Thank you very much, Mr. Chair, members of the committee.
Food and Consumer Products of Canada welcomes this opportunity to contribute to the House of Commons Standing Committee on Agriculture and Agri-Food and its review of the food supply value chain.
FCP is the voice of Canada's leading food, beverage, and consumer products manufacturers. We represent a mix of small and medium-sized Canadian manufacturers and multinational companies. Our members manufacture about 80% of the packaged foods, beverages, and consumer products you'll find in your local grocery store.
From an employment perspective, our industry provides high-paying jobs to approximately 300,000 Canadians in rural and urban areas in every region of the country. This is in addition to the hundreds of thousands of indirect jobs along the supply chain that our industry provides to Canadians. Our sector is now the largest employer in manufacturing in Canada.
As you know, the Canadian food processing industry is a key component of the food value chain and our members have a close working relationship with Canada's farmers. Our 6,000 processing facilities across the country purchase and use over 40% of what Canadian farmers grow. In Ontario and Quebec our members purchase closer to 70% of what farmers grow in those provinces.
In order to sustain and grow our industry here in Canada and to control our food processing capacity and our food security for generations to come, we rely on this committee and the federal government to ensure we have the right conditions for success. Our submission to you today will discuss some of the current pressures being faced by Canada's food processing industry, some opportunities for government to engage in, in a positive way, to eliminate barriers to growth, to sustain and grow our food processing capacity here in Canada, and to ensure that Canadians have access to safe, competitively priced products and sufficient options in grocery stores for years to come.
The presentation is also going to touch on some lessons learned from around the world, which will hopefully provide you with some helpful ideas as to how we might address Canada's food, beverage, and consumer product manufacturers' concerns in this regard.
Let me get right to it and set the stage.
One of the biggest challenges facing Canada's food processors today is the Canadian grocery retail landscape and the growing importance of store brands in many categories as a competitor on the shelf. We have seen a shift from national brands to store brands on retail shelves right across the country. Right now the top five grocery retailers make up about 75% of the retail marketplace in Canada, and this consolidated marketplace is similar to what we see in places like Australia, the United Kingdom, and the European Union. The United States is a bit different, with a much more fractured and fragmented retail base. I raise this comparison because there are some lessons we can learn from markets like Australia, the U.K., and the EU to better understand the market impacts of retail consolidation and the proliferation of store brand products and how these countries have responded.
Let me talk about store brands as a competitor in grocery stores across the country. They represent about 20% of the overall grocery retail market today in Canada. In the United Kingdom, they're at about 43%; in Australia, they're closer to 30%. Our report last year, commissioned by Rabobank, a leading financial institution in the Netherlands, stated that store brand offerings are expected to double globally to 50% of the market by 2025. This is an important fact to keep in mind as we consider the impact of the growth of store brands on Canada's food and consumer product manufacturers, and how that is a barrier to innovation and additional investment and a future threat to farmers, consumer choice, and keeping prices competitive.
Retailers in Canada today are not merely the buyers of our products who control the shelf space; they are also direct competitors. They now play a double-agent type of role.
Let me be clear from the outset, though. My remarks today are not to be construed to be anti-store brand, nor are they to suggest that the increased prevalence of these store brands are anti-competitive. That's not why I'm here today. The challenges our industry is seeing today and that we're concerned about for tomorrow relate not to the presence of these store brands themselves, but rather to the associated business practices that have resulted at the manufacturer-retailer interface. It's the conduct and the demands of retailers, in tandem with the rise in store brand products in Canadian stores, that's causing concern about the future of our industry, as well as the farmers they provide markets for.
What are we seeing in the marketplace? I want to touch on three areas.
Number one is greater demands for information. Many retailers are asking for more information about input costs, product formulations, brand information, marketing plans, insights on investment and innovation plans. Some retailers are requesting up to 26 weeks of lead time for the introduction of a new product. These practices can create serious challenges for manufacturers who are seeking to get access to the limited shelf space in leading stores. At the same time, they are concerned about the longer-term impacts of sharing this critical business information with retailers and how it could be used against them.
