Agriculture Committee on Feb. 8th, 2024

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

Thank you, Chair.

At the industry committee in December 2020, I had the opportunity to ask Mr. Matthew Boswell, the commissioner of competition, some questions. I told the commissioner the Prime Minister had said that he was going to ask the Competition Bureau to investigate the fees that are charged to producers and processors by the grocery giants. I asked the commissioner if he had launched an investigation. Mr. Boswell said that the bureau was very much aware of these issues with respect to retailers and their suppliers and was already engaging at the federal, provincial and territorial level with respect to this issue and sharing its expertise on competition issues.

Was there an investigation of the fees charged to producers and suppliers by the grocery retailers? If so, what were the findings of that investigation?

[Anthony Durocher]

We had a very comprehensive abuse of dominance investigation into Loblaw about their policies and fees as part of their dealings with suppliers. The investigation culminated in 2017 or thereabouts.

Over the course of our review, Loblaw stopped many of the practices in question. We concluded the investigation and published a pretty detailed position statement to provide more transparency on the nature of our investigation and also on where companies can cross the line in their dealings with suppliers such that they might run afoul of the Competition Act.

Since that time, there has been work in respect of the code of conduct that has really been aiming to address that. I think we've been privy to these developments and we've trying to share our knowledge of the industry from our investigation. It is a fine line between an imbalance in bargaining power between parties and crossing the line to an abuse of dominance. A lot of actions in this sector might be more defined as an imbalance in bargaining position and some of the problems emanating from that, and not necessarily a competition law problem.

We continue to work with governments at all levels to try to inform them and lend our experience with some of these issues in the sector.

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

On that, the commissioner indicated at that time, and I'll quote him, that “competition law in Canada does not provide for a tool to regulate imbalances in bargaining power.” Does the Competition Tribunal now have any power to investigate and regulate imbalances in bargaining power, or what tools do you need in order to do that?

[Anthony Durocher]

Typically, competition law, not just in Canada but elsewhere, is not really meant to address imbalances in bargaining power in how a large company deals with suppliers or customers. If a large company imposes unfair prices or unfair fees on suppliers or charges high prices to customers, that is not offside according to the Competition Act. What is offside is if you abuse your dominant position by taking steps to undermine competition and make it so the competition isn't working by raising barriers or excluding competitors.

It is a fine line between the two, but typically, competition law is not meant to address imbalances in bargaining power.

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

You mentioned the grocery code of conduct. I'm wondering if the Competition Bureau believes that the grocery code of conduct should be mandatory or voluntary.

[Anthony Durocher]

We haven't studied in any depth the prospects or desirability of having a permanent code. We do note and are aware that in the U.K., they do have a code. It started as voluntary and then became a mandated code to ensure compliance.

We're going to continue to make ourselves available on how this is going to play out in Canada and we'll make sure that it's as pro-competitive as possible, but whether it should be mandatory versus voluntary is, in all honesty, not something we've studied in any depth.

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

Thank you.

We've been talking about the government's new P2 plastics ban and the impact that it would have on Canadians and the cost of groceries. We've heard that it could cost upwards of $6 billion. We import two-thirds of our fresh produce into this country. I'm wondering if the Competition Bureau has looked at the new proposed plastics ban on the fresh produce industry and how that would impact competition in getting produce onto the grocery store shelves here in Canada for Canadians and how it may affect the price.

[Anthony Durocher]

That is not an issue that we would have studied or looked at.

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

Thank you very much.

Mr. Chair, just before I give up my time, I'd like to take a moment to table a motion today in this committee. We have talked to many different witnesses who have said that the plastics ban is going to have a very profound effect on the price of food for Canadians, and while we're looking here in this committee at what we can do to lower the price of food for Canadians, we have government policy coming out that is going to increase the price of food for Canadians.

I can send the motion to the clerk in French and English. It reads:

That this committee begin a study of the impacts of existing and potential regulations on primary food plastic packaging in respect of the production, processing, transport, retail marketing, sale, costs and safety of food products, and the impact on access to healthy, affordable food and food security for Canadians.

That this committee allocate no fewer than six meetings to hear from stakeholders as witnesses before the committee; and

That this committee report its findings and recommendations to the House no later than June 1, 2024.

[The Chair, Liberal, Kody Blois]

Thank you, Ms. Rood.

