Price hikes for local users if Cavalier takeover allowed

Price hikes for local users if Cavalier takeover allowed: Godfrey Hirst

Significant price hikes for local wool users are an acceptable cost according to the Commerce Commission, which has moved a step closer to allowing Cavalier Wool Holdings (CWH) to monopolise New Zealand’s wool scouring industry.

In order to sanction the merger between CWH and New Zealand Wool Services International (NZWSI) the Commission has broken with previous practice and adopted a market definition which discriminates between local users and export customers of scouring services. It accepts price increases of as much as 25% over current levels for local users of the wool scouring services, with the benefits of any price increases going directly to CWH, half of which would be owned by overseas interests.

Local carpet manufacturer Godfrey Hirst New Zealand, a significant user of New Zealand wool and therefore of scouring services, said that it was “stunned” the Commission could effectively alter the goal posts midstream to accommodate a merger that would have been deemed anticompetitive under the original market definition terms.

Moreover, it is highly concerned that the Commission is assenting to CWH extracting what amounted to monopoly rents of up to 25% from local users. The Commission expressly recognises that a large proportion of any increases over time will be passed upstream to wool growers.

“This is a very poor and short sighted decision by the Commission that is fundamentally at odds with what was intended under the Commerce Act.

“The Commerce Commission’s own media release admits that the CWH takeover would substantially lessen competition in the wool scouring markets and in the domestic customer wool grease market; would give CWH a monopoly on the supply of wool scouring services and the supply of wool grease post-acquisition; and entails potential price rises.

“Despite this, the Commission has concluded that the so-called public benefits of the takeover, which include staff cuts and the sale of core industry assets, outweigh the likely negative impacts of higher prices and lower quality production.

“Between the release of its preliminary view in March and this latest draft determination, the Commerce Commission’s estimate of the net benefits generated by a CWH takeover of NZWSI has increased by some $2 million, despite its own estimate of total quantified benefits reducing by more than that figure.

“This apparent alchemy has been achieved by the Commission radically changing its definition of the relevant market, which discriminates between local users and export customers to produce a fundamentally-flawed result.

“Godfrey Hirst will continue to take steps to ensure the decision of, and the process followed by, the Commission are fully scrutinised in the hope that any future applications for authorisation are dealt with in the manner envisaged by the Commerce Act.”

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