Good afternoon, Chair and committee. Thank you for the opportunity to appear today.
I'm Denise Allen. I'm president and CEO of Food Processors of Canada. For more than 35 years, we have been the leading voice of Canada's food and beverage processing facilities.
The recent allowance of overconsolidation in Canada's grocery retail sector has resulted in only five retailers controlling more than 80% of what Canadians can purchase, placing our food system and supply at risk. This incredible imbalance has created an environment where retailers can arbitrarily impose increasing and unrealistic financial pressure on food producers and processors.
Not only are their business practices viewed as predatory during a national crisis, but, if left unchecked, these fees and fines will diminish Canada's ability to attract investment in food production and innovation, reduce our ability to compete effectively against large multinationals, eliminate selection and choice for consumers who wish to support local farmers and brands, and threaten our collective ability to protect our food sovereignty and security.
Retailers such as Walmart and Loblaws have adopted unfair and unethical business practices where our food producers and processors struggle to maintain output to ensure Canadians enjoy what they come to expect in their food system—safety, selection and quality products from Canadian brands they enjoy.
The scale of the retail fees and fines is both unprecedented and untenable. The recent fees imposed by Walmart and Loblaws companies alone will cost suppliers approximately $1 billion per year, and will ultimately pay for these retailers' infrastructure costs, while no return on investment or growth is provided to suppliers.
Further, the threat of retailers' escalation of fees and fines places Canada's primary producers at risk, as food processors purchase in excess of 40% of Canada's farm gate output, for which they add value and sell both domestically and internationally. Our landscape requires immediate intervention to protect future growth and sustainability for local and national food systems.
Recent months have emphasized how important it is for Canada's food supply chain to be resilient and robust. The COVID-19 pandemic highlighted potential risks and issues which indicate that our nation's reliance on imported food products leaves our population without access to vital processing infrastructure and allows for the potential of food disruptions as borders thicken and concerns over protectionism increase.
The current and ongoing crisis has forced us to examine all aspects of our food production and processing capacity. We have learned that Canadians want their food to be grown and processed at home and that they feel our government needs to increase its support for its agri-food sector.
Canadians feel that having a small number of grocery chains competing results in grocery prices being higher than they need to be, and at this time the same majority of Canadians feel that our current supply chain needs intervention. In short, Canadians understand and want a robust, competitive food sector to ensure food choice and supply.
Now is the time to consider our lessons learned in recent months and act to strengthen our domestic food system. It has become vitally important that we look to those practices of large grocery retailers to understand the severest threats to our food supply chain and act to ensure that more competitive, fair and accountable retail practices are enforced.
Retailers' use of arbitrary fees, fines and deductions from supplier payments is taking place while those same suppliers continue to produce food under a backdrop of reduced capacity to support social distancing on lines, increased operating expense to support PPE requirements and workplace safety, funding unplanned capital investment to support necessary infrastructure changes to plants and equipment, and creating incentives for workers during a national labour shortage.
Our current atmosphere of uncertainty will ultimately force small and medium-sized enterprises to reconsider their future if we do not rebalance the food system geared toward the runaway profit for only the large grocery retailers, which comes at the cost of farmers and suppliers.
The heavy-handed nature of these retailers must be addressed to ensure future investment in agriculture and agri-food business. Canadians want a balanced food supply. Retailers have aggressively and unilaterally dictated their terms, with no mechanism to allow suppliers to voice their concerns. Moreover, the disadvantage at which retail fees and fines place the suppliers extends to primary producers in a way that will see a reduction in farm gate output and consumer selection of food choices and a decrease in Canada's export capabilities.
Canadians do not wish to rely solely on food produced elsewhere. The current shape of Canada's food system must be changed to allow farmers and value-added food processors to continue to serve consumers in a way they both want and deserve.
Governments across Canada are committing to strengthening our food system. The recent Speech from the Throne indicated that investments would be announced to strengthen local supply chains here in Canada. Strong support from Canadians encourages a government role that would ensure there is a balance between our retailers and our agricultural and agri-food businesses.
A grocery code of conduct would be a key piece of legislation that would effect the change needed to establish fairness and accountability in grocery retail practice in Canada. Experience in other jurisdictions shows that significant grocery concentration requires a code to balance retailer-supplier relationships. Codes in countries such as the U.K., Ireland and Australia have been proven to improve competition and support greater collaboration in the broader supply chain.
The focus of the code would encourage good-faith negotiations between grocery retailers and their suppliers, reduce punitive penalties and create greater transparency and accountability. Even more interesting, after the legislative code was implemented in the U.K., prices for consumers decreased, and the industry culture shifted to one of collaboration and consumer focus.
We are respectfully calling on government to intervene and level the playing field, as this is the best way to address the inequities in the food supply chain that threaten investment and increase price inflation for the consumer. A legally binding and enforceable code to monitor, establish and enforce compliance is recommended. While changes to Canada's Competition Act may be helpful in addressing some issues, that is in no way a substitute for a code of conduct.
Constitutional jurisdiction for the development and implementation of a retail code of conduct falls within the provinces and territories; however, the federal government has a large and key role to play in establishing a code of conduct. First, the federal government must consider the importance of our sector to Canada's COVID-19 recovery and, in doing so, must consider a series of changes or enhancements to the Competition Act to enable the bureau to address anti-competitive behaviour of retailers.
I'll add a cautionary note, however, in that increasing the reach of the Competition Bureau to investigate anti-competitive behaviours is necessary, but that alone will not create the change required. Investigations are reactionary and prolonged. A proactive approach is preferred over a lengthy enforcement process, which may or may not address the root cause.
Other actions that will greatly assist fairness and accountability include conducting a study into the issue, establishing an industry working group, developing legislation in both the provinces and the territories, and structuring federal oversight to the provinces and territories' approach to establishing such legislation.
We are eager to work and partner with the federal government to this end, and I thank you very much for your time today.