Progress on a Canadian grocery code of conduct has stalled as two major retailers refuse to sign it, claiming it will raise prices.

The code is intended to set rules for fair dealing in negotiations between retailers and suppliers, helping level the playing field in the grocery industry.

Politicians and others have pushed back on claims the code could raise prices, saying similar codes in the United Kingdom and Australia had a stabilizing effect.

But what do those grocery rules look like, and have they led to price changes?

Although Canada’s proposed code of conduct differs from the Australian and U.K. counterparts that influenced it, there may be lessons to draw from those frameworks as public discourse about the Canadian code comes to a head.

Political pressure

Discussions about a grocery code here got underway before food inflation started to surge. But in recent months, rhetoric about the code and grocery prices have become increasingly intertwined as consumers felt the strain of higher bills.

As the planned 2024 launch of the code neared, Loblaw L-T and Walmart WMT-N said they wouldn’t sign it in its current form, arguing it could raise prices further.

Meanwhile, in hearings by a House of Commons committee studying food prices, some MPs said the code could help with food prices, claiming that’s what happened in Australia and the U.K.

“When the codes of conduct were introduced in those countries, there was actually very positive impacts on grocery store prices,” said Bloc Québécois MP Yves Perron in French at a committee meeting Dec. 7.

Michael von Massow, a food economy professor at the University of Guelph, doesn’t think Canada’s grocery code will lower prices.

In fact, he thinks it could put upward pressure on prices – but that pressure is more likely to squeeze big grocers’ margins than significantly boost costs to consumers.

“My guess is … everyone will get squeezed a bit. We'll see small price increases, but not to the degree that the big players are squeezed,” von Massow said.

The code was not created with affordability in mind, but rather economic stability for suppliers and manufacturers, said Michael Graydon, CEO of Food, Health & Consumer Products of Canada and chairman of the interim board for the code.

He, however, does believe it could help stabilize prices, saying countries with grocery codes have seen lower food inflation than others after those codes were implemented.

“It shouldn’t be the … silver bullet of affordability,” he said.

Other countries’ codes

The U.K. has had a mandatory grocery code for more than a decade, prompted by many of the same concerns that led to the creation of the Canadian version.

“The code is designed to stop retailers transferring excessive risk and unexpected cost to suppliers,” said Mark White, the U.K.’s current code adjudicator.

An investigation by the country’s Competition Commission concluded grocers’ practices negatively affected quality, innovation, investment and consumer choice, he said.

The code applies to the U.K.’s 14 biggest retailers selling groceries and has been mandatory since 2010 after an earlier, voluntary code proved ineffective, said Christine Tacon, a food chain expert and the code adjudicator until 2020. That role was introduced in 2013 and given a “pretty hefty stick,” Tacon said – the power to fine retailers by up to one per cent of their revenue.

Neither retail prices nor prices between suppliers and retailers are covered by the British code of conduct. However, White recently published a set of “golden rules” for retailers dealing with price increase requests from suppliers.

In Australia, the launch of a grocery code in 2015 was prompted by complaints about how grocers treated suppliers, said Tanya Barden, CEO of the Australian Food and Grocery Council.

The code, which has an independent reviewer, is voluntary. But once signed, it becomes legally binding – and all the major players in Australia’s heavily concentrated industry have signed on.

“One of the cornerstones of the Australian code is the requirement for the retailers to negotiate in good faith,” said Barden.

The Australian and British codes don’t cover the conduct of suppliers or many smaller retailers, but Tacon believes changing behaviours among the biggest players can have a trickle-down effect.

Mixed results

Comparing Canada’s food inflation data to numbers from other countries doesn’t paint a conclusive picture. In the years before the COVID-19 pandemic, during which Australia and the U.K. had grocery codes, each of the three countries outpaced the others at different points.

A look at food inflation by country could be seen to suggest some stabilization after the codes were implemented, but it’s difficult to peg changes in food inflation to a single factor.

In both the U.K. and Australia, annual food inflation varied widely from year to year before grocery codes were introduced – some years more than nine per cent, others below one per cent or even negative, according to data from the Organization for Economic Co-operation and Development.

After the British code was implemented, annual food inflation numbers in the U.K. appeared to stabilize somewhat, remaining below three per cent from 2014 until 2022 (and negative from 2014 to 2016).

After Australia’s code was introduced, food inflation remained below one per cent until it began to accelerate in 2019.

Regular surveys of suppliers show the U.K. and Australian codes have led to improvements in treatment by retailers.

The U.K. code benefits everyone involved, said Tacon, including consumers, who over time have access to more choice as smaller suppliers are less likely to be squeezed out of the market.

What’s next

Canada’s grocery code shares aspects of both the British and Australian models, but differs in one major way: it’s meant to cover suppliers as well as retailers, which Tacon said makes it much more complicated.

And right now, it’s not clear whether it will end up being voluntary or mandatory.

Without all the major players on board, the voluntary Canadian code won’t work, advocates and politicians say. In February, the House of Commons committee told Loblaw and Walmart that if they didn’t sign on, the committee would recommend that federal and provincial governments enshrine the code in law.

Australia’s code may not be voluntary for much longer, either. In April, a government-commissioned report recommended that the code be made mandatory.

Barden said the Australian code has been effective, though there’s room for improvement – “and it’s not a panacea for the market concentration.”

“The (grocery) code is aimed at improving trust, transparency and certainty in the negotiations between retailers and suppliers,” said Barden.

“They’re different issues.”