I know that we're looking at studying the horticultural sector in the next couple of weeks. We'll talk as a committee about whether or not we move forward with your motion or if it can be incorporated into some of our existing work plan, but thank you for that.

We'll now turn to Mr. Louis for up to five minutes.

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

Thank you, Chair.

Thank you to the witnesses for being here. It's important to have conversations with the Competition Bureau.

We're hearing the word “imbalance” a lot. Your position is to potentially look into the abuse of that dominant position—that's what you said—to shape this legislation that we've put forward and one piece of legislation that's passed.

There were many consultations. I think there were about 400 submissions and a dozen round tables. It took about 18 months. It was focused and targeted, and we got consensus from many perspectives, including industry, academics and advocate groups.

In my understanding, one of the barriers that the commission faced in your investigation of concentration in the grocery sector was your limited ability to compel documents from grocery chains as part of your probes.

Bill C-56 will give the Competition Bureau the ability to do that, as well as give more market study powers and subpoena powers to compel those large grocery chains to provide more information, which is going to address the lack of transparency that we're seeing from these grocery giants. They submitted reports and information to us with various degrees of transparency and thoroughness.

How can the new powers that you have help your office to issue stronger and more informed recommendations and decisions?

[Anthony Durocher]

I think, going forward, to enable us to do complete and thorough market studies in all sectors of the economy that warrant study because there are competition issues or because we want to look to increase competitive intensity and find out what's going on in a sector, these study powers are going to be helpful. They're very much in line with what many of our foreign counterparts already have in their own competition laws. It will absolutely be an important tool to equip us to make fully informed recommendations and to make determinations examining competition.

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

Do you tend to see that the larger these corporations are, the easier it is for them to resist being transparent, and that they have more push-back as they are consolidating more and more?

[Anthony Durocher]

Every company is different in how they interact with the Competition Bureau. Some are more forthcoming than others, and they all have different incentives at play.

What we've come to see is that it's important to have a tool that you can use as a recourse. In our enforcement work, we have always had the ability to issue subpoenas or go to court to get subpoenas. Sometimes you don't need to do that, because companies know that this is a possibility and so they are going to fully co-operate.

Obviously, it's going to change the nature of the catalyst for companies, because before Bill C-56, the fact of the matter was that for market studies, co-operation was voluntary and we did not have recourse. If they didn't want to co-operate fully, there was no recourse. That will change going forward, and it is certainly going to be a helpful tool for us.

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

That's good to know. Just the fact that you can use that tool will help a lot of these companies comply with what you're asking for, which is only what Canadians are asking for—transparency and competition, which would lower prices.

In your report, you mentioned stimulating innovation, supporting independent grocers, unit pricing requirements and property controls. In order to protect our independent grocers, I want to talk about property controls. You mentioned restrictive covenants. These controls limit competition in the sector because they have prevented independent grocers from opening up in our communities, and with that comes less competition, less choice and higher prices.

How will the bureau's ability to challenge these controls and agreements like restrictive covenants help competition in the grocery sector?

[Bradley Callaghan, Associate Deputy Commissioner, Policy, Planning and Advocacy Directorate, Competition Bureau Canada]

You're absolutely right. This was a topic of focus that we covered in our report.

As Mr. Durocher mentioned, at their essence they are things that limit what a property holder can do with their property. Oftentimes, these are included in leases or things of that nature. The effect is that they can ultimately just make it harder for a competitor to get into the same space. It could be the same commercial mall or it also could cover a wider geographic area, but the impact is the same: It can make it harder for an entrant to get in and compete.

There are really a couple of ways that we're thinking about how we can improve competition in this space. One is by using our enforcement mandate. As Mr. Durocher mentioned, we do have an active investigation in that space.

We've also recommended that there may be legislative options for governments to think about limiting the use of these property controls or to ban them entirely, which would obviously be an instrument that would have a much broader effect; whereas the bureau's work is much more on a case-by-case basis and would obviously have to determine the facts to make sure that something would be in violation of the Competition Act.

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

Thank you very much.

We've heard the importance of protecting our independent local grocers from our study too, so thank you.

Thank you, Chair.

[The Chair, Liberal, Kody Blois]

Thank you.

Colleagues, I'm going to take a few minutes.

