Agriculture Committee on Feb. 6th, 2024

[The Chair, Liberal, Kody Blois]

Colleagues, it's great to see everyone back in full form after the holiday break. I hope you all had a great time with your family and your constituents.

We're back. Welcome to meeting number 89 of the House of Commons Standing Committee on Agriculture and Agri-Food. I'm not going to go through the reminders because you guys are all veterans of this committee. “Be good” is the word from the chair.

Before we go any further, the budget has been distributed for the study that we're currently under on the efforts to stabilize food prices. Assuming there's no issue with it, I'd like to see that adopted.

[Some hon. members]

Agreed.

[The Chair, Liberal, Kody Blois]

Thank you.

Colleagues, in terms of substitutions, Mr. Epp will be in for Mr. Barlow from 12 to one.

We'll look forward to seeing Mr. Epp, and we'll miss you, Mr. Barlow.

Pursuant to Standing Order 108(2) and the motion adopted by the committee on Thursday, October 19, 2023, the committee is resuming its study on efforts to stabilize food prices.

I'd now like to welcome our witnesses for this panel. From the agri-food analytics lab at Dalhousie University—and no stranger to this committee or the agriculture community—we have Dr. Sylvain Charlebois. We also have with us Stacey Taylor, who is a Ph.D. candidate. She's joining us by video conference. From the Canadian Federation of Agriculture, we have the president, Keith Currie. Scott Ross is on the line as well. From the Retail Council of Canada, we have Diane Brisebois, who is the president and chief executive officer. We also have with us Karl Littler, who is the senior vice-president of public affairs.

It's great to see you. Thanks for being here.

We have a great panel lined up today, colleagues. We're going to start with opening remarks for up to five minutes.

Mr. Charlebois, I'm going to start with you and go to the CFA next. It's over to you.

[Dr. Sylvain Charlebois, Senior Director, Agri-Food Analytics Lab and Professor, Dalhousie University, Agri-Food Analytics Lab]

Thank you, Mr. Chair and committee members.

Today I am joined by one of our esteemed lab team members, Stacey Taylor, a recognized expert in accounting and food price forecasting in Canada. Please feel free to direct any questions regarding future food prices to her.

As part of the committee's ongoing efforts to address the stabilization of food prices, we aim to address three key issues today: alleged grocer profiteering, price coordination and the grocer's code of conduct.

Let's begin with the topic of profiteering.

We have consistently emphasized that there is no substantiated evidence of profiteering within the food retail industry. To complement our findings from last year's report, it is important to note that gross margins for all three major grocers have remained constant for over five years, as verified by auditors. In most cases, same-store sales growth has fallen below our national food inflation rate as well.

Some experts, including recent committee witnesses, have made claims that grocers are consistently reporting record profits, which may create sensational headlines. However, it is crucial to understand that, due to inflation, companies should naturally report higher profits in nominal dollars each year. Accusations of profiteering in this context are unwarranted distractions. To address real issues, we must put the profiteering debate to rest.

One significant concern we've identified is the prevailing culture of copycatting, price coordination and discount alignment within the grocery sector. An example of this is Loblaw deciding to discontinue its 50% discount policy, citing a need to align discounts with competitors.

Additionally, practices like the so-called three-month blackout period, where grocers request suppliers to freeze prices, can impact retail prices. Metro CEO Eric La Flèche has acknowledged that some food prices will rise in February due to the end of this price freeze, leading to increased price volatility, which is contrary to the desired outcome for Canadians. The ongoing bread price scandal, with three companies admitting guilt for their participation after nearly nine years, is unacceptable. The Competition Bureau should take a more proactive role in monitoring potentially anti-competitive behaviour.

Lastly, I understand that this committee has already heard extensively about the importance of implementing a mandatory industry-led code of conduct. We cannot stress enough how crucial this step is. Mr. Galen Weston's recent testimony before the holidays, where he may have misconstrued how the code operates in Australia and its potential cost to Canadians, needs clarification. The implementation of the code of conduct should be viewed as a priority if this committee is serious about achieving long-term food price stability, as highlighted in “Canada's Food Price Report 2024”.

Thank you for allowing us to present these recommendations. I look forward to engaging in a productive discussion on these pressing matters, Mr. Chair.

[The Chair, Liberal, Kody Blois]

Thank you very much, Mr. Charlebois and Ms. Taylor.

We'll now turn to the Canadian Federation of Agriculture and Mr. Currie for up to five minutes.

