Agriculture Committee on Feb. 6th, 2023

[The Chair, Liberal, Kody Blois]

This is the last one, because I want to get to the second panel.

Of your suppliers, can you give this committee...? I can appreciate, as you mentioned, that it's a negotiation. You're going to have different suppliers of different sizes and different abilities to provide product on your shelves.

Could you give this committee an estimate of what percentage of your suppliers has that ability to negotiate? Some are smaller producers. I presume you're saying, “This is what we're willing to offer”. Can you give us a sense of that?

If I'm a smaller farmer, I presume you're saying, “Here's what we're willing to offer you, as Metro, on the basis of what the market might demand and what we think we can sell.” With other suppliers that might be a bit larger. It might be more of a negotiation.

Can you give a sense to this committee of what the breakdown would be? For how many of your suppliers, even on a percentage basis, would that be a negotiation, versus Metro trying to say, “Look, we can't negotiate with every single supplier”?

You have 27,000, for example. Can you give us even a sense of that and what the relationship looks like?

[François Thibault]

It varies. It deals with payment terms. It deals with participating in promotion campaigns. It's across a range. I don't want to throw a number out.

[The Chair, Liberal, Kody Blois]

Okay. It's a broad question.

We'll go to Ms. Rood, quickly, if we could.

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

Thank you, Mr. Chair.

Mr. Thibault mentioned a few times that they are transparent and open. I'm wondering if it would be possible for him to table those documents that he's referring to about the transparency of the numbers with the committee.

[The Chair, Liberal, Kody Blois]

Certainly. That would be something that's up to the witness.

If there's something you can share with our committee on some of the practices, that's fine.

[François Thibault]

Okay. I'll take it back.

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

Thank you.

[The Chair, Liberal, Kody Blois]

Thank you for indulging me for a few extra minutes.

Colleagues, we're going to take a very quick break. We have all of our witnesses for the second panel here in the room, which is great.

We'll take two or three minutes and we'll get right back to it.

Thank you.

[The Chair, Liberal, Kody Blois]

Colleagues, we're going to get back at it.

We have a full room. It's great to see everyone having lovely conversations, but we want to make sure that we stay on time.

Our second panel are no strangers to the committee, but it's always great to have them back, especially in the room. It's a crowded witness box, so to speak, up front. We're excited to have them here.

From the Canadian Agri-Food Policy Institute, we have Tyler McCann, who is certainly no stranger to the committee. Welcome back with us, Mr. McCann.

From the Canadian Federation of Agriculture, we have Mary Robinson, in from Prince Edward Island—it's great to have you here in person, Mary—and Scott Ross, who serves as the executive director. Of course, Mary is the president.

Also with us are representatives of the Quebec Produce Growers Association, Catherine Lefebvre, president, and Patrice Léger Bourgoin, general manager.

I'd like to welcome you both to the committee.

Each of you will have up to five minutes. I'm going to start with Mr. McCann.

We'll go over to you.

[Tyler McCann, Managing Director, Canadian Agri-Food Policy Institute]

Thank you, Mr. Chair and committee members, for the opportunity to appear on this important topic.

For most Canadians, paying for the food that they consume is one of the few direct transactions they have with Canada's food system. When that transaction gets more expensive, it gets attention.

The simple fact is that food is getting more expensive. However, the reasons behind that increase, and the policy solutions available to governments, are much less straightforward. COVID, supply-chain disruptions, geopolitics, the depreciation of the Canadian dollar, concentration and the cost of labour are only some of the factors contributing to making food more expensive. Other witnesses will address many of these points, so today I will offer three simple observations on food price inflation.

First, food is diverse, and the drivers of the cost of food vary widely. Canada needs more research and analysis to understand these trends and pressures.

Second, food inflation is regressive, hitting poor households harder. Policy solutions should be directed at those Canadians who need the most help.

Finally, Canada is not an island, and our food system is part of a global system. It is important to consider this context when debating the Canadian experience.

First, while food is often talked about as a single thing, walking around a large supermarket today drives home how diverse food is. Within Statistics Canada's CP index, food is actually 190 different products, some of which behave very differently. For example, pasta was 20% more expensive in December 2022 than it was a year earlier, but fresh and frozen pork was almost 1% cheaper.

Within that diversity, some things are generally true, like the more ingredients in a product, the smaller the farmer's share is and the more that consumer's dollar goes to labour costs. Therefore, the more complex a product is, the more likely it will have costs driven up by something like the increasing cost of labour.

According to USDA's food dollar research program, in 2021, on average about 14.5¢ of the food dollar was the farm share, split about evenly between farmers and ag businesses. However, a Canadian study released in 2015 broke down how wide that range was between products. The farm share of bread was about 5%, but it was 50% for vegetables. It's worth highlighting that the 7.4¢ for the farm production was the lowest number recorded by the USDA. The share for retail, though, also fell in 2021.

