Chapter 8Competition and Consumer Amendment (Divestiture Powers) Bill 2024
8.1The Competition and Consumer Amendment (Divestiture Powers) Bill 2024 (bill) was introduced in the Senate on 20 March 2024.
8.2On 27 March 2024, through amendments to the fourth report of the Selection of Bills Committee, the Senate referred the bill to the Select Committee on Supermarket Prices (committee) for inquiry and report by 7 May 2024.
8.3In this chapter, the committee presents the evidence put forward specifically in relation to the bill, while also highlighting other evidence and views received throughout the committee's broader inquiry about divestiture.
8.4This chapter therefore constitutes the committee's report on the bill, as required by the Senate.
Conduct of the inquiry
8.5The committee advertised the inquiry on its website and wrote to relevant stakeholders and interested parties, inviting written submission by 12 April 2024. The committee received 10 submissions (listed at Appendix 3).
8.6The committee sought evidence about the bill during its three public hearings in Canberra on 11, 15 and 16 April 2024, conducted as part of committee's broader inquiry work. The names of the witnesses who appeared at the hearings can be found at Appendix 2.
Purpose of the bill
8.7The bill proposes to amend the Competition and Consumer Act 2010 (CompetitionAct), to implement divestiture powers in circumstances where market power has been misused.
8.8Section 46 of the Competition Act provides that a corporation that has a substantial degree of power in a market 'must not engage in conduct that has the purpose, or is likely to have the effect, of substantially lessening competition' in that market.
8.9The bill would insert an amendment after section 80AC of the Competition Act to 'add a further legal remedy … where a corporation that has, or is taken to have, a substantial degree of market power has been found to have misused their market power under section 46 of the Act'.
8.10That remedy would be, via court order, 'a reduction in the corporation's power in, or share of, the market' (that is, divestiture).
8.11As explained by the Explanatory Memorandum (EM), enacting the bill would:
… grant powers to the Court, following an application by the Australian Competition and Consumer Commission (ACCC) to issue orders that will reduce the corporation's power in a particular market, or their share in the market.
8.12The ACCC could make an application to the court for divestiture within three years after the date the contravention occurred. The courts could also determine to accept, upon any agreed conditions, an undertaking by the corporation to take particular action to reduce the corporation's power in, or share of, the market.
Statement of Compatibility with Human Rights
8.13The bill's EM contains a statement of compatibility with human rights, stating that the bill does not raise any human rights issues.
8.14In its third report of 2024, the Parliamentary Joint Committee on Human Rights indicated it had considered the bill and offered no comments on it.
Financial impact
8.15No financial implications have been identified in relation to this bill.
Background
8.16As this report has already highlighted, Australia's retail grocery and supermarket sector has become increasingly concentrated, thereby potentially creating an environment for anti-competitive practices and price gouging by the major supermarket brands.
8.17Despite the critical importance of the supermarket sector in providing food and groceries at reasonable prices to Australians, and the importance of maintaining fair competition in the retail grocery sector, legislation has not yet been established to provide legal powers which would enable the courts to divest corporations which have been proven to have misused their market power.
8.18The bill was introduced with this in mind. During his second reading speech, Senator Nick McKim provided the following rationale for introducing the bill:
Monopolies and oligopolies are bad for consumers, bad for workers, bad for suppliers and bad for the economy more broadly … Market concentration impedes competition and is a massive drain on the economy as a whole. It reduces productivity growth, slows innovation, impacts the quality of products available to consumers and leads to higher inflation through excessive prices. Evidence shows the more market share a corporation has, the easier it is for them to maintain and increase their power. Instead of spending their time focusing on improving productivity they use their excessive power to aggressively block competitors and influence key decision makers to weaken any attempts at regulation.
Consideration of divestiture powers in Australian consumer law
8.19In conjunction with current Australian consumer law, the Competition Act exists to 'enhance the welfare of Australians through the promotion of competition and fair trading and provision for consumer protection' via legislative powers entrusted in the ACCC and the courts.
8.20Over the years, there have been multiple reviews of Australia's competition laws, making observations and recommendations on divestiture and the impact such powers could have for Australian consumers.
