For years, those who have pushed to give authorities the power to forcibly break up big businesses, including supermarkets, for bad behaviour have failed to muster enough support to enact the tough changes.
But some believe their time has now come, as the pricing practices of major supermarkets fall under heavy scrutiny and cost-of-living pressures emerge as the central battleground for the next federal election.
This week the Coalition announced plans to support divestiture powers as a “last resort” to address misuse of market share – such as price gouging – by the major supermarkets.
The Coalition position is in line with the Greens but contrary to the Labor government’s policy, which views such powers as too heavy-handed. Albanese’s Labor instead prefers bulked up fines to rein in bad behaviour.
The Greens senator Nick McKim said Labor was now “isolated” on the issue.
Here’s what you need to know about the proposal.
How would the divestiture changes work?
If the divestiture changes were enacted, the competition regulator could seek court orders in the event of a significant breach of law that could compel Coles or Woolworths to sell parts of their business.
The big two chains collectively control two-thirds of the sector, charge near-identical prices for common grocery items and have been accused by suppliers of misusing their dominance to drive down prices while inflating prices for customers.
The former senator Nick Xenophon unsuccessfully pushed for divestiture laws a decade ago, noting that the “butter knife needs to be replaced with a sword of Damocles” when it came to holding the tightly held sector to account.
The illustration, of a sword hanging by a hair over someone’s head, points to the expectation the punitive measure would be largely used as a deterrent against an entrenched duopoly from misbehaving.
Why do we need these changes?
Xenophon told Guardian Australia on Wednesday that Australia needs more sophisticated competition laws to deal with predatory pricing and other abuses of market power. He said the “pinnacle” was divestiture laws.
“Its time has come because I think Australians are now aware of the level of market dominance of Coles and Woolworths,” Xenophon said.
“It would hang over dominant players in order that they do not abuse their market power. By just having that power their behaviour would be modified.”
Escalating grocery prices have been a significant contributor to household costs, and helped to fuel inflation, while supermarket profit margins have expanded above pre-pandemic levels.
The former competition boss Allan Fels has been a vocal advocate for divestiture powers for many years, arguing they should be “part of the toolkit for all competition laws everywhere in the world”.
The US has long had broad divestiture powers while the EU does not. In Australia, forced divestiture is only available in very limited cases and generally only used to unwind mergers or comply with foreign investment rules.
What’s been the response to the proposal?
Major supermarkets have consistently defended their pricing decisions and practices, arguing they must balance the needs of customers, suppliers and their large workforces. They have attributed some blame of rising costs on prices charged by major food companies.
The main political response against proposed reforms is that a variety of unintended consequences could lead to higher prices for shoppers.
This could occur, according to reform opponents, because economies of scale would be disrupted with logistics and supply chains made less efficient. New supermarkets might hesitate opening in Australia, they argue, robbing the sector of new competitors.
But governance expert Andy Schmulow said concerns over unintended consequences were often exaggerated and could be mitigated with well-crafted policy.
“The devil is in the detail but it is something that has been successfully deployed elsewhere,” said Schmulow, an associate professor at the University of Wollongong.
Schmulow said divestiture powers should be used proactively to help Australia have a more competitive supermarket sector, recreating an era where shoppers had bona fide alternatives to the big chains such as Franklins.
“Ideally you want more entrants in the market, not just a realignment of the size of the existing entrants,” he said.
“What we’re trying to do is undo the damage of years of creeping market concentration.”
