Foodstuffs has come out swinging against proposals to split it up, releasing a review it commissioned that criticises modelling of the benefits as "economically implausible".
By Giles Dexter of RNZ
National is proposing to get the Commerce Commission to review whether severing Pak'nSave from New World and Four Square would leave shoppers better off, and if the conclusion finds it would, then National would legislate the separation.
When announcing the proposal last month, National's finance and economic growth spokesperson Nicola Willis said the proposal followed a comprehensive cost-benefit analysis written for the Ministry of Business, Innovation, and Employment by Sense Partners, as well as two peer-reviews she commissioned as finance minister.
If elected, the party would force Foodstuffs and Woolworths to break up their retail and wholesale supply operations. (Source: 1News)
Sense Partners' modelling estimated prices would be about 3.5% lower on average in the first year of separation, with gains growing as the new chains bedded in.
By 2035, the estimated annual household benefit ranged from $200 to $1320, depending on income and family type.
It put the overall net gain to the whole economy at $2.9 billion over 20 years.
Foodstuffs commissioned independent economists HoustonKemp to undertake a preliminary peer review of that modelling.
Founding partner Greg Houston found the net benefits appeared "too good to be true," and the lower prices and higher costs predicted would result in "industry-wide losses over the next 20 years."
HoustonKemp's five-page review said supermarket net profits were presently 2.3% of sales, but Sense Partners' modelling reported profit reduction equivalent to 3.5% of sales.
Night 'n Day operator wants separation forced on major brands owned by Foodstuffs and Woolworths. (Source: 1News)
"No sector of the economy can sustain ongoing negative profits. How then could Sense Partners derive such a result?" the report said.
HoustonKemp also said the cost increase assumptions were untested with industry participants, and that Sense Partners' modelling was based on an assumption that no individual Foodstuffs store or brand competed with another.
"There is no basis for this assumption. Foodstuffs stores are individually owned with a strong incentive to compete. Pak'nSave stores can and do presently win business from New World (and Woolworths) stores, and vice versa."
Sense Partners' analysis has already been peer reviewed by former UK Competition Commission chief economist John Davies, who described it as an "impressive" piece of work.
"As with any economic modelling, a lot of assumptions and simplifications of reality are required. In general, the modelling choices and assumptions made seem to me sensible and similar to those made when competition authorities model mergers," Davies wrote.
The party want to create a nationwide supermarket chain called KiwiMart, with 120 stores aimed at increasing competition and lowering grocery prices. (Source: 1News)
Willis noted Sense Partners' analysis had been peer-reviewed by Davies, as well as by research organistation Motu.
"But economists can always have different views," she said.
That's why National is proposing to direct the independent Commerce Commission to assess the merits of the proposal. The final decision will be determined by the facts."
NZ First is also campaiging on separating Pak'nSave from New World and Four Square, without waiting for a Commerce Commission review, while Labour's proposal is to force Foodstuffs and Woolworths to run their wholesale arms independently from their retail arms.
The Greens want to force Foodstuffs and Woolworths to sell off stores in order to create a state-owned KiwiMart, while the ACT is avoiding any moves towards structural separation, instead wanting to create a one-stop shop for new supermarket consents.
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