Agriculture Committee on Dec. 5th, 2022

[The Chair, Liberal, Kody Blois]

Thank you, Dr. Charlebois.

Thank you, Mr. MacGregor.

Now there will be a couple quick ones from me.

Mr. Hussain, just so I understand, is 3.1% the food sector portion of your business, the margin right now for Loblaw?

[Jodat Hussain]

No, it's not the food sector. It's the aggregate margin for our entire business, because Loblaw reports as a composite, and that composite, as I mentioned, includes several other businesses as well.

[The Chair, Liberal, Kody Blois]

Do you have a sense for this committee of what the actual food margin portion of the business is, or is that not something that can be made public at this time?

[Jodat Hussain]

No, it's something that we don't disclose. It's not publicly disclosed information. We do give qualitative disclosure of it, which I was mentioning. It's usually on pages 11 through 13, depending on our statements, and that's where we state that our margins on food—gross margins—have been flat.

[The Chair, Liberal, Kody Blois]

The last question I have is around the relationships. We talked about perhaps increased traffic at the pharmacies because of the pandemic. I didn't hear questions in the panel around the actual increased amount of food that was being bought through the grocery element itself, in the sense that people were not going out to restaurants as often. They were not eating out.

Do you have any numbers you can provide this committee in terms of per unit, I'll say...? Have you seen an increase— beyond, of course, the costs you've had to incur—in the amount of food that's being bought through your retail outlets? Do you have a percentage number that you could give this committee?

[Jodat Hussain]

I don't have a percentage number, but I can give you a shape of how the industry has grown.

When the COVID pandemic happened, the volume in the industry, the actual unit volume in the industry, spiked because restaurants were closed, but this year, in particular as the pandemic subsided and restaurants opened up, unit volumes are actually contracting.

[The Chair, Liberal, Kody Blois]

Okay. Thank you.

Mr. Charlebois, if you have similar data across the industry, I think that would be interesting to offer to the committee, but I will run afoul of our time if I go any further, unless you have something very quick that you might want to add.

[Dr. Sylvain Charlebois]

I submitted our “Greedflation” reports. I have submitted three of them published in the last few months. They have already been submitted to the committee.

[The Chair, Liberal, Kody Blois]

That's perfect. Thank you very much.

Mrs. Valdez, I see your hand.

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

Thank you, Mr. Chair.

With the passing of the CCA president, Reg Schellenberg, I wanted to see whether there was interest in writing a joint letter of condolence, signed by all of us in committee, to his family and the CCA.

[The Chair, Liberal, Kody Blois]

I think that's a thoughtful gesture, Mrs. Valdez.

I don't see any hesitation in the room from any of our members. Do I have unanimous consent to go ahead and do that?

I see we do. That's wonderful. As chair, I will make sure we do that on behalf of all of you. Thank you, Mrs. Valdez.

Colleagues, that ends the first panel. Don't go too far. We're going to turn this around for panel two in just a few moments. Thank you.

Thank you to our witnesses.

[The Chair, Liberal, Kody Blois]

Thank you to our technical team for turning that around very quickly.

With us today on the second panel, we have, from Empire Company Limited—better known as Sobeys in my neck of the woods in Nova Scotia—Mr. Pierre St-Laurent, chief operating officer. Mr. St-Laurent, welcome to the committee.

From Food, Health and Consumer Products of Canada, we have Michael Graydon, chief executive officer. Mr. Graydon, you're joining us online. Welcome back to the committee. You are no stranger to us.

From Fruit and Vegetable Growers of Canada, we have Rebecca Lee, executive director, who is also no stranger to this committee. Ms. Lee, you're in the room. Thank you so much for being here today.

Colleagues, we're going to start with five-minute opening remarks. We'll start with Mr. St-Laurent.

You have up to five minutes for your opening remarks.

[Pierre St-Laurent, Chief Operating Officer, Empire Company Limited]

Thank you, Mr. Chair.

In recent months, global inflation has reached heights we had not seen for decades. We understand that the cost of living, including the cost of food, is a matter of concern to Canadians, who want to understand why their grocery bill is so high today. That is why the Empire Company Limited is testifying before the committee today.

First, as a business committed to feeding families, Empire is no fan of inflation.

The inflation we have been experiencing for several months is a bad thing and is distressing for Canadians, who have to make choices and adjust their buying habits. More than ever, they have to think about what they are buying if they want to stay within their budget. It is also bad for our company, since it interferes with our operations and requires that we meet numerous operational challenges.

Second, food inflation is a global challenge caused by a set of macroeconomic factors that are influencing the costs of food production.

Regarding the cost of goods, geopolitical events and also extreme weather conditions, soaring energy costs, disruptions in the supply chain, the weaker Canadian dollar and labour shortages have created a perfect storm for our suppliers. They are now unfortunately obliged to increase the cost of the products they offer.

