Price controls on petrol should stay – commission

Press, 22 July 1976, Page 3

Price controls on petrol should stay - commission

PA Wellington The commission of inquiry into the distribution of motor spirits and ancillary products has recommended that present price controls and the licensing of petrol wholesaling and retailing remain.

The 436-page report was tabled in Parliament yesterday bv the Minister of Trade and Industry (Mr AdamsSchneider). The commission, comprising Mr R. T. Feist (chairman), Mr G. H. Andersen, and Mr J. J. O’Dea, was appointed on August 19,1974, and its original reporting time of May 31, 1975, was extended to March 31. 1976, and then to April 30. “The commission is firmly of the view that the benefits resulting from the maxi-mum-minimum price far outweigh the possible benefits resulting from price competition. Instability in the market resulting from an immediate lifting of controls could cause considerable damage,” the commission reported. It was generally accepted that the motor-spirits market was efficient and stable, the commission said. There was complete support within the industry and on the part of the Automobile Association

of the concept of a universal price for motor spirits. “It is acknowledged that the price-fixing mechanism has the potential to allow the industry a fair profit. There is no suggestion that companies would be happy with a lower level of profitability than they are at present obtaining. “There is no evidence available to the commission that would indicate much scope for price cutting, either at wholesale or retail level.” The commission found that encouraging independent traders and maintaining the economic welfare of those in the business of selling motor spirits were objectives that had been achieved and were worth continuing.

“The commission cannot conceive any better method of achieving these obpectives than by a licensing system.

“The commission has expressed its doubts about the ability of licensing to achieve the objective of encouraging competitive trade in the motor spirits industry, but has stated that licensing, while not directly by promoting competitive trade, nevertheless prevents unfair competition which could result from permitting uncontrolled wholesaler finance being injected into the retailing sector of the industry. “The commission considers the stability that has resulted

from pricing and licensing control to be in the public interest.”

The report said that as long as licensing was retained for its present purposes the licensing of wholesalers remained necessarv. The report said it was generally agreed within the retailing industry . that licensing and price control had worked together to ensure stability of price, stability of marketing, the separation and independence of the retailer from the wholesalers, and the avoidance of proliferation.

The commission considered that the automatic formula for calculating the retail margin for petrol had not been adequate to give the industry a reasonable level of profitability. It recommended that the formula be modified. ' The report outlined a model from which it concluded that the present margin did not give an unreasonably low return to the working proprietor. “If faced with the obligation of fixing the margin the commission would increase the margin by half a cent per gallon."

The commission recommended that an independent tribunal should be set up to fix the wholesale and retail prices of petrol, taking away

the power from the Minister of Trade and Industry. “The commission is of the opinion that unless this jurisdiction is changed, political expediency will continue to be, at least at times, a dominating factor in the timing of price adjustments of motor spirits.”

The commission considered that there was considerable scope for rationalisation within retailing.

Recommendations from the commission to improve retailer profitability were: the immediate cancellation of small licences; a reduction of hours of opening subject to provision for extended hours on a com-pulsory-roster basis; the encouragement of garage proprietors with low motorspirits gallonages to surrender their licences “to improve their profitability from garage wont”; the rationalisation of retail licences after area reviews; limiting the issue of new licences; improving business and management expertise by permitting training stations; adjustment of the automatic formula to give more effective immediate assistance to retailers after wage rises; a further review of the retail margin if the downturn in trading were not reversed when the economic climate improved.