First petrol stations, then supermarkets, then building supplies merchants. Now the Commerce Minister has asked for a wide-reaching inquiry into the use of land covenants to block competition, and cites meat processing plants as a place to start.
Affco. Founded in 1904, it's the meatworks that New Zealanders talk about when they talk about The Works. It's employed an estimated quarter of a million people over the years. It pioneered the air-freighting of chilled lamb to the other side of the globe.
It inspired Billy T James' 'Affco Man', and a 1987 song by Palmerston North hard rock band The Skeptics that boasts perhaps the bloodiest music video in NZ history. It was bought out by Talley's in 2010, but its name lives on in the signage of its plants.
And now, it's a driver for the Government to order a wide-reaching inquiry into the use of anti-competitive land covenants across all New Zealand industries.
READ MORE: * Warring building supplies firms tie up critical NZ land * Big Mitre 10 retailer faces court action for blocking competition
Yesterday, Commerce Minister Duncan Webb announced the Government would accept most of the Commerce Commission's recommendations to improve competition and prices in the building supply sector, and he also announced a new economy-wide review into the use of land covenants. “These types of land agreements can be used in a way that make it harder for new businesses to enter a market, or for existing businesses to expand, and that can impact on competition," Webb said.
The Commerce Commission had now conducted competition studies of three markets – building supplies, retail fuel and groceries – and in each it had identified restrictive land covenants and lease agreements being used to block competition.
"Any issues in the past have generally been resolved commercially. We’re now in a period of consolidation and rationalisation of processing capacity due to declining livestock numbers. So, competitive pressure is not a significant driver of decision-making, particularly as there is no great demand to build additional processing plants." – Sirma Karapeeva, Meat Industry Association
The problems prompted the Government to urgently introduce a law change on Budget Day last year, banning the use of restrictive land covenants by supermarket chains. And since then, the Commerce Commission has launched inquiries into covenants imposed by supermarkets, and a prosecution against a Mitre 10 operator, who bought land in Tauranga and tried to prevent a Bunnings Warehouse from being built on it.
"Time and time again, land covenants have come up," Webb says. "Competition is a driver of lower prices and better quality – good for businesses and consumers. Now we’re going to look across the whole economy at how these agreements are being used and whether changes need to be made to level the playing field for new businesses."
Drawing on his experience working as a lawyer, Webb tells Newsroom he has also seen land covenants used by meat processing companies. "It wouldn't surprise me if we saw more problems, the harder we look," he says.
"I personally have seen them in my own time as widespread in other sectors – meat processing is one where it's happened as well. So we absolutely want to have a good look and ascertain how widespread they are. And whether they're having a significant impact.
"This government is committed to taking a deep dive across the economy to determine how widespread the covenants are used how they impact the consumer.”
Last night, Commerce Commission chair Dr John Small said the commission had not been made aware of any current land covenant issues among meat processors, but he noted a competition case in the sector in 2005, in which two parties disputed the legitimacy of a covenant.
That was the Affco case.
Going all he way to the Court of Appeal, Affco tried to enforce a restrictive covenant it had placed on the Waitara beef processing plant – one of six meatworks it had shut down in the 1990s.
Anzco Foods Waitara Ltd bought the land in 1999 for $3.2 million, for the cooling, freezing and storage of meat and the production of small goods. "At issue in these proceedings," said the Court of Appeal's Justice William Young, "is whether Affco, relying on the encumbrance, can prevent them from doing so."
Earlier, Affco had successfully obtained an injunction restraining the Anzco plant from being set up. The Court of Appeal ruled that Anzco’s activities were indeed covered by the injunction – Affco could not have had an anti-competitive purpose in enforcing the land covenant, the court's president Justice Noel Anderson ruled, because Waitara was too small a plant to unduly affect competition across the whole North Island.
Justice William Young dissented, saying unless the covenant had been intended to cause a diminution in competition to a sufficient extent to make up for the lower sale price there would have been no economic benefit to Affco in placing the encumbrance.
The majority judgment raised concern among competition legal experts that the law was weighted too much in favour on incumbents, and the aftermath dribbled through the courts for the next decade.
Sirma Karapeeva, chief executive of the Meat Industry Association, says there has been some historical use of covenants in the red meat processing industry.
"Any issues in the past have generally been resolved commercially," she says.
"We’re now in a period of consolidation and rationalisation of processing capacity due to declining livestock numbers. So, competitive pressure is not a significant driver of decision-making, particularly as there is no great demand to build additional processing plants."
Dr Small says after discovering the impact of anti-competitive land covenants on petrol stations, supermarkets and building supplier merchants, the Commerce Commission recognised this year that they could potentially be widespread, negatively impacting competition across other sectors.
"Land covenants can be problematic because in certain circumstances, they can harm competition by raising barriers to entry or expansion in a particular market, making it harder for competitors to compete effectively and gain scale," he says.
"That’s why in the recommendations to the Government following our market study into the building supplies sector, we advocated for a cross-industry review to identify the extent to which this could be an issue. This review is being led by MBIE."
