Agriculture Committee on Feb. 13th, 2023

[Richard Lehoux, Conservative, Beauce, QC]

What about you, Mr. Bourbeau?

[Olivier Bourbeau]

I'm in favour of doing away with the LMIAs as quickly as possible. IRCC also needs more resources.

You're absolutely right when you say that it's possible to lose employees when they return with an open work permit. This happens for restaurants, as you said. It's a real problem.

On the other hand, what we would like to see is groups of restaurants, chains of 10 restaurants, for example, to be allowed the flexibility of moving employees from one restaurant to another. That would be important.

I'd now like to briefly raise two other issues.

This year, a measure was introduced to allow us to hire up to 30% foreign workers rather than 20%. This measure is applicable to seven sectors, including our restaurant sector. We would appreciate it if you could extend this measure, because it gives us a lot of breathing space.

I'd like to raise one last point. We've already talked about it and I will be raising it again later. It's about the National Occupational Classification, which very accurately classifies occupations, and which is applicable to foreign workers who are brought here. This classification should be amended, with the categories of occupations broadened to give us more flexibility. That would allow us, after arranging to bring in foreign workers, to train them in other occupations afterwards so that they can work their way up in the company. It would be good for the workers and perhaps enable them to obtain permanent resident status in Canada.

[Richard Lehoux, Conservative, Beauce, QC]

Thank you very much, Mr. Bourbeau. Those are excellent suggestions.

I would like to ask one last question on...

[The Chair, Liberal, Kody Blois]

Unfortunately, you can't, Mr. Lehoux. Nice try, but your speaking time was five minutes.

We now have Mr. Drouin for five minutes.

[Francis Drouin, Liberal, Glengarry—Prescott—Russell, ON]

Thank you very much, Mr. Chair.

My first question is for Mr. Bourbeau from Restaurants Canada.

I just want to make sure I am understanding your requests.

First of all, you are asking for an extension, given that 20% of the people you surveyed will not be able to meet the deadline to pay back the loan from the Canada emergency business account.

You are asking for a break on the excise tax on alcohol, which normally increases with the rate of inflation.

You're also requesting that SMEs be taxed at a lesser rate, going from 9% to 8%.

I will be honest with you. I speak with restaurateurs almost every day and they talk to me about their staffing problems. Yet I don't see this issue in any of your three priorities.

Have you spoken to your members? Your requests do not in any way reflect the situation that we are experiencing. I am therefore left wondering whether or not staffing shortages are a big problem for Restaurants Canada?

[Olivier Bourbeau]

Staff shortages are most definitely the biggest problem. It why our costs have gone up by 20%. As I mentioned in my opening statement, we are operating at 80% capacity. Why? Because we don't have the staff.

That's why in my last comment, I included recommendations on foreign workers and labour.

Given that the subject of today's meeting is inflation, we presented a few points on inflation, costs, loan payments as well as a tax break for our members.

[Francis Drouin, Liberal, Glengarry—Prescott—Russell, ON]

Alright.

If I understand correctly, 20% of your members are asking for an extension, but 80% of your members were able to honour their commitments with the government.

Two or three years ago, when this measure brought in, both the Canadian Federation of Independent Business and Restaurants Canada were of the opinion that the 2023 deadline was reasonable and that business owners would be able to pay back $10,000 on a $40,000 loan or $20,000 on a l$60,000 loan.

But now, the economy is perhaps not recovering as we would have hoped and after surveying your members, you are asking for another extension.

Have I got it right?

[Olivier Bourbeau]

There's more to it than that. The subject that your committee is looking at today is inflation. You should know that the rate of inflation was absolutely unbelievable last year. Even over the previous year, for example, the price of all dairy products shot up by 12.4%, whereas before the COVID‑19 pandemic, the rate was usually 1.2% up to 2%. The cost of a pizza rose by 15% to 17%. Those are enormous hikes.

This means that our conditions have changed. That said, we are very grateful for the extensions that were given.

Currently, when our members are telling us that they will not be able to pay back the loans, we are trying to find a solution so that those members are able to make payments, stay in business, and avoid losing their business or seeing their staff lose their jobs. The government will also get its money back.

[Francis Drouin, Liberal, Glengarry—Prescott—Russell, ON]

I understand.

You are telling me that the price of a pizza or the price of food in general has shot up, but despite the increase, restaurants haven't increased their prices?

[Olivier Bourbeau]

That's an excellent question.

Mr. Cochrane spoke about this earlier. Throughout all of the food supply chain, the majority of the entities before us, for example the producers and the distributors, pass on the hike to the next guy. Unfortunately, when it is our turn, we have to absorb the increases as much as possible, and that's what we try to do, because we can't pass on the total price increase to customers.

I spoke of the elastic principle, an analogy that everyone understands well. There is a maximum price that consumers, like me and you, are ready to pay for pizza or a hamburger. Beyond a certain point, you can't increase prices.

We have slimmed down our menus, reduced the number of days and evenings that we are open, and cut down on our daily operating hours. We are trying to extract all we can out of the food and have the least waste possible, but there are limits to those efforts, too.

We are therefore hitting a wall in terms of our capacity to increase prices.

