Agriculture Committee on March 6th, 2023

[Michael H. McCain]

I believe that to be true. I believe that the overarching common thread, if you will, among all of the regulatory frameworks that we've had to deal with over many years is to simply ask for a competitive lens to be applied. It's not a competitive decision; it's just for a competitive lens to be used in the decision-making process. I think that would move mountains in addressing a cultural and systemic issue across all of the regulatory frameworks in the country.

[The Chair, Liberal, Kody Blois]

Thank you very much.

Colleagues, thank you for our first panel.

Let me thank our witnesses on behalf of all of you. They were, from Dairy Processors Association of Canada, Philip Vanderpol and Mathieu Frigon; from Food and Beverage Canada, Mr. James Donaldson; and from Maple Leaf Foods Inc., Mr. Michael McCain. Thank you for your testimony. Thank you for your work in agriculture. It was a very fascinating discussion.

Colleagues, don't go far. We're going to transition over to our second panel in just two or three minutes. We'll take just a minute to do that.

[The Chair, Liberal, Kody Blois]

Colleagues, thank you so much for your patience in getting everyone on board.

We're going to start with our second panel. We're running a few minutes late, but we'll do our best, and I'll do my best to get you caught up.

Today we have three different organizations presenting. From the Competition Bureau of Canada, we have Ann Salvatore, the deputy commissioner for the cartels directorate. We also have Anthony Durocher, the deputy commissioner of the competition and promotion branch. We have Krista McWhinnie, deputy commissioner of the monopolistic practices directorate.

Welcome to all three of you here in the room.

From Innovation, Science and Economic Development, we have Mark Schaan, senior assistant deputy minister, strategic and innovation policy sector.

From Statistics Canada, joining us via video conference this evening, we have Chris Li, who is the acting director of the consumer prices division, and Matthew MacDonald, assistant director of the consumer prices division.

Welcome to you online, so to speak.

Each organization is going to have up to five minutes for opening remarks. I'm going to start with the Competition Bureau.

The floor is yours.

[Anthony Durocher, Deputy Commissioner, Competition Promotion Branch, Competition Bureau]

Thank you, Mr. Chair and members of the committee.

Thank you for the invitation to appear before you today. As the chair has just said, my name is Anthony Durocher, and I am the deputy commissioner of the Bureau's competition promotion branch. I am joined today by my colleagues Ann Salvatore, deputy commissioner of the cartels directorate, and Krista McWhinnie, deputy commissioner of the monopolistic practices directorate.

The Bureau is an independent law enforcement agency that protects and promotes competition for the benefit of Canadian consumers and businesses. We do this because competition drives lower prices and innovation while fuelling economic growth.

We administer and enforce Canada's Competition Act, which means that we investigate and address business conduct in four main areas: abuses of market power, anti‑competitive mergers, price‑fixing, and deceptive marketing practices.

The Bureau also advocates for pro‑competitive government rules and regulations.

We have heard Canadians' concerns about high grocery prices, so on October 24 we launched a market study of grocery store competition in Canada. This study is not an investigation into any specific allegations of wrongdoing. Instead, we are proactively looking for ways that governments can act to improve competition in the sector, because more competition means lower prices, more choice and more convenience for consumers. We expect to publish our finding and recommendations in June.

In addition to this study, we will continue to vigorously enforce the Competition Act for the benefit of all Canadians.

Whenever we find evidence that someone may be doing something against the law, we will not hesitate to investigate and take appropriate action. I would note that high prices and high profits are not in and of themselves violations of the Competition Act, which sets specific criteria that the bureau must meet when considering whether to bring a case.

We are also guided by the jurisprudence from the Competition Tribunal and the courts. The bureau conducts thorough and rigorous investigations during which we follow the evidence and make a determination as to how to proceed.

Some question whether the bureau has sufficient teeth to carry out its work. Last year the government introduced important amendments to the Competition Act and also launched a comprehensive consultation on Canada's competition laws. This consultation is ongoing, and the bureau will continue to push for responsible reform. We need to ensure that the Competition Act contains the right provisions and that we have the right tools to protect and promote competition in the Canadian economy.

