The Agenda with Steve Paikin (Audio) - Is Monopoly Power Undermining the Canadian Food System?

Episode Date: November 19, 2024

A new report from the Canadian Anti-Monopoly Project argues Canada's food system is being undermined by monopoly. And while grocery stores have become an easy target for consumer anger over the cost of food, this report says consolidation has occurred at all levels of the supply chain. The Agenda looks at the implications of the report.See omnystudio.com/listener for privacy information.

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you didn't know you could become. Exciting, isn't it? Visit tvo.org slash giving Tuesday to make your donation today and discover your 2-point TVO. A new report from the Canadian Anti-Monopoly Project argues Canada's food system is being undermined by monopoly. And while grocery stores have become an easy target for consumer anger over the cost of food, this report says consolidation has occurred at all levels of the supply chain. Here to discuss the report and whether more competition is required to address these issues,

we welcome in Halifax, Nova Scotia Sylvain Charleboix, Senior Director of the Agri-Food Analytics Lab at Dalhousie University. In the nation's capital, Keldon Bester, Executive Director of the Canadian Anti-Monopoly Project and a former Special Advisor at Canada's Competition Bureau. In Waterloo, Ontario, Jennifer Clapp, Canada research chair in global food security and sustainability at the University of Waterloo.

And in Scarborough, Ontario, Gary Sands, senior vice president of public policy and advocacy for the Canadian Federation of Independent Grocers. And it's great to have you four on TVO tonight. Kelton, let's just get you started right away please. Why do you think the Anti-Monopoly Project on this issue is such a big deal? Well, you know, I think a big part of why we wrote

the report and why the organization exists is the fact that while some of these issues can be very front of mind, you know, at the grocery aisle, they actually run much deeper in our economy. So what we wanted to do with this report is to recognize that yes, there are competition issues at the grocery store, but those are also the byproduct of consolidation that runs much further up the chain

that we need to take seriously. So, Van, can you give us a sense of how much consolidation there actually is in the food system in our country today? Well, there's been lots across the food chain from farm gate to plate. And in fact, all nodes of the supply chain have actually consolidated more because the other nodes have consolidated.

But when you look at the grocery business in Canada over the last 30, 40 years, it's interesting that now we're asking for more competition when in actuality it was really an American invasion back in the 90s or 80s, 90s that actually led to the infrastructure we have today. So Walmart and Costco obviously have actually entered the Canadian market quite successfully and that really pushed other players to consolidate, which is why we have just a few Canadian players now. Loblaw, Sobeys and Metro because all three players have actually adjusted to a much more

competitive landscape as a result. Jennifer, I don't have to tell you and I think anybody who's been following this story will know that, well, grocery store CEOs have been called to Parliament Hill to testify over hide food prices. Some people have advocated boycotting various stores because of the consolidation. Where in the chain, as you look at it, does consolidation really begin? Well, consolidation, as was already mentioned mentioned is all through the agri-food supply chains and it really begins in agricultural inputs which are the, you know, the seeds, the

chemicals, the farm machinery, the fertilizers that farmers use in their fields and their agricultural operations. And that consolidation tracks through from that production level all the way through to the grain and commodity handling level, all the way through to food processing, and finally at retail. So it's really everywhere in the food chain. We sometimes forget that the parts that are furthest from the grocery stores, such as fertilizer prices and seed prices, et cetera, Those are really coming from very concentrated industries as well. So in Canada just a few firms are dominating each of those

nodes in the supply chain. Gary before I get you to weigh in let me just add some numbers to what you've heard so far and then you can comment on all of it if you like. This is some polling information that we want to share and it says last year 90% of Canadian farmers reported they were concerned about consolidation in their industry with the highest perceptions of negative impact coming from the input provider stage of the supply chain, equipment dealers at 66%, fertilizer manufacturers at 62%, seed and chemical companies 60%, grain companies 56%. There's a healthy majority there

that is concerned about all of this. Okay, you weigh in. How do you view what's going on out there? Well, we've been concerned for many, many years about the consolidation throughout the supply chain in Canada, and it's, I think, unfortunate that many respects, the focus has been on the retail sector, but I think your program tonight is very helpful

to consumers to understand it runs right through the supply chain. And it definitely has had an impact on competition. The only caveat I would make would be sometimes that consolidation does not always impact prices. What I'm trying to say there is you can't always link the rising food prices that we've seen in the last two to three years completely on the issue of consolidation. There's a number of other factors that have been impacting those rising costs.

