Breaking for the Border!

Today the CSO published a major report on the extent of cross border shopping. They calculate that shoppers here spent about €435m in Northern Ireland between June 2008 and June 2009. They provide details of the numbers of households travelling north, the regions they are from, the amount they are spending and what they are buying.

Given all the hullabaloo about cross border shopping, it is good that we have independent and extensive data on which to make conclusions and of course to enable the Government to make the right decisions in response to what they see as a problem. I accept that cross border shopping is costing the State revenue, which of course pays for public services. However cross border shopping is a world wide phenomenon and as even the CSO and Revenue report in February noted it was not a new phenomenon here. I would argue that cross border shopping is actually a good thing for our economy as a whole in the long term, because it will force retailers to adjust their prices to retain customers fleeing to the North to escape high prices. That will be good for consumers and competitiveness.


Lithuanians crossing the border to shop in Poland.

The first thing that struck me was the large difference between what the CSO estimate is spent in the North by shoppers and what other reports have estimated. While the data from the CSO and Nielsen is at one on the numbers of households travelling North at around 16%, they differ a lot on the other aspects. CSO says that the spending was in the region of €435m, whereas others such as InterTrade Ireland claim that the overall cost to the Republic's economy as a whole will be in the region of €810m this year. Obviously spending and cost to the economy are not the same thing, but both figures cannot be correct. Much of the spending is on food which is VAT exempt, so the loss to the State is on increased profits and knock on employment taxes, but surely an expenditure of €435m, the vast majority of which is on groceries cannot stretch to €810m? ABFI are interpreting the Nielsen figures as representing a loss of €400m in taxes and excise for the State. Again I don't know the basis for these figures, but they seem very high based on the CSO data.

People and commentators can believe what they want, I have to say I have more faith in the CSO data because the Quarterly National Household Survey is based on interviews with 39,000 households. Also, the CSO does not have an agenda, unlike the drinks and retail industries who have been fleecing consumers for years and are now getting a pay-back for the price pain inflicted on consumers here.

We are led to believe that the key driver of cross border shopping is the price of alcohol. The conventional wisdom is that shoppers endure the trip and long queues to stock up on vast amounts of alcohol. I have no doubt some people do go North to buy alcohol, but is it the key reason? The drinks industry in the shape of ABFI would like you to believe it is. Of course, this also suits the retailers as it deflects attention away from the high cost of groceries. They want the Government to cut excise on alcohol by 20% in the Budget. However the actual data from CSO would appear to undermine that argument. It shows that ;

• 80% bought groceries on their most recent trip, while only 44% bought alcohol.
• Of the average household spend on cross border shopping of €286, only €32 or 11% was spent on alcohol, not the vast sums we are lead to believe.
• Consumers from the border region are the key group where business is being lost, they are more likely to travel to Northern Ireland to shop and more regularly-41% of border households compared to national average of 16%.
• They are also frequent cross border shoppers, 5.9 trips on average in the last year compared to the 1.1 trips national average.
• Border shoppers are primarily going North to buy groceries, they had the lowest spend on alcohol and the 2nd highest spend on groceries.

This suggests in my view that even if the Government reduces excise on alcohol, it will have limited impact on cross border shopping. The key driver is the high cost of groceries. So if excise on alcohol is reduced, we could end up with a scenario where the State will lose further revenue and cross border shopping will continue. If the Government want people to spend more here and travel North less, then they need to address the price of food and groceries. The idea that reducing excise on alcohol is the magic bullet to stop the flow of cross border shopping is misguided.

Northern Exposure is good for the Republic's consumers and economy

There has been a lot of bellyaching from business interests and some politicians about consumers heading to Northern Ireland to access cheaper prices and save money. Brian Lenihan pleaded with consumers to shop at home because by shopping in the North the state was losing revenue needed for investment in schools and hospitals. Firstly I will take Brian Lenihan more seriously on taxation when the massive tax loopholes which allow the super rich to pay little or no tax are closed off. In 2006 we learned that "between the 1999 tax year and 2003, a sizeable number of multimillionaires - 184 to be exact - declared incomes of more than €1m a year and paid no income tax at all." That's not to mention the approximately 3,050 tax exiles who live here for less than 182 days and pay no tax at all. Secondly individual and family incomes are under huge pressure from the high inflation, particularly in food costs over the last 2-3 years. On top of that people's incomes are being squeezed and indeed some being decimated as the result of job losses. The Government mantra was "shop around" and therefore any rationale or sane person would avail of the cheaper grocery prices in the North to help makes ends meet.