Before fielding your questions, I would note that the law requires that the bureau conduct its investigations in private and that we keep the information we have confidential. This obligation may prevent us from discussing some past or current investigations.

Thank you for the opportunity to appear before you today. We look forward to your questions.

[The Chair, Liberal, Kody Blois]

Thank you very much, Mr. Durocher.

We'll now turn to ISED. Mr. Schaan, we go over to you for up to five minutes.

[Mark Schaan, Senior Assistant Deputy Minister, Strategic and Innovation Policy Sector, Innovation, Science and Economic Development Canada]

Thank you, Mr. Chair, and all the members of the committee for inviting me to appear before you this evening to speak about the topic of food price inflation.

My name is Mark Schaan, and I serve as the senior assistant deputy minister in the Strategy and Innovation Policy Sector at Innovation, Science and Economic Development Canada.

While federal government policies with respect to food may be most closely associated with my colleagues at Agriculture and Agri-Food Canada, there's no question that food has many dimensions and is of a critical importance that cuts across departmental lines.

In addition to encompassing several discrete industries and markets in the modern globalized economy, the production, transportation and distribution of foodstuffs represent important markets, industries and inputs in a number of dimensions, not the least of which is that they are fundamental inputs for all of Canada's workers, producers and consumers as well as a source of a tremendous amount of employment and investment that feeds our economy less literally.

It is there where my department enters the picture, focused on the rules and the resources that allow our economy to function and flourish to meet the needs of Canada's population.

It's well known at this point that the causes of inflation within the food industry and elsewhere go well beyond Canada's borders. I'm sure this committee has heard much about war, weather events and the effects of the COVID-19 pandemic on consumption habits and shipping capacity, which you don't need me to repeat.

Given the global nature of these phenomena, the solutions will need to be multifactorial, with the recognition that many players will have to do their part to make it more manageable for Canada's population.

Macroeconomic responses lie with Finance Canada and the Bank of Canada. Questions of employment are handled by the federal, provincial and territorial departments and ministries with that portfolio. We at ISED try to ensure innovative, competitive markets that deliver the best results and benefits to businesses and consumers, including affordable prices, irrespective of the overall state of inflation.

First, I would like to discuss our role in well‑functioning supply chains. Canada's division of powers prevents the federal government from simply legislating ground rules for specific industries, with the exception of the few set aside as federal areas by the Constitution.

However, we have joined forces with Agriculture and Agri‑Food Canada to convene participants from different stages of the food supply chain to work out a code of conduct that governs their commercial relationship.

Details are still being finalized on this project, but through the hard work of the industry steering group, as well as that of a host of federal and provincial governments, a framework has been coming together to promote fair trading practices and contractual certainty. This will help ensure an equitable and prosperous relationship between food manufacturers and the grocers who bring their products to the public.

The code of conduct will set out principles and clear definitions, subject to various dispute resolution and adjudication mechanisms. It will help smooth over some of the problems that have surfaced between grocers and their suppliers. It does not directly address consumer pricing—to be very clear—but the importance of stable and healthy supply chains cannot be overstated in providing a competitive retail food market in which customers have their choice of many different offerings at the best available price.

My department also has stewardship of the Competition Act. The statute sets out a law enforcement regime to address business practices that harm competition, such as collusion among competitors, mergers that lead to undue concentration, or steps taken by dominant firms to undercut the competitive process.

I raise this point because these general rules inform business behaviour and can be an important part of fuelling competitive dynamics. More specifically, at this stage the department does not possess the best evidence to confirm or refute any specific suggestion of anti-competitive activities in the food sectors, which would in any case be a matter of fact within the remit of the Competition Bureau and the courts. However, Canada's grocery sector is relatively concentrated, which means that remaining vigilant and ready to respond to any threats to competition in an inflationary environment that may provide cover for unlawful activity is always top of mind.