While we receive hundreds of requests for cost increases from our suppliers every month, we are committed to rigorously assessing each request and examining all cost factors that affect our suppliers so we can be sure of the factual justification for each request and of each component of the price increase, and so minimize the impact on our customers.

Unfortunately, present circumstances are such that our suppliers have no choice but to ask retailers for significant price increases if they are to remain profitable. Canadian farmers are particularly affected by the present macroeconomic environment. Numerous agricultural operations would actually be in great danger if suppliers and retailers did not agree to their increases.

Third, as a business, we are not profiting from inflation in any way.

Many people believe that retailers are deliberately profiting from inflation. I can't speak for the other retailers, but I can assure you that this is completely false in the case of Empire. In a very large majority of cases, the retail price increase reflects the increase in the costs requested by the suppliers. As we have said over recent months, and as our quarterly reports show, sales and profitability have remained stable in spite of the acceleration in inflation.

I would also like to point out that the retail food sector is a very low margin sector. In our case, our net margin in the last two quarters was 2.5 to 2.6%, which is consistent with our profitability in the last two years. We therefore have no choice but to adjust our retail prices; otherwise, Empire would very quickly stop being profitable.

Fourth, despite this uncertainty, we use all available levers to minimize the impact of this unprecedented inflation on our customers.

In addition to rigorous analysis of the requests for cost increases that we receive from our suppliers, we invest in numerous initiatives so we can always offer Canadians greater value. That may be by expanding our assortment of private label and large format products, by making relevant, personalized offers, and by supporting communities across Canada.

Last, we believe the Canadian government could also play a major role in helping Canadian businesses reduce their operating costs.

Every government measure to simplify the supply process, encourage immigration or promote technological innovation will be beneficial. For example, the national supply chain task force recently submitted its report to the Minister of Transport, in which there are 21 initiatives for meeting supply chain challenges in Canada.

Reducing congestion in Canadian ports, simplifying the passage of goods through the border, or responding to the labour shortage in the supply chain are examples of concrete measures that would have a major beneficial impact on the Canadian food industry and ultimately on Canadians' purchasing power.

To conclude, I want to reiterate that we are sensitive to this subject, which affects our customers directly, and we are using all available levers to minimize the impact of this inflation.

Thank you.

[The Chair, Liberal, Kody Blois]

Thank you, Mr. St‑Laurent.

Mr. Graydon, you now have the floor for five minutes.

[Michael Graydon, Chief Executive Officer, Food, Health & Consumer Products of Canada]

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

FHCP represents the companies that manufacture and distribute the vast majority of everyday essential products found in every household. Our members work closely with Canadian farmers to transform this country's agricultural riches into value-added finished goods that feed families here at home and around the world. As the single largest employer in rural Canada, we also serve as a critical link between rural and urban communities.

With inflation now at historic highs, we understand the concerns Canadians share regarding higher food prices. Canada's inflationary environment aligns with skyrocketing costs of food and goods globally. According to the Food and Agriculture Organization, global food prices jumped 5.5% between September 2021 and September 2022. Canada's peer countries face similar trends. Some factors driving global inflation include COVID-induced demand spikes, labour shortages, crop damage from extreme weather, transportation disruptions, and sharp increases in the price of energy and fertilizer due to the war in Ukraine.

Unlike past trends, many of these conditions and pressures have been occurring simultaneously or in a more pronounced manner, leading to broad-based increases in prices. Simply put, the costs of producing, selling and buying food have risen sharply across the board. When costs increase, prices generally do as well.

This point is reflected in an October 2022 survey of FHCP members, who reported that input costs have increased, on average, 23% this year. For example, wheat and oil prices have skyrocketed, and sugar has increased over 12% year over year. Plastic packaging costs rose 42% and paper packaging costs have increased by 36% since January 2020. The price for glass rose 12% year over year. Freight transportation costs are up 32%. Labour costs rose by almost 16%. In addition, our members are dealing with interest rate increases, the increased cost of debt servicing, and foreign exchange challenges, as many of the ingredients used in manufacturing are sourced from outside Canada. Our members expect these costs will continue increasing well into 2023.

Our industry also faces labour, ingredient and packaging shortages. Eighty per cent of our members report labour shortages in their manufacturing plants. Severe labour shortages also continue to impact the trucking industry, which manufacturers rely on to transport over 70% of their products. Packaging shortages include pallets and pressure-sensitive labels. These global shortages, with limited to no domestic supply, impact our industry's ability to produce and deliver essential everyday products to Canadians.

In response, some FHCP members are temporarily reducing variety and sizes and concentrating on making the most necessary and in-demand products. Most manufacturers are passing on significantly few of their costs to retailers.

