Seanad Éireann - Volume 77 - 20 March, 1974
Restrictive Practices (Confirmation of Orders) Bill, 1974: Second and Subsequent Stages.
Question proposed: “That the Bill be now read a Second Time.”
Minister for Industry and Commerce (Mr. Keating) Justin Keating
 Minister for Industry and Commerce (Mr. Keating): The object of this Bill is to confirm an order which was made by my predecessor, as amended in a later order made by me under the Restrictive Practices Act, 1972, on the recommendation of the Restrictive Practices Commission, relating to the supply and distribution of grocery goods.
Before dealing with the detail of the orders which I am asking you to confirm, I feel it would be useful to outline very briefly for you my policy towards the distributive sector, and in particular towards the grocery trade with which we are concerned today. By its nature the trade must take the form of a vast number of small or, at most, medium-sized units; and while these may be completely independent, or organised in groups or in fact units in a chain, there can be no possibility of that degree of concentration which is an increasing feature of manufacturing industry. This being so, the efficiency of the industry and the service which it offers to the community must to an even greater extent than in industry rely on the enterprise and efficiency of individuals.
I believe that the distributive sector, and the grocery trade in particular, have shown their ability to adapt to the changing demands of society. The last 15 or so years have shown quite a remarkable change, indeed almost a revolution, with the development of supermarkets, self-service shops, one-stop shopping, convenience foods and other features with which we have all become familiar. On the whole these developments have been desirable. The two features in particular which I am anxious to see maintained are efficiency and competition. On the one hand, I do not want to see the inefficient shopkeeper who is unwilling or unable to move with the times kept in business artificially out of a mistaken sentimental attachment to the idea of “the small man” in business. Neither, on the other hand, could I tolerate a situation where financially powerful groups or chains would edge the family shop out of business and establish monopoly or oligopoly conditions. These two aims  will be advanced in substantial measure by the Bill which is before you today.
I turn then to the Bill itself, which is intended to give effect to orders made following an inquiry which the Restrictive Practices Commission undertook on their own initiative following numerous complaints of unfair trading practices in the grocery trade. Almost one hundred witnesses were examined in the course of the inquiry. They included representatives of consumer interests, of distributors, both wholesale and retail, of manufacturers, of voluntary groups and of multiple supermarkets.
The principal issues considered at the inquiry were:—
(a) the allegation that large buyers, particularly supermarket chains, were able to secure from suppliers terms which we unfairly discriminatory against independent traders;
(b) the allegation that large buyers were thus enabled not only to have an unfair advantage in competition but also to adopt unfair methods of retailing; and
(c) the contention that a consequence of this situation would be the disappearance of many more small retailers and the attainment by a few large buyers of a position of complete dominance.
The commission distinguish between “standard terms of supply” and “supplementary terms of supply”. They define the former as the terms, usually in printed form, which are open, and seen to be open, to all trade customers. Supplementary terms are other terms which individual firms may negotiate, privately as a rule, with suppliers.
So far as the standard terms are concerned the commission found that many large suppliers were applying them so as to discriminate unfairly in favour of large supermarket chains and against independent retailers and wholesalers. They recommended that standard terms and conditions of supply should be published, should be strictly observed, should be open  to all traders meeting the relevant conditions and should not be set at unreasonable levels so as to discriminate unfairly against any trader or to exclude new entrants.
The commission found that suppliers were also operating supplementary terms of supply in the grocery trade, related to promotions, long-term supply agreements, advertising and merchandising. Promotions are offers of a product at reduced prices for a short period, generally a fortnight, and advertising allowances are usually linked with them. Long term agreements are agreements providing for the payment of extra rebates to firms which achieve agreed increases in sales. Merchandising means, in the context of the inquiry, the activities performed by employees of suppliers in promoting goods in their customers' outlets. These supplementary terms were granted mainly because of the bargaining power of supermarket chains who were the main beneficiaries. The commission felt that these supplementary terms were of an arbitrary character, favoured unfairly large scale buyers, facilitated the application of pressure and abuse of economic power and resulted in unfair discrimination. On the other hand, the commission considered that obtaining legitimate trading advantages was desirable in order to encourage competition. They recommended therefore that suppliers should be obliged to apply these terms in a fair manner rather than that such terms be prohibited.
