Agriculture Committee on March 8th, 2023

[The Chair, Liberal, Kody Blois]

I call this meeting to order.

Welcome to meeting number 52 of the House of Commons Standing Committee on Agriculture and Agri-Food.

I'm going to start with just a few reminders. Taking photos and videos is not permitted during the committee meeting.

Today's meeting is taking place in a hybrid format with witnesses and parliamentarians participating both in the room and online. The webcast will always show the person speaking rather than the entirety of the committee.

Pursuant to Standing Order 108(2) and the motion adopted by the committee on Wednesday, October 5, 2022, the committee is resuming its study of food price inflation.

This being International Women's Day, and, of course, this being a committee of interest given the topic of food and food inflation, I want to recognize that we have Mary Robinson, past president of the Canadian Federation of Agriculture, joining us here. Mary, and indeed other female leaders in the agriculture community, thank you so much for all of your work on behalf of Canadians.

I'd now like to welcome our witnesses. With us today in the room from Empire Company Limited is Michael Medline, president and chief executive officer. From Loblaw Companies Limited, we have Galen Weston, chairman and president. Joining us online we have Eric La Flèche, president and chief executive officer of Metro Inc.

We are going to allow up to five minutes for opening remarks from each of the witnesses. Then we are going to turn it over to questions.

Colleagues, for your benefit, I intend to go for about an hour and 20 minutes with three rounds of questions. Then we have some additional committee work that we need to carry on with.

Without further ado, I will turn it over to our first witness.

Mr. Medline, you have up to five minutes.

[Michael Medline, President and Chief Executive Officer, Empire Company Limited]

Thank you, Mr. Chair.

As the leader of a proudly Nova Scotia-born business that employs 130,000 people across Canada, I want to start by acknowledging the challenges that families in Canada are facing every day to make ends meet. Canadians are facing the highest cost-of-living increase in four decades. Interest rates have been rising steeply and prices on all goods and services have been rapidly increasing. It is no solace to struggling Canadians buying groceries to know that food inflation is a global phenomenon driven by higher commodity and input costs or to know that food inflation in Canada is actually lower than many other G20 countries, including the U.S., the U.K. and Mexico.

Several factors have contributed to the high food inflation Canadians are experiencing, including geopolitical events, product input costs, extreme weather, soaring energy costs and labour shortages. I can assure you, at Empire we are doing everything we can to contain price increases and provide value to our customers during these trying times. We're doing it on paper-thin profit margins of 2.5%.

We believe we are seeing indications of inflation peaking and then abating this spring, but I know this is not an immediate salve for the many Canadians who are struggling financially.

I'd like to make three main points today.

First, I stand by everything shared with you in December by our chief operating officer, Pierre St-Laurent. Most notably, we at Empire are not profiting from inflation. It doesn't matter how many times you say it, write it or tweet it, it is simply not true.

The truth is that we are at the end of a very long food supply chain that has economic inputs at every step and stage. We detest the decisions that inflation is forcing Canadian families to make, which we see in our stores each and every day. We see customers buying fewer items and trading down.

Second, as a grocery retailer we have been playing a major role in trying to minimize food price inflation and we will continue fighting for our customers. Since inflation took off, we have been battling inflationary pressures in our business, including rising costs in products, fuel, labour, energy and construction. So far in 2023 alone, we are seeing the same volume of cost increase requests from the supplier community, with a slight indication the requests are slowing this April.

I am not going to throw our supplier partners under the bus. They are also doing their best in extraordinary times. They are greatly impacted by rising costs, which they are forced, unfortunately, to pass on to retailers. Many of our supplier partners are also dealing with the downstream cost impacts resulting from cost increases on supply chain controlled commodities like milk. We know that groups like the Dairy Commission are facing the same realities that we are with their input costs.

We're heavily investing in our promotional offerings and flyer deals, expanding our private label value options and making shifts in pack sizes to provide Canadian consumers with more value during these difficult times.

The third point I'd like to make is that there are ways government and business can work together to ultimately reduce prices. Empire is happy to partner with government on solutions to fight inflation. Government and business have a collective role to play to contain inflation. I will list five specific examples here as I know the intention of this committee is to gather research and ideas to alleviate the pressure of food prices on Canadians.

First, implement a strong grocery supply code of practice. We were the first major grocer to support this initiative and we continue to be an ardent advocate of a code of conduct to ensure fair practices for all participants in our food supply chain.

Second, reduce congestion at Canadian ports and simplify the flow of goods across borders.

