Agriculture Committee on Feb. 8th, 2024

[The Chair, Liberal, Kody Blois]

I call the meeting to order.

Honourable members, welcome to meeting number 90 of the Standing Committee on Agriculture and Agri-Food.

I want to start with a few reminders. Today's meeting is taking place in a hybrid format. The proceedings will be made available via the House of Commons website. Just so that you are aware, the webcast will always show the person speaking rather than the entire committee. Taking screenshots or photos of your screen is, of course, not permitted.

Pursuant to Standing Order 108(2) and the motion adopted by the committee on Thursday, October 19, 2023, the committee is resuming its study on efforts to stabilize food prices.

I would now like to welcome today's witnesses. From Competition Bureau Canada, we have Anthony Durocher, deputy commissioner, competition promotion branch, and Bradley Callaghan, associate deputy commissioner, policy, planning and advocacy directorate.

I'd also like to welcome Mr. Williams to the committee, who I think will be joining in a moment in place of Mr. Steinley. There's Mr. Williams. Welcome to the committee.

We have Mr. McLeod subbing in today for Mr. MacDonald. Welcome, Mr. McLeod.

Colleagues, we will be with the Competition Bureau for the first hour of our study and then we'll be going in camera for some committee business.

Thank you to the folks from the Competition Bureau. We're going to allow for five minutes. We have a bit more time, so if you need a bit more, I'll be flexible on that. We'll turn it over to questions from there.

It's over to you, gentlemen.

[Anthony Durocher, Deputy Commissioner, Competition Promotion Branch, Competition Bureau Canada]

Good morning, Mr. Chair and members of the committee.

My name is Anthony Durocher. I’m the deputy commissioner in the competition promotion branch. Joining me today is my colleague Brad Callaghan, associate deputy commissioner in the policy, planning and advocacy directorate.

I would like to begin by recognizing the importance of your study. We believe it has been invaluable to shaping and advancing the public discourse around food affordability, and the testimony at this committee has benefited the Competition Bureau in our efforts to protect and promote competition in the grocery sector.

The Competition Bureau is an independent law enforcement agency that protects and promotes competition for the benefit of Canadian consumers and businesses.

We do this because competition drives lower prices and innovation, while fuelling economic growth. We administer and enforce the Competition Act by investigating and taking action to address anti-competitive business practices that harm consumers, competition and our economy.

In June 2023, the bureau released its retail grocery market study report. Our report found that grocery prices have been increasing at their fastest rate in more than 40 years and since late 2021 have been significantly outpacing the general rate of inflation in the Canadian economy. Additionally, the retail grocery industry has become much more concentrated over time. Today most Canadians purchase their groceries from only a few grocery giants that operate most grocery store banners, including the top discount chains.

Our report makes a number of principle-based recommendations to federal, provincial and territorial governments to improve competition in the grocery industry. They include stimulating innovation and supporting the growth of independent grocers, as well as the entry of international grocers through government policies and programs; limiting—and potentially banning—property controls; and lastly, introducing accessible and harmonized unit pricing requirements.

We continue to be actively engaged with policy-makers on our report's findings and its recommendations.

We recognize that food price inflation remains a significant issue for Canadians and that we need to approach our work in the grocery industry with heightened vigilance and scrutiny to ensure that Canadians benefit from greater choice and more affordable groceries. This includes by thoroughly and quickly investigating allegations of wrongdoing. To that end, we are actively pursuing an enforcement investigation in the grocery sector relating to the use of property controls.

Recent amendments to the Competition Act, particularly through Bill C-56, have given the bureau more tools to protect and promote competition in Canada and mark a key step in modernizing Canada's competition law. The bureau is committed to using the new tools made available through these amendments wherever necessary to protect competition. Further, as you know, Bill C-59 contains several other amendments that will, if passed, further strengthen Canada's Competition Act.

Before fielding your questions, I would note that the law requires the bureau to conduct investigations in private and to keep confidential the information it has. This obligation may prevent us from discussing past or current investigations.

I would like to thank the committee very much for the invitation to appear today, and we look forward to your questions.

[The Chair, Liberal, Kody Blois]

Thank you very much, Mr. Durocher and Mr. Callaghan.

We'll do exactly that. I'm going to start with Mr. Williams for up to six minutes, please.

[Ryan Williams, Conservative, Bay of Quinte, ON]

Thank you very much, Mr. Chair.

Welcome, Competition Bureau, to this committee.

For those listening at home, I always think of the Competition Bureau as being like the sheriff's office. We have the sheriff, and then today we have the deputy. It's nice to have you at committee here today, sir.

