In a recent earnings update, Galen Weston, the Chair of Canada’s largest grocer, Loblaw Companies Ltd., reported a 12% increase in profits, at a time when rising food prices and affordability in general, is top of mind for Canadians. Weston also chose that opportunity to take a swipe against the proposed Grocery Code of Conduct that has been developed through a collaborative process with all sectors of the country’s agri-food industry.

What is this Grocery Code of Conduct and more importantly, why is this code important to Canadians?
The Canadian grocery industry is one that is overly consolidated. This lopsided playing field puts independent grocers, producers and processors at a competitive disadvantage within a climate of unfair and distorted market practices. Unilateral and onerous fees imposed by large retailers on their suppliers and undermining access to reliable food supply for independent grocers, raised alarm bells with governments across the country. As a result, on Nov. 27, 2020, the Federal-Provincial and Territorial Ministers of Agriculture and Food, created a process to develop a Grocery Code of Conduct which would “address the concerns of processors, producers and independent grocers regarding increased retailer fees on suppliers and the need for balance in the supplier-retailer relationship, while also ensuring that Canadians continue to have access to a reliable food supply at affordable prices.”

A grocery code will promote fair industry relationships
The code that has now been developed after more than two years of negotiations and consultation, is not some weighty regulatory tome, nor will it level the playing field for smaller industry players. It is, however, a set of principles of good behaviour to promote fair and healthy relationships within the industry, helping those smaller businesses at least stay on the playing field.

It is a code with reciprocity as a key component, in that the principles apply both to retailers and suppliers — a concept embraced by independent grocers, the supplier community and, to their credit, retail chains such as Sobeys and Metro.

Notwithstanding Weston’s admission that “we’ve been active in conversations about this code of conduct for a couple of years now,” Loblaw now claims, with no supporting evidence, that the code will raise food prices by an estimated $1 billion. None of the industry stakeholders who designed and support the grocery code, would back any measure that increased food prices. It also is worth noting that in jurisdictions such as the U.K., Australia and Ireland, adoption of grocery codes resulted in consumer food prices dropping.

There are a number of issues that impact food prices, so it would be simplistic to attribute those drops entirely to having a code. But it certainly belies the claim by Loblaws that a code will increase food prices.

There are nearly 7,000 independent grocers in Canada
A grocery code with as wide a scope of products as possible captured in its provisions, is also important to Canada’s independent grocers and by extension, of critical importance to Canadians.

There are about 6,900 independent grocers in Canada. Many are located in rural and remote communities where they are often the only grocery store — and source of food — to those communities. As such, the issue of food security in those areas is very much predicated on the ability of those independents to access a reliable supply of food and essential products at affordable prices.

Disparities in pricing and supply are prevalent within the food industry. For example, a large retailer may provide a forecast to a supplier indicating they expect to order a certain amount of a product within a given time period. The supplier, in turn, plans around the forecasts of that chain and other retailers, including independents. But many times, when demand for a product is higher than their forecast, or there is a shortage of a particular commodity, that retail chain will insist on additional product and threaten to fine the supplier for failing to meet that extra ‘request.’

To comply with that and avoid a penalty, the supplier will divert product away from other retailers, particularly independents who lack the size and leverage of a retail chain. This puts reliable and affordable food supply at risk in a myriad of communities.

A code would improve supply chains, lower costs
One of the principles outlined in the code to address this issue, provides the manufacturer with the ability to accept or reject an order from a retailer and that they cannot be fined for failing to supply a customer for an order that was not mutually agreed upon. This principle of reasonable behaviour will also encourage suppliers and retailers to work in collaboration to achieve more accurate forecasting. That exercise will improve supply chain efficiencies, lower costs and ensure that independent grocers have access to the products that their community needs.

Just a few months ago, the Competition Bureau of Canada weighed in on the current state of Canada’s grocery industry. Along with welcoming the code as being a good thing for consumers, the bureau felt more could be done to increase competition in the grocery industry. A key recommendation in their report was that federal, provincial and territorial governments in Canada need to encourage the growth of independent grocers.

Mr. Weston must acknowledge that the food industry is one that is interconnected and interdependent. It’s well past time for a Grocery Code of Conduct. It’s time to give this code a chance to work. It’s time to end unilateral fees and practices that negatively impact suppliers and independent grocers. It’s time to put Canadians first.

Former U.S. Supreme Court Justice Potter Stewart perhaps put it best: “Ethics is knowing the difference between what you have a right to do, and what is right to do.”

Gary Sands is senior vice president of the Canadian Federation of Independent Grocers and a member of the Grocery Code industry steering committee.

Source: The Star