JAY. Do you want to weigh in on that as well? For example, what? PORTER. Well, the factors that have been driving up costs, I mean, the war in Ukraine is still having an impact. Rail and port disruptions, we've had climate catastrophes, flooding, wildfires, et cetera.

It's like the Four Horsemen of the Apocalypse have taken up careers in the food industry. There's just been so many things that we've seen. And listen, I'm not an apologist for the chains and perhaps some of my fellow panelists here are going to disagree with me, but we are seeing a lot of increases from our suppliers. Now, the rate has slowed of those increases and the degree of the increases

has not been as significant, but we're still seeing a lot of increases from our suppliers. And if you're in retail grocery, I'll just speak for the independents, you have a margin of 2%. You're passing that on, you don't have a choice. Kelden, do you agree that, to use Gary's words, there are other apocalyptic things happening here to contribute to the circumstances in which we find ourselves?

Absolutely, there's always multiple factors going on here but with the question of competition, especially in the past question of competition, especially in the past couple of years, you think about monopoly as the ability to pass on and not have to share the burden of those costs. So over the past years, we've seen different segments of the chain, both the beef processors, the manufacturers of consumer packaged goods, and grocers in Canada who have been able to either maintain or slightly expand margins in comparison to their equivalents in the

United Kingdom. You know, the question is when those factors occur, who shares the burden and who can pass that on further down the chain? Should we just, Jennifer, look at one part of that chain in particular? Farmers are very concerned about the cost of machinery and what they feel are unfair prices I gather. Give us a sense about what's happening in that part of the food chain, if I can put it that way. Right.

Well, certainly the disruptions from COVID and the war in Ukraine have raised prices of many, many goods across supply chains and especially with energy and material costs going up. And this means machinery prices are higher and so are fertilizer prices. And the prices of these inputs have gone up quite sharply in recent years. And this has been a big concern because, and we're concerned about concentration in particular, I should say, because when these disruptions happen, when you do have consolidation, it does give those firms a bit of cover to raise prices beyond their increased costs. And that's one of the big concerns that farmer groups have had is that these companies have

even said so in their earnings reports that the increased prices that they've been able to charge have outweighed their increased costs. So as Kelden said, he's absolutely right. The question is who is bearing the burden of the higher prices? And when you do have consolidation, those firms have more market power and it enables them to pass on those costs to consumers. Is it inevitable Sylvain that consumers are going to have to pay for the additional costs every step along the chain? Likely but not always. I do want to push the panel a little bit to think further about monopolies.

I for one believe that there are no monopolies in the food industry. They don't necessarily exist. Of course, companies will go after control and power. That's business. But there is a difference between business and abuse. And there is abuse within the system. And Gary would know that very well. And that's why there's been a lot of discussion

around the code of conduct. Companies like Loblaws and Walmart, they do abuse their power up the food chain and that forces processors and beyond farmers to consolidate and seek more power and control. That's really what leads to what we're seeing today. So consumers have every right to be concerned about control and power or over powering positions within the food system. Just before I get killed into a comment on that, Sylvain, maybe you could help us understand

what in your view is the difference between control and power and abuse. Where's that line? I'll give you two examples, Steve. One, property controls right now. And Loblaw was the first one to acknowledge that they are implementing property controls. They will have a store and right next door, they could actually ask another tenant or another food store not to carry certain products so they can actually monopolize that geographical space.

Those are called property controls. That's abuse in my view. They shouldn't be allowed in Canada. Also, companies, grocers, will charge fees. A lot of people don't know this, but to do business with grocers in Canada, you have to pay them. And often these fees change from one month to another. There are stiff penalties as well if you're late with your delivery, and that suffocates processing and farmers as well. And they, companies like Loblaws and Walmart, yet again, those are companies that will implement extra fees

out of the blue, and that really hurts the rest of the industry typically. What are the fees for? Listing fees, marketing fees, shelf space. As a consumer, you don't necessarily see those fees, but it does impact behavior, your choices, and access to certain products. And sometimes there are innovators out there

that just can't have access to consumers because the gatekeepers are really the massive grocers that we have in our country. Okay, Keldon, you want to weigh in on that? Yeah, I think there's a good point here about the path to consolidation making that abuse more likely. As we've seen with the bread price fixing case, which is still ongoing in Canada,

as you get fewer and fewer players in the market, the relationships between them get cozier, and I think the chances for that sort of abusive conduct to happen and for it to have a broader scope becomes greater. If a very small grocer is implementing property controls, that's much different than a handful of companies that might control some of the most premium real estate across the country. And that's the situation that we find ourselves in today.

