The Decibel - A $50-million fine in Canada’s bread price-fixing scandal

Episode Date: June 27, 2023

Over 20 years later, someone has finally paid the price for Canada’s bread-fixing scandal – other than shoppers that is. Last week, baked-goods producer Canada Bread was fined $50-million for its role in coordinating the price hikes on bread.Susan Krashinsky Robertson is The Globe and Mail’s retail reporter. She explains why it has taken so long for the Competition Bureau to hold a company accountable and whether Canadians will be compensated for years of inflated bread prices.Questions? Comments? Ideas? Email us at [e-mail]

The story we're going to talk about today started way back in 2001. Yes, 2001, when flip phones, low-rise jeans and aggressive side bangs were a thing. And so was fixing the price of bread. And just like the trends of the early aughts, the bread price fixing scandal is back in the news again. One of the major bakeries involved has been hit with a big fine by Canada's competition bureau. 50 million dollars. Susan Krzynski-Robertson is the Globe's retail reporter and she's back on the show to talk about Canada's big bread conspiracy and whether shoppers will see any money. I'm Cheryl Sutherland and this is The Decibel

from the Globe and Mail. Susan, thanks so much for being here today. Thanks for having me. So I want you to take us back to 2001 when this bread price fixing scandal started. What happened? So we don't know exactly how this started. What we do know is how this came to the public's knowledge. So that happened in 2017 when Loblaw, which is Canada's biggest grocer, and George Weston, which is Loblaw's parent company and also owned at the time one of its largest bread producers called Westin Foods. Together, those two companies tipped off the competition bureau that there was something going on with price fixing across the industry on the price of bread. And how did the public react to this? Well, people were outraged. And so Loblaw and George Westin admitted that they had taken part in this scheme. And you might remember this, they offered up $25 gift cards as

compensation, sort of as an apology to consumers. And what happened there is that started the gears moving on an investigation. So they had taken this to the Competition Bureau in 2015. The investigation started in 2016. And Loblaw and Weston gained immunity from prosecution as a result of being the first ones to take this to the Competition Bureau. And so this investigation has been ongoing ever since then, more than seven years. So 2001 is when it kind of started. We don't know exactly the dates around here, but we found out about it in 2017.

That's right. And the allegation is that this went on from 2001 to 2015. So a pretty long time, a lot of years. Wow. Okay. So I think it's worth kind of talking about the basics here because we're talking about price fixing, but what exactly does that mean? Yeah, that's actually a really good question because a lot of things can look like price fixing, but they're not actually illegal or technically price fixing under the law. So let me explain what that, what I mean by that. Like, let's say that I have a coffee shop. It's Susan's coffee shop and you also have a coffee shop. It's right

across the street from my coffee shop. We're competitors. And there's a really good chance that if you sell coffee for three bucks, I'm going to sell coffee for close to three bucks. And that's just because we're competing. I'm not going to charge a huge amount more unless there's some kind of crazy difference in the quality of my coffee. So there's a really good chance our prices are going to look very similar. But that doesn't necessarily mean that we've done anything illegal. Now, where it gets thorny is if I think to myself, you know, I've got to charge three bucks for this cup of coffee because Cheryl's never going to charge more than three bucks for this cup of coffee. But if Cheryl would agree to charge four bucks, I could increase my price and we could both make more money. So I'm going to cross the street

and have a conversation. And that's where we get into the territory of a conspiracy. And so that's when you get illegal price fixing. So it's not necessarily that prices are similar, that you can tell that there's wrongdoing. It's when competitors have an actual conversation with each other and make some kind of arrangement to artificially inflate the price of something. So let's bring it back to the bread. Do we know exactly how much bread prices increased for consumers because of this? amount that they increased, but we have some information from these court documents that were actually filed last week when the news was that Canada Bread agreed to pay this $50 million fine in this case. It's the first major step forward in this case, by the way, in more than seven years. So that's a big, big step in this case.

And those court documents talked about four different conversations that happened between Weston Foods, so one of the biggest bread producers at the time owned by George Weston, and Canada Bread. And those two competitors made arrangements, they say, to increase the price. And it doesn't actually sound like a lot. The court documents describe, you know, one price increase of eight cents on, you know, a packaged bread. Another one is like 12 cents, 14 cents. It doesn't sound like a lot, but when you spread it out over all of these packages of bread sold all across Canada over 14 years, alleged in this scheme, you can see how that would really, really add up. So we don't have a total number that this cost Canadians, but it is worth noting that a loaf of bread cost about $1.35

in the year 2000. And in 2015, it was $2.93. That's a 117% increase according to Statistics Canada. But if the price of that loaf had increased by the rate of food inflation, it would not have gone up that much. So instead of being 293, it might have been closer to 203. And that's according to data collected by a food market analyst. So, you know, we can't ever know what the price would have been in this competitive market. But there are signs that it did go up to an inflated degree or an artificial degree. Okay, so like you said, we're talking about this today because this company, Canada Bread, recently got fined $50 million.

