The Current - Is Canada just three companies in a trench coat?

Episode Date: December 19, 2024

From groceries to air travel to phone providers, many services in Canada are controlled by just a handful of companies. We look at why that lack of competition has been able to take hold, and what can be done to get a better deal for consumers. 

In 2017, it felt like drugs were everywhere in the news, so I started a podcast called On Drugs. We covered a lot of ground over two seasons, but there are still so many more stories to tell. I'm Jeff Turner, and I'm back with Season 3 of On Drugs. And this time, it's going to get personal. I don't know who Sober Jeff is. I don't even know if I like that guy.

On Drugs is available now wherever you get your podcasts. This is a CBC Podcast. Hello, I'm Matt Galloway, and this is The Current Podcast. Been to the grocery store lately? Have you noticed the price of frozen french fries going up? Maybe you resisted those tater tots because they cost too much for your grocery budget. Could be that there's something nudging those prices up, an alleged potato cartel. There are three proposed class action lawsuits in the United States accusing four companies of price fixing in a multi-billion dollar frozen potato market. Two of those companies are Canadian, McCain Foods, which has close to 80% of the market in this country, and Cavendish Farms. These cases haven't been tested in court. Both companies deny the

claim. But a new report by the Canadian Anti-Monopoly Project finds that Canada's food system is indeed highly concentrated, and that goes well beyond potatoes. Keldon Bester is a co-author of the report. He's the organization's executive director. He's in Saskatoon. Keldon, good morning. Thanks for having me. What is a potato cartel? Well, a potato cartel is a lot like any other cartel. It's companies coming together and rather than competing to determine price and quantity, they're deciding amongst themselves and sort of segmenting the market of their choosing. So this frozen potato monopoly is just, or rather cartel, is just one of the most recent ones that we've seen come to light

in the Canadian and international food system. People might be surprised to hear the words potato cartel put together. What exactly are the companies that I mentioned accused of doing with frozen potato product prices? Exactly. The companies are accused of sort of instituting a bit of a lockstep price increases over a period of time higher than they would have been naturally. And so the main function of a cartel is to enforce discipline among companies that might otherwise

compete. So whereas if one company had raised their price and the other companies could decide whether to match or to try to compete on price, what the claimants are accusing the cartel of doing, or the alleged cartel rather, is instituting these sort of lockstep price increases, leaving consumers with really no choice. What has that done, allegedly, to the price of French fries or those tater tots that I mentioned in the introduction? Well, what it's done is it's increased that price relative both to the sort of generic basket of goods and as well to what the, you know, theoretical competitive outcome would be. And so this was similar to what we saw earlier in Canada with the bread price fixing scandal.

You went and you looked back and the price of bread and baked goods had really risen much higher at a much faster rate than the rest of the basket. And these are big names that are being included in this class action lawsuit or these class action lawsuits, right? I mean, these are familiar names in this country. Absolutely. I mean, as you mentioned, McCain on its own has about 80% of the Canadian market, which raises an interesting question that we have in Canada. You know, sometimes our markets are so concentrated, there really is just one or two major companies. And it raises the question of, you know, can you have a cartel with yourself in effect? The companies say that they are going to fight this. Cavendish has said that the allegations are baseless. McCain says it disputes any allegation that the company violated antitrust laws or other laws with respect to the sale of frozen potato products.

Is there any evidence? I mean, we're talking about these class action lawsuits in the States. Is there any evidence of this alleged price fixing happening here in Canada? Well, the biggest piece there is the crossover. alleged price fixing happening here in Canada? Well, the biggest piece there is the crossover. And we see this with another class action lawsuit that was successful in the U.S. around Cantuna. Those same companies, two of them accused of participating, well, found to be guilty of participating in the U.S. They have about 75% of the Cantuna market in Canada. So I think we should keep a really close eye on these cases, especially where the same firms involved are operating in Canada.