8.21For example, in 2003 Sir Daryl Dawson delivered a review of the Trade Practices Act (Dawson Review) then in force, finding at that time that, in light of other remedies, it was 'unnecessary to recommend the extension of the remedy of divestiture'.
8.22Since that time, however, Australia's retail and supermarket environment has changed dramatically, and more recent reviews into competition policy have been completed or are underway, as discussed below.
2015 Competition Policy Review
8.23In 2015, the Competition Policy Review chaired by Professor Ian Harper (HarperReview), reported on the state of Australia's competition policy, laws and institutions and whether they were fit for purpose. The Harper Review looked closely at the 'purpose' and 'take advantage' tests of section 46 of the Competition Act and wrote that:
The Panel considers that section 46 is deficient in its current form. The 'take advantage' limb of section 46 is not a useful test by which to distinguish competitive from anti-competitive unilateral conduct. The 'purpose' limb, that prohibits conduct if it has the purpose of harming competitors, is misdirected as a matter of policy and out of step with equivalent international approaches. The provision should be directed to conduct that has the purpose, or would have or be likely to have the effect, of substantially lessening competition, in a similar manner to the prohibitions in sections 45, 47 and 50 [of the Act].
8.24The Harper Review acknowledged that divestiture was not available to Australian courts but was a potential legal remedy that had been used in other countries, such as the United States, to prevent monopolies from forming.
8.25When considering the value of introducing divestiture powers to Australia, the Harper Review echoed the findings of the Dawson Review and deemed that they would not be necessary as:
… the existing range of remedies is sufficient to deter a firm from misusing its market power and to protect and compensate parties that have been harmed by such unlawful conduct. Where section 46 is breached, the court already has available to it a wide range of sanctions, including: pecuniary penalties that can greatly exceed the benefit the firm has obtained from the conduct; a range of remedial orders, such as compensation payments to parties who have suffered loss or damage; and injunctive relief.
8.26However, the Harper Review did note that this legislative environment could be changed in future, saying:
… if circumstances were to arise where the public interest would be served by breaking up a firm or redesigning an industry, for competition or other policy purposes, it is open to the Parliament to legislate to bring about such reform. Such action would be expected to be rare and exceptional. Nevertheless, the Panel considers it preferable for any such action to be implemented by the Parliament rather than by the court as a remedy for breaches of competition law.
2023 Competition Review—The Treasury
8.27On 23 August 2023, Treasurer the Hon Dr Jim Chalmers MP launched a two‑year Competition Review to focus on the Government's priorities for modernising the Australian economy.
8.28In a media release Dr Chalmers outlined the necessity of the review in assisting the future of competition policy in the Australian economy, stating:
Greater competition is critical for lifting dynamism, productivity and wages growth, putting downward pressure on prices and delivering more choice for Australians dealing with cost-of-living pressures.
8.29According to Dr Chalmers, the review will consider the following:
proposals put forward by the ACCC around merger reform, as well as other competition law issues;
options for coordinated reform with states and territories, to be progressed through the Council on Federal Financial Relations;
non-compete and related clauses that restrict workers from shifting to a better-paying job; and
providing advice on competition issues raised by new technologies, the net zero transformation and growth in the care economy.
8.30Importantly, the review outline does not demonstrate a focus on abuse of market power and the potential impacts of divestiture on competition in Australia. However, the Competition Review may present compelling evidence that highlights issues with contemporary competition policy and may strengthen the case for the introduction of divestiture powers when misuse of market power occurs.
The Independent Review of the Food and Grocery Code of Conduct 2024
8.31The Independent Review of the Food and Grocery Code of Conduct (Grocery Code Review) was commissioned by The Treasury on 10 January 2024, with the Hon Dr Craig Emerson appointed as the independent reviewer.
8.32The purpose of the 2023–24 Grocery Code Review is to:
assess the effectiveness of the Food and Grocery Code of Conduct (Grocery Code) provisions (other than Part 5 of the code) in achieving the purpose of the code to improve the commercial relationship between retailers, wholesalers and suppliers in the grocery sector; and
consider the need for the code, including whether it should be remade, amended or repealed.
