Agriculture Committee on Dec. 4th, 2023

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

Thank you, Mr. Medline.

You have a number of stores under your banner. You touched on food waste a little bit, but I'm wondering if you could share with this committee, and Canadians who are watching right now, how much food would be wasted if produce were not to come in plastic packaging. It does help to extend the shelf life and it does help to get food to rural and remote communities in this country.

Could you give us a quick idea of how much food would be wasted and what the cost would be to consumers? How much would the price of fresh food go up?

[Michael Medline]

Thanks for your question.

Without a feasible innovation that we could use to wrap fruit safely.... I don't have a number. I can tell you that it's a lot.

[The Vice-Chair, Conservative, John Barlow]

That's a great way to finish, I guess.

Now we'll go to Mr. Louis to wrap things up. You have three minutes, please.

[Tim Louis, Liberal, Kitchener—Conestoga, ON]

Thank you, Chair.

Mr. Medline, thank you for being here.

Canadians are seeing high global inflation numbers coming down slowly. They're not seeing that same rate of prices coming down in groceries. They're concerned.

I want to thank you, Mr. Medline, for being here on behalf of Empire, which includes Sobeys. You say that gap between CPI and grocery inflation is coming down and that stabilizing and reducing food prices is important to everyone.

I want to ask the question regarding our farmers. Kitchener—Conestoga and southwest Ontario have some of the best farmland in the country and a high concentration of agricultural producers. We want to ensure that our small producers and suppliers are treated fairly by your organization when it comes to controlling prices.

You were asked the question earlier on how Empire plans to support smaller producers and suppliers. You said that you were passionate about it, but you did not have time to expand on it. You explained that you want to make things easier and simpler for our smaller suppliers and partners.

Can you expand on that, please?

[Michael Medline]

Yes, sure.

By the way, since we last met—and thank you for having me here again today, by way of conclusion—food inflation has come down from 9.7% to 5.4%. That's good, but it's nowhere near where we'd like to see it. It has to go lower.

Again, I don't want to bore you with the code. The code will really help, but we also have a local scale pillar in our strategy, which we talk about to our supplier partners, and we discuss with our board of directors all the time. Not only is it the right thing to do, but it's also good business to deal fairly and buy from local suppliers, especially to help farmers across Canada.

We do anything we can do that makes sense to support that. Our customers love it. We like supporting it. Obviously, the government also has a role to play in that. I'm not in government, but if there's anything we can do to help government support farmers and make sure our supply chain is safer, less extended, cheaper and supports our own country rather than always having to rely on other countries, I'm all for it.

[Tim Louis, Liberal, Kitchener—Conestoga, ON]

Thank you. I have about 40 seconds here.

The Canadian government is creating a grocery task force to oversee industry practices, and the priority will be to monitor grocers' commitments. Can you explain to us what level of collaboration Empire foresees with the grocery task force to track information moving forward, which will give certainty and transparency and which Canadians are asking for?

[Michael Medline]

I don't have any details on the grocery task force at this time. Whatever it comes down with, I'm sure we'll look into, and if we can help it, we're going to help it.

We have been updating the Minister of Industry and his office constantly—they're probably getting sick of us—in terms of our progress since our meeting in September to help fight inflation in Canada.

[The Vice-Chair, Conservative, John Barlow]

Thank you very much, Mr. Medline and Mr. Louis.

Mr. Medline, thank you for your comments and answers today. We appreciate your input and candidness.

We'll now suspend the meeting for a few minutes as we get ready for the next panel.

[Michael Medline]

Thank you, Mr. Chair, and thank you to all the parliamentarians here today.

They were great questions. I appreciate it.

[The Vice-Chair, Conservative, John Barlow]

Thank you.

The meeting is suspended.

[The Vice-Chair, Conservative, John Barlow]

Okay, team, we will bring the meeting back to order.

Thank you very much to our witnesses for getting that sound check done as quickly as possible. I know that most of you have been here before, but just as a bit of housekeeping, I'll remind you to please not press your microphone on or off mute until I recognize you and invite you to speak.