Gary, for you and the people you represent, where do you draw the line between just trying to grab bigger market share and do better business versus abusing your position in the marketplace? Well, I agree with Sylvain. Property controls is definitely one of the issues that we have raised over the last few years with the Competition Bureau.

I would tell you another example of abuse that we have seen in the industry, and that's around the issue of fair supply. So we have about 6,900 independent grocers in Canada. A myriad of them are in rural remote Indigenous communities and often, notwithstanding that they might have an agreement, large chains have in the past made demands of suppliers to supply them with extra if something is in high demand or low supply and that diverts supply of goods away from the independence, particularly

those ones in those rural and urban, sorry, rural and remote and indigenous communities. And that has been a real problem for us, an abuse in our view that needed to be addressed. We've tried to address that in our grocery code of conduct, and I'm hopeful that when the code goes into effect that there'll be some movement to correct that abuse. Well, for what it's worth, the producer of this segment reached out to the Retail Council of Canada, has spent a good chunk of the last three days, including through the weekend,

trying to get a statement in time for our broadcast here. Alas, a statement was not provided in time, but there is this on their website. So let me read this and then we can have a chat about what the Retail Council of Canada says there. They say, they're pleased to see that the Competition Bureau Retail Grocery Market Study report did not make any finding that grocery profits have been excessive or that grocers have padded margins during this inflationary period. Indeed, the Bureau found grocer profit levels to be, quote, modest. The green inflation smear is officially dead, so says the Council.

The fact remains that grocery prices have gone up because of a confluence of global factors affecting grocery inputs. War, extreme weather, and soaring fuel prices all piling on top of supply chain disruptions and labor shortages. Okay, that's their statement from the Retail Council of Canada. Let's tackle that. Jennifer, what do you want to say about that statement? Well, first to say, profits have risen in the retail sector.

The question is about the marginal profit ratios, and I think they have been modest and they typically are modest in the grocery retail sector. But consumers are seeing the food price rises at the grocery store, and so that's where their concern is. But it's true that when Russia invaded Ukraine, we saw huge spikes in grain prices, and part of that had to do with financial speculators on agricultural commodity markets. And that kind of filtered through the food system and raised costs for processors, and then that also raised costs for at the retail end.

But also we saw those inputs rising as well. So farmers' costs were going up because of higher energy prices, higher fertilizer prices. And so all of those price waves worked their way through the system. But I think we still can look at the grocery retail sector and see that they did see their profits rise in 2021, 2022 and 2023 as shown in that report from the competition bureau.

Keldon, they're quite categorical in this statement. They say the greed, flation, smear is officially dead. Is it in your mind? Well, you know, we're dealing in this binary that either they're the cause of all our problems or they're off the hook. And again, going back to why we wrote this report is to say it is more complicated than that, but the retail space owns part of this. And, you know, when costs increase but your margin remains flat on an absolute

basis, you are making more profits. So while grocers are only one piece of this, and we're very clear about that, they are a piece of that. And as we've been discussing here, there are some real competition issues that I think we could address and have a much fairer market. Okay, Sylvain, I have to say every time I see you interviewed on television, which is quite a bit lately because this is such a hot topic, you take pains to say and to point out that there is, you know, there's no abuse out there. Or let me rephrase that. there is very little abuse out there in the retail sector. There are not excessive profits being taken, that there's actually responsible behavior

being exercised by the retailers in this space. And yet, you know, if I look in the business sections of the newspapers on the same day, you will see just enormous profits being made in this sector. So can you square what seemed to be two conflicting facts there? Yes, I have two points Steve. One, I think the one metric that we should look at when it comes to greed, if you will, is to look at gross margins. And if you look at gross margins of the big three, so Metro, Loblaws, and Empire Sobaes, three of them are publicly traded companies in Canada. Gross margins have actually remained

relatively the same over the last five, six years. And gross margins are very important because it will look at revenues minus the cost of goods. If that increases, it means that they are likely increasing more prices versus the cost of goods. That's one thing. The other thing that people need to keep in mind when they look at profits is that all of these companies are highly diversified. They actually make more money selling other things than food. If you look at Loblaw's quarterly results last week, half of the profits of Loblaw come from shoppers selling medication, clothing, cosmetics, and things like that. So if you want to accuse a company like