8.33The Interim Report of the Grocery Code Review (the Interim Report) was released on 8 April 2024, presenting eight recommendations and three additional draft recommendations to which it was seeking further stakeholder input. In the context of the bill and divestiture, the Interim Report stated that the Grocery Code Review:
… does not support a forced divestiture power to address market power issues in the supermarket industry … If forced divestiture resulted in a supermarket selling some of its stores to another large incumbent supermarket chain, the result could easily be greater market concentration.
8.34The Interim Report also put forward the view that:
If large incumbent supermarket chains were prohibited from buying the divested stores, that would leave only smaller supermarket chains and foreign supermarkets as potential buyers. Further, if these smaller chains were not interested, or were not in a position to buy, these stores would be forced to close. This would be at the cost of the jobs of the workers in those stores and of inconvenience to local shoppers who would need to go elsewhere to buy their groceries.
Evidence regarding the bill
8.35There were mixed views on the bill and its aims, with some in strong support of divestiture powers and the legislation passing as a priority. Conversely, others drew attention to the numerous reviews had found divestiture powers were not needed, and could instead lead to unintended consequences.
8.36Without commenting on the bill and noting its role as an independent regulator, the ACCC was asked its general views on divestiture, with Mr Mick Keogh, Deputy Chair, observing that:
… divestiture powers are common as part of the toolkit of competition regulators internationally. I would note that, where used, they could involve quite an extended time frame in terms of processes associated with them. Where there is evidence that the existing market structure is so fundamentally dominated perhaps by a smaller number, or a single player, and that these available tools to try to bring some kerbing to that power are ineffective or are not likely to work, it is conceivable that divestiture could be a tool that is employed and it could be that it could force the creation of a more competitive market which ultimately would, you'd expect, reduce prices, but the ACCC doesn't have policy on whether or not we support a divested power.
Support for the bill
8.37Supporters of the bill argued legislating divestiture powers for the ACCC and the Courts would provide greater competition in the retail grocery sector and thus pass on cost savings to consumers. Supporters of the bill also agreed with the idea of legislating divestiture powers in line with other Organisation for Economic Co-operation and Development (OECD) countries.
8.38Professor Allan Fels AO called for the power of divestiture, in circumstances where a business has been found to seriously breach competition law, and especially section 46 of the Competition Act. Professor Fels argued that:
… if that [divestiture] power was available it would step up compliance with the law, particularly where there's abuse of market power provisions by big business. That law, which is about big business taking actions that are anticompetitive, against small business and so on, is not backed by very strong sanctions, and those sanctions, fines and so on are seen as the normal cost of doing business. If they faced the possibility of divestiture, you'd get a lot more compliance with a key part of the competition law.
8.39Professor Fels noted that divestiture was an important tool to have to be used in 'fairly special circumstances', and which could take some time to be fully effective—but he made the point that competition law 'has a really big long‑term effect on competition' and that the 'payoff long term to consumers is very large'.
8.40The Australia Institute offered its support for the bill, suggesting such powers were a good idea noting that the 'ACCC, as it currently stands, has very few powers to actual inject competition into a market that is already low in competition'. Mr Matt Grudnoff from The Australia Institute continued that:
Mergers and acquisition laws, which also get a lot of attention, particularly at the moment, stop a market from becoming more concentrated but they're not particularly useful once a market is concentrated. If you have a market like we have at the moment with supermarkets, mergers and acquisition laws are not particularly useful—whereas if you can break up the major competitors you can actually inject more competition in the market. At the moment the ACCC has regulatory powers, and I think they need further beefing up. But that's really all they can do once a market is uncompetitive. Divestiture powers is an entirely different tool that the ACCC or the courts can use in order to inject more competition into a market.