The commission found also that there was discrimination in the granting of credit in favour of large supermarkets and they recommended that it should be prohibited.
In the grocery trade groups of manufacturers sometimes give terms to traders which are related to the aggregate purchases from all members of the group and not to purchases from each individual manufacturer. The commission recommended that this practice should be prohibited because in their opinion it tended to restrict competition and led to uniformity of pricing
The commission considered that  “loss leaders”, that is the selling of certain items below purchase price, stimulated competition and should not be prohibited. However, they considered that advertising by supermarket chains of such prices in newspapers and other media created an unfavourable and misleading impression of prices in small independent outlets and increased the domination of the trade by large financial interests. They recommended therefore that such advertising should be prohibited.
On 21st February, 1973, my predecessor made an order giving effect to the commission's recommendations. The order departs from the recommendations in two respects. First, whereas the commission had recommended that advertising allowances would be related strictly to services to be performed, examination has shown that this would be unenforceable in practice. Since the practice is not generally regarded in the trade as of particular value anyway, it was decided to prohibit it completely. Secondly, following representations that there was the possibility that Irish manufacturers might lose orders from large buyers because the order would impose on them restrictions not applicable in practice to foreign suppliers, the order provides for throwing light on any developments of this kind by requiring traders who import direct from suppliers abroad to register the full terms and conditions of such purchases with the Examiner of Restrictive Practices, as our home suppliers have to do. Any attempt by traders to evade their obligations under the order in this way would be a serious matter, and I have made special arrangements to have a close eye kept on developments so that I may be able to take quick remedial action should that be necessary.
Paragraph (a) of article 3 (3) of the order was intended to implement the commission's recommendations that where a supplier adopts quantity terms for the supply of goods such terms should be set at realistic levels consistent with the encouragement of efficiency and economy in distribution. The Article as originally drafted however could be held to oblige a supplier in, say Dublin, to charge a  higher price for goods supplied to a customer in a remote country area than to one in Dublin. While a supplier is free to do this, it was of course never the intention that he should be obliged to do so. To achieve the original intention it was necessary to amend the order. I made the necessary amending order on 18th October, 1973, and I availed of the opportunity to make the article in question more precise.
Representations have been made to me that the orders, by removing certain special discount advantages which are at present obtained by some distributors, could result in the general public paying more for their purchases. This should certainly not be the case. The orders specifically provide for reasonable discounts related to bulk purchases. What they seek to prohibit is discount advantages over and above the economically justifiable level which some distributors could otherwise be able to demand by reason of their purchasing power. If a particular distributor loses sizeable special advantages of this sort, he may have to increase certain of his retail prices. However it can be assumed that where a supplier gave such special discounts he met the cost, not out of his profits, but by charging more than he would otherwise do to his other distributor customers. If, then, suppliers' prices to certain distributors increase by a certain amount, their prices to others should decrease by an equivalent amount; and prices to retail customers of these distributors should respond accordingly. On this basis there is no net increase or decrease, but prices and costs are spread more equitably. In actual practice however I would expect worthwhile economies in distribution costs to be achieved, since the highly uneconomic practice of having manufacturers deliver their goods in comparatively small parcels to a multiplicity of shops would be discouraged. The economies resulting from a discontinuance of this practice should help to keep global prices down.
It has been suggested to me that  suppliers may increase prices to certain of their customers as a result of these orders and that there is no guarantee that these suppliers will correspondingly reduce prices to others. I do not think there is any great danger of this in present conditions of competition from the various sources from the efficient family grocer to the supermarkets. I am very conscious of the need to safeguard the ultimate consumer against unwarranted price increases. I intend to do everything I can to ensure that this order is not used to exploit the public. I am sure that the National Prices Commission will keep a sharp eye out for any developments of this kind. I have every confidence that the vigilance of the commission will ensure that they do not occur.