Third, create better economic conditions for food manufacturers and growers to stay in Canada, as so many are fleeing to the U.S.

Fourth, invest in greenhouse farming. We must find a way to reduce our reliance on American fresh foods, to shorten the supply chain and lower costs to Canadians.

Fifth, do everything possible to strengthen the Canadian dollar. Of course, you will have to ensure this doesn't injure other parts of the economy, but it's critical in terms of food pricing.

We would also ask that you look at the entire industry to consider solutions. There are giant American grocery retailers doing business in Canada that were not called to the floor here today. Are they exempt from playing a role in these issues?

We're a proud Canadian company, with 115 years of experience in serving the needs of Canadian families. We have transformed to become a much healthier business than we were just six years ago, which is something that all Canadians benefit from.

It is folly to suggest that an unprofitable grocery business is somehow better for customers and better for shelf prices. Canada needs and relies on a healthy grocery industry. Like all Canadians, we look forward to seeing the end of this tough inflationary period.

Thank you.

[The Chair, Liberal, Kody Blois]

Thank you very much, Mr. Medline.

We'll now turn to Mr. Weston for up to five minutes, please.

[Galen G. Weston, Chairman and President, Loblaw Companies Limited]

Bonjour, and thank you, Chair and committee. I appreciate the opportunity to sit before you today.

The world is in the midst of a cost-of-living crisis. For 18 months, this has affected just about everything. Global food prices have risen quickly, putting significant strain on Canadian families in terms of both their finances and their overall health. It's a vitally important issue for Canadians and deserves the attention of this committee.

For months, a great deal has been said about the role Canadian grocers play in food price inflation—with many directly blaming us. This is understandable but inaccurate.

Here's why.

First, food inflation is affecting every country, not just Canada. I know it doesn't feel like it, but Canada has one of the lowest food inflation rates in the world.

Second, as unexpected as it may sound, grocery chains operate with extremely small profit margins, which means we have minimal influence on inflation. On a customer's $25 grocery basket, we earn just one dollar in profit. That means that even if the industry had zero profits, a $25 grocery bill would still cost $24, so the claim that Canadian grocers can correct food price inflation is simply wrong.

Third, for those who say grocers are profiteering, the math just doesn't add up. Since inflation took off 18 months ago, the cost of that $25 grocery basket has increased by just under four dollars. During that same period, the grocers' profit increased by 15¢. In other words, food prices have increased 25 times faster than profit and, at Loblaw, none of those profits came from higher food margins. Our retail prices have not risen faster than our costs. No matter how many times you read it on Twitter, the idea that grocers are causing food inflation is not only false—it's impossible.

Fourth, and finally, we are actively working to keep inflation down. We stopped $500 million in unjustified cost increases last year. We welcomed half a million more customers to our discount No Frills and Maxi stores, where shoppers save about 10%, or $1 billion, compared to traditional supermarkets. Our price freeze saved customers real money, and millions of Canadians continue to save 25% by switching to No Name. We are actively lowering prices on key essentials, losing money selling many of them.

Last week, a customer stopped and challenged me in the grocery aisle. She said that if we were truly doing all these things, why is our profit increasing at all? It's a fair question. The biggest reason is that Loblaw is much more than a grocer. Non-grocery products like financial services, apparel and, importantly, Shoppers Drug Mart make up more than half our business.

We've been clear: It's the efficiency of our business and the strength of categories like cosmetics—even cough and cold—that have been driving our growth, not food. These are facts. We've explained them in our public disclosures, and they are formally audited by an independent third party.

That does not change the underlying challenge, and while I believe food inflation will normalize, there are still far too many Canadians facing food insecurity. We think about this a great deal, and I challenge our team on whether we're doing enough to change that.

Last year, Loblaw dramatically expanded our relationship with the country's largest food banks. Through our work with Second Harvest, over 1,100 of our stores now have a direct link to a local food charity. Last year, we donated over five million kilograms of food.

We rapidly expanded our partnership with an amazing Canadian start-up called “Flashfood”, which uses an app to make perishable food like meat and produce available at 50% off. It's now available at over 500 stores.

Our President's Choice Children's Charity continues to lead the country in providing healthy snacks and meals to schoolchildren. At 123 million meals, we're well on our way to our target of reliably feeding one million children a year.

Is that a lot of food? Yes. Is it meaningful? For many, it's transformational. But is it enough? No. The job won't be done until everyone has real food security.

I'm proud to lead a company that partners with over 1,500 small business owners. Together, we employ over 200,000 people united in the purpose of helping Canadians live life well. This is a responsibility we take deeply to heart, but solving food insecurity is not within the reach of one company or one industry alone.

