Latest / Best of Business / Greg Houston: Houston Kemp founding director on Foodstuffs stepping up efforts to stop National potentially breaking them up

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Greg Houston: Houston Kemp founding director on Foodstuffs stepping up efforts to stop National potentially breaking them up · Best of Business

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  Speaker 1: You're listening to a podcast from Newstalk ZB. Follow this
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  Speaker 2: Now, Foodstuffs is fighting back against National's plan to break
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  Speaker 2: up their cooperative. The National Party says its plan is
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  Speaker 2: based on work that's done by sense partners that shows
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  Speaker 2: there is a benefit. But Foodstuffs has now asked independent economists,
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  Speaker 2: Houston Kemp, to look at that work. They've reached a
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  Speaker 2: different conclusion altogether. They say the conclusions were too good
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  Speaker 2: to be true. Founding director of Houston Kemp, Greg Houston,
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  Speaker 2: is with us.
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  Speaker 1: Hi, Greg.
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  Speaker 3: Great to be with you. Good afternoon.
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  Speaker 2: Yeah, thanks very much for your time. Now, since partners
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  Speaker 2: reckon that a breakup would leave consumers $ 13. 1 billion better
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  Speaker 2: off over 20 years, do you disagree with that?
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  Speaker 3: I do disagree because the price cuts that are implied
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  Speaker 3: in that consumer benefit would wipe out the profits for
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  Speaker 3: the whole of the supermarket sector. And no sector can
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  Speaker 3: sustain loss-making for the 20-year period of their analysis. So,
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  Speaker 3: My view is that those price cuts just are too
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  Speaker 3: good to be true. They won't be possible to realise them.
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  Speaker 3: They also predict cost increases. So the recipe of lower prices,
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  Speaker 3: higher costs and wiping out profits doesn't seem one that's
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  Speaker 3: very plausible to me.
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  Speaker 2: Where are these cost increases?
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  Speaker 3: Well, the cost increases will come from duplication and also
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  Speaker 3: the fact that some of the buyer benefits that the
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  Speaker 3: larger entities attain at the moment, they'll need to pay
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  Speaker 3: more for suppliers. So there's two kinds of cost increase,
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  Speaker 3: more payments to suppliers and And duplication, infrastructure duplication, administrative duplication,
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  Speaker 3: so on. And since partners recognise both of those things,
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  Speaker 3: but they haven't sort of put that together with the
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  Speaker 3: combination of price reductions to recognise their own conclusion that
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  Speaker 3: profits will disappear. And that's just not going to add up.
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  Speaker 2: So in your mind, is it more likely that... that
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  Speaker 2: what Foodstuffs has said is true will happen, which is
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  Speaker 2: that Foodstuffs has said actually prices are more likely to
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  Speaker 2: go up as a result of this.
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  Speaker 3: Well, there will be more costs, and those costs have
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  Speaker 3: to be paid for. And at the moment, the supermarket
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  Speaker 3: sector is not making particularly extraordinary profits. The 2.3% or
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  Speaker 3: 2.3 cents out of the dollar of shelf prices, that's
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  Speaker 3: quite a normal level of profits. That's not foodstuffs. That's
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  Speaker 3: the whole supermarket sector. And they're quite normal looking profits.
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  Speaker 3: So if there are no profits, then businesses can't sustain themselves.
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  Speaker 2: Now, you need to tell me if I'm saying this right,
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  Speaker 2: but your argument is that the net profits of supermarkets
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  Speaker 2: amount to only 2.3% of sales. sense partners say that
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  Speaker 2: the profits will fall by the equivalent of 3.5% of sales,
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  Speaker 2: which is greater than what you say they're making.
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  Speaker 1: Is that right?
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  Speaker 3: Exactly. No, that's exactly right. Hence the losses.
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  Speaker 1: That's right.
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  Speaker 3: And my 2.3% is not mine. It actually comes from
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  Speaker 3: the Commerce Commission, who collects a lot of granular data
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  Speaker 3: from all of the supermarkets and adds it all up
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  Speaker 3: and publishes it every year in its annual grocery report.
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  Speaker 3: So my 2.3% comes from those Commerce Commission reports.
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  Speaker 2: Now, I have to ask you this, Greg. The problem is, obviously,
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  Speaker 2: the government gets sense partners in to tell them what
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  Speaker 2: they want. Foodstuffs gets you in to tell them what
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  Speaker 2: they want. Can we believe either of you guys?
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  Speaker 3: Well, I'm not adding anything new. All I'm doing is
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  Speaker 3: shining a light on what sense partners is saying. So
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  Speaker 3: anyone could reach the conclusion that I've read just by
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  Speaker 3: careful reading of their report and unpacking the results. I'm
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  Speaker 3: not bringing any new analysis. I'm simply pointing out what
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  Speaker 3: is the analysis that's already on the table.
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  Speaker 1: Yeah.
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  Speaker 2: Greg, listen, thank you very much. I do appreciate your
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  Speaker 2: time very much. That's Greg Houston, founding director of Houston Camp.
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