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A shopper is seen at a grocery store in Toronto. On Monday, the Competition Bureau announced a study of the grocery sector as consumers deal with high inflation.Frank Gunn/The Canadian Press

The federal competition watchdog is launching a study of Canada’s grocery sector, as surging inflation in the cost of basic necessities has riled consumers and brought retailers under increasing scrutiny.

Grocery prices are rising at a pace not seen in this country in 40 years. The goal of the market study, according to the Competition Bureau, is to make recommendations to government on how it could improve competition in the industry.

But the bureau says it is not investigating any specific allegations of wrongdoing, and has no power to compel companies to provide information.

The study follows a motion brought by the NDP that, among other measures, calls on the Competition Bureau to investigate grocery profits. The motion received unanimous support in Parliament last week.

Food prices have been affected by various factors including rising costs of transportation, supply chain snags and Russia’s invasion of Ukraine.

Retailers have repeatedly denied accusations that they are profiting off inflation. Last month Michael Medline, the chief executive officer of Sobeys parent company Empire Co. Ltd., called such claims “reckless and incendiary attacks” that were misinformed.

“The [profit] margin rate is between 2 to 4 per cent for grocers … and that has not changed in the last three years,” said Diane Brisebois, president and CEO of industry group the Retail Council of Canada, adding that she welcomes the study and plans to participate.

The bureau will look at whether competitive dynamics could be pushing prices up more than necessary. The study will continue until June of 2023, and will also examine what other countries have done to increase grocery competition, and how governments can encourage more competition.

Grocers have said they fielded an unprecedented volume of requests for cost increases from suppliers this year, forcing them to raise prices. Small retailers are seeing the same requests from suppliers as the big chains, said Gary Sands, vice-president of government relations for the Canadian Federation of Independent Grocers. While he pushed back against the idea that price-gouging has exacerbated inflation, he said he believes consolidation – both among retailers and suppliers – has negatively affected independent retailers’ ability to compete.

Food manufacturers have also been grappling with rising costs for such things as fuel, packaging and ingredients, said Michael Graydon, CEO of industry group Food, Health & Consumer Products of Canada.

“Nobody is running away with a bucket of money,” he said.

Food prices continue to skyrocket across Canada, driven by import costs and weak dollar

The industry has faced criticism from politicians and consumers about its role in stoking inflation. Last week, the country’s largest grocer, Loblaw, announced that it would freeze the price of its house-brand No Name products until the end of January. The move was met with skepticism for promoting sales of the retailer’s own private-label products. (The company did not announce a similar commitment for its other house brand, President’s Choice.)

Rival grocer Metro Inc. said in a statement that it is common industry practice for retailers to refuse cost increases from suppliers at this time of year – raising questions about whether Loblaw was attempting to take extra credit for a move it would have made anyway. Loblaw denied this.

Because the bureau does not have the power to require businesses to hand over internal information and data, it cautioned in the notice on Monday that it may not be able to analyze all factors that influence grocery prices. The study is a different process from the types of investigations the bureau undertakes, such as the continuing probe into allegations of bread price-fixing in the grocery industry.

“This study is not an investigation into specific allegations of wrongdoing,” a statement from the bureau said. “If we do find evidence during this study that someone may be doing something against the law, then we will investigate and take appropriate action.”

The Competition Bureau study also coincides with an effort to establish an industry code of conduct in Canada – a process that has been under way for more than a year – which would establish rules for negotiations between grocery retailers and their suppliers.

An industry committee representing both food suppliers and retailers has been in protracted talks over the rules that should be put in place. In an interim report to federal, provincial and territorial agriculture ministers in July, the committee said it could require government to step in if an agreement cannot be reached by November.

The Competition Bureau will not focus on retailers’ purchases from suppliers “except to the extent that they may impact retail competition,” it wrote in its market study notice.