[Francis Drouin, Liberal, Glengarry—Prescott—Russell, ON]

Of course.

Let's say that the government decides to change the excise tax on alcohol and lowers it to a normal inflation rate, which would be around 2.1 or 2.3%, rather than pegging it to the real inflation rate. That is indeed a request that I have heard loud and clear coming from the sector. For Restaurants Canada, that would mean that the price of alcohol would only go up by 2.1 or 2.3% over the next few years.

Have I got it right?

[The Chair, Liberal, Kody Blois]

I would ask you to be quite brief in your answer.

[Olivier Bourbeau]

Yes.

Our aim is to keep prices as low as possible and maintain enough of a profit margin to survive. That is where we are at currently.

[Francis Drouin, Liberal, Glengarry—Prescott—Russell, ON]

Thank you very much.

[The Chair, Liberal, Kody Blois]

Thank you.

Mr. Perron, you have the floor for two and a half minutes.

[Yves Perron, Bloc, Berthier—Maskinongé, QC]

Thank you very much, Mr. Chair.

My questions are once again for Ms. Cloutier and Mr. Fraeys, from the Conseil de la transformation alimentaire du Québec.

I see in your recommendations that you are requesting our support for a code of best practices.

Some of the witnesses that we heard last week, including representatives from the Association des producteurs maraîchers du Québec, spoke of the need for such a code as well as a pricing mechanism, which would be difficult. The witnesses mentioned two important aspects. The Competition Bureau would need to conduct an inquiry of some sort on pricing mechanisms, because their producers were seeing a huge gap between the price that they were getting for a vegetable and its sale price in the grocery store, even when that price was reduced.

Is that something that you would like to see?

[Sylvie Cloutier]

That is something that the Competition Bureau could do, but I don't know if it's necessary right now.

We are recommending that relations between suppliers and their customers, that is to say distributors and retailers, be stabilized. We all know that food distributors and retailers are also being hit by the cost of inflation. The impact is being felt in terms of transportation and salaries, for example. Obviously, retailers are going to try to hang on to their profit margins when pricing food for their shelves.

We are all basically in the same boat right now. For all of us, the only way to compensate for the increase in costs seen over the past year due to all the factors that we have listed, that is to say inflation, transportation, wage increases, problems with the supply chain, is unfortunately...

[Yves Perron, Bloc, Berthier—Maskinongé, QC]

Pardon me for interrupting you, Ms. Cloutier, but I only have 20 seconds left.

Do you believe that the Canadian government should be gathering more data on pricing? This was another recommendation made to the committee. It might be something that we could do more of. It seems that compared to the United States, Canada has much less data that would allow it to know how much the price increases with each link of the chain.

What do you think?

[Sylvie Cloutier]

Obviously, there should be transparency. We should indeed have more data on all of the costs throughout the supply chain.

[The Chair, Liberal, Kody Blois]

Thank you very much.

And to round things off, we go over to Mr. MacGregor for two and a half minutes.

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

Thank you, Mr. Chair.

Dr. Cochrane, we have heard a number of witnesses now.

When we look at the grocery sector in particular, this is not the first controversy that has erupted in it. We know about the scandal of fixing the price of bread—the very serious allegations about that.

We've heard from many producers and processors at this committee about the need for a grocery code of conduct because of the hidden fees and the fines.

Now we have consumers, working families in my riding and right across this country, who week in, week out, are seeing the price of food—the food that is necessary to feed their families—reaching astronomical levels.

I want to change tack a little bit.

You gave two solutions in your opening statement about how we can tackle excess corporate power here in Canada, especially profits, with a minimum tax on reported profits and an excess profits tax.

I also want to look at—in the grocery sector it's been referred to as an oligopoly—the market dominance that these companies are able to wield. We know there's a crisis of confidence and a crisis of trust in this sector.

Many of our witnesses mentioned the Competition Bureau and the Competition Act.

Dr. Cochrane, do you have any recommendations that you would like to see our committee explore with the Competition Bureau? Do you have any suggestions on recommendations we could be making to the federal government to tackle the market dominance that they use so skilfully to increase their profits?

[Dr. D.T. Cochrane]

As I mentioned, this is a struggle between the suppliers and their customers—clients—over passing along costs. Certainly reducing the oligopolistic power the big groceries chains have is important. However, I don't think we should overly fetishize competition as the means of doing so, because grocers face suppliers who are often massive transnational corporations.

We saw a very public example of this in the fight between Frito-Lay and Loblaws. Loblaws was able to push back against a price increase that Frito-Lay wanted to impose on it in part because it is such a big player.

What the final outcome of all of that is we don't really know. I don't want to necessarily say that Loblaws was kind of the valour on the side of Canadians in this fight. However, it does speak to the fact that you do sometimes need to be big to stand up to other players that are big.

If we need to have some of our grocery chains to be big to push back against big suppliers, then they need to be regulated. We can't expect market competition forces to do the things that economists tell us they will do.

[The Chair, Liberal, Kody Blois]

Thank you, Mr. Cochrane. Thank you, Mr. MacGregor.