The Restrictive Practices Act, 1972, provides, that orders of this kind shall not have effect unless they are confirmed by an Act of the Oireachtas. The Bill now before the Seanad is the confirming Bill which is necessary to give the force of law to the orders. With a Bill of this kind, the orders which it is proposed to confirm may not be amended by the Oireachtas but must be accepted or rejected as they stand. The matters with which the orders deal have been the subject of a lengthy and painstaking public inquiry and report by the Restrictive Practices Commission. The orders will go a long way to ensure fair play for the small shopkeeper and his customers and should put an end to the unfair practices in the grocery trade which have been so much complained of in recent years.
I regard it as very much in the spirit which I have outlined at the outset, and I have no hesitation in recommending this Bill to the Seanad.
Mr. Lenihan Mr. Lenihan
Mr. Lenihan: The Bill is welcomed by this side of the House. It gives legislative effect to orders passed by the Minister's predecessor. The whole development of restrictive practices and price control was very much the concern of the previous Government and is now being adopted by the present Government. This is at it should be because this is an area where what is socially desirable should be the objective. There is no  contentious political matter arising out of this particular area.
The Minister's speech shows that there is a very real dilemma in ensuring justice for the small retailer, ensuring that he continues to have a place in retailing and distribution. Apart from individual justice as far as he is concerned, there is the question of overall social justice. If he is in any way weakened he is left completely at the mercy of supernational giants in this area of distribution. At the same time there is the necessity to ensure that as far as possible the cost of living is kept down and that the value that is enabled to be given by the large supermarkets is maintained for the benefit of the housekeeper and the purchaser. A balance point must be struck somewhere. The orders do achieve the balance point in so far as it is humanly possible to do so. Then there is the other arm, the National Prices Commission, to ensure by their investigation and surveillance that prices are kept down.
Basically there was a danger that, as far as the small retail trader is concerned, there would be a complete takeover of distribution in retail companies, many of them multinational companies. We know the danger of multinational companies, not alone in Ireland but throughout the world. There were obvious advantages to suppliers in making bulk supplies available to such customers, to the disregard of smaller customers. The orders have come down to a reasonable approach. They provide for reasonable discounts related to bulk purchases and seek to prohibit discount advantage over and above the economically justifiable level which some distributors would otherwise be able to demand by reason of their purchasing power. This is where the difficulty will be. I am sure the Minister appreciates that.
The difficulty is going to be first of all to define reasonable discounts. There is going to be difficulty of administration. Seeking to prohibit discount advantages over and above the economically justifiable level which  some distributors would otherwise be able to demand by reason of their purchasing power—to define and get to the heart of what is a reasonable discount and prohibit discount advantages over and above the economically justifiable level will involve administrative difficulties. The objective is worth seeking. In other words, you are not going the whole way and allowing the situation which existed to continue where a jungle warfare attitude in regard to discount advantages was being perpetrated which would ultimately lead to the elimination of the small trader, to the consequent disadvantage of the country as a whole.
I agree with the Minister when he says that one should not eliminate these discounts altogether. There must be a system of reasonable discounting if one is to ensure that prices are maintained at a competitive level. We do not want to develop into a protective system without discounting which would lead to small supplies and a protective attitude for the supplier himself. He would not be in a competitive position at all if he were not put in the position where he would have to give discounts in order to survive and expand his own business. All in all, I think the orders themselves and the legislation seek to achieve this balance between the conflicting intrests involved. There are conflicting interests. The national attitude and aspect must prevail. The logical approach should be to keep your large supermarkets but at the same time have your healthy, competitive smaller traders side by side with them. There is no fundamental conflict between the two provided there is efficiency on each side and that there is no question of the distributor discriminating grossly in favour of the larger supermarkets.
Mr. E. Ryan Mr. E. Ryan
Mr. E. Ryan: In regard to the objectives of this Bill, I agree with the Minister's speech and with the remarks which have been made by Senator Lenihan. I should like to comment briefly on the form of the Bill and the fact that the Bill says that certain orders should be confirmed.
