Grocery prices could rise, says think-tank

SHOPPERS could see the price of their groceries rise and have fewer local products to choose from because of Government plans to impose a code of conduct on the retail trade, a leading economic think-tank has claimed.

Enterprise, Trade and Employment Minister and Tánaiste Mary Coughlan announced a consultation process in August on the proposed code, largely in response to reported price differentials between shops here and in the North.

In a working paper based on its submission to the consultation process, the Economic and Social Research Institute suggests that a fresh consultation paper be prepared to conform with the government’s agenda for better regulation, and it questions the need for such a code in the first place.

“It is in reality protectionism for the grocery supply sector because of the squeeze on margins due to a rise in the value of the euro against sterling, exacerbated by the recession,” wrote ESRI research professor Paul Gorecki.

He said that, although the object of the code discusses the need to enhance consumer welfare and to ensure there is no impediment to lower prices being passed on to consumers, there is no provision in the code to ensure these conditions are satisfied.

“This is important because the code is likely to lead to higher prices for consumers, which will lower not raise consumer welfare,” the ESRI paper states.

Dr Gorecki wrote that the code is likely to lead to less efficient methods of retailer/supplier interaction because, without justification he says, it constraints the behaviour of the retailer in relation to the supplier.

“In addition there are, of course, the compliance costs associated with the code. As a result, the cost for the retailer of doing business with local suppliers will increase rather than decreasing. This is likely to lead to more, not less, imports of grocery products and possibly a less competitive grocery sector,” he wrote.

The working paper concludes that the solution is simple, and that a number of things can be done if the perceived problem is excessive buying power of retailers. It suggests that retail planning guidelines could be liberalised, as has been argued for some time by the Competition Authority, and competition could be amended.

Questions posed in the consultation paper were whether the code of practice should be voluntary or statutory, and whether an ombudsman should be set up to monitor enforcement of the code.