Of course the retail and business sectors have been trying to suggest that the Northern shopping phenomenon is all a media creation. The reality here is that if consumers went to Newry or Lurgan and didn't get value or found that the prices were not all that different they would just stop going. The fact that there are still travelling in large numbers indicates people are saving money and getting good value. Of course we had all the usual suspects blaming the high labour costs, rental costs, and any other costs they could think of. I heard a guy on Q102 in November justifying the difference in prices based on the back of an envelope exercise where he had compared rent costs in Dublin and Belfast and also labour costs. Somehow he appeared to think that this rip-off could be explained away on the basis of a few phone calls without any detailed or proper analysis of a whole range of underlying costs. Indeed he like none of the these apologists mention the lower corporation tax and the lower social insurance contributions employers pay here. Neither do they mention the strengthening euro which should be translating into cheaper prices.

Well finally some light was shed on this issue when before Christmas when Forfas published a report which clearly demonstrated that the price differential was not justified. They found that at most the price differential should be in the region of 5% not the between 16% to 31% difference found in independent studies of grocery prices. The Forfas report was based on information provided directly from retailers and most importantly showed that the cost of the goods is the key factor affecting resale prices, its states "the cost of buying goods for resale is the single biggest cost incurred by retailers and accounts for three-quarters to four-fifths of their total costs". So at last clear and independent evidence that labour, utility and rental costs cannot be used to explain away the huge price differences, the reality is that retailers were making significant margins and profits. I suppose the market will always charge what it thinks the consumer will pay and perhaps during the boom years enough (not all) people were willing to pay high prices.

However I think a lot of retailers and businesses were slow to respond to the changing economic circumstances that many consumers found themselves in early last year. They were killing off the golden goose they plucked so easily for a decade. And as a result people began to buy less, switch to the discounters and more recently go North.



Falling through the floor-hopefully prices will follow!

Obviously there are short term benefits for consumers in terms of saving money by heading North. However there are medium and long term benefits as well, not only for the consumer, but for our economy and society as a whole. Having such strong competition available cross border will force retailers and businesses here to reduce their prices and offer better value and service. We saw that to a certain extent over Christmas and New Year with the major reductions in some stores. I believe if retailers here are to regain and retain customers and market share they will have to cut prices.

We are always told that one of the greatest benefits of the EU is the single market and indeed the EU Consumer Policy actually promotes cross border competition stating "the potential therefore exists for deeper EU-wide retail markets. Opening up cross-border retail markets is the key to unlocking the potential of the retail internal market. As cross-border shopping develops as a credible alternative to national markets, consumers both have greater choice and national markets are subject to greater competition."

So contrary to what some politicians and retailers say this "Northern exposure" is actually a good thing. Yes we will lose some tax revenue in the short term, but in the long term for our society and economy, it has positive aspects because it will keep and hopefully force prices down and reduce the cost of living for all and make us more competitive.

Food for thought.

We are all too familiar with the high prices here in Ireland, especially when we compare them with prices when away on holidays in other countries. A survey by Eurostat last year found that food prices here are at least 25% above the European average. Bread and cereals are 21% dearer, meat is 29% more expensive and fruit and vegetables prices are 30% higher.

So what is the hard pressed Irish consumer supposed to do to cut their grocery bills. Well apart from looking at the cost of food, perhaps consumers need to look at what they buy and actually what they eat and throw away. A UK study earlier this year found that households there threw away about a third of all the food they bought.

I know myself when I am in a hurry, I rush around the supermarket to buy one or two items as I have nothing in the house to eat. I forget to write up a shopping list and somehow end up with a lot more than I planned. It seems that many of us are especially fond of those special offers. The 3 chicken breasts for the price of 2 offers, even though we are not sure we need them, they just seem like great value. Five days later in many cases we end up throwing out all that extra stuff out because they have gone past the sell by date. And while many consumers are getting more price sensitive, very few of us are really conscious of the cost of the stuff we throw away. One way to counteract this is to draw up a list of what you need before you go shopping and perhaps also take note of what you throw away. That way you can avoid buying what you don't need and keep track of items you buy but often throw out. Action here is not only good for the pocket, but for the environment too.


Basil the Rat-Fawlty Towers mix version.

Apart from high food costs, consumers are also concerned about food safety, so it was disappointing to hear this week from the FSAI that the number of food safety enforcement orders increased by 54% in 2007. The official health statistics show that a few thousand people suffer from food poisoning each year, although the real figure is probably much higher given many cases go unreported. We also know that some people die as a result of food poisoning, so this is a very serious issue. Many food retailers and businesses operate to very high standards, well beyond the minimum standards set down. However these figures show that there are some who play loose and fast with the health of their customers.

I commend the work of the Food Safety Authority and HSE in investigating and where necessary prosecuting, closing down and naming these food outlets, which not only endanger the health and lives of consumers, but damage the food industry in Ireland. We all laughed at Basil the Rat in Fawlty Towers, buts it not so funny when you get food poisoning.