You can speak in the official language of your choice; we do have interpretation here. If interpretation is lost, I will get your attention just to pause for a moment until we get that back up and running. Because of translation—we do appreciate the work of our translators—please try to speak slowly and clearly to ensure that they get the best opportunity to make sure that your comments are heard.

Address all your comments, please, through the chair.

To make sure that we stay on time, when you have about one minute left in your five-minute opening presentation, I'll raise my hand again to get your attention to let you know that your time is winding down.

With us today in this second panel, we have, from the Canadian Federation of Independent Grocers, Gary Sands, senior vice-president.

From Food and Beverage Canada, we have Kristina Farrell, chief executive officer.

We also have Dimitri Fraeys, vice-president, innovation and economic affairs, Conseil de la transformation alimentaire du Québec, and from Food, Health & Consumer Products of Canada, we have Michael Graydon, chief executive officer.

Thank you to our witnesses for making the time to be with us here today.

We will start with Mr. Sands. You have five minutes for your opening remarks, please.

[Gary Sands, Senior Vice-President, Canadian Federation of Independent Grocers]

Thank you, Mr. Chair.

Good afternoon. Thank you for the invitation to offer our perspective on efforts to stabilize food prices.

There are approximately 6,900 independent grocers in Canada. Many of those independents are also located in communities where they are very often the only grocery store. Issues around reliable supply and food prices in those areas are closely linked to food security. Independent grocers have a symbiotic relationship with the communities they serve. They live in the community, hire locally, buy locally and support local sports teams, activities and causes. This bond they have forged in myriad diverse communities is why they are such an important part of the tapestry that makes up this country.

Naturally, independent grocers are extremely sensitive to concerns around the inaffordability being felt by their customers. That is why the suggestion that there is “greedflation” taking place in the food industry is something our members find unfortunate. When you are an independent grocer with an overall average margin of 2% and you're receiving price increases from your suppliers that are often in the double digits, sometimes more than once a year, in what business model can you not pass on those costs to your customers?

We all know about the issues that have impacted the industry. Some of the more significant issues have been climate change; the war in Ukraine; port, rail, border and labour disruptions; and significant increases in transportation costs. These are felt more acutely by independents in rural and remote communities.

It's not really about what has happened to the food industry; it's more about what has not happened. That's why we don't point our fingers at our supplier partners. We understand the pressures that are driving up their costs. We also understand the desire of the government—I know it would be shared by this committee and all parties—to see price stability in the food industry. Who would not support that objective?

However, efforts to stabilize food prices can sometimes have unintended consequences. For example, if, as a result of making commitments to the government, retail chains use their leverage to impose price freezes or discounts on their suppliers, where does that leave the independent grocer and their customers? An independent grocer has no leverage to demand a price freeze or a drop in price. If government wants price stability, it has to be for all Canadians. It shouldn't depend on where you shop or where in Canada you happen to live.

The need for price stability and reliable supply for all Canadians is why we strongly support the proposed grocery code of conduct. The code will provide fairness and more balance in relationships within the industry.

The Canadian grocery industry is one that is overly consolidated. This has fostered a climate in which unfair and distorted market practices are all too prevalent. Unilateral and onerous fees imposed by some large retailers on their suppliers, and the need for reliable access to food supply for independent grocers, raised alarm bells for Ottawa and the provinces. In November 2020, there was a mandate given by federal, provincial and territorial ministers to the steering committee developing the code, of which I am a member.

It states:

Ministers discussed the concerns of processors, producers and independent grocers regarding increased retailer fees on suppliers and the need for balance in the supplier-retailer relationship, while also ensuring that Canadians continue to have access to a reliable food supply at affordable prices.

This code is not a document comprising overly prescriptive regulations; it's simply a straightforward set of principles of good behaviour developed by the industry itself. That’s it. It won't increase food prices, as Loblaws claimed. No one in the industry would support any measure that does that. No company should try to put a price tag on principles of good behaviour.

In an op-ed about the code in the Toronto Star last week, I quoted a former U.S. Supreme Court justice, who said, “Ethics is knowing the difference between what you have a right to do and what is right to do.” That is what the code is all about. It outlines what the industry itself feels is right to do when conducting business.

Just a few months ago, the Competition Bureau of Canada, in its market study report, welcomed the code as a good thing for consumers. The bureau also recommended that governments—federal and provincial—do more to support the growth of independent grocers.

