Agriculture Committee on March 6th, 2023

[Mathieu Frigon]

On the level of inflation, over the last two years, it's certainly been similar.

[Richard Lehoux, Conservative, Beauce, QC]

Thank you very much, Mr. Frigon.

I would like to ask Mr. McCain a question.

You talked a lot about the importance of labour. You said it was necessary to lessen the burden of red tape.

How do you picture the end result of a system where we would see a greater supply of labour coming from abroad, because there isn't enough in Canada?

[The Chair, Liberal, Kody Blois]

Unfortunately, we're out of time, but I'll give Mr. McCain 10 or 15 seconds if he wants to give us a quick response.

[Michael H. McCain]

If I understood the question properly, you're asking what kind of regulatory change would be required.

The bureaucratic obstacles to the foreign worker program, for example, have been acute for us. We would see opening up the aperture on that as being very helpful.

[The Chair, Liberal, Kody Blois]

Thank you very much.

We'll now turn to Mr. Drouin for up to six minutes.

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

Thank you very much, Mr. Chair.

I thank the witnesses before us today.

I don't want to single out one sector more than another. However, we are here today because our fellow citizens are asking us questions. People are worried, and as people in the sector have mentioned, inflation has affected the price of food and more Canadians are depending on food banks.

My first question is for Mr. Frigon.

According to discussions with your members, how would you describe the relationship between processors and supermarkets? Is it a good relationship?

Are your members saying that they're satisfied with negotiations that occur when, for example, they face a price increase?

Obviously, they have to pass on those increases to retailers. Are the relationships good, or do you really need the code of conduct you've been promoting since the beginning?

[Mathieu Frigon]

Of course, every case is different. In general, however, it's not a good relationship. That's why we've been working for several years on a code for grocery sector products; to improve the relationship between all the links in the chain.

It also affects agricultural producers. It's not just about producers delivering their products directly to retailers, but also about dairy farmers whose milk we buy because, ultimately, the pressure we experience spills over onto producers. As I was saying, we've been working on this code for a few years now, and it is exactly because relationships could be significantly improved.

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

We saw it in the chips sector with PepsiCo and Loblaws. At one point, certain brand-name products were not available on the shelves.

Did some of your members experience the same consequences?

Sometimes it's more difficult, because there are those who are more specialized in certain subsectors; cheesemongers, for example, or others who work in more specific fields.

Have your members reported cases where supermarkets refused to put their products on the shelf because these businesses considered negotiations between them unfair?

[Mathieu Frigon]

Yes, I'd say the issue is similar. Obviously, we don't discuss it as a group, but when I talk with my individual members, I certainly hear anecdotes. I've heard of cases similar to the example you referred to.

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

You obviously looked at what happened in England after they passed the code of conduct. In your opinion, did this code lead to an exorbitant price increase among retailers, or did it contribute to reducing prices?

[Mathieu Frigon]

We looked at inflation after the United Kingdom's code of conduct came into force and compared it to inflation from 2012 to 2020, before the pandemic, because that changed a lot of things. Inflation in countries with a code of conduct was somewhat lower than in Canada. It proves that a code of conduct doesn't increase prices. As I was saying in my presentation, it increased the supply chain's efficiency and operation. The best proof is that retailers in the United Kingdom support the code of conduct.

I also referred earlier to a broad study led by the United Kingdom's competition authority in 2008, I think, which recommended this type of action. The authority also stated that maintaining the status quo would lead to consumers paying the price in the end. It's thanks to that study the United Kingdom put a code of conduct in place.

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

Thank you very much.

Mr. McCain, thanks for coming before the committee.

I know you've provided three recommendations. Like Mr. Lehoux, I'm going to ask you about modernizing the temporary foreign worker program. Obviously, you're looking at how to increase capacity within your own manufacturing and processing sector. Are you looking at automation to provide that lack of labour? Lack of labour is not unique to Canada. When I talk to politicians in the U.S., they say it's an issue there, and it's an issue in most developed worlds in the food processing sector.

How do we attract more talent in the food processing sector, and can automation solve that problem?

[Michael H. McCain]

I think our industry has frontline roles that are not necessarily, in the first instance, the most attractive. I think people gain attraction and affinity for the roles once inside the industry, but in the first instance, they're not necessarily the most attractive. Our compensation programs are very competitive. I think it's simply access to an available pool of people to fill the vacuum that's been created in the last two years particularly. It's really over the course of the last two years that the vacuum has been created.

The challenges that we have are not from lack of capacity. We actually have oodles of capacity. In fact, our specific industry in Canada is operating with underutilized capacity. We have challenges around raw material supply, livestock and people. I think much can be done to accelerate that.

[The Chair, Liberal, Kody Blois]

I'll have to leave it at that.

Thank you, gentlemen.

Thank you, Mr. McCain and Mr. Drouin.

Mr. Perron, you now have six minutes.

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

Thank you, Mr. Chair.

I thank the witnesses for being with us this evening. We're very pleased.

Mr. Frigon, I'd like you to explain something from your conversation with Mr. Drouin earlier on negotiations and relationships with retailers. Currently, we're looking into all these issues to see if there is a problem.

How do you set prices when negotiating with a retailer?

[Mathieu Frigon]

First of all, our association does not participate in negotiations with retailers in any way. As you know, on the farm, price setting is fully regulated. A dairy processor buys their products on a market that's fully regulated, because the price is set by the Canadian Dairy Commission. After that, the processor sells their products on a market that isn't regulated at all.

Negotiations happen on a case‑by‑case basis. It's the processors themselves who negotiate with retailers and distributors.

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

So, the code of conduct would fill this regulatory gap.

When your input costs go up and your members want to pass on a minimal amount of inflation, are they able to obtain a price increase from retailers?

Other witnesses explained to us that there are sometimes delays. Retail representatives explained to us that they froze price increases for a certain time. Does your members' experience sound similar?

[Mathieu Frigon]

Yes. One study, in which I did not take part, was led by our lawyer's firm. Confidentiality agreements were in place. Indeed, we noted that the difficulty of passing on regulated price increases to retailers is definitely a big problem.

Furthermore, I must say that a code of conduct won't regulate prices as such. However, cooperation and influence come into play when it's time to establish contractual certainty. Indeed, as I was saying, the intention of the code of conduct is to improve relationships and reduce bureaucracy, fees and arbitrary penalties in favour of contractual certainty. That is what will actually help the industry, rather than regulating sale prices that processors charge retailers.

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

When you talk about arbitrary fees, are you talking about fees for points programs, for unsold products or reward programs, and so on?

[Mathieu Frigon]

Yes, exactly.

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

I don't know if all this is true, but according to the impression we sometimes get, providers probably pay those fees. Is that right?

[Mathieu Frigon]

Exactly so.

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

Very well.

Mr. Frigon, you told me that passing on price increases is not an option. At the same time, retailers told us that increased input costs caused inflation.

Do you have any comments on the testimony we've heard, which blames inflation on the supply chain?

[Mathieu Frigon]

I will speak as an economist, because I am one.

We have to distinguish between periods. I'd say that there was one period, probably from 2012 to 2020, when the retail cost of dairy products didn't go up, but input costs did go up during that time.

Over the last two years, with high inflation, the situation was different. There were increases, and Statistics Canada's data show it. Bulk costs also went up; Statistics Canada collects data on that.

As for the selling price dairy processors are asking of their clients, there were increases, but they reflect increased costs observed over the last two years. However, if we look at the previous period, I'd say that the situation was very different.

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

I see.

Some witnesses recommended that the Competition Bureau inquire into the price-setting process.

Is that a good idea?