 If anybody, particularly members of the legal profession, were to look back in a few years time at the statutes for 1973-74 to see what the law was on restrictive practices or which changes in the law had been made in that period, all they would see is this Bill confirming certain orders. I would make an appeal, which I have made in the past, in regard to the form which Bills of this kind take. If it is necessary that the law should be amended and up-dated, it may be necessary in certain situations—in cases of urgency or otherwise—to do it by order. Wherever possible it should be done by a Bill. Where it is not possible to do it in the full form by a Bill, I suggest that the very least that should be done is that the Bill confirming the order should have a Schedule showing what the order is. It is probably too late to do it in this case. I would ask the Minister to ensure in future that in such a situation the orders would be included in the Bill as a schedule.
Mr. McGowan Mr. McGowan
Mr. McGowan: The Bill will probably help in so far as traders may have general stabilisation in prices and small shopkeepers may not be forced out of business. I should like to see some provision to help those who have already suffered where there is a monopoly in distribution. I am thinking of Guinness products, if it is not out of order to refer to one product.
An Cathaoirleach An Cathaoirleach
An Cathaoirleach: I think the Senator realises that it is not appropriate to refer to individual products or individual companies.
Mr. McGowan Mr. McGowan
Mr. McGowan: All right. I want to make a point that there are areas where there are serious monopolies and that these could be covered, probably in a monopolies Bill. I think the Bill should have cleared the air completely across the board from the grocer, the butcher, the publican, and every aspect of trade in the country. There is a serious situation in regard to monopolies here. There are people in small businesses who are finding it very difficult to carry on, who have to adopt extraordinary  measures to get supplies. There are people who are being supported in the distribution trade. This is purely due to monopoly. I would have liked to think that the licensed trade generally would have come under the Minister's attention and that provision would have been made for it here. I just wish to refer to that briefly. I do not think that you can deal with this to the exclusion of the packaging of goods. Manufactured goods are being handled by the grocery trade, and most supermarkets and grocery shops at present would handle packaged meat. The contents of this meat do not come under sufficient Government supervision. The contents of, say, sausage meat——
An Cathaoirleach An Cathaoirleach
An Cathaoirleach: The Senator is going very wide of the two orders which are being confirmed by this Bill.
Mr. McGowan Mr. McGowan
Mr. McGowan: I probably am but I am expressing a wish here that——
An Cathaoirleach An Cathaoirleach
An Cathaoirleach: Surely the Senator realises that if he is out of order he is not entitled to express the wish in this Bill.
Mr. McGowan Mr. McGowan
Mr. McGowan: I respect the Chair in this case. I would have hoped that we could have had a more comprehensive Bill here to cover all aspects of trading. Those are certainly items which are part of the trade and part of the general product being handled by the retail and wholesale trade in the country.
Mr. Alexis FitzGerald Mr. Alexis FitzGerald
Mr. Alexis FitzGerald: I regret I was not present when the discussion opened. Let my own inefficiency account for that. I just wanted to make one point which I think it might be useful to make with regard to this Bill, which takes the usual form under the Restrictive Practices code. I should like in relation to it to emphasise the extreme importance of what we are doing, the extreme importance of the report which the commission made in this case, the extreme importance of the orders which were made pursuant to the recommendation. You have only to look at the fourth table in the report to note that in 1970 for the lowest income group 44 per cent of their personal  expenditure went on what we are here this evening to discuss. Anything we do which improves the efficiency of distribution of the groceries which as defined are within the range and ambit of these orders will help most of all those who most need help. Brought out in the report—an excellent report, as many of these reports are, which is a great credit to their authors—was the old economic proposition that increasing affluence leads to a smaller percentage of personal expenditure on groceries. This is shown, compared to the year 1966 and the estimated figure for 1970, in a drop of the percentage of personal income which was spent on groceries, which was a drop from 37 to 31 per cent. It is still a very significant percentage.