The USDA analysis shows that farm production, food processing and packaging costs have all gone down. It also shows that the share for wholesale trade food service, accounting and advertising costs have gone up over the last 20 years.

We simply do not have this level of credible, meaningful analysis in Canada. Your committee's study would benefit from an organization like Agriculture Canada, Stats Canada or the Competition Bureau producing this level of detail. The committee should consider recommending that the Government of Canada take the steps necessary to collect data and conduct the same level of analysis that is available in the U.S. and to make the results of that analysis public.

Second, food inflation does not impact Canadians equally. It is very regressive and impacts lower-income Canadians more than most. In our 2022 report from the Angus Reid Institute, more than half of the respondents reported that it was difficult or very difficult to feed their household. However, those numbers differed greatly by income. It was 71% of respondents making less than $25,000 a year who said it was difficult or very difficult to feed their family, but the number dropped to just over 30% for those making more than $150,000.

The different responses by income drive home that food insecurity in Canada is largely not a food issue. A report on household food insecurity in Canada by the Proof program at the University of Toronto notes, “Although food insecurity was initially understood to be a food problem...it has become clear that the deprivation experienced by households that are food insecure is not confined to food.” In effect, the income issues driving food insecurity are income issues, not food issues.

Finally, it is important to put what is happening in Canada in a global context. While recent inflation has continued to climb in Canada, the UN FAO food price index has fallen considerably from its peak earlier this year and is now relatively similar to what it was a year ago. Despite a significant decrease since February, the index remains 43% higher than it was in 2019. In Canada, StatsCan's CP index for food is up only 17% in that same time frame.

Just as food inflation hits lower-income Canadians, the most vulnerable around the world are struggling with that significant increase in prices. Food inflation is an important but complex issue. It is not one single issue, but a complex web of issues impacting each other. Better data and analysis would lead to a much more informed dialogue. It also impacts lower-income Canadians more severely. Policy solutions should be directed to those who need the help.

Finally, food inflation in Canada is not happening in isolation. It is important to understand the global context.

These are three small observations on a large and complex issue. I look forward to taking your questions.

[The Chair, Liberal, Kody Blois]

Thank you, Mr. McCann.

We'll now turn to the Canadian Federation of Agriculture with Ms. Robinson.

[Mary Robinson, President, Canadian Federation of Agriculture]

Thank you, Mr. Chair.

Hello. My name is Mary Robinson. I am from Prince Edward Island. I am a producer on Prince Edward Island and the president of the Canadian Federation of Agriculture.

The CFA is Canada's largest general farm organization. We represent over 190,000 farmers and farm families across this country. We and they are the heart of the Canadian agri-food system, generating just under $135 billion of Canada's GDP.

As you know, food inflation is outpacing all other commodities, and we are seeing these price increases reflected across the board in sectors such as fresh fruit, vegetables, dairy and eggs, to name just a few. This is illustrative of the fact that farmers have seen their bottom line costs increase tremendously over the past few years, with a sharp rise in expenses through 2021 and 2022.

The increased costs of production in the ag sector are being driven by several factors, including critical inputs such as fuel and fertilizer, which have seen drastic price increases over the past year. According to Farm Credit Canada, “fuel costs [have] increased more than 80% since the first quarter of 2019” and the average fertilizer and feed costs have very nearly doubled. In addition, machinery, pesticide and labour costs have also increased substantially over the same period.

Farmers have no lower-cost alternatives to turn to for these inputs and their absence has dramatic implications for Canada's agricultural productivity and Canada's food security. For most farmers across Canada, 2022 was the most expensive crop they have ever put in the ground. As a result, many farmers are required to make tough decisions around whether to delay investments in their operation that would otherwise make them more efficient and environmentally sustainable, because they simply do not have the margins.

The bottom line is that inflation represents several challenges for Canadian producers, who are price-takers in global markets and subject to weather- and climate-related risks that are outside our control.

There are some immediate steps that can be taken to reduce potential short-term impacts on Canadian food production.

First, our members are very encouraged to see the progress of Bill C-234, which would exempt from the federal carbon price natural gas and propane used on farms for drying grain and heating and cooling barns in backstop provinces. We are thrilled that this is on its way to third reading in the House of Commons. It holds the potential to remove one more cost that farmers shouldn't have to bear and cannot pass along.

Second, according to Stats Canada, the federal government collected $34 million in tariff income on fertilizer imported into Canada in 2022. We feel that revenue from these tariffs should be redirected into programming that helps to alleviate some of the impacts of rising costs—for example, fertilizer and fuel—and helps to build resilience in the ag sector.