I want to start by focusing on mergers and acquisitions. Your grocery study report is very well done, by the way. One glaring point is that in 1986 we had eight Canadian-owned grocery chains, whereas in 2024 we have three that have 80% and two American ones that have entered the market since 1986. We have Walmart and Costco, which each have around 10%.

During your time with the bureau, you always act with the laws and powers that you're given to look at these mergers and acquisitions. When we look over the last eight years, we see that there were three in particular that you reviewed. One was Metro's purchase of Jean Coutu. Then we had Sobeys, which acquired both Farm Boy and Longo's. Did you approve, or make a recommendation to approve, those mergers for each one of those that you looked at?

[Anthony Durocher]

The bureau reviews mergers but does not necessarily approve them. It's more a question of whether or not we oppose them or challenge them.

In recent years, there were some mergers that we did not challenge because we didn't have the evidence. Others—for example, Loblaws' acquisition of Shoppers, Sobeys' acquisition of Safeway, or even before that, the acquisition of Provigo by Loblaws—were cases in which we had remedies and divestitures, the sale of stores or assets, to try to preserve competition.

[Ryan Williams, Conservative, Bay of Quinte, ON]

Maybe comment on a direct one that you were involved with in the last couple of years. Did you approve the merger of Rogers and Shaw, yes or no?

[Anthony Durocher]

No. That is a transaction that we sought to block at the Competition Tribunal, but the Competition Tribunal ruled in favour of letting the merger proceed. It ruled against our application. Therefore, the merger did proceed, notwithstanding our attempt to block it.

[Ryan Williams, Conservative, Bay of Quinte, ON]

The point I'm making is that what we've done in our research and found is that mergers and acquisitions result in higher prices. Earlier last month, we did see that Rogers announced that they're increasing their cellphone rates by $9 a month for consumers. When we look at data for North America, we see that mergers and acquisitions result in higher prices 95% of the time. Given the powers that your bureau has to look at M and As, when we look at the massive consolidation of this industry from 1986 to 2024, to have only three Canadian companies competing is probably a good reason that prices are up. Do you agree?

[Anthony Durocher]

Certainly when we talk about merger review, we often say that it's the first line of defence for competition in the economy because it can lead to structural changes in industries that can result in higher concentration and lower competitive intensity. Harmful mergers would typically result in higher prices, less innovation and fewer choices.

It depends on the evidence for each merger review, of course.

[Ryan Williams, Conservative, Bay of Quinte, ON]

We only have so many independents left. There are about 6,000 independent grocers left in Canada. One in Alberta is Freson Brothers. I talk to them quite a bit. That's one we'd want to see grow. That's a Canadian grocery store that we'd want to see get more market share. The bigger problem we have right now is vertical integration. Some of these bigger grocers, Sobeys and Loblaws especially, also have control of the wholesale market, so it's not just the grocery; it's also the wholesale side.

Do you feel that we need to really look at that side of the business—not just the grocery and the retail, but how that wholesale market is also dictating prices?

[Anthony Durocher]

Yes, that's certainly something we flagged in our report as being top of mind for independent grocers: the fact that in many cases they are beholden to purchasing their product from vertically integrated competitors, the larger competitors, because they don't have the scale required to make those purchases themselves.

Of course, some participate in buying groups to help make those purchases, but certainly from our perspective, we're alive to the fact that there is vertical integration along the chain, and independents in some instances have to rely on that. There is a need for us to be vigilant against potential anti-competitive conduct in the form of foreclosing access or otherwise harming competitors when you know that they're relying on your inputs to compete.

[Ryan Williams, Conservative, Bay of Quinte, ON]

Another phenomenon that's happened in the last while—it's been happening for a while, but it's more advanced now—is shrinkflation, manufacturing shrinking products. When we talk about wholesale, we're also talking about how Loblaws and Sobeys also manufacture products, so we have President's Choice and Compliments. Part of that has been shrinkflation as well.

One recommendation from your report was to make shrinkflation illegal. When the government introduced their legislation to create more powers for the Competition Act, did they consult with you? Why did they not make shrinkflation illegal?

[Anthony Durocher]

We don't tackle shrinkflation head-on in our report, other than recognizing that it is an issue. We heard about it from many Canadians. In many ways, shrinkflation can be a phenomenon akin to a price increase or the exercise of market power in the marketplace.

From our perspective, competition is a key solution to deter that, because at the end of the day, the more competition you have in a marketplace, including among manufacturers, the less ability there is for firms to raise prices or otherwise reduce the value of goods, including through shrinkflation.