Loblaw's of greed because they're selling, say, lipstick, well, you may have a case, but when it comes to food, same store sales have remained under 2%, which is under food inflation right now. Kelden, does that ring true with you? Well, you know, going to the retail split at one point in particular, Loblaw had the opportunity with the Competition Bureau's grocery market study to provide, you know, the broken out financial data that would have really put to bed those claims over where's the source of the

margin increases they were seeing. So the Competition Bureau now has the power to actually compel information from companies to answer those questions once and for all. But I think Loblaw missed an opportunity to say if that hypothesis is true, then show us the data for it. Jennifer, should they be forced to put forward that data as asked, if asked, by the Competition Bureau? Yes. Well, we really have a problem in general of a lack of transparency with respect to data for those of us who are studying in this space.

So I'm sure my co-panelists here share the frustration with the lack of data and information that we have at our fingertips to do these kind of analyses. But having said that, making more of that data available publicly while it's useful for us to do studies, it could actually facilitate cooperation and collusion among the firms as well. So we have to be careful about how we go about improving transparency, but I would agree that definitely we do need more of that transparency. And what is going on as well is that when the Competition

Bureau was looking for evidence of collusion among firms, in the past they would look for an agreement that would show something written down that would show that firms had agreed to collude on either raising prices to consumers or lowering prices that they would pay to their suppliers. But in today's digital world, it's really difficult to basically find that kind of information. It could be behind encrypted messaging or it could simply be tacit collusion because

there are so few players in the marketplace. So it's a complicated landscape and the digitalization and data is making it difficult. So there are some cases right now in the US where they're actually investigating meat packers, for example, for colluding via data services. So it's a tricky situation. Gary, I should get you to weigh in on whether or not your business has a transparency problem. I agree. I think that more transparency would only be helpful. But if there's one message I just want to, Steve, if I can, loop back to what I was saying

at the beginning is there is no doubt that the consolidation in this industry has undermined or impacted the ability of other competitors to be able to fairly compete. It's impacted the ability to get fair supply in a myriad of communities as I said, but I do want to stress, notwithstanding our concerns about that, the abuse of dominance that we've seen over the last several years and the behaviors that needed to be addressed. I think it's important that your listeners, your viewers understand we do need to separate the issue of prices because that is by far got to be the most

important issue that is confronting Canadians today, is the prices they're paying for things. And again, I see, because through my members, I see the price increases that we're getting from suppliers. And if Lavaz and Metro and Sobe's are getting the same increases that we're seeing, they do have to be passed on. I just, again, in closing, just want to say we have seen no evidence of greedflation. We just haven't. And we would be the first to point our fingers at the chains if we thought they were doing something to undermine the system. And we do when they engage in certain behaviors. And that's, by the way, they, although they did it with different degrees

of enthusiasm, they did sign on to the grocery code of conduct. And the grocery code of conduct by them signing on, the distorted market practices that we've tried to address in the code is an admission by the industry that we have too much consolidation and has created some problems that have undermined the system and they need to be addressed.

All right, in which case, let me circle back to Sylvain and get him to address the point that Keldon put on the record a few moments ago, which is Loblaw could have availed themselves of the opportunity to be more transparent when they were asked for certain information. Should they still do that? I would say so, absolutely.

You see, Steve, even though I do question the greedflation accusations out there that have been rampant for many, many months now, we need to recognize that things have been quite cozy for grocers in Canada. If you look at Kroger, Albertsons in the US, and you look at their margins, they've been stable, but they're half of what they are in Canada. And so even though margins have been stable in Canada, they are substantially higher on average than in the US. And I do question whether or not we take competition very seriously in Canada. In the US right now, the FTC, which is equivalent to the Competition Bureau in

Canada, is suing Kroger and Albertsons because they're trying to merge. It's been going on since October 2022. While in Canada, we've seen major transactions like Loblaw's acquiring shoppers in 2013. no one said anything, Metro acquired AMP, no one reacted, and also Sobe's acquired Safeway again back in 2013, and no one said anything at all. So I do question whether or not we take competition very seriously in Canada. Kelden, that takes me to you.

