices are falling but where competition is prevented prices continue to rise. This has a direct impact on consumers and on the economy. If the level of inflation on food items not covered by the Groceries

Order had prevailed over those items whose prices are kept high by the Order, the average household2 would have saved €481 in the 12 months between June 2004 and June 2005. This corresponds to savings of €577 million across the economy.