The federal government is taking aim at high food prices with sweeping changes to the Competition Act that target large grocery chains, and is threatening them with tax measures if food prices don’t stabilize.
The proposed changes to the Competition Act follow promises by Ottawa last fall to overhaul Canada’s four-decade-old competition regulations and improve affordability amid a cost-of-living crisis.
Prime Minister Justin Trudeau laid out the proposed changes in a press conference Thursday afternoon in London, Ont., and took aim at grocery chains, which have posted record earnings amid high inflation over the past year. Grocery stores are frequently criticized for having low competition and high prices.
“Businesses should be competing for your business, not unfairly profiting from it,” Mr. Trudeau said.
The first legislative amendment to the Competition Act would give the Competition Bureau the power to compel companies to provide information for market studies. Until now, the bureau has been hampered by an inability to collect complete financial information, and the independent law enforcement agency has frequently appealed for formal subpoena powers.
In an interview with The Globe after the Prime Minister’s announcement, Industry Minister François-Philippe Champagne said the Competition Bureau’s market studies of the grocery industry this summer were hampered by a lack of co-operation by companies.
“Companies did not necessarily voluntarily provide that information. This will fix that,” Mr. Champagne said.
In its June report, the bureau said the level of co-operation from grocers varied but was not fulsome, and noted that its inability to compel information “highlighted the need for formal information-gathering powers.”
A second amendment would eliminate the use of the efficiencies defence, a legal tool that allows company mergers to go forward if they create significant cost savings for the Canadian economy, even if they lessen competition, lead to job losses or reduce choice for consumers.
Mr. Champagne called the defence “outdated” and said it has been used to allow some mergers that did “nothing good for the consumer.” The efficiencies defence dates back to a 1969 report that suggested the goal of competition policy should be to defend the economy, not the public.
In the past, the efficiencies defence has been used in a handful of mergers that created monopolies, notably in the 1998 acquisition of ICG Propane Inc. by Superior Propane Inc. that created propane distribution monopolies in 16 communities across Canada.
More recently, the efficiencies defence gained broader attention during the merger trials for Rogers Communications Inc.’s RCI-B-T $20-billion acquisition of Shaw Communications Inc. While the Competition Tribunal’s decision to allow the merger, finding it would result in greater competition, did not eventually take Rogers’s efficiencies defence into consideration, the possible use of the defence drew ire from consumer advocates.
However, it doesn’t appear the defence has been used in any significant grocery chain mergers. In an April paper for Competition Policy International, Michael Caldecott, a partner at the McCarthy Tetrault law firm, wrote that the largest grocery merger of the past two decades – Sobeys Inc.’s acquisition in 2013 of Canada Safeway for $5.8-billion – was given the go-ahead by the Competition Bureau after Sobeys agreed to sell stores in certain markets. “Efficiencies were not considered, at least publicly,” he wrote.
The federal government said it would also introduce a third legislative amendment that would give the Competition Bureau more power to target “collaborations” that stifle competition in the grocery sector, in particular situations where large grocers make it difficult for smaller competitors to open shop nearby.
In the Competition Bureau’s grocery market study, it said independent grocers face several barriers to opening, including finding access to real estate since, it argued, many suitable locations are already controlled by big grocers.
In the past the Canadian Federation of Independent Grocers has warned that some food suppliers have refused to deal with small independents to focus their business instead on large grocery chains.
Keldon Bester, executive director of the Canadian Anti-Monopoly Project, called the proposed amendments “a great start to modernizing Canada’s competition laws.”
But Michael Osborne, chair of law firm Cozen O’Connor’s Canadian competition practice, said the three changes amount only to “window dressing.” He suggested the changes would do little to fix the underlying cause of price increases.
“Competition helps lower prices, but it is not a fix for inflation,” Mr. Osborne said.
In addition to the changes to the Competition Act, Mr. Trudeau said the federal government has once again summoned the leaders of Canada’s largest grocery chains to Ottawa, asking them to make a plan to lower food prices by Thanksgiving or risk facing financial consequences.
Ottawa has asked the leaders of Loblaw Companies Limited L-T, Metro Inc. MRU-T, Sobeys Inc., Costco Wholesale Canada and Walmart Canada to find a way to stabilize and lower food prices. If they can’t come to a solution, he said, the government will take further action, possibly including tax measures.
This threat to use unspecified tax measures to compel grocers to stabilize prices echoes an approach taken by France’s government earlier this year, though in that case the target was food manufacturers.
In May, French Finance Minister Bruno LeMaire threatened to impose tax measures on food producers that would claw back “profits unfairly made on the back of consumers.” Talks with industry soon followed, and in June Mr. LeMaire said the government had reached a deal with 75 food manufacturers that would bring down prices starting in July.
Food-price inflation in France has eased since, but remains high. In August, the inflation rate for food was still 11.1 per cent, nearly twice the pace of overall inflation.
When called to testify before a House of Commons committee in March, the leaders of Loblaw, Metro and Sobeys denied suggestions that grocers were profiteering from inflation, and said the majority of the price increases were the result of higher prices from suppliers.
“Any conversation that doesn’t include the vendors, whose costs make up more than 70 per cent of the price to customers, will not provide meaningful outcomes,” said Michelle Wasylyshen, spokesperson for the Retail Council of Canada, in a statement on Thursday.
The trade association suggested the government temporarily remove the carbon tax from farmers, food processors and distributors, and cancel the government’s planned plastic packaging targets.
Metro and Loblaw referred The Globe to the Retail Council of Canada’s statement.
In a statement, spokesperson Stephanie Fusco said Walmart looks forward to the opportunity to advocate for customers. “We’re doing everything we can to fight inflation and keep prices low, but we also need the government’s help. All stakeholders must do their part to control costs, from processors to suppliers to retailers.”
The Globe could not reach the other two grocers for comment.