It requires all of us—retailers, manufacturers, growers, government, community leaders and NGOs—to work together.

Thank you. Merci.

[The Chair, Liberal, Kody Blois]

Thank you very much, Mr. Weston.

Mr. La Flèche, you have the floor for five minutes.

[Eric La Flèche, President and Chief Executive Officer, Metro Inc.]

Thank you.

Hello. We know that the situation is difficult for Canadian families, who have been struggling with high inflation, including food inflation, for almost a year now. That is why, at Metro, our teams are working tirelessly to give our customers the best value possible every day under all our banners, through competitive prices, a full range of private label products and effective weekly promotions.

As parliamentarians, you have a role to play in understanding the real causes of inflation and in working with the industry to find ways to mitigate supply chain challenges. More than ever, we need to work together to find solutions to the cost-of-living crisis in Canada.

The period of high inflation that we are experiencing is a global reality, but Canada is doing better than most other G7 countries. Even so, there is no doubt that food prices have gone up because of the rising costs of suppliers and producers.

As a recent Statistics Canada report indicated, the pandemic, the war in Ukraine, adverse weather conditions and transportation and labour challenges are among the many factors that are contributing to rising food prices. All of these factors have resulted in an unprecedented number of price increases by our suppliers. In 2022, Metro received over 27,000 requests for cost increases of more than 10% on average from grocery suppliers alone, which is about three times the annual average.

This year, we are continuing to receive a large number of requests for cost increases from our suppliers. Our teams are dealing with these requests in a responsible manner by negotiating firmly, fairly and transparently in order to reduce the impact on our customers. However, it is important to keep in mind that our retail prices do not reflect the full impact of inflation because we absorbed some of the cost increases.

Metro is an open company, but we are competing in an open, very competitive market for customers, talent and capital with both Canadian companies and American giants, such as Costco, Walmart and Amazon, which represent a large share of the market. I would also like to point out that these American companies did not participate in the committee work.

The suggestions that we are somehow behind food inflation, that we are using it to inflate our profit margins and that we are not paying our fair share of taxes are simply not true. As we report publicly every quarter, our profit margins have remained stable for many years. Since the beginning of our 2022 financial year, our profit margin on food products finally dropped and was balanced by a larger profit margin on pharmacy products.

I would like to point out that no one at Metro wants to continue to operate in an environment of high inflation. We are looking forward to getting back to a more normal environment. It is better for our customers and our business. In the meantime, we will continue to offer our customers the best value possible under all of our banners. Trust in our company is determined by our growing loyal customer base, and those customers demonstrate that trust every day through hundreds of thousands of transactions.

In closing, I hope that all members of the committee recognize that the entire supply chain is experiencing an unprecedented period of prolonged stress. Focusing on grocery stores is not going to resolve the problem of food inflation because we are not causing it and we are not benefiting from it. As I said at the beginning of my remarks, we need to work together to find solutions to the challenges associated with the high cost of living Canadians are experiencing. Thank you.

[The Chair, Liberal, Kody Blois]

Thank you very much, Mr. La Flèche.

We can now move on to questions.

Colleagues, there is one thing I want to remind us, as parliamentarians. I'm glad we are studying this issue. It is a top-of-mind issue for all Canadians and it's an emotional one. One thing I think this committee does very well is that we are principled in trying to get to the bottom of the facts.

I would ask that you be principled and tough with your questions today, but it is my job to make sure that we maintain integrity. Please be mindful of that in your interventions with our witnesses here today.

With that, I will start with Ms. Rood for up to six minutes.

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

Thank you, Chair.

Thank you, witnesses, for being here today.

You, as the CEOs of major grocery chains, have an oligopoly with only five companies controlling 80% of grocery stores in Canada. You use this power to nickel-and-dime farmers and wholesalers to the tune of hundreds of thousands of dollars for many with fines, chargebacks and exorbitant fees for the privilege of selling their food to your stores, forcing them to accept contracts where, according to the Fruit and Vegetable Growers of Canada, 44% of producers are selling at a loss.

The world is worried about food security right now and Canada has an abundance of land to grow fresh food to feed the world, but your companies' practices of arbitrary fees, fines and chargebacks are keeping your profits and grocery prices high, while single-handedly helping to destroy Canadian family produce farms and businesses. Nowhere else in the world do grocers do this to farmers and producers.

