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House of Commons committee recommends feds tackle 'excessive' profits in food sector

Food sector profits excessive

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

The committee recommended the government look into ways to address these profits in "monopolistic and oligopolistic sectors in the food supply chain," which it says are driving up prices for farmers and consumers.

In a report presented on Thursday, the committee detailed its research into the causes of food inflation and insecurity in Canada, including the high-profile testimony of grocery executives over the past several months.

The leaders of Loblaw, Metro, Sobeys-owner Empire, Walmart Canada and Costco have all faced questions from MPs over the size of their profits amid high food inflation, which the grocers say they haven't unduly profited from.

The committee report offered a number of recommendations that range from lowering the barriers to entry for new companies to Canada, to making legislative changes to strengthen competition law regarding mergers.

The committee also recommended that the government discuss with the provinces and territories legislation to make the grocery code of conduct mandatory.

It comes on the heels of an announcement from Loblaw that it plans to sign on to the code after months of pressure on the country's largest grocer to participate.

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

It's meant to be voluntary, but in recent months pressure has grown on the government to make it law instead as not all of the major grocers appeared to be willing to sign on.

In December, Loblaw and Walmart told the committee they were concerned it would increase prices for Canadians. And earlier this year, the committee wrote a letter to those two grocers, saying if they didn't sign on, it would recommend that the code be made mandatory.

Last week, Loblaw announced that after months of discussions it was ready to sign on to the code as long as all stakeholders do.

"The code now is fair, and it will not lead to higher prices," said president and CEO Per Bank.

At the time, Walmart said the company is reviewing the latest draft of the code.

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

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

Michael Graydon, CEO of the Food, Health & Consumer Products of Canada association and chairman of the interim board for the code, said the group is "very supportive" of all the committee's recommendations.

When it comes to the code, "our industry's desire is a fully inclusive code that involves all stakeholders. That remains our goal and so (I) am hopeful that can be achieved," he wrote in an email.

Francis Chechile, a spokesman for Agriculture Minister Lawrence MacAulay, said the government has been clear that it supports an industry-led code, but that after years of work, "it's well past (time) that all major retailers join the Code."

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

"In the meantime, we are exploring all available federal options, including legislation. As key aspects of the Code would fall under provincial jurisdiction, we have encouraged provincial and territorial governments to do the same.”

The committee's report references research the Competition Bureau released last year that noted the Canadian grocery sector has become increasingly concentrated through a series of mergers and acquisitions in recent decades.

The Competition Bureau is currently investigating the use of restrictive clauses in the grocery sector, controls in lease agreements that it claims hamper competition in the industry.

And industry minister François-Philippe Champagne has said he’s seeking a foreign grocer to strengthen competition in the Canadian market.

The report's recommendations include that the government should empower the Competition Tribunal to dissolve or prohibit a merger if that merger would result in excessive combined market share. It also recommends that the law be strengthened by shifting the burden onto merging companies to prove that their deal won't hurt competition.

A spokeswoman for Champagne's office highlighted recent changes the government has made to the Competition Act, saying bills C-56 and C-59 "have already addressed concerns such as curbing excessive 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 stand up for Canadians by working with provincial and territorial partners to make life more affordable and continue to hold corporations accountable."

Though grocery inflation has moderated significantly from its highs, reaching just 1.4 per cent in April, prices have risen 21.4 per cent over the past three years. The resulting squeeze on consumers' wallets combined with higher interest rates has led to public pressure for the government — and the grocers — to act. Some consumers have launched a boycott of Loblaw, the biggest of the Canadian grocers, to voice their frustrations.

The grocers, especially Loblaw, have been expanding the number of discount grocery stores in their portfolios to meet increasing demand from Canadians for lower prices. In turn, their discount stores have been major drivers of overall sales growth.



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