David Clark says he expects Kiwis will be significantly better off because of the Government's new supermarket watchdog, but couldn't reveal exactly how much shoppers will save or when.
The Government is establishing a Grocery Commissioner to identify rip-offs for customers and report on competition in the sector.
Minister of Commerce and Consumer Affairs Dr David Clark said on Wednesday the watchdog will have the ability to issue warnings and fines.
It follows the Commerce Commission's market study of the grocery sector which found it currently isn't "working well for New Zealand consumers" with smaller retailers unable to compete with the two major players - Woolworths NZ and Foodstuffs.
Speaking with AM's Ryan Bridge on Thursday, Clark said he expects Kiwis will save significant amounts of money as a result of the new role.
"We have had advice from the Commerce Commission that [supermarkets' excess profits] are about $460 million a year. We know by their most conservative estimate it is $1 million a day in excess profits and obviously, that is quite significant because it has been happening for years and years and it's coming out of Kiwis' pockets.
"It's why we are introducing the Grocery Commissioner, someone who can hold the industry to account," he said.
Clark also revealed the Commissioner, which will be based within the Commerce Commission, will cost less than $7 million to set up.
Establishing the regulator was one of the Commission's recommendations along with introducing a mandatory code of conduct between retailers and suppliers.
However, officials have raised concerns that while international evidence shows a code of conduct could improve competition over the long term, it could also lead to a possible price increase for consumers due to compliance costs.
But Clark said he doesn't expect this to happen because compliance costs will be much less than supermarkets' excess profits.
However, he couldn't reveal exactly how much in compliance costs the new watchdog would add for businesses.
"I am confident with the level of excess profit they are making, any compliance costs will be a fraction of that," he told Bridge.
"That's the Commission's estimate, they say improving competition in the market will see better prices and range."
When asked how much it would cost the industry, Clark said, "it depends what the final regime of the program looks like" but it will be "a lot less" than their profits.
Clark went on to say Kiwis are already paying less at the supermarkets because of price freezes and rollbacks.
But Bridge interjected, pointing out supermarkets introducing winter price freezes happened without the taxpayer having to spend any money.
He then asked how much Clark expects New Zealanders will save because of the new Commissioner.
"If the Commerce Commission's recipe works, that will cut into that roughly $400 million a year in excess profits that the supermarkets are making over time," Clark responded.
Although he conceded the savings won't be immediate.
"It's not going to change straight away, each step along the way is an important part of the progress we are going to make," he said.
When Bridge again questioned how much Kiwis would save and by when, Clark said he didn't have the exact figures.
"I started out this conversation by saying we do not have final figures, I can say it's a fraction of the excess profits [supermarkets] will be making and ordinary Kiwis right now are picking up the bill on all of that."
Bridge then pointed out that given Clark doesn't actually know how much Kiwis will save, how does he know it won't contribute to price increases.
"We know by proportions and common sense that a few million as compared to hundreds of millions…" Clark said before Bridge interjected again, asking whether the Commerce Commission's report was based on "common sense"?
"They supplied numbers. By written answer I am sure I can supply you with some more detailed numbers from that report," Clark hit back.
"It's a 500-odd page report, I have read every page and I am pretty au fait with the general gist of it. I think New Zealanders do deserve to have hundreds of millions of dollars that they are not just forking out because we have an uncompetitive market," he concluded.
Bridge responded, saying no one is arguing supermarkets shouldn't be making so much in excessive profits but questioned whether the new Commissioner will actually save Kiwis money or not.
"Kiwis will be better off overall, quite considerably better off overall would be my expectation," Clark responded.
Bridge then questioned that statement asking, "But based on what? Based on common sense?"
"Based on what the Commerce Commission analysis shows of the hundreds of millions in excess profits that the supermarkets are making every year, year after year after year and based on having a competitive market where they don't make hundreds of millions every year and take that out of Kiwis pockets," Clark said.
On Tuesday, The Ministry of Business, Innovation and Employment (MBIE) published a Regulatory Impact Statement on the Government's response to the Commerce Commission's market study.
When looking at the experience of Australia and the UK, which both have a form of grocery sector code of conduct, MBIE said such a code will likely "improve competition in the long run by rebalancing the negotiating relationships between retailers and suppliers".
"Overall, this option could provide consumers with a broader range of products at good prices if it results in improved food production productivity and growth.
"In the UK, suppliers experiencing Code-related issues has decreased from 79 percent in 2014 to 29 percent in 2021, while in Australia, suppliers are reporting that they are always or mostly treated fairly and respectfully by retailers between 75-95 percent of the time."
Benefits for suppliers include "some distribution benefits as suppliers are more able to negotiate with retailers, and also some dynamic efficiency benefits as suppliers have a greater profit incentive to invest and innovate".
However, officials also said: "The risks associated with this approach are a possible increase in prices for consumers due to compliance costs on retailers and if the Code reduces the ability of retailers to bargain for competitive prices from suppliers".
Considering the UK model, the cost to the Government of implementing the regulatory functions associated with a code of conduct could be roughly $1.5 million per year.
Compliance costs for retailers and suppliers are estimated to be around $750,000 to $800,000 per annum. That includes costs associated with disputes, complaints and queries from the regulator.