But why exactly did they get fined? Well, they got fined because they came forward and they admitted wrongdoing. And so as part of this Competition Bureau investigation, one of the things the Competition Bureau does is it actually incentivizes companies to come forward by offering, in some cases, decreases on fines. Or if you're the first ones to come forward, like Loblaw and George Weston did, you get immunity from prosecution. So for being one of the first ones to come forward, they got a little bit knocked off that fine.

So that $50 million they agreed to pay could have been $70 million. But they got a bit of a discount, essentially, for cooperating with the Competition Bureau. And the next company that comes forward might get a smaller discount than that. That's so interesting. There's discounts to coming forward. Because I was going to say, what would be the incentive to be like, okay, we were a part of this. But that is so it's actually a discount in a fine. And it's an incentive for cooperation, right? Because these investigations are so complex, because they involve so much data, having the cooperation of a company that was involved can be hugely beneficial to the Competition Bureau in actually moving this forward. And so that's why they offer this, especially, by the way, for the ones who are actually moving this forward. And so that's why they offer this,

especially, by the way, for the ones who are first to come forward. They offer these sort of whistleblower incentives because otherwise these conspiracies arguably would remain secret. There would be no reason for it to come out. Right, I mean, that makes sense. It's a bad look for a company to be involved

or even just alleged to be involved in something like price fixing. So what does admitting guilt do to Canada Bread's image? The PR damage in some ways has already been done because this scandal became public back in 2017. And the country has known about this for a long time. So in some ways, yes, it brings them back into the news, probably does a little bit more damage for sure. But clearly, there's some kind of a calculus on the part of Canada Bread's new parent company, Grupo Bimbo, we want this resolved. And so whatever damage it does them, whether it be financial, whether it be brand damage, they've sort of decided to take that hit at this stage. And that's how they're moving forward. Have other companies been charged or just Canada

bred here? So no one else has yet been charged. The Competition Bureau says that its investigation is ongoing. And there are a number of other companies that are still under investigation, including some of Canada's biggest grocery retailers, Walmart, Metro, Sobeys, Giant Tiger, as well as Maple Leaf Foods. And this is a little wrinkle in this story. Canada Bread, when all of this was allegedly going on, was owned by Maple Leaf Foods. But in 2014, the company was acquired by a Mexican conglomerate called Grupo Bimbo. And it was Grupo Bimbo that actually cooperated with the Competition Bureau here, which led to this fine. But the activity allegedly happened under Maple Leaf Foods' ownership. And

Maple Leaf Foods also remains under investigation by the Competition Bureau. And they, by the way, have issued a statement saying they deny any allegations of wrongdoing. So Canada Bread admitted that they were in on this scheme. But what does this mean for the other companies that are still caught up in this investigation? Like, what does that mean for the Sobeys and the Metro and Walmart? You kind of mentioned that there's this incentive, but what else could be happening for these companies? Well, I mean, it means that whatever Canada Bread has provided to the Competition Bureau in terms of information about its conversations with retailers will now help with that investigation. This has also partly taken a really, really long time because there's just a huge amount

of evidence to go through. So the Competition Bureau seized lots of records. They executed search warrants against many of these companies between 2017 and 2019. The Commissioner of Competition for Canada told me this was the largest amount of records ever seized in any investigation that they've ever done. And they're combing through those records now. But yes, what this means is that this is ongoing. And whatever information Canada Bread has brought forward will only assist in that investigation. I'm curious, when you say evidence, what are we talking about? for a paper trail or a digital paper trail for any of the activities that are being alleged here. And it's really important that they are thorough in that search because under competition law,

when we're talking about a conspiracy to engage in price fixing, that's a criminal charge. And what that means is that they need proof beyond a reasonable doubt. And so they really need to be thorough and gather as much evidence as possible and look for as many records as they can. So they're coming through a lot of data right now. Okay. So criminal charge, does that mean anyone will go to jail? No, not at this stage. So by paying this $50 million fine that came out last week and agreeing to the statement of facts, Canada Bread has now resolved the investigation into that company. So no one's going to jail. The fine is the entirety of the penalty against that company. And again, because they have cooperated. That being said, there are still people who are implicated, people who are no longer at Canada Bread, people who may have been with Maple Leaf at the time, which again was its owner at the time of this activity.

