House of Commons committee recommends feds crack down on ‘excessive’ profits in food sector

The federal government should consider policies to tackle the problem of “excessive net profits” in the food industry, a House of Commons committee investigating food prices said in its latest report.

The commission recommended that the government investigate how these profits could be used in “monopolistic and oligopolistic sectors of the food supply chain”, which it said were driving up prices for farmers and consumers.

In a report presented Thursday, the commission detailed its investigation into the causes of inflation and food insecurity in Canada, including high-profile testimony from grocery store executives over the past few months.

Leaders of Loblaw, Metro, Empire, the owner of Sobeys, Walmart Canada and Costco all faced questions from MPs about the size of their profits in the face of high food price inflation, from which grocery store owners say they have not profited excessively.

The committee’s report included a number of recommendations, ranging from lowering barriers to entry for new companies in Canada to making legislative changes to strengthen competition law on mergers.

The committee also recommended that the government discuss with provinces and territories legislation to make the Code of Conduct for Foodstuffs mandatory.

It comes after Loblaw announced it plans to join the code after months of pressure on the country’s largest food manufacturer to take part.

The code developed by the industry is intended to help level the playing field for smaller companies in the industry.

This was supposed to be voluntary, but pressure on the government to introduce such a law instead has increased in recent months as not all major food producers were willing to sign up.

In December, Loblaw and Walmart told the committee they were concerned about rising prices for Canadians. Earlier this year, the committee wrote a letter to the two grocery stores saying that if they did not sign up, it would recommend making use of the code mandatory.

Last week, Loblaw announced that after months of discussions, it was ready to sign up to the code if all interested parties did so.

“The current code is fair and will not lead to higher prices,” said Per Bank president and CEO.

Walmart said at the time that the company was reviewing the latest version of the code.

The seller did not immediately respond to a request for comment. Neither does Costco.

The Retail Council of Canada declined to comment on the report.

Michael Graydon, CEO of the Food, Health & Consumer Products Association of Canada and chair of the interim code board, said the group is “very supportive” of all of the committee’s recommendations.

Regarding the code, “our industry’s desire is for a code that is fully inclusive, involving all stakeholders. “This remains our goal and I hope we can achieve it,” he wrote in an email.

Francis Chechile, a spokesman for Agriculture Minister Lawrence MacAulay, said the government had made clear it supported an industry-led code, but after years of work “it is long past time for all major retailers to sign up to the Code”. .

The government is calling on other large retailers to sign up to the code as their participation is crucial to its success, Chechile said in a statement.

“In the meantime, we are exploring all available federal options, including legislation. Because key aspects of the Code would be subject to provincial jurisdiction, we encouraged provincial and territorial governments to do the same.”

The committee’s report references a Competition Bureau study released last year that found Canada’s food sector has become increasingly concentrated following a series of mergers and acquisitions in recent decades.

The Competition Bureau is currently investigating the use of restrictive clauses in the food sector, controls in lease agreements which it says hamper competition in the industry.

Industry Minister François-Philippe Champagne said he is seeking a foreign grocery retailer to boost competition in the Canadian market.

The report’s recommendations include that the government should empower the Competition Tribunal to terminate or prohibit a merger if the merger would result in excessive aggregate market share. It also recommends strengthening the law by shifting the burden to merging companies to prove that their transaction will not harm competition.

A spokeswoman for Champagne’s office highlighted the government’s recent changes to the Competition Act, saying Bills C-56 and C-59 “already address issues such as curbing excess profits, strengthening competition law and facilitating fair market access.”

The best way to lower prices and help smaller players is to increase competition, spokeswoman Audrey Milette said in a statement, adding that having more players in the market is one way to put downward pressure on prices.

“We will continue to advocate for Canadians by working with partners at the provincial and territorial levels to make life more affordable and continue to hold corporations accountable.”

While grocery inflation has fallen significantly from peak levels, reaching just 1.4 percent in April, prices have risen 21.4 percent over the past three years. The resulting strain on consumers’ wallets, combined with higher interest rates, has led to public pressure on the government – and grocery stores – to act. Some consumers have begun boycotting Loblaw, Canada’s largest grocery chain, to express their frustrations.

Grocery chains, especially Loblaw, are expanding their portfolio of discount grocery stores to meet Canadians’ growing demand for lower prices. In turn, their discount stores were the main drivers of overall sales growth.

This report by The Canadian Press was first published May 24, 2024.

Rosa Saba, Canadian Press