Agriculture Committee on May 28th, 2009

[France Bonsant, Bloc, Compton—Stanstead, QC]

Okay. Thank you.

I am having difficulty understanding something. You are the Competition Bureau and you say that you accept mergers. How can you accept the merger of large companies and say that there will be competition? When large companies merge, you end up with a monopoly. How can the owner of a small company compete with companies in a monopoly position, like Kraft, Del Monte and so on?

[Adam Fanaki]

I think that's an excellent question. It gives me a good opportunity to try to clarify on that point. I think you have to draw a distinction between big companies and monopolies. Maybe that will help to understand my perspective on this. We would be very concerned about a merger to a monopoly, just to put it bluntly. If we had two companies that were the only competitors in the relevant market, and they were seeking to combine together to become the only competitor, we're under no illusions in thinking that there's going to be competition thereafter.

But what we do is look at the relevant market, both the product market and the geographic market, to identify the full scope of competition that's available. We examine the market share and a number of other factors that indicate to us whether there's going to be significant competition following the merger, or whether the merger is going to significantly impair competition.

Just to give you an example, in our merger enforcement guidelines, what we state is that the bureau generally is not concerned with mergers where the combined market share of the merging parties is less than 35%. You're talking about a merger where the combined market share of the parties would be 100%, a merger-to-monopoly scenario, and obviously that would be of significant concern to us.

[France Bonsant, Bloc, Compton—Stanstead, QC]

I mention this, Mr. Parliamentary Secretary, because you are speaking out of both sides of your mouth. In the House, you say that agriculture is just fine whereas, here, you are saying that farmers are having a hard time. This is why, with competition, it is difficult, because the farmers' income does not increase. But the processor, who is between the two, sees his profits go up.

Do you look at processors, to see if there is competition between them, or is that not in your mandate at all?

[Adam Fanaki]

I'm sorry, I'm not sure I fully understand your question, but if you're asking whether or not we have a say as to how a company would decide to allocate its profits then clearly that's not the issue.

But I think you're really asking if you have a situation where as a result of a merger the combined entity would be able to significantly depress the prices it pays to its suppliers, whether they be cattle suppliers or other types of suppliers, to shift, if you will, the margin that's available in respect of that product, more to themselves than away, to the point where the price gets depressed significantly below the competitive level.

That very issue was the focus in both the Better Beef-Cargill and XL-Lakeside transactions. We spent quite a bit of time looking at that issue, and what we heard from farmers and from other participants in the industry is that packers that were located in the midwestern and northwestern United States were competitive alternatives for the supply of cattle. So when you're looking at the relevant geographic market, you can't just confine it to western Canada; you also have to include these other competitive alternatives. Obviously MCOOL may have an impact upon that possibility, but that was the information. We also saw significant cattle flows south of the border.

[France Bonsant, Bloc, Compton—Stanstead, QC]

With M-COOL, what will happen with cattle from Canada or Quebec? Do you think that the system is going to penalize us as shippers of beef or pork or whatever?

[Adam Fanaki]

Obviously it's very difficult for me to speak to that issue. I know you have some witnesses who are coming from the Department of Foreign Affairs and International Trade this afternoon, who I'm sure will be in a much better position than I am to understand how it's being done. It's similar to what I think we were talking about earlier on the legislation. It will depend to some degree on how that's being implemented and enforced.

[France Bonsant, Bloc, Compton—Stanstead, QC]

I think that Mr. Currie wants to answer that. I would like a short answer from him.

[The Chair, Conservative, Larry Miller]

That's fine, Mr. Currie, you can respond.

[Morgan Currie]

I just wanted to add that indeed the uncertainty over MCOOL is the reason we're continuing to monitor the XL-Lakeside transaction.

[The Chair, Conservative, Larry Miller]

Thank you, Madame Bonsant and Mr. Currie.

Mr. Hoback.

[Randy Hoback, Conservative, Prince Albert, SK]

I appreciate the extra time. Again I will go back to my list of questions.

You made a comment on C-10. What is in Bill C-10 that is going to give you a few more fangs or power to do your job?

[Adam Fanaki]

Just as an overview of the reforms in Bill C-10, I'll give you a quick list of what the changes are and tell you how I think that impacts on enforcement.

The first change, which actually doesn't come into force until a year or so from now, is the change to the cartel, the conspiracy provision of the Competition Act, to create a more effective enforcement regime for the most egregious forms of cartel agreements: agreements among competitors of fixed prices, allocated markets, or reduced output, while not discouraging firms from entering into potentially beneficial strategic alliances, collaborations, and joint ventures.

The decriminalization of the pricing provisions will allow firms to have greater flexibility to provide innovative discounting and pricing strategies. The addition of the administrative monetary penalties to abuse of dominance, which was consistent with the recommendation of this committee, will promote greater compliance with that provision.

In the merger round we have a new merger review process that I outlined as well, which provides a more effective means for gathering information from the merging parties and reduces the number of transactions that need to be pre-notified to the Competition Bureau.

Generally speaking, there are increased penalties for the criminal provisions of the act to promote greater compliance with those provisions.

[Randy Hoback, Conservative, Prince Albert, SK]

Okay. Again, Mr. Chair, I'd just like to point out that of course it was the Conservative Party and the Liberal Party that supported this bill, and the two other opposition parties found some reason not to support this bill. I guess I wonder why that is.

Continuing with my questions, on cartels or price areas, does that not also affect government organizations or government arm's-length organizations—for example, the Canadian Wheat Board? Why am I as a farmer forced to sell my product to one entity in western Canada when the rest of Canada isn't? Is that not anti-competitive?