The playing field in Canada will never be level for independents, but independent grocers would welcome governments doing more to just keep them on the playing field. Governments and this committee need to look at whatever measures they can to help support the Main Street grocers of Canada. One such measure would be the code, and giving that code a chance to work. We need all the support we can get to have that chance, including from this committee.

Thank you.

[The Vice-Chair, Conservative, John Barlow]

Thank you very much, Mr. Sands. You're right on time.

Now we'll move to Ms. Farrell and Mr. Fraeys for five minutes.

I'm not too sure who is going to take the lead. I'll leave that up to you.

[Kristina Farrell, Chief Executive Officer, Food and Beverage Canada]

Thank you for the invitation today.

My name is Kristina Farrell. I'm the CEO of Food and Beverage Canada, which is a national industry association representing more than 1,500 businesses across the country. Our members include Canada's six provincial and regional food and beverage manufacturing associations, including CTAQ, which is on the call with us today, as well as many leading companies.

Our sector is embedded in every province, sustains 300,000 jobs and stands as the largest consumer of agricultural products. It crafts the array of goods lining your grocery store shelves, ranging from bread and cold cuts to yogourt, canned vegetables, bacon and butter.

Recognizing the pivotal role we play in the food supply chain, we acknowledge that our food and beverage manufacturers are price takers. At the same time, while we're an essential service, we cannot, like any business, operate at a loss and endure.

I would like to quickly discuss the impact of inflationary pressures as well as supply chain disruptions on our industry and in turn on the price of food.

The impact of unprecedented inflationary pressures resulting in significant input costs and rapidly rising interest rates, particularly those affecting our small and medium-sized suppliers, poses a threat to the existence of the unique Canadian products that we have all come to love.

Take, for instance, companies with loans from BDC, where the small business loan rate recently surged by 38%. These financial strains, coupled with disrupted supply chains, have propelled our costs skyward.

Since the onset of the pandemic, our manufacturers have grappled with ingredient shortages, increased input costs, weather and climate events, border closures, blockades, geopolitical incidents and labour stoppages. The ripple effects of such events, as exemplified by the current strike at Rogers Sugar in B.C., resonate across our nation and impact bakeries, distillers, packaged goods producers and more.

Today marks day 68 of the strike, and the repercussions extend beyond mere shortages. Our companies face not just scarcity but elevated prices, given the few sugar producers we have. This underscores the interconnectivity of our food supply chain and the far-reaching implications of external events, as well as the lack of protection our manufacturers have from these.

Other factors that we cannot ignore include things like the escalator tax on beer, wine and spirits, which will contribute to higher prices for consumers. Additionally, there are initiatives such as the pollution prevention notice for primary food packaging; we have to recognize that any requirements to change our packaging will lead to additional investments and, in turn, additional costs for Canadians.

I would now like to turn my time over to Dimitri from CTAQ, who will discuss this further.

[Dimitri Fraeys, Vice-President, Innovation and Economic Affairs, Conseil de la transformation alimentaire du Québec, Food and Beverage Canada]

Good afternoon.

The Conseil de la transformation alimentaire du Québec, CTAQ, which has over 650 members, is the primary industry association for food manufacturing businesses in Quebec. It is a founding member of Food and Beverage Canada.

For several years now, CTAQ, alongside Food and Beverage Canada and other partners, has been advocating for a grocery code of conduct to place reasonable limits on the actions of major retailers in Canada. The catalyst for this was the negotiating power imbalance that exists because Canada's retail grocery sector is highly concentrated compared to the many small and medium-sized Canadian food and beverage manufacturers.

The code is being developed jointly by food and beverage industry players, retailers and food distributors. It would ensure that retailers can no longer unilaterally impose fees on our food and beverage manufacturers. That kind of thing directly influences prices because it increases suppliers' operating costs.

We firmly believe that a code of conduct would slow rising food costs and improve competition in the Canadian food sector. Data from the United Kingdom and Australia are encouraging because they suggest that, where mandatory codes are in place, retail prices have fallen. Food producers can also implement measures that will enable them to better predict inflationary crises like the one we're experiencing now.