And investigations there are still ongoing. So it's not clear what could happen in the future. This investigation is still very much not over. But for now, the portion of this investigation that relates to Canada Bread itself is resolved. Okay, so let's talk about this $50 million fine just for a second. For me, it's hard to know if that's a lot of money. Is that a lot of dough? Sorry, I had to do one pun. I'm so sorry. I didn't know my dad was hosting this podcast. So it's interesting. It is. It's a lot of money. And yet it's subsequently not as much money as the Competition Bureau has wanted to find. So again, I mentioned I spoke with the competition commissioner last week, and he talked about how he has been advocating actually for years that the competition bureau needs more power and needs the power to levy larger fines, give bigger penalties to really, was that a new amendment to the Competition Act came into effect that removes those maximum limits on fines.

That was a law that was passed about a year ago, but it actually came into effect, funny timing, just a couple of days after this Canada bread settlement was announced. Now, that won't actually have any impact on this bread price fixing investigation specifically because the law at the time of the wrongdoing is what applies. So if and when the Competition Bureau resolves any other parts of this investigation or levies any other fines, they'll still be subject to the old limits that were in place. Again, the competition commissioner said to me that he still believes $50 million is a sizable enough fine to act as a real deterrent to other companies. But he's clearly looking forward to a situation in the future where if

they have another investigation like this, the deterrent could be even stronger. Okay. And who gets paid here? It's the government. So fines for criminal offenses under the Competition Act are paid to the Receiver General for Canada, and they become part of the government of Canada's revenues. This makes me again think about the consumer, because when we talk about fines and we talk about companies, there's always a thought that maybe this goes on to the consumer. So is there any chance that this fine might be passed on to regular Canadians? I mean, I think the Competition Bureau's argument would be that insofar as this deters other

companies from doing this in the future, it will protect the consumer, will help the consumer. There are also a couple of civil cases that are ongoing, class action lawsuits into this same matter, and they are seeking further compensation of some kind. Now, those suits are ongoing. They could last years more. We don't know what the resolution would be. And we also don't know what form that compensation could take. It's not necessarily the case that it would be payments directly to consumers. Sometimes it can be things like charitable donations to food banks.

But that's a long way off and depends on them getting a positive judgment. So it's difficult to say really what impact this will have on consumers themselves, other than attempting to deter companies from this kind of wrongdoing down the road. Okay. I want you to help me understand this, because Canada Bread has admitted that the price that we paid for bread was artificially inflated. So are they reducing prices now to adjust for this past price fixing? What a good question. Yeah, it's funny. When we talk about price fixing, it's not always the case that necessarily just because there's been price fixing that the price wouldn't have gone up otherwise, right?

But when I asked that question to the new owners, Grupo Bimbo, who say that they had no idea, by the way, that this was going on when they bought the company, I asked them, you know, when you learned of this wrongdoing, did you take any steps to reverse or mitigate some of the price increases that happened during the time of that wrongdoing under its old ownership? And Grupo Bimbo wouldn't answer that question. Interesting. OK, so I want to take a look at the bigger picture here, because trust is an issue when it comes to Canadian grocers. They're facing a lot of flack from shoppers these days when food inflation is running really high and people are accusing them of greedflation, as we have heard a lot about. So where does this settlement and this fine with Canada Bread leave things? I think it plays a huge role in that conversation. You know, over the last two years, grocery prices have gone up by roughly 18 percent.

That's a huge amount. That's been massive pain for Canadian families. And Canadians are really upset. And over that time period, the grocery retailers have been saying that it's really important that people understand that food inflation isn't only their fault, even though it's in those stores where we feel that pain the most, because it's the last step of that food supply chain. But they've been trying to send this message saying, you know, food inflation is a global issue. It has impacts throughout the supply chain that affect the prices.

And it's not just at the store level where things are being jacked up. And there actually is some merit, by the way, to what they've been saying. It is a really complex issue. And there are a lot of factors that go into the price of our food and how much it goes up. But the problem here is that people have long memories and people remember that there was price fixing here. I think it was a massive blow to trust in the industry, a massive blow to trust in the food retail sector in general. And so when we talk now about the conversation over food inflation, and when retailers talk about wanting people to see the more complex picture,

they're not wrong to want that. They're not wrong to put those facts forward. But it's also important to recognize that Canadians' faith in this system has been really, really shaken. And last week's news is just a very sharp reminder of that. Trust is a hard thing to get back, right? It is, absolutely. Susan, thanks so much for being on the show today. Thank you. That's it for today.

I'm Cheryl Sutherland. Our summer producer is Nagin Nia. Our producers are Madeline White and Rachel Levy-McLaughlin. David Crosby edits the show. Adrienne Chung is our senior producer and Angela Pichenzla is our executive editor. Thanks so much for listening, and I'll talk to you tomorrow.