8.41Representatives of Per Capita also endorsed the bill, noting that while such powers have been controversial in the past, they are 'not something that the parliament hasn't done' and that 'self-regulation … has failed consumers on most fronts'. Ms Sarah McKenzie, Director of Policy and Research at Per Capita explained Per Capita's position on the bill:
Our position on those powers is that we need some sort of mechanism where there has been a serious breach of the act, where there are real consequences for these companies. I think there is a real lack of consequences. I believe that, stemming from the lack of consequences, these companies are able to do some bad practices and really just get a slap on the wrist for it. There needs to be something a little bit tougher. Overall, we welcome the introduction of these laws.
8.42NSW Farmers was of the view that 'far from being an extreme measure against any and all businesses that wish to grow', the bill was instead a 'reasonable middle-of-the-road amendment'. NSW Farmers continued that the bill:
… establishes the fact that once a corporation has grown to such a size as to be able to shape their market, they have an obligation to meet a higher standard of behaviour for the sake of the national interest. Enabling the Courts to enforce this standard of behaviour through a divestiture mechanism is the only counterweight to the other fiduciary obligation that corporations have to their shareholders to maximise their market power and profits.
8.43Like other submitters, NSW Farmers observed that comparable countries had divestiture laws, and that the proposals put forward by the bill 'are in fact weaker than those in other capitalist democracies such as France, the UnitedKingdom, the United States of America, Germany, Canada, Iceland, Italy, Japan, Mexico [and] Spain'. NSW Farmers supported the bill and considered it to be 'an appropriate tool for the regulator to disincentivise harmful misuse of market power in the supermarket sector'.
8.44Similarly, the Global Centre for Preventive Health and Nutrition (GLOBE) offered its support for the bill and observed that many OECD countries already have similar divestiture powers, and the bill could therefore be seen increasing 'Australia's compliance with international 'best practice' in regulating misuses of market power'. GLOBE concluded that:
By addressing serious misuses of market power, the Bill represents a powerful, appropriate and feasible measure to promote a healthy Australia – a prerequisite for a prosperous and competitive Australian economy.
8.45In supporting the bill, Healthy Food Systems Australia submitted that it would:
… align Australia with many other OECD countries that have similar divestiture powers to those proposed in the Bill. The proposed Bill will be essential for keeping highly concentrated Australian sectors, such as the supermarket sector, accountable and honest to the Australian public.
8.46The Retail and Fast Food Workers Union (RAFFWU) also supported divestiture. Mr Josh Cullinan, RAFFWU Secretary, maintained that divestiture would not lead to fewer supermarkets nor see workers paid less. Conversely, Mr Cullinan argued that divestiture would rebalance the bargaining power between employers and employees in the supermarket sector. Mr Cullinan concluded that:
Divestiture is not going to lead to fewer supermarkets; there's still going be the number of supermarkets. Workers don't have this amazing set of conditions and experiences. They don't even have safety clauses. They don't have wages that are above the absolute minimum. So divesting those and having them run by someone else, that still has to maintain and apply the current laws, is not going to see workers paid less. Workers are only going to have more power in their negotiations with their employer …
8.47Associate Professor Andy Schmulow suggested divestiture laws were the solution to excessive market concentration, as they would facilitate 'refreshing, rejuvenating, renewing and revitalising our free market by introducing choice and competition'. Associate Professor Schmulow argued that doing so:
… requires the power to break up monopolies, duopolies and oligopolies. While Dr Emerson's solution to make the code of conduct mandatory is helpful and no doubt will afford some benefits, it fails to grasp the nettle, and the nettle is divestiture. This is not radical. It's standard practice in many other leading G20 jurisdictions and has been for decades. Examples include divestiture steps against AT&T, Microsoft, Ma Bell and others. In all cases that I'm aware of, the results were strongly positive for employment, economic growth, competition, price elasticity, consumer choice and service.
8.48Associate Professor Schmulow suggested, however, that giving divestiture power to the courts would present some limitations, arguing that:
This won't work, or it won't work well. Our courts are terribly bad at qualitative economic decisions. They are not practised or equipped to do so. Moreover, our legislative drafters, at least insofar as corporations, commercial or competition law is concerned, churn out some of the most turgid, redundant, ambiguous and contradictory legislation I've seen anywhere in the English-speaking world. The result will be a never-ending series of litigation failures. Instead, the divestiture powers should be vested in the ACCC and should be drafted by experts in plain English drafting, supported by linguists and economists, and the role of the court should be left to that of review.