[Keith Currie, President, Canadian Federation of Agriculture]

Thank you, Mr. Chair.

I'm very pleased to be back in front of the committee today. I'm seeing some very familiar faces.

For those of you who do not know me, as the chair mentioned in his opening remarks, I am Keith Currie and I am the president of the Canadian Federation of Agriculture. We represent 190,000 farmers and farm families from coast to coast to coast here in Canada. I'm also joined online by my executive director at CFA, Scott Ross, who will answer all the hard questions for you today.

We've all experienced, in recent years, food inflation outpacing an already high inflationary pressure on the cost of living. While the rate of food inflation has declined over the past year, it's understandably a topic that is of great concern to all Canadians.

As part of my remarks here today, I want to cover off what I believe are some misperceptions when it comes to this topic.

The first one is this: As the price of food increases, so do farmers' profits. In fact, it costs a lot more to produce the food we eat today than it did before the pandemic. For example, look at the change in price for many of our farm inputs out there. Whether we're talking about machinery, fuel, fertilizer, livestock or livestock feed, the prices farmers pay have increased nearly 40% between 2019 and today. While farm incomes have also increased during this period according to the most recent Statistics Canada numbers, growth in expenses outpaces the rise in farm cash receipts. While we are starting to see a softening of the commodity prices in the market, the price of farm inputs is still staying at a high level.

Misperception number two is that farm gate prices drive retail prices. A recent study conducted by the Agriculture Producers Association of Saskatchewan revealed that underlying commodity does not account for the entire price increase of the final food product. More often than not, it plays a minor role, with the farm share of retail prices for the products sampled averaging less than a quarter of the value of the final product.

While I would stress that the evidence is quite clear that farm gate prices play a minor role in retail price increases, there are some immediate steps that can be taken to reduce the rising costs involved in Canadian food production.

First, we need time-limited and targeted exemptions for on-farm use of natural gas and propane, which we were trying to accomplish through Bill C-234. These exemptions must be available not just for grain drying but also for the heating and cooling of barns, greenhouses and other production facilities. Based on our survey of the impact of Canada's carbon tax on livestock, crop and greenhouse farms across Canada, we were seeing the carbon tax account for up to 40% of total energy bills in some sectors.

Second, we've put forward a number of recommendations in our budget submission of 2024—this year—that would help drive down the cost of production and improve supply chain dynamics in the agriculture sector. For example, we're calling on the government to consult on and develop a critical farm input strategy, similar to the critical minerals strategy, in order to ensure Canadian producers have a long-term, stable supply of critical farm inputs to produce high-quality agriculture and agri-food products.

Finally, we need to move forward with the implementation of an industry-led grocery sector code of conduct. The objective of the code of conduct is to enable a thriving industry that promotes trust, fair dealing and collaboration throughout the value chain, increases commercial certainty and develops an effective and equitable dispute resolution process. While not targeting food inflation, it will help improve supply chain dynamics. Industry has committed considerable time and resources to the development of an industry-led code that works for all parties. We have greatly appreciated the attention and support of FPT governments throughout the development of the code and hope to see that support continue in getting this over the line.

I'll be pleased to answer any questions you may have.

Of note, this Friday—February 9—is “Food Freedom Day”. That is the day when the average Canadian has made enough income to pay for their groceries for the entire year.

Thank you.

[The Chair, Liberal, Kody Blois]

Thank you very much, Mr. Currie.

We'll now move to Ms. Brisebois or Mr. Littler.

Mr. Littler, it's over to you and the Retail Council for up to five minutes.

Thanks.

[Karl Littler, Senior Vice-President, Public Affairs, Retail Council of Canada]

Thank you, Mr. Chair, and thank you, members, for the invitation to appear once again at this committee.

With your permission, RCC will split our time. I will speak to food inflation and its causes and current trajectory. Diane Brisebois, our CEO, will speak briefly to the code of conduct, which we know to be of interest.

In a different context, Al Gore referred to an “inconvenient truth”, meaning facts that some people would rather not acknowledge, because, once acknowledged, they'd have to do something they'd rather not do. In this case, what some political opportunists would rather not do is acknowledge how very little grocers have to do with food price inflation and admit that the overwhelming portion of the run-up in food prices occurs earlier in the supply chain, at the producer and processor level.

This is not to lay the blame on producers or most of the processors. As earlier noted, growers have faced huge pressures on input costs like feed, fuel and fertilizer, being global phenomena, along with rising interest charges, labour and other costs. These costs are passed on to manufacturers, who then bear additional costs of their own. However, the fact remains that almost 80% of the price of food on grocery shelves arises at the vendor level, long before reaching grocers.

