Agriculture Committee on Dec. 7th, 2023

[The Chair, Liberal, Kody Blois]

Thank you, Ms. Taylor Roy.

Mr. Weston, I'll exercise just a few minutes for a few questions. I'll try to move as quickly as possible.

Part of your opening statement was about the code of conduct not necessarily driving grocery prices down. I would agree with you on that. We have to be very transparent about what the code does and doesn't do. We can't be telling Canadians that a grocery code of conduct is going to result in a huge drop in prices, but this committee also has an obligation to the supply chain and to the farmers who provide the products to your stores.

You talked about your concern about how the prices would go up. I'm looking at a graph from Dr. Charlebois, who laid out price increases over 10 years in countries that had a code versus those that didn't. I take note that there's a lot that goes into food pricing, but I want to dig into what you provided this committee specifically.

You mentioned clause 2.5, and I want to read it for the benefit of everyone. It states:

For the purposes of the Code, an agreement is anything that defines the material elements of a relationship between commercial parties. This can include contracts, invoices, purchase orders, bills of lading, emails and other forms of mutually agreed material that memorializes an understanding between parties.

I practised law for a short period of time. I might not have the experience of some of your corporate lawyers at Loblaw, but if you have an email, a bill of lading or some type of payment, then surely there would have been some discussion about the price at which the product was going to be charged. I can appreciate that it wouldn't be the ironclad commercial agreement that you might be seeking, but I think about a farmer in my own riding who might be providing produce for you. One of your agents at Loblaw says, “Look, we'll buy tomatoes at x amount.” That is a contract, so what is it specifically...?

You talk about negotiating in good faith. Those are examples of, at least, a commercial agreement between your company and a supplier. Why is that not good enough for you? Why is that code problematic, specifically?

You talk about negotiating in good faith, so what specifically don't...? If there was an invoice or a purchase order, there would have been some conversation about what the terms would be. Maybe they're not as exclusive or as high-end as a big food manufacturer, but why is that so problematic for you?

[Galen G. Weston]

The issue is the imbalance. Our view is that, if there's an expectation that a retailer enters into a set of detailed contract terms, a manufacturer should have the same responsibility. It's so that we all have the same piece of paper that says these are the terms we've agreed on and this is the basis on which we should conduct business.

In the way the code reads in the specific language, from our perspective, it holds the retailer to a higher standard than the manufacturer. As a result, those manufacturers can come and change the cost or refuse to accept changes in business terms, and we are unable to do the same thing.

All we've asked for is to balance that equation out so that both sides are responsible for adhering to the same set of standards.

[The Chair, Liberal, Kody Blois]

You have here that, “It is only fair that a supplier should be able to enjoy the benefits of the Code only if it has entered into a written agreement with a retailer setting out the commercial terms”. Isn't the whole idea of the code, Mr. Weston, that we actually provide some fundamentals?

I can appreciate that when you're negotiating with Pepsi.... Those are two different conversations. However, the idea of the code here—and you admitted it in your own testimony—for smaller food manufacturers or suppliers directly, is about creating some transparency and some elements that they can hold on to.

I guess I'll ask if there is an idea that you could have larger manufacturers not necessarily being subject to this, and it would apply to smaller food processors. What is it?

I can appreciate that if you're negotiating with Pepsi, that relationship is different from when you're negotiating with a farmer in my riding. Why is it that, if they're simply trying to lay out principles that you would negotiate with, somehow that's a contravention to the business practices that would be expected in this country?

[Galen G. Weston]

As we've said before, the principles in the code, particularly around your point, which is how we improve the relationship between retailers and manufacturers, are absolutely sound. Our concern is that, in the drafting itself, it creates these vulnerabilities that create this risk.

You're absolutely right. We see the biggest risk in the way that the code is drafted from manufacturers that are very much bigger than the Canadian retailers exploiting the way that it's drafted at the expense of the Canadian consumer.

[The Chair, Liberal, Kody Blois]

This is the last thing I'll ask very quickly.

You mentioned filling orders. You go out to consumers and say, “Look, we're going to have this product at this price.” You then said the food manufacturers are not providing the product that you expected.

We've heard instances both privately and, I think, even before this committee of the idea that there would be significant fines if someone only provided 98.5% of the expected product delivery. What, in your mind, is a reasonable tension there? If you ask for 50,000 units of a certain product and they come in at 98.5%, is it reasonable that a food retailer should be able to impose that?

I appreciate you want certainty. I understand that, Mr. Weston, but there are circumstances where that can add to the food costs through the entire supply chain and then get passed on to consumers, so what is reasonableness?

When I look at the provision, there's talk that there's a reasonableness clause in here such that you couldn't impose unless they really, significantly did not meet their order in a way that would be egregious under commercial terms.

[Galen G. Weston]

You are absolutely right. Reasonableness is one of the areas that we are focused on in terms of opportunities to enhance the code.

Our perspective is that, if we can modify it in a such a way that the necessary practices that allow the retailer—in our case, let's say this as an example—to hold manufacturers accountable remain in position and there are reasonableness thresholds that we can all agree to.... If they break beyond that reasonableness threshold, or they're unjustified in some way, there can be some consequence or some form of resolution.

You're talking about exactly what we're talking about. I think there's just a disagreement about whether the drafting as it currently stands actually accommodates this reasonableness factor the way it needs to.

[The Chair, Liberal, Kody Blois]

Would you like to provide this committee with any sense of what that threshold would be for you? Whether or not it's for large food manufacturers or smaller, is that 95%? Is it 90%?

Do you have any thoughts in your mind, or have you provided anything to the government on that?

[Galen G. Weston]

It's a bit complicated because that calculation is done on a 12-week average, not on an individual moment in time. In that context, 98% suggests that there's absolutely no room for error, whereas, in fact, there is. Remember that these are quantities that are agreed to up front. If somebody says, “I agree to give you 100 products” and they don't give you those 100 products, that is a challenge.

When you're making exceptions 60% of the time, I think it suggests reasonableness on the part of the retailer, but it also may suggest that, if we're having that many exceptions, maybe the algorithm has an opportunity to be improved. That's something we're working on right now.

[The Chair, Liberal, Kody Blois]

Thank you very much, colleagues, for indulging a few lines of questions.

Thank you to our translators for extending a little bit.

Thank you, Mr. Weston, for being here. Merry Christmas. Happy holidays.

Colleagues, we will be back on Monday. We have Mr. La Flèche coming from Metro for the first hour. Then we have CPMA, Association des producteurs maraîchers du Québec, and the Centre for Future Work. That will be what we do on Monday.

Enjoy your weekend, colleagues.