Dr. Sylvain Charlebois is a professor and the senior director of the Agri-Food Analytics Lab at Dalhousie University.
Consumers got a glimpse of how food supply chains work – or don’t – at the beginning of the COVID-19 pandemic. The sight of empty shelves in a grocery store is certainly a strong indicator at the retail level that something is amiss upstream.
Reasons varied from one product to the next, and one region to the next. Supply chain management is complicated, obscure and, quite frankly, a tad boring for most people. Empty shelves got many consumers interested, but only for a while. Now that things are back to normal – sort of – concerns about food procurement have faded, even if we see a spike in coronavirus cases.
During the panic-buying phase in the spring, few experts in the food industry would have predicted the unprecedented levels of vertical co-ordination and incredible support food companies offered to one another. Everyone worked for one shared purpose.
Before COVID-19, however, relations were tense between farmers, processors and grocers. The conflicts between processors and grocers were particularly brutal. Unilateral notices of fees and fines imposed by grocers against processors for late or incomplete deliveries were constant. Processors just accepted them – one notice after another. The grocers were all doing it, and it has been going on for years.
New charges that Walmart Canada recently imposed on its vendors are likely the last straw. The company announced in July that it will require more than 3,000 Canadian suppliers to finance its expansion expenses by charging them extra fees for every shipment.
Walmart argues that its strategy is about helping consumers save. In some cases, in addition to standardized fees, for items that are turning over fast, suppliers must deliver orders 100-per-cent complete on the correct date at least 75 per cent of the time during a given month. If items are late or missing, the processor will be fined 3 per cent of the value of its shipment.
Your truck is stuck in a snowstorm? Tough luck. Even early shipments will incur a fine of 3 per cent. Canada’s food processors work on very narrow margins, and the new fees could jeopardize their profitability. Of the 3,000 suppliers on Walmart’s list, some multinationals are included, but so are many small and medium-sized family owned companies that are trying to keep jobs in rural communities across the country.
Food manufacturing in Canada is dying a slow death. The sector has lost 12 jobs a day since 2012. Even though it is one of the largest sectors of the economy, things may get worse. We have seen recent successes in areas where new processing plants have been built, but failures and closings are also numerous. Many factors are contributing to the sector’s demise, but the most significant one is the ailing co-operative spirit between suppliers and grocers.
Undermining food manufacturing denies the agri-food sector a strategic foothold. Innovating and growing an economy, especially in rural communities, becomes more challenging. Recent economic studies suggest that seven jobs can be added by creating a single food manufacturing job. That ratio is unmatched by any other segment of the food supply chain. A country growing its own food is a good start, but without any processing, the country’s food security remains highly vulnerable.
Over time, consumers will pay a hefty price for their country’s inability to process its own agricultural commodities. With less processing, uncontrollable factors such as currency wars, embargoes and tariffs will threaten Canada’s food security, one way or another. Walmart and other grocers can try all they want to help shoppers save, but less procurement control will eventually lead to extremely volatile retail prices – and likely higher ones.
Make no mistake, the companies dictating how and what we eat most of the time are Canadian grocers. Processors and farmers have little say on what we eat as a country. But that may change, partly because of COVID-19. E-commerce is providing food suppliers with direct access to the consumer. Many suppliers have pivoted in recent months to do exactly that, and to avoid the oligopolistic nature of our food retailing landscape. Sysco, Gordon Foods, PepsiCo Canada, Saputo and other companies are either doing it or considering it.
Just five grocers sell 80 per cent of all the food we eat in Canada – Loblaws, Sobeys, Metro, Walmart and Costco. These are great companies with great power and authority, but protecting food manufacturing has never been a real priority for them – even though they say it is.
A more democratized supply chain would prompt food companies to share more precious information with the public about the market and where trends are going. As grocers try to get a better sense of what the post-COVID-19 market will look like, processors are also contemplating options to get to us.
Walmart charges more fees and is making life for our food manufacturers miserable because it can. Food manufacturing has no voice and is rarely given any attention by governments, starting with Ottawa. If COVID-19 failed to change anything, there is little hope.
There is, however, one solution. To counter abusive behaviour by powerful supermarket chains, we need a publicly established code of conduct for grocers.
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