It occurs to me that it would be useful to the House, useful to the people, useful to the Minister, to draw attention to one of the possible benefits of this order: to encourage efficiency and economising in the distribution of groceries. The figure is given in another table there; it is not a tremendous return on capital which is something in the order of 11 per cent, which does not seem to me to be exorbitant when you think of the risks taken and concealed losses in certain cases. The percentage of sales of turnover which goes in distributive costs is 5 per cent. When you think of value-added tax on food you realise the dimension of what we are talking about and its overall significance to the economy. When you look at the breakdown of that figure of 5 per cent and you find that 2.7 per cent of the turnover goes on the freight costs, you realise that an order which is designed, as I understand the Minister's account of it and as I understood the recommendations of the commission, to encourage the supplier to adopt methods of supply in as large an order as possible, to develop standard sets of supply terms which will encourage the distribution of these groceries in larger supplies, will and must have a useful effect on the final price to the consumer. This is particularly important because, since the Minister made the second order to which we have referred, we have of course had the fuel crisis. I wonder whether the Minister might from the range of knowledge he  has be able to give any indication of the effect on that percentage of 2.7 of the increase in energy costs, which increase of course is going to be borne ultimately by the consumer of the goods subject to this order. I am reading here just one paragraph if I may be permitted, which seemed to me to be worth noting from The Financial Times, 18th December, 1973, and I think it is directly related, in particular to the re-phrasing of the provisions of section 3 (3) of the original order which was contained in the second order :
Similarly, on distribution reductions in frequency of delivery to retailers and cutting out emergency deliveries has allowed one Dutch manufacturer to reduce petrol consumption by 15 per cent. Moreover by discussing this reduced level of services with the trade the firm has persuaded retailers to do a more effective job of anticipating requirements so that the reduced service levels do not appear to have affected the total sales volume.
It might be useful if the Minister directed that part of his departmental mind which is concerned with price control to that part of his departmental mind which is concerned with the source of energy, and in particular, co-operated with the other Minister who is primarily concerned with the energy problem and must be and ought to be giving consideration to all known ways and means of solving it. Because it is relevant, I am only dealing with the effect of this order on the distribution of groceries, but there are many other matters which if I developed them the Chair would rightly tell me I was being irrelevant in doing so, and so I do not.
Minister for Industry and Commerce (Mr. Keating) Justin Keating
Minister for Industry and Commerce (Mr. Keating): Perhaps it is an appropriate moment for me to express my pleasure at being here. This is the first occasion I have had the opportunity of addressing the Seanad. I have two Bills together, I must say I see greater force in the arguments in favour of this Chamber when I encounter both the reasonableness and the practicality and, one might say, the pertinence of the speeches and  that I must say is an occasion of pleasure for me. Senator Lenihan is right at the nub of the matter when he talks of the difficulty of defining what is reasonable in relation to this task. We all imagine we understand what it means but, when we examine it, we find often that we mean different things. It is difficult.
I can only say in regard to this that the person charged by law with making up his mind on what is reasonable in any particular case is the Examiner of Restrictive Practices. We have someone in that office who is himself reasonable and who I believe enjoys the respect of the different sectors. In the first instance all that we can do is to urge him, as I think we all know he will do anyway, to discharge his responsibility under the law in a deliberate and conscientious way. However there is the further provision that anyone who disagrees with his judgment can have recourse to the courts, which retain the last say. In the long run— though one would not wish, with the known congestion in our courts, to see this happening too often—it is an extremely important safeguard.
I believe there is no way that one can lay down precise guidelines in this area. The work has to go on. The experience has to be accumulated, and then one must trust to the good sense and the good judgment of the particular public servant entrusted with it—with of course the safeguard I have mentioned. No one pretends that he has been given an easy task and obviously the very determination of what is reasonable will fluctuate from month to month in varying market circumstances.
I think nonetheless it is a workable mechanism and that it is one which, because of the importance of the whole matter of discounts and of reasonable discounts, ought to be given the opportunity to work. My estimate—and, indeed, it is the estimate of other persons here—is that it will work. If it does not, we will have to look again; but I believe it will.