Concerns with the bill
8.49Despite this significant support, other submitters raised concerns with the bill, including:
the ability of the bill to create greater competition in the grocery sector;
the potential for the bill to cause unintended consequences if supermarket stores were divested; and
the benefits of strengthening merger laws and making the existing voluntary Grocery Code mandatory, instead of divestiture.
8.50Dr Craig Emerson, the independent reviewer for the Grocery Code Review, appeared before the committee and was asked about the interim report of the review, which did not support divestiture powers.
8.51Dr Emerson was of the view that forced divestiture would not be an effective remedy to address supermarket power, could result in job losses, and would take a long time to progress through the courts—both because the ACCC would have to win the case, but and because it would also have to argue that divestiture was the correct remedy (and not the significant financial penalties). DrEmerson also considered the threat of forced divestiture was not credible when considered against the significant financial penalties already available in the Competition Act:
You can threaten anything, but, if it's not credible, it won't have the sorts of desirable effects that I think you and I would agree on—more competition and not breaching section 46 of the Competition and Consumer Act. A credible effect is … for a breach of section 46, a penalty which is the largest of $10 million or three times the benefit that the supermarket gained or 10per cent of the turnover of the supermarket in the last 12 months, which, in relation to one supermarket, is $5 billion. Now, that is a credible threat.
8.52The Business Council of Australia (BCA) likewise did not support the bill, saying it was 'ill-conceived' and pointing to successive reviews of competition laws which have 'concluded that not only would a general divestiture power be unhelpful, but that such a power is likely to lead to adverse consumer outcomes'. The BCA continued:
The Harper [2015], Dawson [2003] and Hilmer [1993] Reviews all rejected the introduction of such a power as did the Griffiths and Cooney Reports due to its unpredictable results, including that the target could be left less productive, efficient, profitable or even viable—and so reducing rather than enhancing consumer welfare.
8.53The BCA did not support the suggestion that divestiture powers were necessary to provide a deterrent against breaches of the Competition Act, arguing that section 46 of the Act already provides significant penalties for breaches and thus deters abuses of market power. It also pointed out that the reviews already underway, including the Competition Review by The Treasury, should be given the opportunity to conclude and present their findings before any legislative changes were progressed.
8.54The BCA also addressed comparisons with other OECD and comparable countries, saying such comparisons were 'unhelpful' as:
… such arrangements appear to be in the context of mergers and acquisitions and are comparable to Australia's existing competition law and practice where divestiture may be agreed to by merger proponents to enable a merger to proceed or as a remedy available to the regulator for an unlawful merger or acquisition.
8.55It is noted that both Coles and Woolworths are members of the BCA.
8.56The Australian Retailers Association (ARA) was likewise against the bill, arguing that it would have the opposite effect of what it intended. The ARA contended that the bill lacked 'clear thresholds for intervention', without an objective test of what constitutes 'a substantial degree of power' in a market—which in turn could undermine investor confidence and economic stability. Further, divestiture had an 'unproven efficacy in reducing grocery prices', with a potential for job losses.
8.57The ARA called for the proponents of the bill to explain how divestiture as envisaged by the bill would result in reduced prices for consumers and 'offer fairer deals for farmers', especially considering that 'similar measures have not yet yielded the desired outcomes both internationally and within the energy market'. The ARA concluded that:
… that the implementation of divestiture powers in the food and grocery sector should be approached with caution. The lack of evidence demonstrating their effectiveness in reducing prices, coupled with consumer trends indicating continued price inflation, highlights the need for government to explore alternative strategies to promote competition and affordability in the grocery market.
8.58Woolworths Group maintained that the case had not been made for 'significant regulatory intervention such as divestiture', saying that such an approach:
… is at odds with a modern and open economy. There is also a real question of which companies would have the scale or the inclination to buy some of these assets, and whether that would be the best outcome for Australia and the community.