Number two is something called parasitic copying or look-alike types of products. Manufacturers invest millions of dollars in product development and marketing to establish their brands and to build loyalty with their consumers. We're seeing real growth in a troubling trend in look-alike products in stores across the country. We're not like the pharmaceutical industry, which has brand names and generics, in which you have a patent and you can control the market for x number of years. That luxury does not exist in our industry. The parasitic copying of our products is a real problem.
Manufacturers small, medium-sized, and large are frustrated by the lack of protection offered by intellectual property laws to prevent this. This activity is constraining innovation and threatening the viability of some branded products in the marketplace.
The third point is on off-loading of costs to manufacturers, increased product listing fees, and increased delisting activity. Increasing shelf space allocated to store brands creates limited space for other products in the store. In a consolidated retail market, getting listed and staying on the shelf in leading stores can be cost-prohibitive for smaller Canadian processors. Exorbitant fees to get on the shelf and stay on the shelf remain serious barriers for many manufacturers. We're seeing this not only in Canada but in other countries around the world.
The off-loading of costs by retailers to manufacturers in this unbalanced environment is making our manufacturing sector less competitive. In short, this makes Canada a less desirable place for both domestic and foreign investment. All of these issues, combined with higher commodity prices and a strong Canadian dollar, are having a very real and negative impact on investment and innovation in our sector.
What can we learn from others? In recent years, governments from around the world have acknowledged these marketplace trends within their borders and have identified the potential impacts on their food value supply chains. In January 2011, the European Commission tabled a report on the impact of store brands, stating that, and I quote:
As retailers consolidate their positions and increase their power as both sellers and buyers over time, the likelihood of economic harm arising from retailer practices to exploit their double-agent position increases. Consumers may now have plenty of choice and benefit from the continuing widespread presence of brands, offering the benefits of brand reassurance through consistent quality, value and innovation, together with an increasing number of private label options. However, as the challenge from private label grows further, backed by retailer power, there is the increased danger that a greater number of brands will disappear from supermarket shelves, and ultimately consumers will face less choice.
The European Commission set up a task force in 2008, which culminated into a multi-stakeholder dialogue in 2011 and the development of a document on principles of good practice. In the United Kingdom, the Office of Fair Trading referred matters to the Competition Commission, which tabled a report called “The Supply of Groceries in the UK - Market Investigation”. The outcome was the development of a grocery supply code of practice, followed by the tabling of the Groceries Code Adjudicator Bill in May 2011. Similar headline-grabbing activities by governments have ensued in recent years in Australia, Ireland, and Norway.
What should we do in Canada?
In Canada, we currently have a document, housed at the Competition Bureau, that governs appropriate practices in this area. It's called the “Interpretation Bulletin” but is otherwise known as the grocery bulletin. It's linked to sections 78 and 79 of the Competition Act. It has not been updated since 2002, when it was first published in response to concerns about consolidation in the grocery retail trade. This bulletin clarifies how, from an enforcement policy perspective, the bureau addresses allegations around abuse of dominance, barriers to entry, and anti-competitive acts in the marketplace. We've made repeated requests to the bureau to have this bulletin updated in the past couple of years, but it hasn't been on their list of priorities.
Given the trends globally in the area and the risks that the trends towards retail consolidation and store brand expansion pose to processors, farmers, and consumers, FCPC strongly believes that a consultation to review and update the grocery bulletin to take into consideration the new market realities is in order. Currently it does not address store brand issues and the issues associated with retailers acting as a double agent or a competitor. It's imperative that these issues be addressed in the interest of having a level playing field, especially for smaller and mid-sized Canadian processors who are trying to sustain and grow their businesses here in Canada.
In closing, I want to be very clear that FCPC believes there is an important role for store brand products to play in the marketplace.
Our issue is not with the products themselves; it is with how their prevalence in the marketplace is allowing the country's largest retailers to squeeze manufacturers and farmers. We are concerned that if the Canadian government does not review these issues in a substantive way, like governments in the U.K., Ireland, Australia, Norway, and the EU have, we are putting the future of our food and consumer products manufacturing sector, farmers, and Canadian consumers at risk.
If we take too long to take action and lose a number of these players in the market, we could find that the damage to industry will be beyond repair.
Thank you for this opportunity to address your committee today. I look forward to answering any questions you might have.
