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Comment: A case for a code of practice

When there are no rules the large grocers can bully their supply chain

Major Canadian grocers in Canada are at it again.

After Walmart and Metro, it was Loblaw’s turn to make changes to its vendor policies, implementing new fees to support a $6-billion plan to improve its in-store and digital operations. Sobeys, the only one left, if you exclude Costco, opted not to follow suit.

This has been going on for years. Justifications have varied. This time, it is mostly about e-commerce. Simply put, it’s supply chain bullying.

The tone of Loblaw’s letter was telling, as if the company knew the letter would be shared broadly. Loblaw, as did Walmart and Metro, argued that they were protecting consumers from higher food prices.

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But the true cost of these measures is an increasingly weakened food-manufacturing sector and the slow disappearance of the independent grocery retail landscape.

Since 2012, the food-manufacturing sector has lost more than 40,000 jobs due to plant closures and lack of investments. Margins have become razor thin, making it ever-more challenging to justify any further investments in Canada.

Maple Leaf Foods just built a $300-million plant in the U.S. to support its newly established plant-based division. Maple Leaf Foods, of all companies, and many of the ingredients needed to support its U.S.-based plant come from Canada.

Food manufacturing is really the centrepiece of our entire agri-food sector and it is slowly eroding.

Typically, manufacturing is where most of the innovation and growth come from in the food sector. Domestic research supported by the private sector to develop groundbreaking ideas has been gutted over the last few years. As a result, more food innovation is being imported into Canada.

Measures by the larger chains are also affecting the ability of independent grocers to offer unique and often locally produced products.

Independents are typically more receptive and inclined to sell locally grown or locally designed food products. Many of our entrepreneurs in the food sector get their only chance by dealing with independents.

The dominating oligopoly in Canada in food retail will only further its position and threaten the ability of independents to stay in the game. According to the Canadian Federation of Independent Grocers, the net profit for each store in Canada before taxes was 1.5 per cent of sales. That percentage is close to what Loblaw is asking of its suppliers. Instead of seeing food prices drop, as some major grocers are claiming, we could see the opposite happening.

One solution being presented these days is the creation of a code of practice between suppliers and grocers.

Sobeys, our country’s No. 2 grocer, is supportive of such a code. Under such a code, a grocer would be required to deal with its suppliers fairly and lawfully.

This is certainly subject to many interpretations, of course. But if such a code existed in Canada, Loblaw’s letter would not be compliant, at least in spirit.

Both Quebec and British Columbia have shown some level of interest in implementing a type of code, as the United Kingdom and Australia have done, but discussions have been informal, at best.

The federal government, on the other hand, which could certainly provide some leadership, could not be bothered to look at this complex issue.

But we have now reached a point where a solution is needed. Otherwise, we will eventually import many more products, hampering the agri-food sector’s ability to grow, moving forward.

About the author

Contributor

Sylvain Charlebois is senior director, Agri-Food Analytics Lab, and professor in food distribution policy, Dalhousie University.

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