That inconvenient truth also includes the fact that Canada's food inflation rate is the second-lowest in the G7; the fact that the most recent food inflation rate in Canada is less than half what it was when RCC last appeared before this committee; the fact that the delta between food inflation and headline CPI inflation has narrowed by more than half, and in fact by almost two-thirds; and lastly, the fact that gross margins and net profits in the grocery sector are consistently within the 2% to 5% range, profit percentages that are dwarfed by the profits of the big global CPG manufacturers, who have been passing on repeated cost increases.

Notwithstanding those facts—that inconvenient truth—we face recurring attempts to portray grocers as cartoon villains and, in service of that false narrative, deliberate avoidance of any effort to hold the earlier players in the chain accountable. Our political leadership owes it to Canadians to give them the full picture about food inflation, to openly acknowledge its global and supply chain causes, and, frankly, to stop scapegoating a grocery industry that continues to work diligently to help stabilize food prices for Canadians.

I will now turn it over to my colleague Ms. Brisebois.

[Diane J. Brisebois, President and Chief Executive Officer, Retail Council of Canada]

Thank you, Mr. Littler.

Creating an industry-led code of conduct is a daunting task. While more work remains to be done, the steering committee, which includes us, is encouraged by progress thus far.

A code of conduct is not a single document. It is a set of integrated measures that work together to promote fair and ethical trade and contractual certainty. It is also important to note that this code differs from codes that exist in other countries. The one proposed in Canada is reciprocal and includes all stakeholders—small, medium and large companies that are part of the supply chain.

Although some large companies in our sector have indicated that they have concerns with the current code, we have regained trust and are convinced that our industry will succeed in reaching a resolution that we hope will concretely address the concerns of the stakeholders involved. We are currently in discussions with certain companies in order to arrive, as I just stated, at an agreement that will meet the needs of all stakeholders.

I’d be happy to answer any questions you may have.

Thank you.

[The Chair, Liberal, Kody Blois]

Thank you very much, Ms. Brisebois.

We will now proceed with Committee members’ questions.

Ms. Rood, you have six minutes.

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

Thank you, Mr. Chair.

Thank you, witnesses, for being with us today on this important study. You've all mentioned the grocery code of conduct and very different facets.

First off, Mr. Currie, if this is implemented, could you tell this committee how this will work to protect farmers and producers and those who supply the retail chains? I think what most people are missing, and we heard this today, is that it's actually to help the farmers. It may not have an impact on food prices at the grocery store shelves.

Could you explain to us how this will affect the prices?

[Keith Currie]

I'll make a couple of comments. Then I'll turn it over to my colleague Scott, who is online. Scott knows intimately the process of the grocery code of conduct's development.

Certainly, what we're looking for is integrity in the system to make sure that people are playing fairly. We all know that businesses up and down the supply chain need to be profitable in order to continue to exist. I can name you off certain instances of it. Your colleague Mr. Epp, who will be here later, lives in an area that is surrounded by greenhouse growers. It's not uncommon for a greenhouse production facility to have a shipment ready to go and to be told, when the truck shows up, “By the way, you're getting two cents less a carton.” We want to put in that stability and to make sure that what people are saying, they actually do. That's just reassurance for farmers that they can count on that price stability.

Scott, I don't know if you want to add any more to this. You've been very involved in this.

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

I think that answers my question, Mr. Currie.

[Keith Currie]

Is that good? Okay.

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

I'm continuing with the grocery code of conduct, perhaps with Ms. Brisebois or Mr. Littler.

Back in December, we had some of the grocery retailers here, and it's my understanding that your organization represents some of the grocers, including Sobeys, Metro, Loblaws and Walmart. Loblaws and Walmart are the only two of the big five grocers that are holding out and have yet to sign on to the grocery code of conduct right now. I asked this question of the Loblaws CEO when he appeared before this committee before Christmas.

I'm wondering if you could tell us where the Retail Council of Canada stands on the issue of supply for independent grocers.

[Diane J. Brisebois]

We support it. In fact, I share with CFA's executive director a seat on the steering committee, which is now the interim board for the code of conduct. We are supportive.

We understand, though, as I noted in my remarks, that this is an unusual code because it is the only one that includes everybody. If we look at the U.K. code and the Australian code, they are focused very much on the large grocers and the manufacturers. In Canada, we came together instead. If we're going to talk about fair practice, transparency and contractual certainty, they have to be right across the supply chain.