A farmer should not have to be an accountant to read their statements after selling to you. Prices are quickly becoming unreachable for roughly 12.5 million Canadians who are earning less than $40,000 a year, forcing them to switch from fresh, healthy food to heavily processed, cheaper and less nutritious products. That's not real food and it's going to lead to an increase in the burden on our health care system.

Canadians deserve to eat fresh Canadian-grown fruits and vegetables and we cannot rely on foreign countries to feed us. Foreign growers don't operate under the same high standards as our farmers here in Canada.

As someone who's been in the produce business, it's concerning knowing that the prices in stores are inflated far beyond the costs of what a farmer is being paid to grow and then deliver to your distribution centres. After eight years under a government that's purposefully implementing taxes and policies that are harmful to Canada's agriculture industry, what your businesses are doing to farmers doesn't give a lot of hope to the average person who's simply looking to eat.

Farmers' selling prices are going down while grocers are piling on fees and penalties and consumer prices are going up in stores.

Gentlemen, I'd like to ask you, can you look farm families in the eyes right now—because I know a lot of them are watching right now—and tell them that you're not pushing family produce farms out of business in this country? Are you even aware that 44% of farmers are selling at a loss to you?

Knowing this, my question is simple. Will you, once and for all, abolish all fees, fines and chargebacks and actually pay farmers the price that's on their invoice?

It's a yes or no.

I can start with you, Mr. Medline.

[Michael Medline]

First of all, thank you.

I have to warn you, I'm not good at yes or no.

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

You have to keep it short because I only have six minutes.

[Michael Medline]

I will. By the way, I really appreciate your passion, Ms. Rood. This is not just for today. I've read transcripts and I've seen what you had to say before on behalf of farmers. I love it.

If I may, I'm going to try to do it really quickly, Mr. Chair, but there were a few things I wanted to say here.

First is on the question of oligopoly. The top three grocers in Canada have about a 47% share of the food retail market, not the 67% that's reported in some other places where they've mixed some things up. I just wanted to get that straight.

This is not out of line with countries around the world. We compete against some of the toughest food retailers in the world, including Walmart, Amazon and Costco, as well as a lot of other competition. That does not sound like an oligopoly to me.

How do you account for the fact that Canada's food inflation is below that of many other countries? This is not a problem of too little competition. The problem is that there is a global product cost inflation.

Having said that, I think there's a lot we can do to protect our supplier partners who deal with the farmers. I've been an advocate, as you have, Ms. Rood. On October 28, 2020, I called for a code of conduct. On November 4, you seconded that and said that this would be a great thing.

We're still waiting for a code of conduct that will get rid of unfair fees, and that will help the supplier partners. It will create more efficiencies and should bring down—over some time—the cost of food a little bit. That would really help.

I love local—

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

Thank you.

I'm sorry, I have to interject here, Mr. Medline. I only have another minute and a half left here.

Mr. Weston, will you commit to the grocery code of conduct like Mr. Medline has with Empire?

[Galen G. Weston]

We're active participants in the development of the code of conduct.

Let me just add that a healthy supplier community and a healthy grower community are absolutely vital to our industry. We work hard every day to support local producers.

There are concerned producers. There are also those who write to me to say that our business has been transformational in terms of expanding their access to new markets and new products that are being sold all across the country.

We also have to strike the right balance between what we pay our growers and suppliers, and the food prices that we ultimately charge our customers. Our job is to negotiate the best possible price and then to pass that through to consumers.

We do our very best to strike the right balance. We have a very sophisticated process that we use to assess whether the cost-of-goods increases are justified or unjustified. We push back on those that we believe are opportunistic. We fully accept and push through those that are credible and realistic.

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

Respectfully, I'm sorry, sir. I only have 20 seconds left. I have one more quick question.

I would challenge you all to do better for farmers. We don't want to see our family produce farms go out of business in this country. The fees that they pay you are the number one contributing factor to them going out of business.

Will you support and participate in following any adjudicated disputes under the code? Will you commit to a fully transparent and publicly available disclosure?

It's a quick yes or no.

[Galen G. Weston]

We're certainly committed to developing an effective code that's fair and balanced on all sides.

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

Mr. Medline.

[Michael Medline]

You know where I stand on this, Ms. Rood.

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

Thank you.

I'm sorry, Mr. La Flèche. I didn't get to you.

[The Chair, Liberal, Kody Blois]

We'll certainly have more opportunity for questions. We have a number of rounds here.

We're going to turn to Mr. Turnbull for up to six minutes.

[Ryan Turnbull, Liberal, Whitby, ON]

Thanks, Chair.