Such measures might include diversifying raw ingredient sources to reduce vulnerability to price fluctuations, reducing transportation costs, improving logistical efficiency and minimizing losses throughout the supply chain.

Using traceability technology can also contribute to more precise and efficient management. Automating production processes can help reduce costs, address labour shortage issues and improve operational efficiency. Regularly reviewing and optimizing production processes can reveal inefficiencies. Businesses need to identify where they can improve and implement changes to improve efficiency, which is why innovation is so important.

Reducing energy consumption can save businesses a lot of money. Food businesses can invest in energy-efficient equipment, implement sustainable waste management practices and explore renewable energy to reduce their operating costs.

Thank you for your attention.

We're ready to answer questions.

[The Vice-Chair, Conservative, John Barlow]

Thank you very much, Mr. Fraeys.

Colleagues, we do have the bells going again, so we're going to have a vote in about half an hour. I'm just looking for unanimous consent to see if we'll carry on and vote virtually when the time comes.

[Some hon. members]

Agreed.

[The Vice-Chair, Conservative, John Barlow]

Excellent. Thank you. That's a benefit to our witnesses as well.

Mr. Graydon, it's good to see you again. We'll start your presentation, for five minutes, please.

[Michael Graydon, Chief Executive Officer, Food, Health & Consumer Products of Canada]

Mr. Chairman, thank you, and thank you for the opportunity to address you today.

Inflation's growing impact is a major challenge for Canadians, affecting both daily life and financial security. Over the past few months, FHCP has been closely engaged with the government on the topic of grocery inflation and affordability. On behalf of our members, I commend the government for its leadership and commitment to finding solutions to these economic pressures.

I’ll begin by highlighting a pair of issues that are directly impacting our inflationary landscape.

You've heard it before today, but number one is the urgency of the implementation of a code of conduct.

Over the years, it has become increasingly clear that the imbalance between the handful of corporations that control 80% of Canada’s grocery marketplace and the suppliers that work with them must be addressed. It has long stifled competition and hindered innovation.

Here are some facts to consider.

The cost for a manufacturer to place and keep a product on a grocery shelf has nearly doubled over the last 15 years, while remaining relatively stable in the United States, where consolidation is not an issue.

The cumulative impact of fees and fines from grocers to suppliers is estimated at $5 billion per year. As a direct consequence, a worrying 23% of our members are considering withdrawing manufacturing capacity and/or products from product lines within the Canadian market due to these financial pressures.

The intensive negotiations for the grocery code of conduct, requiring compromises from all sides, reflect our united effort to address and rectify this deep-seated issue. I would like to recognize Sobeys and Metro. They have come to the table to represent large retailers and have done so in a very constructive way.

With that said, more needs to be done.

While we appreciate the government's efforts in understanding and addressing food inflation, the current focus on retailer-centric dialogues is impacting manufacturers' ability to recover and stabilize costs.

For example, some retailers' efforts, as you've heard today, to stabilize costs means that they will no longer accept supplier price increases for the foreseeable future, essentially passing inflationary responsibility to suppliers in the name of maintaining retail margins. Their actions perpetuate the very imbalances the code aims to solve. The burden of food inflation must be shared by retailers and suppliers alike, and government efforts, while well-intentioned, are penalizing suppliers only; hence, we believe the further need for a code.

The single best avenue for grocery cost stability remains a grocery code of conduct applied against all categories in a typical grocery store. This is not a food issue; it is a grocery issue. Speculation by a retailer that a code could lead to price increases is not grounded in evidence. Experiences with grocery codes in the U.K., Australia and Ireland have helped increase competition within the marketplace, stabilizing prices and ultimately lowering them.

The code is now finalized, ready for implementation, and supported by the majority of stakeholders, including agriculture, suppliers, retailers, independent grocers and others across the supply chain, representing thousands of companies that believe in the promise of a more equitable way of doing business, and it is balanced.

The exceptions are two companies, Loblaws and Walmart. They continue to question its viability. It’s ironic that the behaviour of these two companies is what compelled the agriculture ministers to conduct a study, resulting in the code of conduct that is in front of us today.