 The other point Senator Lenihan made is again at the very heart of the intention of these orders: the matter of balance, the matter of holding the ring so that the supermarkets can give their known good value on the one hand and that small family businesses can give their known service and the other non-quantifiable things they give to customers, which is immensely important and all the time getting more so, namely, individual human, personal attention. There is a delicate matter of holding the balance between these two tendencies, between these two interests. The essential point to be made about the matter of holding the ring between supermarkets at one end and small family businesses at the other end is that I believe that what is lost in one place will be gained in another place. I believe that there may be some redistribution in regard to prices between the big and the little but that there will be no overall contribution either to increasing them or, alas, be it said, to diminishing them either. There will be a little bit of shifting in favour of the smaller distributor and in the circumstances in which we find ourselves that is a good thing.
In regard to what Senator Ryan said about the form of the Bill, the procedure being adopted is the procedure laid down in the Restrictive Practices Act since, I understand, 1953. That is what one might call the formal answer, but the other answer is that I entirely agree with the point he makes and perhaps as someone not as familiar with the documentation of the law as he is and not as ready in finding my way about the literature, agree with what he says about the desirability of including the orders in a Schedule. We both made the point here, but I think it might be made to the parliamentary draftsman. If we have a similar occasion it is common sense to have the things readily accessible and appended, and that is a useful suggestion.
Senator McGowan did not develop the point about a particular brand and a particular brand name, but we understand what he was referring to.  Intoxicating liquor is not covered in the commission's inquiry, but this is because there is already in operation the Restrictive Trade Practices Intoxicating Liquor and non-Alcoholic Beverages Order, 1965. When that is said, he raises from his own experience an important point. I understand, a Chathaoirleach, that you indicated that perhaps he was straying a little from the main tenor of the debate before us, but I should like to say for the record that if we as public representatives know from our own experience of the operation of monopoly and, as the note I jotted down from what he said indicates, of circumstances where there are small people who have to go to extraordinary lengths to obtain their supplies, then while I cannot guarantee that we can resolve the problem immediately because new difficulties are always arising, the Senator will be aware that there is under the restrictive practices legislation a fair battery of weapons to stop this happening, and it is certainly the intention to stop it happening. I would be happy to hear the details from him on a person to person basis and to see if our existing mechanisms provide a solution to the difficulty. It is possible that they will, and I think all of us do deplore that situation if it is arising. Certainly as the Minister operating that legislation I should like to hear about it.
Senator Alexis FitzGerald presents me with some questions to which I do not know the answer, because I certainly could not easily, or attaching any significant weight to my gestimates, give an opinion on the effect of the increase in fuel costs on the cost of distribution. Indeed, apart from my own lack of knowledge, lack of time, or lack of investigation of the area, it might be something that would be difficult to do because one is dealing with a large number of products, some of them very bulky and some very small and broken up. One is dealing with almost one million people living within a radius of not far from here to extremely scattered parts of the country where the population density is very low.
We have all seen a calculation of  the total increase to our national fuel bill from price increases, if one assumes no increase in volume of oil imports. I have seen an estimate which I will not give because I am not sure if I recall it correctly. It would be better not to have on record a falsely recalled calculation which tries to measure the cost effect on all goods of the increase in fuel. It is rather cheeringly small. It was a good deal less than I would have expected. But we are seeing in regard to energy an interesting thing happen. In regard to burning oil, whether burning it in diesel delivery vehicles, for domestic heating or for energy in factories, if people examined the problem carefully they could achieve significant and, in cost terms, extremely significant savings simply by altering what they do a little and by planning better.
The savings the Institute of Industrial Research and Standards—which have looked into the whole energy equation in regard to the economy— were able to suggest, in a very useful service they give to industry, have been surprisingly large. We were all becoming a bit slack and self-indulgent in regard to energy use.
One wants efficiency of distribution; one wants the minimum added cost from distribution. But the public are entitled also to want convenience; they are entitled to want a large number of products and not just one or two. They are entitled to want a large number of outlets and not to have to travel too far. This is a matter of balancing different requirements against each other. I have taken a lot of words in relation to Senator FitzGerald's question to say that I do not know the answer.
I recommend the Bill to the House.
Question put and agreed to.
Agreed to take remaining Stages today.
Bill put through Committee, reported without amendment, received for final consideration and passed.
Seanad Éireann 77 Restrictive Practices (Confirmation of Orders) Bill, 1974: Second and Subsequent Stages.