While industry is working to mitigate the impacts on consumers, there are steps the government can take to help.

First, we must build supply-chain resilience and bolster our economic capacity. The government must take immediate action to implement the national supply chain task force's recommendations that impact our industry, including investing in critical transportation infrastructure and supporting the digitization of supply chains.

Second, the fall economic statement outlined important steps towards providing a more levelled investment playing field between Canada and the U.S. We are pleased with commitments like the Canada growth fund, tax credits for clean technologies and investments in advanced manufacturing. These are important steps to help Canada remain competitive in North America, while keeping and attracting investments here.

Third, labour shortages continue to be a challenge for our industry. We are encouraged by the government's plan to increase immigration levels to 500,000 people by 2025 and provide further financial measures to process new immigrants and reduce backlogs.

Lastly, Canada needs a mandatory and enforceable grocery code of conduct with a broad scope that captures all essential everyday products on grocery shelves. Since August 2021, discussions on the development of a code have been under way in an industry steering committee, which I am pleased to be co-chairing. The code will ensure the relationship between suppliers and Canada's grocers is transparent, stable and fair.

Thank you, Mr. Chair.

[The Chair, Liberal, Kody Blois]

Thank you, Mr. Graydon.

We'll now turn to Ms. Lee for up to five minutes.

[Dr. Rebecca Lee, Executive Director, Fruit and Vegetable Growers of Canada]

Good afternoon, Mr. Chair and members of the agriculture committee. Thank you for the opportunity to join you today and speak on the issue of food inflation.

My name is Rebecca Lee, and I am the executive director of the Fruit and Vegetable Growers of Canada. Our growers are involved in the production of over 120 different types of crop, on over 14,000 farms, with farm cash receipts of $5.7 billion in 2020.

FVGC recognizes the importance of this issue and thanks the committee for undertaking this critical study. According to Statistics Canada, fresh fruit prices were up 9.6% in March 2022 compared with the same month last year. The latest food price report, released last Monday, estimates vegetable prices will increase by another 6% to 8% next year. As a result, more than 26% of Canadians have reduced their consumption of fruits and vegetables in the past year due to price increases. Even before the pandemic, close to 80% of Canadians were not eating enough fruits and vegetables, as recommended by Canada's food guide, resulting in an economic burden calculated then at $4.6 billion.

As you endeavour to understand the cause of rising costs, I am here to talk about the situation of many of our growers across the country.

Concerned about the rising costs our growers have been dealing with, FVGC recently surveyed our members to get a picture of the situation. This reaffirmed that across Canada, growers are struggling. Overall, our growers report a 40% increase in input costs. Fertilizer leads the way, with a 72% increase since 2020. Fuel has gone up 65%, while labour has increased by 20% and shipping by 42%. Our growers are generally unable to recoup their costs through the sale of their products: 77% of respondents have not been able to raise their selling price in line with their increased costs, and 44% are selling at a loss. Meanwhile, many growers are still working to recover costs associated with the pandemic, numerous climate disasters, and devastating pests and diseases.

They also continue to be burdened by costs associated with increasing retailer fees, multiple labour and food safety audits, and new requirements to demonstrate sustainability. We fully support a strong integrity regime to ensure our food is safe and sustainably grown and that our workers are being treated fairly; however, it is the layering and often duplication of these audits that are burdensome to growers. Government is adding to the pressure by introducing carbon disincentives and other environmental goals to meet international agreements, without balancing them with adequate and agile funds to support change.

As a result—going back to our survey—73% of our growers have had to delay buying equipment or investing in their operations, including exploring new environmental practices, because they simply can't afford to invest.

Furthermore, produce growers are very susceptible to production risks, which can be extremely high due to the volatility of prices, high dependence on labour and the perishability of produce. Quality loss can have a significant impact on the price the producer receives. I'm sure many of you saw the CBC article last month about one of our growers, Richard Melvin of Nova Scotia, who reported that 40% of his 36 hectares of cauliflower gets ploughed back into the ground each year. Like many growers, they can't afford to harvest, box and transport produce that isn't being purchased, especially for vegetables like cauliflower, which can spoil in two weeks.

Unfortunately, AgriStability and AgriInsurance, the two main tenants of the business risk management program, do not account for significant product quality variability. Therefore, most of our growers do not fit into either program, leaving a large number of them without an adequate safety net.

On the one hand, high prices at the grocery level are limiting consumers' access to healthy food. On the other, growers unable to cover production costs with the prices they obtain from their buyers are faced with the decision of whether or not to continue in the struggle to provide domestically produced fruits and vegetables. We cannot continue to take for granted the importance of having a strong domestic supply of healthy and nutritious fruits and vegetables.