Government intervention that ensures implementation and participation in a mandatory, inclusive, and adaptable code of conduct is crucial. A code will only succeed if it is applied universally across all stakeholders, retailers and suppliers alike.

At this point, the implementation of the code is in jeopardy. Government intervention is the only solution to move it forward. I'm afraid it is not the position we wanted to be in, but it is the position that we are in.

The second issue I would like to highlight is the government's regulation agenda and its influence on food inflation.

Canada’s food, health, and consumer product manufacturers face a myriad of regulations that, while aiming to ensure quality, safety and transparency for Canadians, also contribute significantly to growing operational costs.

These regulations require industry to navigate an ever-changing landscape of labelling, packaging and distribution changes that are often contradictory and ill-timed, particularly over the past few years, as companies manage ongoing supply chain and distribution challenges.

From front-of-pack labelling to supplemental food labelling, changes to nutrition facts tables, and now the requirements from ECCC with regard to recycling labelling, the industry is simply struggling to keep up with the volume and frequency of continued government requests. By way of illustration, the $8-billion estimated cost for adopting Health Canada's front-of-pack labelling changes not only impacts businesses' operational expenses but also will trickle down to the consumer in higher prices.

The need for practical and efficient regulations that consider industry realities is critical. Labelling regulations should align with consumer demands for digital solutions like QR codes and other electronic labelling options, which offer cost-effective, flexible and less burdensome alternatives for industry and are much more consumer-centric.

Streamlining these regulatory processes and adopting new technology solutions is critical to controlling the inflationary pressures faced by Canadians.

Thank you again for the opportunity. I appreciate it.

[The Vice-Chair, Conservative, John Barlow]

Thank you, Mr. Graydon. I appreciate that.

We will now move to Ms. Rood of the Conservatives for six minutes, please.

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

Thank you, Mr. Chair.

Thank you, witnesses, for being with us here today in this important study.

Mr. Sands, I have a question for you, as you represent the independent grocers.

Big grocers are freezing their prices right now on many food items, and I'm wondering how that price freeze by the big grocers affects our independent grocers.

[Gary Sands]

It affects the independent grocers, but what is really important is how it affects the customers of those independent grocers. I thank you for that question, because it's a really important one for this country.

As I said in my opening remarks, we have about 6,900 independent grocers. A lot of them are in rural and remote communities where costs and costs of transportation are higher. If there are unilateral price freezes or discounts being imposed on suppliers, the natural question that I hope everyone on this committee asks is this: What does that mean for all Canadians?

Again, independent grocers don't have the leverage to make those same price requests, so where does that leave our customers in those communities? Many of them would be in the constituencies of all the members of this committee. It puts those consumers.... The independent grocers have a competitive disadvantage, but it means that you're having price stability for some Canadians and not all Canadians. That's why it's such a good question. I think that everyone should be very concerned about that.

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

Thank you.

On that, I've heard that big suppliers and distributors will actually give preferential treatment to the big grocer retail chains if there's a shortage of a product. They'll supply the big grocers, and then they'll make available whatever's left over—if there is anything—to our independent retailers. Is this an accurate characterization of what happens on the ground?

[Gary Sands]

It absolutely is. It's one of the issues. I will add that we've addressed it in the code, but I'll just explain how that works. Michael Graydon from FHCP can speak to this too.

Retailers and their suppliers—that includes all retailers, not just the chains but also the independents—engage in what's called “forecasting”. They sit down together and negotiate what they anticipate ordering over the next year, and their agreements are built around those forecasts. What we have seen over years—and particularly egregiously over COVID—is that when there were product shortages or there was high demand for certain products, certain chains would go to the suppliers and say, “We don't care, really, what's in our agreement. We want extra product.” They used their size and power to our disadvantage, because what the supplier ends up having to do is divert supply that was supposed to be earmarked for independents in Canada away from the independents and their customers in order to supply the large chain.

That results in some essential products not being available in those communities. We address that in the code. That's one of the principles that we think are very important, because if you don't have adequate supply, you're treading into the area of food security. That's very concerning to us. We were pleased that everyone on the steering committee supported that.

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

Thank you so much.

Mr. Sands, in Ontario, who are the biggest wholesalers for the independent stores? Who do you have to buy your supplies from in Ontario?