CCPC report dismisses profiteering claims

IN June, the Competition and Consumer Protection Commission (CCPC) published an important new report on the grocery sector in Ireland. It followed very significant media and political focus on the high levels of grocery price inflation over recent months.

The report, which was requested by Minister for Enterprise Simon Coveney TD, looked at how the grocery market is functioning, the reason behind recent price rises and the merits of any possible Government action or intervention in the market to address concerns over price levels.

Importantly, the report dismissed many of the charges that have been levelled at the sector in the media over recent months and says there is strong and healthy competition across the sector. It says that competition has increased over recent years on the basis of price, quality, location and service.

The CCPC report acknowledged that food prices remain high in Ireland when compared internationally; however, there are understandable reasons for this. Ireland’s geographic location and dispersed population means that our import and distribution costs are higher than average. Also, our relatively low population level means that Irish retailers do not enjoy the same economies of scale that exist in many European countries.

Irish businesses also have to contend with much higher costs than businesses in other parts of Europe, including higher labour costs and higher costs for construction, legal services, energy and insurance.

Lowest level of food inflation in the EU

Despite these high costs, the report notes that Ireland has had the lowest level of food inflation in the EU since 2015, and over the last two years Irish inflation levels have been similar to other parts of Europe. When it comes to recent price trends, there is nothing unusual or unexpected happening in the Irish market, compared to other retail markets across Europe.

The report highlights that it took a significant amount of time for higher input costs to be passed onto consumers by retailers, and there would likely be a lag before lowering input costs would ultimately be reflected in price trends.

The report also looks at a number of other areas that have been subject to extensive commentary recently. On the issue of profitability, it says that profit margins in grocery retail are typically low compared to other types of businesses, and there was no evidence to suggest that profit margins in Irish retailers were in any way unusual.

Price interventions deemed unnecessary

The CCPC looked at price interventions internationally in relation to the grocery retail sector and did not find any evidence that they have benefitted consumers. In their analysis, they found that the introduction of price caps in the grocery retail sector would present a significant risk to the Irish economy and consumers as it would harm competition and could lead to supply shortages if retailers could not source these products at below the set price cap. Aside from availability, choice and quality could also be affected if the prices of certain products were capped as suppliers have no incentive to invest in new products or innovate existing ones.

The CCPC report supports the key messages that Retail Ireland has been communicating over recent months about the causes of food inflation, the relationship between input costs and consumer prices, the competitive nature of the Irish retail market and the potential risks of price interventions.

The report will help address some of the ill-informed and opportunistic commentary on grocery prices that we have seen over recent months. While specific pricing decisions are a matter for individual retailers, intense competition in the sector will ensure that consumers benefit from falling commodity and energy prices. This is happening already and will continue.

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