I gave you a little extra time to get that on the record, but that's what we do. We try to be collaborative in this committee.

Colleagues, that ends the first panel.

Let me thank Dr. Cochrane, Ms. Cloutier, Mr. Fraeys and Mr. Bourbeau for their testimony and work in their respective industries. The testimony was helpful, and I know I speak on behalf of the committee on that.

Thank you for taking your time and appearing before us.

Colleagues, we are going to transition over to the second panel. It won't be long, so don't go far.

[The Chair, Liberal, Kody Blois]

We are back in session.

I would like to welcome our witnesses for the second hour of our meeting.

James Brander, a professor with the University of British Columbia, will be testifying as an individual.

With the Centre for Future Work, we have Dr. Jim Stanford, economist and director.

We will also be hearing from two representatives of the Union des producteurs agricoles, Martin Caron, who is the General President, and David Tougas, who is the Coordinator of Business Economics.

Welcome to all of our witnesses. You'll have up to five minutes for opening remarks and then we'll get started with questions.

I'm going to start with Professor Brander.

You have up to five minutes, please.

[James Brander, Professor, University of British Columbia, As an Individual]

Thank you very much.

Thanks for inviting me to participate today. I understand that this committee is studying inflation in the food supply chain and that there is particular concern about possible overpricing and excess profits for large grocery retailers.

I'm not an agricultural economist and have not previously studied pricing in the agribusiness sector, however, I have done research on overpricing, excess profits, collusion and other related issues. I've served as an expert witness in these areas on multiple occasions and have estimated the extent of overpricing and excess profits in many of these cases.

I've done a quick review of food pricing issues in Canada recently, so I hope I'll be able to contribute something to the committee's deliberations, but I can't make any promises.

According to Statistics Canada, overall inflation, as measured by the consumer price index, was about 7% in 2022, the highest level in 40 years. Food purchased from stores was by about 10%. Therefore, food price inflation exceeded the general price inflation by about three percentage points. I'll call that the food inflation premium. I've posed a set of questions to myself and I'll provide answers to those questions.

First of all, background. What do we mean by overpricing and excess profits? People use those terms in different ways, but like most economists, what I mean by overpricing is pricing over and above what we would expect in an undistorted and reasonably competitive situation for the industry in question. Excess profits are profits that arise from overpricing.

What are the causes of this food inflation premium? Among those causal factors, how important is overpricing by grocery retailers? There are several obvious factors in addition to overpricing by retailers. One is the war in Ukraine, which reduced supply and increased prices for grains and other products. Another is climate events, such as droughts in parts of Canada, floods and droughts in the rest of the world. This is not about climate change but it seems beyond just scientific dispute that these increasingly severe weather events are due, at least in part, to climate change. I'd also mention the continuing supply chain effects of the COVID-19 pandemic, although they are winding down, and specific events, such as the bird flu, which caused a crisis to arise in 2022.

Most of these effects are not specific to Canada and therefore, should also affect other countries. I took a look at other countries and, in fact, Canada's food price inflation was less than the OECD average in 2022 and, more importantly, the food price premium was less in Canada than the OECD average. Taking into account all these factors, there's actually not much left to be explained by domestic overpricing.

Is there evidence of collusion or any type of other anti-competitive practice in the grocery sector? Not really. In 2017 we had the bread price collusion case. We would, of course, expect the response to that would be that supermarket chains would be very cautious about engaging in further collusion and I think they have been. Now, I believe that the Competition Bureau is looking at the industry, but I'm not aware of anything that's come up in recent years.

What about profitability? Has it risen in the grocery sector? It's hard to be definitive, but it looks as though it has risen somewhat over the COVID-19 period. I checked out stock prices; they've risen somewhat relative to the TSX—not a lot, but somewhat. That's exactly what I would have expected as a result of the pandemic because the pandemic created conditions favourable to grocery store profits, shifts in demand towards grocery stores away from restaurants and shortages making it possible to raise prices and premiums. So it's not a surprise there.

Does this mean that price increases in the grocery sector are "profit driven?" Of course, they are. I would say that almost all price changes in the market economy are profit driven. Companies are in business to make profits so, of course, they adjust their prices accordingly. And that's a good thing because the incentive to earn profits generates social and economic benefits more effectively than any other system. As Adam Smith said “It is not from the benevolence of the butcher, the brewer, or the baker, that we expect our dinner, but from their regard to their own interest.”

Increases in prices act as a signal. Often, temporary high profits can be earned, but that acts as a signal to potential competitors to enter or to expand, and to consumers to waste less. I would point out that during the COVID-19 period there was still far too much food waste in Canada. In any case, this is precisely the response that is needed—more supply and less demand. Imposing price controls or increased profit taxes would probably provide exactly the wrong incentives and make problems worse, not better, as we know from other situations where we tried to apply such remedies.

However, that said, Adam Smith also warned us to be wary of collusion and anti-competitive practices, pointing out that market power could be detrimental to the public interest.

Is there a structural problem in the grocery sector due to insufficient competition? Well, there could be. The regional sector has a pretty high concentration with three companies having about a 60% market share. The retailers have a lot of market power relative to small suppliers. There are also large suppliers—