On this, the government has taken and continues to take action to reinforce our competition enforcement regime. In 2022, the Competition Act was bolstered by a series of amendments to fill gaps and bring Canada more into line with its international partners. For instance, in the wake of concerns over potential wage-fixing coordination in the grocery industry during the early stages of the pandemic, the act was amended to ensure that agreements between different employers to collude on wages or conditions of work, thus harming competition for labour, were treated the same way that harmful price-fixing agreements were.

Other amendments updated maximum penalties to make them proportionate to the benefit derived from anti-competitive or deceptive conduct to make sure that penalties are meaningful and not simply the cost of doing business. The consumer-unfriendly practice of drip pricing—that is, hiding mandatory fees to make it harder to do accurate comparison shopping—was clarified as a deceptive practice.

Numerous other targeted but important updates were made to the law for shorter-term improvement.

Now a full consultation is under way with respect to the broader, more open-ended question of how the Competition Act should serve the modern economy.

[The Chair, Liberal, Kody Blois]

We're going to leave it at that, Mr. Schaan. Thank you. Unfortunately, we're at time. I even gave you a few extra seconds, but I know my colleagues will dig in with you in questions and you'll have the chance to elaborate in your responses.

I will now head over to Statistics Canada, please, with either Ms. Li or Mr. MacDonald.

[Matthew MacDonald, Assistant Director, Consumer Prices Division, Statistics Canada]

Thank you, Mr. Chair and committee members.

Good evening, and thanks for the invitation to appear before this committee this evening.

I am Matthew MacDonald, the assistant director responsible for the consumer prices division. I am joined by Chris Li, director of the consumer prices division.

Since early 2021, higher prices for gasoline, shelter, food and consumer durables like automobiles have put upward pressure on consumer inflation. During this time, we have experienced a global pandemic, supply chain disruptions, extreme weather events, geopolitical conflicts, low unemployment, labour shortages and higher transportation and import costs, as well as robust household demand.

As inflation ramped up in 2022, Canadians reported that they were most impacted by rising food prices, followed by higher costs for transportation and housing. By mid-2022, consumer inflation had accelerated to its fastest pace in four decades, peaking at 8.1% in June. While the headline rate eased in late 2022 as gasoline prices fell, key sources of inflation, such as food, showed little sign of moderating.

In January 2023, prices increased on a year-over-year basis in every food category, including meat, vegetables, dairy and bakery products. Food prices have been impacted by already high production costs, such as energy and fertilizer inputs, as well as erratic weather events, supply constraints related to avian influenza and a general dependence on imports.

Canadians living across the country have been impacted by price inflation, albeit to varying degrees, depending on consumption patterns and supply chain challenges faced.

From a global perspective, all G7 countries have been impacted. Compared to international peers, Canada's inflation rate has been slightly lower, including that of the United States. The pressures driving inflation in Canada and in other G7 nations have been occurring simultaneously and in a more pronounced manner, leading to broad-based increases in food prices across the globe.

All of these insights are possible as a result of Statistics Canada's consumer price index, or CPI, which is produced every month and aligns with international standards. The consumer price index tracks the changes in consumer prices for a fixed basket of goods and services of constant quantity and quality. A variety of product and regional details are published within eight major project categories, of which the largest three account for more than half of the expenditure basket. These are shelter, food and transportation, because as collective consumers, we spend most of our money putting a roof over our heads, feeding our families and getting around.

Statistics Canada has been committed to further strengthening the consumer price index and other economic indicators by leveraging more timely and higher-quality alternative data sources. With regard to food prices, we are broadly leveraging scanner data, sometimes referred to as point-of-sale transaction data, with millions of food prices received directly from grocery chains across Canada. This approach is considered the gold standard among international statistical organizations in this expenditure category.

In addition, the CPI has transitioned from updating baskets every two years to annual basket updates. This means that we update our consumer expenditure patterns annually to ensure that price movements accurately reflect consumer preferences.

We also continue to develop new statistical products, such as our online CPI portal and personal inflation calculator, allowing individuals to enter their own expenditures to see how their personal inflation rate differs from the averages in the CPI.