How much concentration is there in Canadian food if we go beyond this product of frozen potatoes? You know, there's really astounding levels. Canadians are pretty familiar with the idea that we have, you know, three major grocers that account for about 60 to 70 percent of the market. But the further you go up the supply chain, the worse it gets. You know, two companies control practically all of beef processing in Canada. You know, one company is responsible for, you know, about half of fertilizer in North America. A single company is about, again, half of farming equipment in Canada. And the story gets more intense and global the further you go up the supply chain, all the way to seeds,

chemicals. So there really is an astounding level of concentration. Why is that the case? We're going to talk more about the concentration of many of the things that we rely on, you know, just in the hands of a few big companies. We'll speak about that in a moment. But when you look at the food system, why is our food system so concentrated? Well, for a very long time, Canada and other countries believed that if we allowed companies to consolidate, to merge, they would be able to become more efficient and that those cost savings would be passed on to consumers at the end of the day.

But what we forgot is that competition is the process that actually forces companies to share those benefits with other suppliers and consumers further down the line. So what Canada and a lot of countries are really reckoning with today is a system that is now dominated by a very small handful of firms, and the process to reverse that power is extremely difficult. What has to happen to address this, do you think? Well, you know, the first stage, first stages we've already taken, thankfully, is we've strengthened our competition laws, and we've begun to understand that this concentration can be problematic.

The next step is to go after these, what we call abuses of dominance, these individual actions, whether they're cartels or predatory pricing or, you know, a whole range of conduct that dominant corporations engage in. But to really reverse the process, we need to start thinking about breaking up some of these concentrated markets. And in Canada, we're not there yet. But I think with more and more of these cartels coming to light, we should really consider how that should happen. Keldon, good to talk to you about this. Thank you very much. Thank you. Keldon Bester is executive director of the Canadian Anti-Monopoly Project and co-author of its report, From Plow to Pantry, Monopoly in the Canadian Food System.

In 2017, it felt like drugs were everywhere in the news. So I started a podcast called On Drugs. We covered a lot of ground over two seasons, but there are still so many more stories to tell. I'm Jeff Turner, and I'm back with season three of On Drugs. And this time, it's going to get personal. I don't know who Sober Jeff is. I don't even know if I like that guy.

On Drugs is available now wherever you get your podcasts. Vas Bednar has co-written a new book on this issue. It's called The Big Fix, How Companies Capture Markets and Harm Canadians. She's executive director of the Master of Public Policy Program at McMaster University in Hamilton, Ontario. Vas, good morning to you. Good morning. We need to hear Kelden describe the degree of concentration in this country's food system. How reflective, we'll talk about specifics, but broadly, how reflective is that of the economy overall?

I mean, it feels like you can find it everywhere. Kind of different supply chains you look into, rocks you peek underneath. I should say too that I'm on the advisory board of the Canadian Anti-Monopoly Project. It makes me feel like concentration is kind of endless and maybe has come to characterize our country in this really kind of strange way that we're starting to push back against. So the cliche is that Canada is three companies in a trench coat. And in the book you talk about, just in the introduction, how we have three, these are your words, we have three major telecommunications companies, five grocers, a few big banks, two major airlines, one train company, but it goes beyond that as well, right? Veterinary services, funeral services, movie theaters. It feels like much of the life of Canadians is controlled by just a handful of

companies. It does feel that way. I think there are not just, I think it's not just concentration, it's also kind of tactics and strategies that companies use regardless of their size. Well, there's also this issue, people might think, well, no, I mean, there's other grocery stores. I can go to a number of different grocery stores. But you look at the issue of a false competition, right? Yeah, we talk about this kind of illusion of rivalry that we dress up by borrowing a term from professional wrestling. So spoiler alert, those feuds tend to be fabricated, right? And we sort of say that a lot of companies are engaging in a little bit of kayfabe. You know, they're going through the motions of competing, as you see with cartels,

right? There's an illusion that there's robust competition there. But when you kind of peek behind the curtain or other cliches, it's not really there. And when we worry about price fixing, of course, a lot of people go back to that bread price fixing scandal. But in some of the research I was doing for the book, I kind of went nuts in a class action database that Canada has. And we've had cases of price fixing in weird places like chocolate, drywall, telescopes, car tires, LCD screens, right? tires, LCD screens, right? Like, there's a lot of places where people have been trying to sort of use the courts as a complement to the Competition Bureau's core work. How did we get to this place where we are three companies in a trench coat? You know, and that doesn't do justice to trench coats. Trench coats are beautiful. Okay. How did we get here?