Finally, in July 2021, federal, provincial and territorial—FPT—ministers called for an industry-led process to improve transparency, predictability and respect for the principles of fair dealing within the supplier-retailer relationship. Following this announcement, a steering committee comprised of individuals from 10 key stakeholder groups, including the Canadian Federation of Agriculture, was formed to facilitate and develop an industry-led grocer code of conduct.

The objective of the code of conduct is to enable a thriving industry; promote trust, fair dealing and collaboration throughout the value chain; increase commercial certainty; and develop an effective and equitable dispute resolution process. While not explicitly targeting food inflation, we do believe that it will help to improve supply chain dynamics, particularly where one link in the supply chain is unduly shouldering the costs and risks of inflationary pressures.

We were pleased to see the minister's positive reaction to the most recent progress report of the committee earlier this year and look forward to the government's continued support for this initiative as it approaches implementation.

Thank you. I'll be pleased to answer any questions you may have.

[The Chair, Liberal, Kody Blois]

Thank you very much, Ms. Robinson.

We will now go to Ms. Lefebvre, of the Quebec Produce Growers Association.

Ms. Lefebvre, you have the floor for five minutes.

[Catherine Lefebvre, President, Quebec Produce Growers Association]

Mr. Chair, ladies and gentlemen, good evening.

Quebec's produce growers believe that food security, which includes price inflation, should be recognized as a key issue by our governments. The invasion of Ukraine, shortages of raw materials and successive interest rate hikes have contributed to increasing our production costs. Produce growers have to pay more, but that isn't reflected proportionately in farm gate prices.

We were surprised to hear a representative of a large chain state in this forum: “We have a fairly equitable process to evaluate whether our relationship with the supplier is balanced”. If that were true, why did Canada's agriculture ministers feel the need to develop a code of conduct from the ground up governing best practices between grocers and their suppliers?

For us produce growers, the prices of everything we buy and every raw material we use to grow our produce have risen much faster than the amount we receive for those same products. In fact, less and less of what consumers pay when they buy their vegetables is going back to the vegetable grower.

For example, this summer at the end of June, the amount received by one grower for a single head of iceberg lettuce was less than 87 cents. From this unit price, the grower had to deduct all the fees unilaterally imposed by the retailer. A few hours later, the consumer was paying a discounted $1.99 for the same head of lettuce.

We really must insist that produce growers are facing skyrocketing input prices, interest charges, and enforcement and regulatory fees. Delivering quality products is a daily struggle, and their return on investment isn't always worth the risk they take.

[Patrice Léger Bourgoin, General Manager, Quebec Produce Growers Association]

Professor Charlebois was clear when he appeared before the committee. He had this to say: “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”.

Picture a small family business that brings perishable products to the market in a matter of days. Imagine that small family business having to negotiate with a very limited number of customers that do billions of dollars worth of business. Now ladies and gentlemen of the committee, do you really think that a small vegetable grower has much negotiating power in that scenario? Vegetable growers never win in the carrot and stick game.

You heard from a number of retailers that they required extensive justification before agreeing to pay their suppliers a higher price—and believe you me, that's what they do. The real question, though, is who do the big grocery store chains have to justify their regular price increases to. It's a question worth asking.

What's more, globalization has led to the consolidation of input supplier operations, reducing the availability of diverse supply sources and, by extension, causing prices to soar.

The country's vegetable production supply chain is dealing with another phenomenon as well. The industry's major national customers sell local products and imported products alongside one another, in direct competition. Regulations are much more stringent in Canada than they are in Mexico, for instance. For that reason, the production costs in Mexico and other such countries are not sustainable here.

There's no easy answer when it comes managing food inflation more effectively, but as a society, we know we should be making national food security a bigger priority. Now, I'll turn to our recommendations.

First, a code of conduct governing relations between suppliers and retailers in the grocery sector won't implicitly address pricing mechanisms. It is therefore crucial to examine the issue and assess the harmful effects of market concentration.

Second, we can no longer talk about climate change as though it's in the future, because it's happening now. Vegetable growers are living it every single day. This past summer, entire crops were ruined in Quebec because of invasions of aphids from the U.S., hurting supply chain resilience. A national climate change strategy must be implemented now.

Third, vegetable growers need a level playing field to compete with growers of imported produce. Equivalence and reciprocity of standards must be implemented in order to secure the domestic supply chain.

Thank you for this opportunity.

[The Chair, Liberal, Kody Blois]

Thank you.

We will now begin the first round of questions.

Go ahead, Ms. Rood. You have six minutes.

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

Thank you, Mr. Chair.

Thank you, witnesses, for being here today.

In the last hour, we heard a bit about transparency from one of the big grocers.

Mr. McCann, I'm going to ask you this question.

We heard them talk a lot about transparency issues, or lack thereof. I'm wondering whether you can elaborate on this for the committee. Is Canada as transparent as other countries—say, our neighbour, the U.S.—when it comes to the value chains and supply chains in the food and agriculture industry?