As you can appreciate, the interest in our data in this high-inflation environment has never been higher. We continuously work with Canadians to provide increased access to our information and improve their data literacy and interpretation capacity.

Specifically, in addition to the CPI, the agency produces a complementary statistical product called the average prices table. This is the data that was perceived to have been removed. These are average prices that cover many food items for a standard unit of measure. They have been available historically and continue to be available today.

A year ago, Statistics Canada combined the national average retail prices and the monthly average retail prices tables to create a more comprehensive and representative product. This included the incorporation of higher-quality point-of-sale data, with improved coverage and granularity. The prior table had 52 products that were only available nationally, and we now have 110 products available provincially and nationally.

Thank you once again for the opportunity to meet with you today.

[The Chair, Liberal, Kody Blois]

Thank you, Mr. MacDonald.

We'll now turn to questions.

Colleagues, we're going to do about 36 minutes, so we'll do the first round with six minutes. The second round is going to be four minutes for the Conservatives and Liberals and two minutes for the NDP and the Bloc. We've had really good, robust discussions, but I think that's the best way to go.

Ms. Rood, it's over to you for up to six minutes.

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

Thank you, Chair.

Thank you, witnesses, for appearing here today.

I have been sounding the alarm for years that 80% of the grocery market in Canada is controlled by only five major retail grocery chains. The oligopoly of the grocery industry keeps profits high while often forcing farmers and producers to sell at a loss, and it's directly contributing to the death of family produce farms in Canada.

While the Competition Bureau is familiar with the abuse of dominance, for those watching at home to understand, it is quickly put as when a company has a dominant market position and engages in anti-competitive acts with an intended negative effect on a competitor or engages in conduct that results in a substantial lessening or prevention of competition.

My question to the Competition Bureau is this: Given the record profits of grocers, sky-high prices facing consumers and increasing fees being charged to farmers just for the privilege of selling to grocery retailers, would there be grounds for an investigation on an abuse of dominance in the grocery industry?

[Anthony Durocher]

As I stated in the opening, right now we're studying competition in the grocery sector with a view to making recommendations to government as to how we can enhance competition to the benefit of consumers and the economy as a whole.

With respect to any investigation on the law enforcement side into an abuse of dominance, we're driven by the facts and the evidence and we'll absolutely take appropriate action if we find evidence of wrongdoing, either through this study or otherwise.

We have taken action in the past in the grocery sector, including a very detailed investigation into practices from Loblaw with certain suppliers. Fundamentally, when we concluded our investigation, we provided a lot of clarity and guidance to the industry to try to draw the line between what is anti-competitive conduct on which the bureau would take action and conduct that is not necessarily crossing that line. We are certainly very vigilant about any potential anti-competitive conduct.

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

Thank you for that.

I have a question about the study that you're doing. It's not an investigation but a study; so is the study transparent? Are we able to access any of that prior to its completion as you're doing the work, or do we have to wait for it to be complete?

[Anthony Durocher]

By and large, we're waiting for our report to be published in June. We launched our investigation in October. We do have a portal where certain submissions in regard to our study are available to the general public to view, and we have heard from a lot of Canadians. We've heard from over 500 Canadians directly in respect to the study. We hear their concerns about what they're seeing in terms of grocery prices right now as well. Our findings and recommendations will be published in June.

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

Is the Competition Bureau currently investigating the practices of large grocers for any reason other than this study?

[Anthony Durocher]

Typically speaking, our studies and investigations need to be kept private and confidential under our law. There is at least one investigation that is public at this time.

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

We've heard a lot of talk about the grocery code of conduct. In the previous panel, we heard from Michael McCain, who said the code would do nothing to help consumers. I'm wondering—this is not necessarily to the Competition Bureau, but to the department—if the department could speak quickly as to what you will do to make the code have some teeth, to make it stick so that it does stick and that there are some repercussions if the practice isn't followed.