I mean, in the book, I think we're pretty generous. We sort of point back to the culture. We kind of blame the 80s, right? That culture then of, you know, get out of the way, kind of light touch, minimal regulation. And this, you know, what was more widely held, right? That if we left the market to be as quote unquote free as possible, we would be able to reap those benefits. A sort of sassier, almost more depressing potential answer I've been chewing on recently is like, could it be that in some instances, culturally in Canada, we have just seen it as almost polite or good to say to our top competitors, let's divide this up.

You know, you take this geography, I'll take that geography. Hey, just so you know, our price is slightly going up. I'm not saying this has come to characterize the country, but we've been thinking about it for so long, right? Why? Right? How could we ever think this was good? And part of how we got here is that we've been told for a very long time as Canadians that geography is our destiny, right? Our population, we don't have enough people, they're, you know, dispersed in weird ways, it's expensive to ship, sometimes we see companies pouting about bilingual labeling requirements. I mean, really, I think in this globalized economy, and especially in an increasingly digitized or digital economy,

we can sort of start to shirk those geographic reasons and not accept that, you know, having a handful of companies in a variety of sectors is actually beneficial. I mean, people get pinched for this. People will complain about higher prices, etc. But you suggest in the book that this is also a democratic issue. Right. I mean, look, rules are set by us. We make and remake markets all the time through public policy, right, through the instruments that we have. And it's really a captivating illusion, this idea of free markets. We point out in the book that most markets that

we think are free, we point to that as the absence of government regulation. But without government regulation, we find that markets are actually highly regulated, that private companies act as de facto regulators. They set the rules. Amazon has set many rules for small businesses, medium-sized businesses that want to sell with them. They've set the terms of competition and they've set them largely in their favor and they're rewarded for that. Is that how these systems should work or can they be more effective? And we're of the mind that they can be more effective. You say in the book that 88% of Canadians want more competition. I mean, if you go onto the internet, not that it is, you know, a representation perhaps of the truest thoughts of

people, but you will find a lot of unvarnished rage from people who feel jerked around by their cell phone company or their airline or the cost of groceries. Where does that anger, where does it go and what results does it get, do you think? I love that question of where it goes. I mean, yes, more memes, right? More rage, more Reddit threads, more kind of calling out companies. Tim Wu, who's Canadian by birth and who was one of the architects of President Biden's historic executive order on competition, he said one of the architects of President Biden's historic executive order on competition, he said this last year at the Competition Bureau's annual summit, it's already been so boring, it just really stuck with me. He said that it's really important to

pay attention to the direction of public anger, right? That it's not necessarily the source of the richest policy solutions, but that it cannot be ignored. And I think that sometimes the little ways we kind of get dinged, things like junk fees, right? Or Air Canada now saying, starting in January, you have to pay $35 if you want to bring a carry-on bag. Like, these annoyances do enrage us and they kind of add up. Where do they go? I mean, they have to translate not just to the policy changes that Keldon was shouting out, but to that enforcement. We have to translate not just to the policy changes that Kelden was shouting out, but to that enforcement. We have to see that, frankly, the state has our back saying out loud, sends a message that we are noticing, right? That it's not just consumers and suppliers, but that the government is noticing the coincidence of these price increases in tandem. And we're able to articulate those harms and that we're going to do more of an investigation.

