Agriculture Committee on Dec. 5th, 2022

[Alistair MacGregor, NDP, Cowichan—Malahat—Langford, BC]

Okay.

The other question I had is about the very serious allegations of the price-fixing on bread. I know that the Competition Bureau has also expressed concern over the practice of margin shielding.

We have very big concerns on the other side of the spectrum from people who are very concerned with a grocery code of conduct and the business practices you have with manufacturers.

Do you believe, Mr. Hussain, with all of these allegations, that your industry in particular has a lot more work to do to earn the trust of Canadians, who are quite rightly concerned about what's going on right now?

[Jodat Hussain]

We earn the trust of Canadians through what we do at the checkout counter, and that will be 100% what we will continue to do.

[The Chair, Liberal, Kody Blois]

We have 10 seconds.

I know you'll be generous, Mr. MacGregor, and give that back to us.

Mr. Chambers, you are appearing on behalf of Mr. Steinley. Welcome to the committee. You have up to five minutes.

[Adam Chambers, Conservative, Simcoe North, ON]

Thank you very much, Mr. Chair, and thank you to all our witnesses. It's a pleasure to see you back here in front of committee.

Mr. Hussain, you mentioned a couple of times that since the food inflation started, your net margin, which I think is what you were referring to, has stayed similar. What about over, say, the last 10 years? Is that margin of four cents on every dollar you sell around where the industry has been over, say, the last five to 10 years?

[Jodat Hussain]

I can certainly say that going back 10 years might not be a comparable example for us because we didn't have the Shoppers business then, but yes, in aggregate, I think our net margins have been in the sub-four cents range. I would welcome, actually, Mr. Karl Littler to give a comment on the overall sector, but I think that holds true for the sector too.

[Adam Chambers, Conservative, Simcoe North, ON]

Go ahead, Mr. Littler.

[Karl Littler]

As I understand it, looking back five years, Loblaw's numbers were at 3.4%. As I look at the others, I see they're all in a range of between 2% and 4%. That's a picture across the industry on a five-year basis.

[Adam Chambers, Conservative, Simcoe North, ON]

Thank you. It's been relatively consistent during that time.

[Karl Littler]

Yes.

[Adam Chambers, Conservative, Simcoe North, ON]

Mr. Hussain, the CEO of Pepsi went on an American business news channel and said, to paraphrase slightly, “We are very happy, because we can charge whatever we want and the customer will pay.”

Can you talk a little bit more about the negotiations you have with some of these larger food suppliers and how those costs impact the supply chain?

[Jodat Hussain]

That's actually an excellent consideration.

First, I think I would just say that this highlights that this is a supply chain cost issue and not a grocery profit issue or a grocery margin issue.

Secondly, in specific terms I don't know why the Pepsi CEO would say what he did about the elasticity of price in their particular market, but I encourage the committee to look at all aspects of the value chain, particularly the upstream value chain.

[Adam Chambers, Conservative, Simcoe North, ON]

Thank you very much, Mr. Chair. I'm going to yield the rest of my time to Mr. Lehoux.

[Richard Lehoux, Conservative, Beauce, QC]

Thank you, Mr. Chambers

Thank you to the witnesses for being here today.

I am going to start by asking Mr. Charlebois a question.

We hear about transparency a lot, and we may be a bit behind the times.

Should the government not have asked for a study on all the repercussions of the carbon tax earlier? Could it have done that before now?

We could request one. Is it urgent that this be done now?

[Dr. Sylvain Charlebois]

I think it is.

We have to understand what is happening at present better.

For several years, British Columbia and Quebec had a carbon tax, but all the provinces in Confederation now have to follow suit.

It is time to do it.

[Richard Lehoux, Conservative, Beauce, QC]

So you think it is not too late. It is high time to do it.

[Dr. Sylvain Charlebois]

Yes.

[Richard Lehoux, Conservative, Beauce, QC]

Right.

You did several studies in the past, and again recently.

Do you do these studies in response to requests, whether from producers, processors or wholesalers, or is it just your laboratory that decides to settle on a particular study?

[Dr. Sylvain Charlebois]

We decide the subjects we want to cover. We have four major partners, and together, we examine certain issues that we have the resources to study, but our studies are not funded by partners like the Retail Council of Canada or Loblaw, for example.

[Richard Lehoux, Conservative, Beauce, QC]

I may not have understood, but did you name your four partners?

[Dr. Sylvain Charlebois]

No.

They are BetterCart Analytics, NielsenIQ, Angus Reid Institute and Caddle Inc.

[Richard Lehoux, Conservative, Beauce, QC]

Right, thank you.

Based on the numerous studies you have done, do you have a general idea of the portion of the price of a food item in the grocery store that is attributable to its processing or production costs?

[Dr. Sylvain Charlebois]

It is very difficult to establish. Each product that has a reference number has its own history and proportions. It is therefore very difficult to say what is going on in general or to give an average.

I can tell you that in general, the profit margins for retail sales are extremely thin. As Mr. Littler and Mr. Hussain said, the profit margins are very thin, but they get higher the farther you get from the consumer.

As I explained earlier, the balance of power is not the same in Canada. Given the oligopoly we see in this area, it is very difficult for suppliers to negotiate with the major distributors, including Loblaw, Empire Company Limited and Metro.

[The Chair, Liberal, Kody Blois]

Thank you, Mr. Lehoux and Mr. Charlebois.

I will now give the floor to Ms. Valdez, who will be splitting her speaking time with Ms. Taylor Roy.

[Rechie Valdez, Liberal, Mississauga—Streetsville, ON]

Thank you, Mr. Chair.

Thank you to the witnesses for joining our committee.

I'll direct my first question to Mr. Littler. It's regarding price freezes.

What can Canada take away from other countries and what they're doing to lower costs in supermarkets?

[Karl Littler]

What merchants are doing to address consumer prices is a composite picture.

It's important to understand that even before the price freezes, there was a very significant discount grocery piece in the Canadian market. Obviously, we've seen a consumer shift toward that business. There's been a strong effort to try to ensure that staples, in particular, are sourced in a way that makes them as low-priced as possible for consumers.

With respect to the freezes, people have taken different approaches. Obviously, the decision Loblaw made has probably received the most comment, but other grocers have gone down that path. I think it's important to understand that they're working with some pretty thin margins in terms of what they can actually do. In this situation, not all of this is within the capacity of grocers.

It's also important to look at what manufacturers can do. We were talking a few minutes ago about average margins over five years being 2%, 3% or 4% in grocery. If you look at Kraft's margin, it's 14.8% over the same period. Pepsi is 11.6%. Procter & Gamble is 18.2%.

While grocers are doing what they can, I think it's very important to also look at what can be done with respect to the processing side of the chain.