Canada's fruit and vegetable growers believe in the need for sustainable agriculture—socially, environmentally and economically. Food production is an essential sector. Fundamentally, it should be considered a public good. Ensuring that risks, costs and fair earnings are spread throughout the supply chain is critical. A strong grocery sector code of conduct is a step in that direction. Government must look holistically at all policies through a food and agriculture lens to avoid unintended impacts. We also need stronger risk management supports for the horticulture sector.

Our sector has proven its resilience time and again. We firmly believe that given due recognition and adequate supports, our growers will be able to balance the bottom line with their ability to provide safe and nutritious fruits and vegetables to “fill half the plate”.

Once again, we are grateful the agriculture committee is studying food inflation.

We need to act swiftly and with determination to address these challenges to protect not only the economic viability of our fresh produce sector, but also Canada's food security and the long-term health of Canadians.

I look forward to your questions.

[The Chair, Liberal, Kody Blois]

Thank you, Ms. Lee.

You were right on time. Wonderful. That was great.

We're going to turn to questions. Colleagues, we only have time for two rounds, just so you're aware.

Ms. Rood, you are going to lead it off for the Conservatives.

[Lianne Rood, Conservative, Lambton—Kent—Middlesex, ON]

Thank you very much, Chair, and thank you to the witnesses for being here today.

Ms. Lee, you kind of alluded to this problem, but we're recognizing that our growers are struggling. They're not just struggling; I worry that young growers and young farmers are not going to get in the business of fresh fruit and vegetables. That's something that really contributes to our food sovereignty, our food security and being able to sustain ourselves here in Canada by growing what we need in order for us to feed ourselves.

One thing I see, and from experience, is producers being held hostage by big grocery chains. There are concerns. I know labour costs are up. We have a hard time finding labour, let alone dealing with rising costs. Our input costs are up for fertilizer, transportation and especially shipping. I hear that from growers. Of course, the carbon tax contributes to the increased cost in shipping and transportation, especially in getting product from field to warehouse and from warehouse to a food distribution centre.

Mr. St-Laurent, I have to say thank you for acknowledging and recognizing that without increased prices and paying farmers more, we are not going to actually have profitable farmers and we're not going to see farmers in the business.

By the same token, I've heard you and Loblaw say that you negotiate with farmers and suppliers and that when they ask, you don't always give them what they're asking for. I see that it has been a problem also for farmers because they can't keep bearing these costs without getting some increases from the grocery retailers to be able to cover their costs.

I'm just wondering, Ms. Lee, if you could expand on how a grocery code of conduct would help our growers. I've been a big advocate for that from the beginning, and it's great to see something coming down the pipe on that.

How would a grocery code of conduct help our farmers get paid fairly for their goods?

[Dr. Rebecca Lee]

Thank you for the question.

The intent of the grocery code of conduct, once we have it finalized, is to provide the conditions under which business is conducted. That's just to reflect or paraphrase perhaps the title of the document or the method that we're preparing.

Once all of the different parts of the package are worked out—how dispute resolution can be managed, how a supply agreement can be negotiated and all of those—hopefully by the end of that process, we will be able to have a product that will level more of the playing field and enable people to deal in a confident manner.

[Lianne Rood, Conservative, Lambton—Kent—Middlesex, ON]

What would be the impact on fruit and vegetable growers of tripling the carbon tax? If you don't have that offhand, that's fine.

[Dr. Rebecca Lee]

I'm pretty sure they won't be very happy about it, but I'd have to get back to you with an answer for that.

[Lianne Rood, Conservative, Lambton—Kent—Middlesex, ON]

It would be great if you could submit that later.

In what other ways can growers be supported in the short and long term to help them be successful and to keep them in the business of growing fresh fruit and vegetables?

[Dr. Rebecca Lee]

For the short and long term, I would certainly reiterate the need for the recommendations of the supply chain task force to be implemented, especially those addressing the labour challenges and how we can make sure that we have timely access to labour. The recognized employer program would be one good step in that direction.

Certainly there's the grocery retail code of conduct, but there's also levelling the playing field of supports between the U.S. and Canada. There's a big difference in the amount of supports that are provided in terms of, for example, the environmental programs they have. We analyzed them, and green funds are available to Canadian farmers per acre at $2.95 versus over $6 per acre for farmers in the United States. Right there it's demonstrated that we have fewer supports.

Strengthening our BRM programs, our business risk management programs, would also help.

[Lianne Rood, Conservative, Lambton—Kent—Middlesex, ON]

Thank you.

What I'm hearing is that growers are taking all the risks while we see the grocery chains reaping all of the rewards.

You mentioned that 44% are selling at a loss. I'm wondering about the impact on the farm. Are we in jeopardy of losing farms? How many would be in jeopardy? What does this do to our food security?