Unintended consequences of divestiture
8.59Some stakeholders submitted that the proposed divestiture powers to remedy market power misuse may cause unintended consequences 'for supply chain resilience, food security, employment, investment in infrastructure and, ultimately, [increase] costs to consumers'.
8.60Mr Grant Ramage of Metcash, in response to a question from Senator McKim on Metcash's views on the proposed bill, argued that it was choice that drives competition and is a restraint on pricing and to that end:
Our view is that we're not sure that that proposal will deliver the additional choice that the community is looking for. We are more focused on mergers and on limiting the increasing market power, making it harder for those entrenched positions to grow further.
8.61Woolworths Group did not support the bill, or 'divestiture powers more broadly'. Woolworths listed several concerns about the possible unintended consequences of divestiture, and by way of example suggested that:
it was unclear who would acquire a divested store, and whether the acquirer would be capable of running the store efficiently and cost‑effectively;
a divested store would no longer have the support of a national supply chain and technological platforms – impacting on the delivery of products to stores efficiently, cost-effectively and reliably, and with 'inevitable supply chain disruptions';
a divested store would no longer price its products according to a national or state-based pricing policy – 'which would impact significantly any regional or remote store, including increased prices for the local community'; and
if a divested store was not as successful under new ownership, 'it may reduce its range, operations and employment and would be a less reliable source of food and everyday needs for its local community'.
8.62Woolworths also pointed to the possible unintended consequences of divestiture on broader supply chains and transport networks:
If divestiture was implemented, end-to-end supply chain, transport and distribution networks would be threatened. … Disruptions to information flows, integrated systems and processes, logistics scale and current supply chain investment would add inefficiencies. A reduced scale and greater reliance on third party supply arrangements would also impact future supply.
8.63In appearing before the committee, Coles Group also put forward its concerns about unintended consequences of divestiture. Chief Executive Officer MsLeahWeckert provided a list of potential adverse consequences, including 'higher prices for consumers, potential lower investment in the grocery sector in Australia [and] potential poorer outcomes' for regional areas, and job losses. Ms Weckert also saw several risks resulting from the enactment of divestiture laws:
If you have grocery operators knowing that, because of divestiture laws, there's almost a cap on the size to which they can grow, that potentially limits the investment that businesses are willing to make to continue to develop their supply chain capability, to expand stores. One of the things, when you look at the grocery industry in Australia, is that customers have hugely benefited of from the amount of capital investment that the large supermarket chains have put into Australia, whether that's Woolworths, Coles or Aldi—or even Costco—with the development of infrastructure and stores.
8.64The National Farmers Federation (NFF) suggested that 'supermarkets and retailers do use their market power to the detriment of farmers', and that the sector had advocated for a range of measure to 'improve and strengthen Australia's competition policy settings'. Notwithstanding these views, the NFF took a cautious approach to the bill and its aims:
From the NFF's perspective, both the provision and any use of such remedies by the ACCC would represent both a significant shift and magnitude of intervention by government in the regulation of corporate activity in Australia. Given this, thorough investigation would be required to provide significantly greater clarity on how such provisions would be operationalised and the consequences of such divestment orders on the supply chain.
Strengthened merger laws and a mandatory food and grocery code of conduct
8.65Some submitters did not directly comment on the proposed divestiture laws, but instead suggested other solutions that may improve competition in the retail grocery sector in Australia.
8.66For instance, SPAR Australia offered several recommendations focused on 'transparency, innovation, and fair market access', including:
implementation of a mandatory Grocery Code;
prohibition of unfair practices;
the strengthening of merger assessments; and
establishing robust reporting and monitoring mechanisms to the ACCC.
8.67SPAR suggested that implementation of these steps would:
… cultivate a more dynamic and competitive marketplace that benefits consumers, supports small businesses, and fosters innovation and growth. It is crucial for policymakers, regulators, and industry stakeholders to collaborate in enacting these measures to ensure a vibrant and sustainable future for the supermarket sector.
8.68Woolworths was similarly supportive of the Grocery Code becoming mandatory, instead of the enactment of divestiture powers.