[Mark Schaan]

The code of conduct will set principles and clear definitions and include various dispute resolution and adjudication mechanisms. It's a project that's under way. It includes our colleagues over at Agriculture and Agri-Food Canada as well as industry. We've heard loudly from other parts of the supply chain that smaller suppliers do want contractual certainty and that they do want mechanisms to be able to engage around the practices of the retail side of the industry, so the goal of the binding adjudication and some of the dispute resolution is to allow for those mechanisms for the industry to be able to engage across the supply chain.

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

This is my last question to the Competition Bureau today. Sometimes we tend to see a successful group of independent grocery stores emerge. An example is a local store here, Farm Boy, which started right here in Ottawa. We tend to see big grocers come and buy these stores out. In this case, I believe it was Empire Foods. We have so few independent grocery stores left in this country; I think the figure is something less than 34% or so.

Do you not see this as problematic for Canadian consumers, especially given the fact that big grocers have already been exposed for engaging in practices such as the bread price-fixing scandal?

[Anthony Durocher]

With respect to our grocery market study, one of the central issues we're looking at is to try to better understand how we can lower barriers to entry and expansion at the retail level to try to facilitate new competitors opening new stores in all areas.

With respect to acquisitions and mergers in the industry, we've taken action in the past to preserve competition from that, and what I would suggest is that in the current consultation on the Competition Act in Canada, one of the central areas for discussion relates to our merger law and the extent to which the Competition Bureau is equipped to take action against mergers that can harm the Canadian economy.

[The Chair, Liberal, Kody Blois]

Thank you, Ms. Rood, and thank you, Mr. Durocher.

We're now going to go to Ms. Taylor Roy, but I neglected to mention that Mr. Bains is here before our committee. It's great to have you on behalf of Ms. Valdez. Welcome to agriculture. As you can see, it's a lively and great committee. Welcome.

Ms. Taylor Roy, we'll go over to you for up to six minutes.

[Leah Taylor Roy, Liberal, Aurora—Oak Ridges—Richmond Hill, ON]

Thank you, Mr. Chair, and thank you to all the witnesses for being here.

This issue is not unique to Canada, and we've seen numerous studies being done around the world on this same issue.

I was looking over the study that you're undertaking right now and some of the issues that were raised, and I'm wondering. You say that government policy is central to driving competition. We don't hear very often that governments can drive competition, but given the studies that have been done in other jurisdictions around the world or in other countries around the world, are there things you've seen coming out of those studies that have increased competition in those markets? Some of these studies were done 10 or more years ago.

[Anthony Durocher]

Thank you. That's a great question.

Generally speaking, government policy can absolutely drive competition. In any regulated sector of the economy, government rules and regulations play a big role in how easy it is to start up a business or expand. It goes to what a previous witness mentioned about regulatory competitiveness in Canada as well. Competition is central.

Specifically with respect to what our international peers have looked at in the grocery industry, obviously in the context of our study we have talked to them to better understand what they looked at. Every market is unique, but there are similarities.

To give an example, one issue that we're looking at is what we call restrictive covenants, which are restrictions on the use of real estate in markets in terms of what you can do with that real estate. That oftentimes can impede a new store from coming in and taking over an abandoned store, as an example. That's an issue that numerous jurisdictions have looked at, and we're currently looking at it as well in the context.

The other issue that is common in many grocery markets relates to the wholesale access. It's critical for retailers to be able to source their grocery products at competitive rates to compete. That is certainly a live issue, and it really intersects with some of the conversation around the code of conduct, which is separate and apart from our study.

[Leah Taylor Roy, Liberal, Aurora—Oak Ridges—Richmond Hill, ON]

On the code of conduct, do you think that it will help increase competition?

[Anthony Durocher]

It would certainly be our hope that it would be designed in the most pro-competitive way possible. It is separate and apart from competition law enforcement, but to the extent that a code of conduct can help promote transparency and predictability, which in turn can help innovation and investment decisions to have that certainty, it can certainly be a good thing for competition.

From our perspective, I think we'd need to see what the final product is going to look like.

[Leah Taylor Roy, Liberal, Aurora—Oak Ridges—Richmond Hill, ON]

Do you think it should be mandatory, then?