The federal Minister for Small Business, Bruce Billson, recently said that Australia is the ‘land of the great oligopoly’ with some of the most concentrated markets in the world. [1] It is over 50 years since Professors Karmel and Brunt completed their study of concentration in Australian industry—The Structure of the Australian Economy— which expressed much the same concern. [2] These kinds of concerns led to the introduction of competition laws in 1974, now contained in the Competition & Consumer Act 2010 (Cth). Minister Billson is currently advocating that federal cabinet further strengthen Australia’s competition laws by adopting key recommendations of the Competition Policy Review (Harper Review) delivered in March 2015.
It is timely then to consider some changes in the Australian economy over the past 50 years and in particular how globalisation has affected industry concentration. This article considers the impact of globalisation, and the role of Australia’s competition laws, on the brewing industry, which contributed two companies to Karmel & Brunt’s list of Australia’s 15 largest and most powerful companies in 1961—Carlton & United Breweries Ltd and Tooth & Co Ltd.
A key concern in the early 1960s was the ‘separation of ownership and control’ of large companies listed on the stock exchange, which it was thought enabled company boards and management in the 1950s and 1960s to enjoy the quiet life while remaining largely unaccountable to shareholders. [3] Those days were over by the 1980s when ‘corporate raiders’ and takeovers became commonplace. CUB was taken over in 1983 by John Elliot’s Elders IXL. In 1980 Tooheys merged with Brisbane’s Castlemaine Perkins, which was taken over by Alan Bond’s Bond Corporation in 1985. Bond Brewing was acquired by Lion Nathan in 1992. The final chapter in Australia’s brewing industry occurred recently when in 2009 Lion Nathan was acquired by Kirin of Japan. CUB was acquired by SAB Miller in 2011. At present, Coopers is the largest remaining Australian-owned brewer, having successfully resisted a takeover bid by Lion Nathan in 2005.
We might ask, ‘Why did concentration in Australian brewing increase and ultimately result in the Australian industry becoming largely foreign-owned?’ When we look to overseas experience we find increasing concentration in global brewing. A number of studies in Australia and overseas suggest the answer is ‘competition’.
In Australia the liquor licensing laws began to be deregulated in the 1980s as a result of changing consumer preferences that began in the 1970s to shift away from beer and pubs to broader tastes for wine and spirits in restaurants and bars. Victoria was the last state to abandon ‘6 o’clock closing’ in 1987. An early competition law decision in 1979 struck down restrictions imposed by breweries on ‘tied pubs’, giving consumers more choice. While the tribunal noted that consumer preferences were changing, it considered that beer was still an important part of the Australian way of life. [4] That may have been prophetic, as recent figures from the Australian Bureau of Statistics suggest beer consumption per capita has declined continuously since the mid-1970s. [5]
As well as changing consumer preferences, the last 50 years have seen a revolution in global technology for packaging beer (containers, closures and filling) that enabled faster production lines and scale economies. [6] We have seen this in Australia, as beer packaging progressed from heavy ‘long neck’ bottles, to steel cans, to aluminium cans, and back to light weight glass single-serve bottles. Experience in the US suggests economies of scale proved crucial in advertising as well as technology, causing larger national brewers to succeed at the expense of smaller local rivals. [7] Madsen describes he economies as ‘multi-plant’ economies, i.e. economies of scope, as large global brewers can produce their local and ‘imported’ brands in the same local brewery. We see this in Melbourne, where CUB produces another brand in the SAB Miller stable, ‘Peroni’, under licence.
US experience is similar to our experience in Australia, in that the major US brewers are now foreign-owned. [8] US and Australian competition laws are similar in that they do not prevent mergers unless there is ‘competitive overlap’ within the jurisdiction. For example, in 2013 the US Department of Justice initially opposed Anheuser-Busch InBev acquiring 100% of Grupo Modelo of Mexico (maker of Corona), but then allowed it to proceed on condition that Grupo Modelo divest its US business (which accounts for 7% of the US market). [9] Australia’s competition laws raised no issue when CUB and Lion Nathan were acquired by foreign companies.
Would increasing global concentration come as a surprise to industrial organisation economists? You would think not. The ‘law of diminishing returns’, which in theory limits the size of firms, is a purely short-run phenomenon, much debated in the 1920s. [10] The experience of global and Australian brewing over the last 50 years seems to suggest that, at least in industries with high sunk costs, competition leads to a relentless drive for economies of scale and scope, increasing concentration and, if anything, such highly concentrated markets are more intensely competitive than less concentrated markets. [11]
While globalisation has led to increasingly concentrated industries, and competition laws have facilitated increasing foreign ownership as a side-effect, it seems some things stay the same—we remain apprehensive about the power of big business, but cannot turn back the clock.
Dr George Raitt is a partner at the law firm Piper Alderman, and a qualified accountant. He is also the founding director of the Olivia Newton-John Cancer Research Institute. Dr Raitt has over 25 years’ experience in corporate and commercial law.
[1] Crowe, D. (2015, August 5). Ministers Split Over Competition Reform. Australian Financial Review.
[2] Karmel, P., & Brunt, M. (1966). The Structure of the Australian Economy Melbourne, Australia: F. W. Cheshire.
[3] Ibid 48–54.
[4] Re Tooth & Co Ltd (1976) ATPR 40-113 (Trade Practices Tribunal).
[5] Australian Bureau of Statistics, (2015). Apparent Alcohol Consumption Hits a 50 Year Low [Press release].
[6] Adams, W. J. (2011). Determinants of the Concentration in Beer Markets in Germany and the United States: 1950–2005. In J. F. M. Swinnen (Ed.), The Economics of Beer. Oxford, England: Oxford University Press.
[7] Madsen, E. S., & Wu, Y. (2014). Globalization of Brewing and Economies of Scale (Working Paper No. 2014-23).
[8] Ascher, B., & American Antitrust Institute (2012). Global Beer: The Road to Monopoly.
[9] Justice Department Reaches Settlement with Anheuser-Busch InBev and Grupo Modelo in Beer Case. (2013). [Press release].
[10] Marchionatti, R. (2003). On the Methodological Foundations of Modern Microeconomics: Frank Knight and the “Cost Controversy” in the 1920s. History of Political Economy, 35(1), 49–75.
[11] Perloff, J. M., Karp, L. S., & Golan, A. (2007). Estimating Market Power and Strategies. New York, NY: Cambridge University Press.
Illustration: Viet-My Bui