It's normal that it's taking time. It's normal that some of the players have concerns around some of the elements of the code. I can assure you that, from the Retail Council's perspective, we're working very hard with those who have concerns to try to respond to them and to bring everybody under the umbrella. We think that it would be a very important sign to show that the entire food supply chain is working together for Canadians.

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

Thank you.

Mr. Charlebois, in your “Canada's Food Price Report 2023”, it mentions that overall food prices will rise by 5% to 7% this year, and that a family of four will see their grocery bills rise by over $1,000 in 2024. Your report references higher production costs, which we've heard from Mr. Currie. Farmers and producers are facing higher productions costs. Higher transportation costs will impact the price of food. This is a direct quote from your report, “may be passed on to the consumer as producers try to remain profitable.” A large part of production is the fuel price for trucks that transport our food. They have to pay the carbon tax. We see that the NDP-Liberal government wants to quadruple the carbon tax. In fact, it's going to go up on April 1.

Given that the carbon tax is inevitably going to increase the cost to transport goods to the grocery store, do you believe that it's going to have a direct impact on Canadian families and will be a reason for the higher food prices that we'll see on the grocery store shelves coming up?

[Dr. Sylvain Charlebois]

That's a good question.

First of all, I want to just briefly correct you. That was last year's report. This year's report, 2024, says that we're expecting food prices to go up by 2.5% to 4.5%. For a family of four, it's $700. Things are improving, if you will. The year 2023 was a very difficult year for sure.

When it comes to the carbon tax, we've done some studies at the lab. We can't correlate what's happening with the carbon tax with food prices at retail. However, I mentioned at the finance committee, I think it was three months ago, that we are concerned about competitiveness. Due to the financial burden put on farmers, processors and retailers, eventually we expect that the industry's competitiveness could be compromised over time compared to what we're seeing in the United States.

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

Thank you.

I mentioned the 2023 report because we did see a huge increase in 2023 when we had the implementation of a carbon tax. It was going to raise prices in 2023. Given that it is 2024, I can't see how that wouldn't pertain to 2024. That's why I directly quoted that.

Yes, in 2024, we said $700. That's still a significant amount of money for Canadian families. We see record numbers at food banks right now, over two million people. We're trying to find ways to lower the cost of food for Canadians, but it seems that this government's policies and inputs costs are a huge part, again, of the cost of food for producers.

[Dr. Sylvain Charlebois]

Very briefly, what I recommended to FINA, to the committee on finance, is to pause the carbon tax for all companies related to the food industry overall, because we don't know exactly how the carbon tax will impact the industry's competitiveness over time. We just don't know.

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

Thank you very much.

[The Chair, Liberal, Kody Blois]

Thank you very much, Mr. Charlebois and Ms. Rood.

We'll now turn to Ms. Taylor Roy for up to six minutes, please.

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

Thank you very much, Mr. Chair.

I think I may stay with that line of questioning, because you said, Mr. Charlebois, that you cannot correlate food costs with the carbon tax. In fact, the carbon tax is higher this year than it was last year. It's been going up by a certain amount, predictably, for investments every year.

How do you explain then that this year it will be a 2.5% to 4.5% increase, when last year it was a lot more, if in fact the carbon tax is going up and not down?

[Dr. Sylvain Charlebois]

The rhetoric around the carbon tax is a bit misleading. Most people are talking about retail, but a lot of things can happen in retail. Consumer behaviour can impact food prices. The weather can impact food prices. It's very difficult to correlate retail prices with policies such as the carbon tax.

What we've looked at are industrial prices. What we're finding out is that for industrial prices in Canada—up the food chain, from farm to processing—the gap between Canada's industrial product price index, IPPI, and the U.S.'s PPI is increasing. That means we could compromise Canada's food security over time if we don't necessarily allow the food industry to adapt and adopt green technologies to decrease the industry's carbon footprint.

We need to decarbonize the economy, obviously. I think everyone agrees with that. It's the pace at which we're doing it right now and imposing this tax. What we're saying is that, perhaps, the industry is overburdened by that.

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

Thank you.

Obviously, the United States doesn't have a carbon price across the country, but we know that many of the states have an equivalent to a carbon price. We also realize that a lot of the trade agreements are going to include some kind of carbon pricing in them.

You talk about competitiveness. Is the prospect of tariffs being applied if you do not have a carbon-pricing program in place not also a competitive concern for Canada?