[The Chair, Liberal, Kody Blois]

We're at time. Thank you very much, Mr. Williams.

Thank you, Mr. Durocher.

We now go to Mr. Drouin for six minutes.

[Francis Drouin, Liberal, Glengarry—Prescott—Russell, ON]

Thank you, Mr. Chair.

Thank you, gentlemen. This isn't the first time you've appeared before the committee.

After you were here last, the CEOs of the major grocery chains repeatedly told us not to worry because they were going to provide the Competition Bureau with all the information it needed to properly analyze food prices and determine whether food profits were in fact excessive. Mr. Weston told the committee numerous times that his company had made higher profits, not on food, but rather, on drugs. That isn't necessarily any better.

The last time you appeared before the committee, you said the bureau didn't have the power to compel the companies to provide information. Do you have that power, now that Bill C-56 has been passed?

[Anthony Durocher]

Bill C-56 does give us the power to conduct inquiries and obtain orders for the production of documents going forward.

The co-operation we received from the major grocery retailers for our market study varied greatly depending on the retailer. On the whole, the level of co-operation wasn't sufficient. It was important for us to examine the industry's financial data and gross margins in order to isolate food profits, given that the grocers sell many non-food products as well.

After analyzing food gross margins for the five-year period between 2017 and 2022, we are confident, on the basis of the information we received, that the food gross margins of the grocery giants increased by a modest yet meaningful amount. We noted that profits increased by one to two percentage points, which is modest given that profits are very much volume-driven in the grocery industry. However, this increase can make a big difference to Canadians.

[Francis Drouin, Liberal, Glengarry—Prescott—Russell, ON]

I see.

This week, the committee heard from a professor who said that concentration in the grocery retail sector could potentially lead to abuse of a dominant position, to the detriment of consumers. As far as abuse of a dominant position is concerned, how do the powers you had under the previous version of the Competition Act differ from those you have under the new version? What new powers do you have to address that issue? What can you do under the new act that you couldn't do before?

[Anthony Durocher]

You're right that the passage of Bill C-56 has changed things significantly on that front. Previously, in order to prove abuse of a dominant position, three conditions had to be met. It was necessary to show, one, that a company or group of companies controlled the market, two, that the company or group of companies had engaged in anti-competitive acts, and, three, that the anti-competitive acts had an effect on the market.

Under section 79 of the new Competition Act, it's still necessary to show that the person or persons control the market. However, only one of the other two conditions has to be met, either that the person or persons engaged in anti-competitive acts or that the conduct had an effect on the market. The bureau can then apply to the Competition Tribunal for an order prohibiting the practice or conduct in question. That's a significant change to the law.

Other changes in section 79 of the new act relate to administrative monetary penalties. In addition, with the bureau's newly granted powers in relation to market studies, the removal of the efficiencies defence in the context of a merger review will make a significant difference. Yes, the Competition Bureau will be better equipped going forward to protect competition in the face of mergers.

[Francis Drouin, Liberal, Glengarry—Prescott—Russell, ON]

I see.

I heard that the new act will prevent companies from selling a product for less than what it costs. That is a marketing strategy grocers commonly use called loss leadering. I don't know whether that's true, so can you tell me whether the new act will in fact prevent grocers from using that kind of strategy?

[Anthony Durocher]

No, the act does not affect a company's ability to use strategies like loss leadering. That practice has always been possible under the act.

However, predatory pricing is a practice of anti-competitive acts that could amount to abuse of a dominant position.

Predatory pricing consists of setting the price of a product lower than it costs, in order to get rid of a competitor, as opposed to engaging in healthy competitive pricing. We want to see companies lowering prices through competitive pricing, but in very specific circumstances, the price would amount to a predatory price meant to drive a competitor out of business. A situation like that could be considered abuse of a dominant position.

[Francis Drouin, Liberal, Glengarry—Prescott—Russell, ON]

According to—

[The Chair, Liberal, Kody Blois]

Unfortunately, your time is up, Mr. Drouin.

[Francis Drouin, Liberal, Glengarry—Prescott—Russell, ON]

Thank you.

[The Chair, Liberal, Kody Blois]

Thank you, Mr. Drouin.

We now go to Mr. Perron for six minutes.

[Yves Perron, Bloc, Berthier—Maskinongé, QC]

Thank you, Mr. Chair.

Thank you for being with us today, gentlemen. We are pleased to have you back.

Things have changed a lot since we last saw you, thanks to the passage of Bill C-56, which you and Mr. Drouin were discussing.

Does the legislation do enough to really make a difference, or is it still missing something?