[Adam Fanaki]

I think from the Competition Bureau's perspective, or at least from my own perspective, we take the laws as they are. The Canadian Wheat Board is a creature of statute, and we take that as it is.

[Randy Hoback, Conservative, Prince Albert, SK]

So you would never investigate something that was a creature of statute.

[Adam Fanaki]

Well, I think if it is an organization that is developed or authorized by regulation—by appropriate regulation, if you will, lawfully passed regulation or statute—there is a concept in our law referred to as the regulated conduct defence, which I won't bore you with. It essentially is a common-law-developed doctrine, which essentially provides a defence to parties where their actions are specifically authorized pursuant to lawfully passed regulations or laws.

[The Chair, Conservative, Larry Miller]

On a point of order, Mr. Easter.

[Wayne Easter, Liberal, Malpeque, PE]

On a point of order, Mr. Chair, I would just point out that the court system has twice found this government wrongfully trying to undermine the Canadian Wheat Board. They've been stopped by the courts twice, so the courts have stood up for the Canadian Wheat Board. These guys may not like it. And farmers have stood by the Canadian Wheat Board by electing eight out of ten directors pro-board.

[Randy Hoback, Conservative, Prince Albert, SK]

Again, Mr. Chair, I get that question a lot. I was just looking for an answer from them so I could provide an answer to my farmers on why this situation exists the way it is.

[Pierre Lemieux, Conservative, Glengarry—Prescott—Russell, ON]

We hear quite a bit from Wayne, but not from farmers.

[Randy Hoback, Conservative, Prince Albert, SK]

On that part, yes.

Let's look outside at gas prices. There's another example of “How can that go on?” How can gas all of a sudden mysteriously change throughout the city of Prince Albert within 30 seconds? Again, it doesn't pass the smell test, yet last May long weekend, all of sudden, gas prices just went up 4¢ a litre, bang, right across the riding. Does this give you more tools to deal with that?

[Adam Fanaki]

Let me speak for a moment about that issue. On gas pricing, you may know that criminal charges were laid against a number of individuals and companies that were accused of fixing the price for gasoline in certain communities in Quebec: Victoriaville, Thetford Mines, and Sherbrooke. We've had eight individuals and five companies plead guilty in those cases, with the fines totalling more than $2.7 million. So where gas pricing is being affected by unlawful agreements between competitors, the bureau has taken action and will continue to take action in respect of that conduct.

Gasoline is a good example of this. The way the changes to the legislation would impact upon that is, even though the allegation here is that there was a price-fixing agreement among competitors, which I'm sure you and I would generally agree is something that should be unlawful outright, the law that's enforced now because the new one hasn't come into effect—the unamended law, if you will—required us to prove, even in respect of those agreements, that it was likely to have the effect of unduly lessening competition in a relevant market. What that introduces now is an economic test, if you will. In the context of a criminal proceeding to the standard of beyond a reasonable doubt, you have to establish that this price-fixing agreement had the effect of impairing competition.

It's a hard thing for a criminal court to wrestle with because they're not used to hearing about downward sloping demand curves and cross-elasticities of supply and those types of economic concepts. It's very difficult to establish those beyond a reasonable doubt. The new law that will come into force in March 2010 removes that undueness test and narrows the criminal provision to apply directly to these most egregious forms of criminal conduct.

It is going to make enforcement, in respect of these types of price-fixing cartels, more effective and more efficient. In addition to that, the penalties were significantly increased, so there's greater deterrence and greater compliance with the provisions.

[The Chair, Conservative, Larry Miller]

Thank you.

Before we wrap up, gentlemen, there have been a lot of things mentioned today that I have concerns about. Having you here is key to some of the suggestions and recommendations that come out in this committee's report. I hear a common theme and support by most of the committee.

What I'd like to know is the legislative or regulatory powers you need to increase competition in the four areas that most affect agriculture—the fuel industry, the fertilizer industry, the packing industry, and the ownership of cattle. Ownership of cattle is not illegal, as we all know, but it effectively gives slaughter plants the power to fix the market price, whether intentionally or not. We need some changes to deal with that. We know there's—I'll be gentle—extra price-taking in the fertilizer industry. We've had fertilizer officials here who have all but admitted it. I call it price-gouging. We need some rules.

Grocery stores represent another element that affects not just farmers but also the consumer. I want to know what powers you need to eliminate the ability of grocery stores to charge for shelf space. I relate this to the old days when one of the local mobsters would go around to each of the little stores in town and demand protection. My opinion is that this is legalized extortion. I'm hoping I'll have the support of the committee today. What I want is a recommendation to the government on how we can restrict this practice.

Finally, does Bill C-10 give you the power you need in all these cases? I suspect maybe it doesn't, but it certainly goes a long ways towards it. If it doesn't give you the power, what extra do you need to deal with some of these issues? I'd like you to tell us what you think today, and to respond to us in the next week or 10 days in writing, so we can include it in our report.

[Adam Fanaki]

We're of course happy to provide any information you might require.

I think we're coming round to a common theme in some of the discussions that we've had so far this morning. I want to make sure that people understand what the role of the Competition Act is. It is to protect a competitive process. It's not about protecting individual competitors or protecting competitors from the impact of what might be legitimate competition. I'm not saying that's what you think; I just want to define some of the bounds here.

[The Chair, Conservative, Larry Miller]

Mr. Fanaki, I want to say to you that I think I know what powers you have and don't have. I don't like what's happening. It's one of two things: either the Competition Bureau isn't doing what it can do, and I'm not suggesting that's the case, or we don't have the regulations to allow you to do what you can do. It's one or the other, and it has to be fixed. I think there's a consensus around the table here. There may be differences of opinion on how we fix it, but I think everybody agrees it's not working in the long term. I wanted to clarify that with you.