[Tyler McCann]

As is often the case, there's a lot that we don't know in Canada, or information we're missing that's available in the United States or other markets around the world.

If you look at the debate over the last couple of years around this issue in particular, it's highlighted how much room for interpretation there is, how much disagreement over the facts there is and how much need there is for a more rigorous, more compelling and more objective set of analysis around what is actually happening with the cost of food.

This isn't just a retail issue. This is an issue all along the value chain, where we don't have the same level of information and understanding as is available in the United States or some other markets. For example, we know, in Canada, that the top five grocery chains have about the same market share as the top 20 in the United States, but once you get beyond that high-level conclusion, it's hard to really understand what might be happening underneath.

There's clearly significant room to increase the amount of transparency and information available today.

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

Thank you very much.

I'm going to turn now to Ms. Robinson or perhaps Mr. Ross. I have heard from many growers in the produce industry that, when they are dealing with big grocery chains, they are subjected to a number of either fees or different things. I have heard they are subjected to unloading fees. For the privilege of being able to deliver their goods to the centralized distribution warehouse for a grocer, they are charged a fee to unload their trucks there.

I have also heard that if a truck arrives late, let's say 10 minutes late for its appointment time, it is then charged a fine for being late. However, if the grocer doesn't get around to unloading the truck and makes the truck sit in the yard for 12 hours, they will still make them pay a fee for that. We have also heard of farmers being charged a fine if their truck is speeding one kilometre over the speed limit in the distribution centre's yard at some point.

We have heard of rejection fees, so if a load is rejected by the person who processes the load at the distribution centre, then the farmer who.... Let's be clear: No farmer is going to want to send a perishable product to go on a grocery store shelf that is not of great quality on a truck to a distribution centre to then have it rejected and go back to their farm, and have to repay the transportation cost to get it back there. They are also being charged rejection fees if their load is rejected. This is on top of rebates or charge-backs to the farmers who pay the privilege of having a vendor number and keeping that vendor number with the grocery store chain.

Have you heard of these things happening from our growers in Canada?

Maybe this is all going to go into what we have talked about, and what I have talked about, since the fall of 2020: We need a grocery code of conduct in this country to actually protect our growers and to keep our family farms in business. I'm scared of what the future is going to look like 15 years from now if we don't have family farms producing great quality produce in this country.

Can you comment on any of that?

[Mary Robinson]

The short answer is yes. The longer answer....

Scott, do you want to answer?

[Scott Ross, Executive Director, Canadian Federation of Agriculture]

In many respects, for all the different fees you laid out, we have heard anecdotal evidence from growers across this country that in one instance or another they are occurring.

Certainly, one of the concerns, to your question around transparency, is that there is not a sense among farmers that they have an understanding of how fees are calculated and how they are being levied against them. It's something we certainly look at with regard to a code of conduct as a measure to improve transparency in the supply chain.

I can attest to the fact that one of the frustrations we hear time and again is that farmers don't understand what is behind the calculations that are being levied against them in deductions. There are not necessarily itemized lines of what those deductions even are in the first place. There's a fundamental lack of transparency that we hear time and again from farmers.

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

If we were to go down that road, which we are, of a grocery code of conduct, how would that benefit farmers? One thing I would like to point out is that, to my knowledge, there is no other country on this planet, whether it's the U.S., some of our biggest trading partners in Europe, or Mexico, that actually imposes these kinds of fees on farmers at the grocery store level when they are delivering products.

When the general public is looking at practices like these and no other industry has these types of practices other than Canada, specifically in the grocery industry, as outsiders, all they see is big, greedy grocery giants who are lining their pockets with record profits on the backs of Canadian farm families and produce growers—and all they want to do is feed Canadians and the world.

[Scott Ross]

When it comes to the code of conduct, obviously it's still a work-in-progress. As you know, some of the ongoing discussions relating to that are still confidential in nature, but I will say that, undeniably, transparency is one of the core tenets of what we're trying to pursue there. The idea is very much to get everyone on the same page around what is an acceptable practice in the industry when it comes to fair dealing across the supply chain. I think in doing so, one of the critical elements of that, which I've seen first-hand in the development of the code, is a building of trust across the supply chain. Without that trust, I think a code of conduct can't actually function.

Really, as a first starting point, I will say that a code of conduct is an iterative process. It's not something that fixes overnight all the problems in the supply chain. It builds a framework around which we can start driving towards improved transparency, improved contractual certainty and really instilling principles of fair dealings and a common understanding of what that means in specific terms across the entire industry.

From my perspective, that really is the value that a code of conduct brings to this discussion.

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

Thank you very much.

Thank you, Chair.

[The Chair, Liberal, Kody Blois]

Thank you, Mr. Ross and Ms. Rood.

Go ahead, Mr. Drouin.