In our remaining time here, I think we should all have a chance to put some feelings on the record as to, if we have a transparency problem, if we have an anti-monopoly problem, we need some recommendations for the competition bureau. Okay, Kelden, you're on. Well, you know, the first point is to really reverse

what Sylvain was talking about. We need to take consolidation seriously and we need to be challenging these mergers. Any further consolidation should be under a very strict microscope. The reality is it's difficult to go backwards, but the first step is to play a strong defense. The next thing to do is to think about those practices that might be harming fair competition, whether they're property controls or collusion. We really need a focus on that, not just at the grocery level, but all the way up the chain. We encourage the Bureau to use its new powers, particularly these market studies and expanded

abuse of dominance, to go further up the chain and understand that these, what's going on in these extremely consolidated markets. You know, third things like the grocery code of conduct, you know, our experience, looking at the experience of the UK suggests that eventually something in statute may be required to go after specific harmful practices, but again I think these are good first steps and a part of taking competition seriously finally. Jennifer, what would you add to that?

Yes, well, I would agree that we definitely need stronger competition policies in Canada and worldwide competition policies have been weakened since the 1980s. And it's interesting that the US has taken a bit of a stronger stand in recent years because the Biden administration really took charge and decided to strengthen competition policies in the US. And I do think that Canada needs to follow suit because for too long, the competition

authority has just turned a blind eye to these major mergers that have led to considerable consolidation that raises these concerns about market power in the economy. And in the food system, it really matters. Food is a basic need. It's a human right. It provides livelihoods for over a third of humanity. It's important for culture.

It's tied to ecosystems. Food is really important. And so we have to consider the consequences of concentration in the sector. You know, Gary, okay, I certainly stand to be corrected on this, but if you look back over the last 25 years, there's only one really significant example I can think of when somebody stepped in and really struck a blow against monopolistic practices and against breaking up the monopolies. And that's when Paul Martin, when he was finance minister,

told a couple of the big banks, no, I'm sorry, you cannot merge. But for the most part, we don't seem to be all that interested in striking a blow for more competition and fewer monopolistic practices. Why is that, do you think? I don't know. It's been a source of frustration and actually anger from our standpoint, from the

independent grocers. The mergers and acquisitions that have been allowed to take place, and Steve, it's not just at the retail sector. So I'll give you an example of the kinds of things that have been approved by the Bureau, because sometimes you'll have a big acquisition and they'll force the company to divest a few retail stores. But what, what could, let's take Ontario. We're TV Ontario here, here in Ontario. 59% of the retail grocery stores in Ontario are independents, but the two biggest wholesalers are Loblaws and Sobies.

So if you're an independent, in a lot of cases, you're buying from your retail competitor, that's a situation that should you're buying from your retail competitor. That's a situation that should never, ever have been allowed to occur. Unfortunately, in my view, I don't know how we put the toothpaste back in the tube. I really think we need to have a conversation as an industry and with governments about what can we do to support independent grocers and help that sector grow and stay on the playing field. It's never going to be a level playing field, but what can we do to help them stay on the field?

Well, coincidentally, Sylvain, as I gave you the last word on this discussion, we just this second heard back from the Competition Bureau. And here's the statement they gave us. I'm going to read you the statement. It's not that long, and then I'll have you comment and wrap this discussion up. The Bureau says, as noted in our annual plan, we continue to prioritize investigations of anti-competitive conduct and mergers that make everyday life less affordable for Canadians, such as in the retail grocery and food supply sector.

And we are committed to implementing the recent major legislative changes to the Competition Act and applying new tools to prevent, detect, and address anti-competitive activity in these sectors. That's what the Competition Bureau says, Sylvain. React to that if you would. Well, the Bureau does have new tools, and I'm just hoping, and I suspect by my fellow panelists, hope that they will also use these new tools to get to more data and information.

My guess is that with the Trump administration down south, things are only going to get worse. This is likely going to be an M&A friendly administration. Kroger will merge with Albertsons, and that could actually have major implications in the US and in Canada as well. And I'm also thinking about other potential mergers that could happen as well. So we need to be ready and clear about what our intent is to protect the food system

and protect consumers as well. Okay, terrific. Thanks everybody for that discussion. Jennifer Clapp at the University of Waterloo, Gary Sands from the Independent Grocers, Kelden Bester from CAMP, the Canadian Anti-Monopoly Project, Sylvain Charlois, Dalhousie University.

It was great of all of you to come onto TVO tonight and help us out with this. Thanks so much. Thank you. Thank you. Thank you.