So noticing is one thing, change is something else. What has to be done to change this, to improve competition in Canada? I mean, a stronger voice for our competition bureau, right? Back to that culture of being kind of polite, demure, mindful. When we're doing preliminary investigations at the bureau, I don't know why I included myself there when the competition bureau is, we don't say anything, right? And the rationale for that is, you know, we don't want to affect a company's perception or investments or deals that they're doing. But the other part of me says, should we not know? Hey, we're doing a preliminary investigation on Amazon. Hey, we're going to check out this merger. If you don't find anything,

if we're not moving forward, let people know. But there's this kind of undercurrent of activity at the Competition Bureau that no one can ever really know about unless they bring a case forward. And that kind of makes it seem that the Bureau's not crazy busy kind of working for people. A second thing that's just kind of really small and occurs outside of government public policy, we shout out journalists. So Denise, my co-author, Denise Hearn is a dual citizen. And I get kind of jealous of her because right now she's living in the US and there are a range of reporters that have a dedicated beat on corporate power. And we're just sort of starting to get that in Canada. But we've seen these fascinating fast follows where from reporting and news stories, we're seeing investigations, we're seeing policy changes, right? Because again, we're surfacing important ideas. And

that makes me very encouraged to sort of see government responding quickly. And I just really think we need more of that. Should government, this is something that you tease out in the book, should government look at breaking up some of these companies? This is the subject of discussion in the United States, particularly right now around Google. Would that create more competition if one company, which has so many, you know, different elements in its hand, was forced to divest some of those elements? I will say, in the case of grocery, you know, it's an open question, right? If what we don't like in the digital economy with a firm like Amazon is the power imbalance of owning and operating a marketplace, then is that something where there should be a

structural separation for grocers, right? Maybe grocers need more blindness when it comes to directly competing through their private label products. Maybe there needs to be some spinning out there where private labels are totally different vertical and there's more of kind of a data wall between the companies. Or we need, or we need, you know, businesses from elsewhere to be able to operate in this country. That would also be great. And you know, when people say we need more competition, it's kind of like what

kind and to what end. One of the things I'm kind of stressing about right now is the future of Canada Post as a crown corporation. And if we're going to see a move to kind of blow it up or get rid of it or privatize it in the way that in the U.S. there's a move to privatize UPS, you know, what we lose from potential public price anchors. And that's something that Canada has historically done very well. That could be something else that we do see more of in the future. We're starting to see more of it with municipal broadband. Again, change doesn't happen overnight, but it's happening. That market is being remade. And I think that's really smart and savvy. Just two final things. One is for people who say, and they believe in that ethos

of the 1980s, you know, Ronald Reagan saying, you know, the words that you don't want to hear, I'm from the government, I'm here to help, that they say the government should get out of business and not be interfering with business. What would you say to them? I talk to them a lot, both in my mind, you know, on panels in real life through the book. I sort of try to remind people that smart regulations benefit everyone, right? But I'm hopeful that Canada in the future will continue to be smart. And what that means is having different ministries and different orders of government care about competition and understand the implications for competition of different policies that they put in place. Because I think that's part of that question you asked me earlier, which is how the F

did we get here, right? And maybe that's because competition was an afterthought if we were even thinking about it at all. So should people, just finally, should people, the people who are steaming about the cost of their french fries or their cell phone bill, should they feel hopeful that we will see more fair competition or the right kind of competition that will help them coming they should feel hopeful but they should keep the pressure up i think in this next election we'll see a lot of ideas hopefully great ones about you know how to improve markets in this fall economic statement we've seen more interventions that are a little bit more superficial about

helping with prices, and they're not structural. But don't feel, it's okay to feel demoralized, but, you know, some people are being kind of driven crazy, right? All these junk freeze, dynamic pricing, personalized pricing, surge pricing, your Pringles can getting smaller, less soap in your shampoo. It's just like, what is going on here? And it's all about market power at the end of the day, and it can be fixed. We'll leave it there. Vas, thank you very much. Thank you.

Vas Mednar is co-author of the book, The Big Fix, How Companies Capture Markets and Harm Canadians. Your thoughts on the lack of competition in this country? Do you feel that rage that she was talking about? And if so, what do we do about this? You can email us, thecurrentatcbc.ca. For more CBC podcasts, go to cbc.ca slash podcasts.