Will the proposed grocery code of conduct have any impact on food prices and the food industry?
The proposed grocery code of conduct has sparked debate on just how effective it will be in stabilizing prices in Canada, and for good reason.
The public lacks detailed information about this code, and many do not realize the significant influence that major players like Loblaw and Walmart exert on the food industry. This issue is particularly relevant amid rising food prices and concerns about affordability in Canada, reminiscent of the notorious “bread cartel” era.
The bread price-fixing scandal, which allegedly persisted from 2001 to 2015, infuriated Canadians. It came to light in 2017 when Loblaw and Weston Bakeries, both owned by Loblaw at the time, admitted their involvement in the nearly two-decades-long scheme.
Despite the scandal, public attention quickly receded after Loblaw offered a $25 gift card to Canadians. However, persistently high food prices reignited criticism and distrust toward the company, with the investigation still unresolved after nine years. Nine years!
Remarkably, no executives were prosecuted, although Grupo Bimbo, which acquired Canada Bread from Maple Leaf Foods in 2014, paid a record-setting $50 million fine. Along with Loblaw and Weston Bakeries, Canada Bread also admitted participation in the cartel.
Meanwhile, other grocers, including Walmart Canada – which has yet to endorse the code of conduct – remain under investigation. The ongoing legal disputes and accusations of defamation only add to the industry’s tainted image.
The root cause of the bread price-fixing scheme seems to be a desire to increase profit margins without relying on innovation or market expansion. Instead of introducing new products or ideas, the involved parties chose to manipulate market conditions.
A previous report by the Agri-Food Analytics Lab at Dalhousie University suggested that the bread price-fixing scheme was feasible given food price trends, particularly from 2015 to 2017. The scheme wouldn’t have been possible without the significant control and power held by Loblaw and Weston Bakeries through vertical integration. Canada Bread was coerced into joining the cartel, costing Canadians an estimated billion dollars in extra bread costs over 14 years. One billion dollars!
While private companies generally operate freely within the law, some have been involved in unlawful activities for years. The proposed code of conduct aims to foster innovation, facilitate new players’ market entry, and enhance competition in various food categories, including bakery. It would also make co-ordinating illegal schemes more challenging by increasing oversight.
Moreover, the code would enhance transparency in vertical co-ordination, as reports detailing company behaviours would be publicly accessible. Though skepticism about the code’s effectiveness is understandable, a deeper understanding of supply chain dynamics reveals that it could significantly reduce the temptation for illegal price fixing and shift the focus toward innovation and competition.
Dr. Sylvain Charlebois is senior director of the agri-food analytics lab and a professor in food distribution and policy at Dalhousie University.
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