Just before I get started, I wanted to share a general sentiment. I think we should be inviting Walmart and Costco as witnesses as part of this study as well. I think that's only fair.

To the witnesses, thanks for being here.

Every day we are hearing from constituents who are struggling with the prices they're paying for essential food items at the stores of Canada's grocery giants. Canadians understand very well that inflation is a complex, global issue. However, in the wake of the bread price-fixing scandal, a cloud of doubt lingers over food retailers and their claims to be good corporate citizens. Canadians are rightly vocalizing their concerns.

Here are some of the facts that I've gathered. Prepandemic and postpandemic profit margin averages in the food and beverage retail industry have gone up significantly—on average from 1.62% to 2.85%, respectively. A year-over-year comparison shows that consumer food prices have increased, on average, 3.7% more than the average price increase of a basket of consumer goods.

Also, net income has more than doubled across the food and beverage retail industry as a whole. We can find evidence in the reported net earnings of each of your companies. Loblaw's net earnings went from just over $1 billion in 2019 to $2.2 billion in 2022. Empire Co.'s net earnings went from $387 million in 2019 to $746 million in 2022.

In terms of sales volumes, we've seen evidence that the sales volumes spiked at the beginning of the pandemic and then have been declining since.

Lastly, you've increased your quarterly dividend payments to your shareholders.

Jim Stanford has said, “if in fact the problem was all driven by supply shocks that supermarkets have merely been forced to 'pass on' to consumers there should have been a REDUCTION in profits”, and, “To claim that supermarkets and other firms are innocent conduits, merely passing on higher costs” is empirically false.

Canadians want to know how you expect them to believe what you've said, which is that your profit margins haven't increased. I think it's fair to say that Canadians feel like the doubling of your profits has been literally at their expense.

Something just doesn't add up here, in my view.

Mr. Weston, how do you explain the massive increase in net earnings of Loblaw, given the facts I've mentioned?

[Galen G. Weston]

We're very cognizant of the cost of food prices and their impact on Canadians all across the country. I see it. I hear it regularly when I'm in stores talking to customers.

I would call into question the analysis that you reference. We look at our numbers very closely all the time. I would just reiterate that our profit is $1 on a $25 basket of groceries. If we invested 100% of our profits into lower prices, the price of a grocery basket would still be $24.

As far as our profit—

[Ryan Turnbull, Liberal, Whitby, ON]

I don't mean to cut you off. We have a difference of opinion, and perhaps we're looking at different numbers. Given that, are you willing to voluntary submit your financial statements to the Competition Bureau to clear this matter up?

[Galen G. Weston]

We have already submitted our financial statements to the Competition Bureau. These are competitively sensitive pieces of data. It's important that the Competition Bureau can see them and they can understand them. They can ask us follow-up questions, but we would be resistant to disclosing that type of sensitive information on a public basis.

That being said, we are a public company and we are held to the highest standard of transparency in our disclosures, and so you can see very clearly that our $1 of every $25 of grocery sales is, in fact, an accurate representation of our results.

[Ryan Turnbull, Liberal, Whitby, ON]

That's great. Thank you.

My next line of questioning is for you, Mr. Medline.

For too long, large corporations have treated corporate social responsibility as merely a public relations exercise. Many of them have dedicated a portion of their profits to corporate philanthropy, which I think we can all admit does some good in the world, but we also know that those who take their corporate citizenship and social responsibilities seriously are going much further in integrating these commitments into the DNA of their companies and making them central to the core of their business strategy.

Mr. Medline, given your stated commitment to corporate social responsibility and sustainability, are you willing to do more to help Canadians in terms of changing your core business practices and, specifically, moving forward, are you willing to voluntarily give up a portion of the ballooning profits to help the average Canadian family through deeper discounts at the till?

[Michael Medline]

Thank you.

There's a lot to unpack there. If I don't get through it all, Mr. Turnbull, you can call me and we can talk about it more, because there's a lot to get through.

We at Empire are unbelievably proud of where we've come to on the ESG journey over the last number of years, especially on sustainability. We just put out a report on ESG, which is pretty well state of the art. It says how we're doing in great detail and the steps that we need to take to be able to be better at it.

We are, I think, generous philanthropists. You can read the report, and you can see everything we're doing in terms of treating our teammates well—some people call them employees; we call them teammates—how we're doing in terms of governance and how we're doing on sustainability.

Sustainability is driven from the board level down. It's one of our most important objectives. What I can tell you is that in the last year, we have made sustainability and DE&I objectives, which are tied to bonuses for our management at our company.