I was particularly interested with Mr. Williams' line of questioning. He talked about mergers and acquisitions as being somewhat anti-competitive, or having the ability to be. I appreciated your comments, Mr. Durocher, that it's dependent on the facts in a particular industry.

Because there was a focus on how there has been a consolidation in the Canadian grocery sector, can you tell this committee how that would compare to elsewhere in the world? I would expect that there has been consolidation elsewhere in this sector as well. Is that a fair assumption, or would I be wrong in that suggestion?

[Anthony Durocher]

I think that's fair. Maybe I'll make a couple of points here.

One is that other countries often had stronger merger review laws than Canada to begin with, so they may have been in a position to take action against concentration more than we were prior to this legislative modernization.

The other point is that in the context of our grocery market study, we contacted a number of our foreign counterparts to get a sense of what is going on in their own jurisdictions with respect to this aspect. Concerns about grocery concentration and pricing are very much top of mind in a number of other countries. Their competition authorities are looking at these issues too. The reality is that Canada is not alone. We do speak with one another.

It's really for the small proportion of mergers that are harmful that we want to make sure we have the right tools to address. The vast majority of mergers don't harm competition. It's really for the small proportion that do, especially in concentrated sectors, that we want to make sure that the competition authority is well equipped to swiftly bring cases forward and handle them.

[The Chair, Liberal, Kody Blois]

Let me ask you quickly about the efficiencies defence. I believe the government is working on phasing that out.

I have a commerce background. There is, I think, an interesting tension between economies of scale, which can actually bring down unit price production and potentially the cost. I can appreciate that it can also lead to a situation in which the price mechanism can be controlled by a few companies that have that market power and market dominance.

How do you balance legitimate elements around economies of scale and the ability to disperse your cost of capital over a larger market share so that the unit price actually can come down, versus an efficiencies defence that can also be monopolistic? Where's that balance? Can you try to explain that to this committee?

Would you agree that there is some element in economies of scale in the idea that some concentration can be good, but can go too far the other way as well?

[Anthony Durocher]

The efficiencies defences now no longer exist. When Bill C-56 became law, the efficiency defence was no longer there. It was repealed.

One problem—there are quite a few—with the efficiencies defence was that it allowed harmful mergers. Those were mergers for which we could prove that the merger was going to lessen competition, prices were going to go up and it would be harmful to consumers and the economy, but that defence, the way the jurisprudence evolved, would go through. Canada was very much an anomaly in terms of how we looked at it.

Going forward, there is certainly scope for mergers that can be pro-competitive, such as when two companies are bringing their resources together. That actually can be good for consumers because it can stimulate competition.

Every case is different as to the net effect and how they're going to use resources and how they can argue that it is actually good for competition and pro-competitive, but since the passage of Bill C-56, it is a new day for how efficiencies are viewed.

[The Chair, Liberal, Kody Blois]

This is my last one.

Mr. MacGregor talked about Manulife and Shoppers and the idea that folks who were under a Manulife plan were only going to be able to buy from Shoppers. Would that have been a prima facie case of non-competitive behaviour?

Mr. MacGregor talked about the company backing off and how that might not actually become a reality, but would that have been something that would have triggered the Competition Bureau to intervene? Would it actually have been contrary to competition law?

[Anthony Durocher]

Thank you for the question.

Obviously, this was very much in the public discourse and in the spotlight last week. We were monitoring this very actively and we received a lot of media inquiries as well.

Because of our confidentiality obligations, all I can say with respect to that agreement is that it was very much on our radar, in part because protecting access to, and affordability of, prescription drugs is an absolute priority and is important for Canadians. These are things that were very much top of mind when they came to be known.

Coming back to Mr. MacGregor's question on this point, I'll just add that this is one where we've seen the discourse around competition and the backlash perhaps showing that we're really prioritizing competition more in our economy. From our perspective, that's certainly a welcome change.

[The Chair, Liberal, Kody Blois]

Thank you very much, colleagues. I thought that there were great lines of questioning from all sides.

Thank you to Mr. Durocher and Mr. Callaghan for being here for the Competition Bureau.

Colleagues, we're going to be going in camera to do some committee business, so I'm going to suspend for two or three minutes.

Mr. McLeod and Mr. Carr, make sure you hop on the other link in virtual mode.

Colleagues, we'll see you in two or three minutes.

[Proceedings continue in camera]